EXXON Mobil was once the most valuable company in the world in 2013 by virtue of its market capitalisation of US$438bil (RM1.85 trillion). It was a global oil giant with footprints everywhere, including Malaysia.
Interestingly, Exxon Mobil belongs to the lineage of the illustrious Standard Oil, owned by legendary entrepreneur and the richest man in modern history, John D Rockefeller.
If there is a single individual which is an embodiment of the essence of monopoly, it would be none other than Rockefeller. Of course, there were Astor, Vanderbilt, Carnegie and Morgan who were equally prominent, but none could come close to Rockefeller in terms of dominance.
To put it in context, at its peak, Rockefeller controlled 90% of the oil in the whole of the United States.
This led to the historic anti-trust lawsuit brought by the US government against Rockefeller in 1911 under the Sherman Antitrust Act, causing the eventual break up of Standard Oil into 34 business entities. Chevron, Marathon and Exxon Mobil, for instance, were all part of Standard Oil.
Even as early as 1911, the big government approach relying on its machinery and power of the law to control businesses had been used for the purpose of serving the agenda of their time.
Global regulatory waves
What made me relate to this story during a colourful period of the US’ business history is the increasing regulatory wave in various economic sectors across countries globally.
While it did not start in China, the expediency and the force of the regulations imposed were something that has taken businesses and investors by surprise. It isn’t just Alibaba Group Holdings Ltd losing US$416bil (RM1.76 trillion) in market capitalisation in the span of one year that is frightening. Many other sectors such as private tutoring and after school education, casino, gaming, technology and even the entertainment industry were not spared.
The MSCI China Index, which captures 85% of the China equity universe, was down 19% as at Dec 10, 2021. The last time the MSCI China Index fell at such magnitude was back in 2018 during the start of the US-China trade war while posting its slowest gross domestic product or GDP growth.
It was also the worst performance of China’s stock market in a decade then. At present, the Hang Seng Index has fallen year-to-date 14%, closing in on the April lows of 2020 during the Covid-19 global markets selloff.
In Europe, Google recently lost its appeal against the anti-trust fine by the European Commission amounting to US$2.8bil (RM11.8bil) for giving preferential treatment to its own price-comparison shopping service over rival services.
While this fine appears exorbitant, it is not the largest. The record fine was back in 2018 when Google was slapped with a total sum of US$5.1bil (RM21.6bil) related to its Android system dominance over rivals, where it is said that Google illegally used the Android operating system to bolster the use of its search engine and other services on mobile devices.
MyCC’s role in Malaysia
Domestically, the more notable one would be the Malaysia Competition Commission (MyCC) fine on Grab Holdings Inc and its subsidiaries amounting to RM86.77mil back in 2019.
This was on the grounds that the ride-hailing company had abused its dominant position by imposing restrictive clauses on its drivers relating to third-party advertising.
While it is a far cry from the size those imposed overseas, it is nonetheless one of the larger quantums our country has seen. Then in the midst of the pandemic in September 2020, MyCC ruled that the General Insurance Association of Malaysia (Piam) and its 22 members comprising Malaysian insurance companies had infringed Section 4 of the Competition Act 2010.
This was in regards to unfair practices when applying trade discounts on automotive parts and hourly labour charges for motor vehicles repairs by workshops under the Piam-Approved Repairers Scheme or PARS between Jan 1, 2012 and Feb 17, 2017.
In view of that, MyCC imposed financial penalties on each of the insurance companies amounting to RM173mil. Furthermore, MyCC directed the members of Piam to cease such practices with immediate effect and allow future parts trade discount and hourly labour rate for the PARS workshops be determined independently.
Regulations often go against the interest of businesses and the free market operations. Interventionist policies distorts the free flow of market demand and supply.
Governments that adopt such an approach usually consider it from the perspective of the interest of the people and the welfare of society as a whole. If it is truly in the best interest of the people, then all is well and good.
However, if it is solely a populist agenda, then the economy and the people will need to pay the price in the long run. For instance, cash handouts and welfare subsidies impact the coffers of the country but do not add real value towards the economy.
They provide a one-off, feel-good factor but sacrifice potential return on investment or ROI from catalytic projects or policies which may create jobs and provide further development to the country.
Time and again, the governments around the world have shown it is never the most efficient or equitable allocator of resources. If anything, the private sector and businesses are more efficient simply because the economic forces dictate the need to do so.
Changing rules of the game
A boy, poor as a church mouse, built a life from scratch to a business empire nothing like the world has ever seen. It is a rags-to-riches tale that inspired many entrepreneurs that came after him. By the time of his death in 1937, Rockefeller’s remaining fortune, was estimated at US$1.4bil (RM5.92bil) while the US national GDP was US$92bil (RM389bil). In terms of individual wealth to the percentage of the GDP, none of the richest individuals in the world today come close.
Yet, due to the sheer dominance and ability to outmaneuver competitors in the true spirit of American capitalism, Rockefeller was painted in negative light. The truth is, American historian and journalist, Allan Nevins had this to say about Rockefeller, “We have abundant evidence that Rockefeller’s consistent policy was to offer fair terms to competitors and to buy them out, for cash, stock, or both, at fair appraisals; we have the statement of one impartial historian that Rockefeller was decidedly ‘more humane toward competitors’ than Carnegie; we have the conclusion of another that his wealth was “the least tainted of all the great fortunes of his day.”
Ultimately, the fact that Rockefeller was far too wealthy and dominant led to interventions by political forces and the judiciary in a free market. More than a century has passed, but we still see history repeating itself across business sectors in many countries around the world.
In all honesty, fair play requires one to respect the rules of the game and the rules should never be changed just because the game is going against one’s liking. I view regulation as a necessary evil if it concerns the welfare and interest of the people, but excessive regulation in a free market interrupts with economic forces which would otherwise correct the inequilibrium.
At times, lawmakers and politicians believe that by enhancing regulation, it means they are doing their job. The fact of the matter is, increased regulation creates a new set of problems which may require subsequent amendments or repeal to reverse the damage.
Unless policies are well thought out not only in terms of purpose but also repercussion, it would be best to let a laissez-faire approach prevail. Otherwise, it will eventually stifle entrepreneurship, creativity and diminish the value of hard work.
Ng Zhu Hann is the author of “Once Upon A Time In Bursa”. He is a lawyer and former chief strategist of a Fortune 500 Corp. The views expressed here are his own.