29. Where government is the dominant institution in a country, only the government can lead in envisioning and planning the policies and support institutions and infrastructure - physical and human - for businesses to thrive in an enabling environment conducive to private sector investment and growth. Support institutions may include specialized agencies in fields such as finance, research and development, acquisition of technology, export promotion, market intelligence and human resource development, which may need government sponsorship pending the development of markets for their services.
30. Many areas of policy impact on business. Particularly important are policies on trade and liberalization, deregulation, privatization, competition, education and training, labour, investment, taxation and the environment. Unilateral decision-making by governments in these fields is a blunt instrument. Greater realism, precision and effectiveness is possible by drawing on the experience of the private sector. The business consequences of draft policies and programmes need to be explored with relevant private sector representatives. Regulatory reform, for instance, requires a partnership between government and the private sector, so that essential social objectives are met without killing the goose that lays the golden eggs (paras. 51-64 below). OECD notes a strong trend towards renewal and expansion of public consultation in regulatory development. A well-designed consultation programme can contribute to higher quality regulations, identify more effective alternatives, lower costs to business, achieve better compliance and faster regulatory responses to changing conditions (OECD 1995). On the other hand, it slows down administration and may weaken the authority of decisions (Braibant 1996).
31. In some countries the government has interacted closely with the private sector and promoted a sense of partnership in the pursuit of national goals. This has applied particularly to partnership with the business community in order to promote export-led economic growth. Partnership is promoted (a) by setting up a structure of interactive interventions - business councils, consultative committees, ad hoc committees, advisory commissions, etc. and (b) by reorienting civil servants away from dysfunctional attitudes to business (characterized by arrogance, distrust, envy) and in favour of pragmatic problem-solving towards shared goals. Stereotypes and misconceptions of business ("we work to serve the public: they work for profit") have been replaced by positive attitudes, such as Prime Minister Mahathir expressed to Malaysian civil servants: "Why shouldn't civil servants help the private sector make money? Who really pays the salaries of the civil servants ... if not the business people?"3 .At the same time, the business clamour for subsidies and tax breaks has been replaced by attitudes of self-reliance. These changes were achieved in Malaysia by sustained strong political leadership, massive training, and an administrative reform programme which proceeded in parallel.
32. The specific aims of the Malaysian, Singaporean and other governments have been to get private sector understanding and feedback on the operation of policies, rules, regulations and procedures which affect their economic performance, and suggestions for changes which are in the general interest. The main areas of interest have been business licensing, taxation, import and export procedures, physical infrastructure - all the areas which make up the enabling environment for business, which in practice are often more disabling than enabling.
33. In Malaysia, public-private interaction, in a formal sense, dates back at least to the establishment of the Industrial Advisory Council of 1979 but took off in 1983 under the banner of "Malaysia Incorporated". The country's impressive growth since then has been widely attributed to this policy. The benefits have been: (a) wider understanding of government strategies, policies and procedures, (b) private sector "voice" in the determination of strategies, policies and procedures, which in turn has promoted democratic consent, transparency in the decisions and actions of government, and market efficiency (through lower transaction costs), and (c) an appropriate balance between stability and change in government policies.
34. The process depends, as in any partnership, on the prospect of gain by all participants. Though there is frequently great stress on common goals and values, in fact business and government representatives may have differing goals and values, particularly on regulatory issues, and different perceptions of how they are to be achieved, and yet reach mutually beneficial agreements. Where panels or committees do not have agendas of interest to all participants, or where little useful change can be expected, attendance drops away. The majority of ad hoc forums in Malaysia have not continued after a couple of meetings (Chang 1996).
35. The machinery in Malaysia is extensive. There are consultative panels in most ministries and departments at Federal, State and district level. Lower level structures parallel the Federal structure, which was the first to be developed. Mostly they are created by administrative direction on the initiative of the Government, though some, such as the Industrial Advisory Council, were created by statute, and some (mainly informal) meetings are called by the private sector. Their origins and constitutions do not matter so much as their membership and agenda.
36. On the government side, the highest council, the Business Council, is led by the Prime Minister, the annual budget dialogue is led by the Minister of Finance and annual dialogues with industry by the Minister for Trade and Industry. The private sector is represented by employer associations for each of the main ethnic groups, and State-owned enterprises, while foreign investors are represented by transnational corporations. In some important fora, such as the Business Council, the media and academic institutions are also represented. Until recently, labour was not represented. This reflected the earlier lack of confidence, as in other East Asian countries, in the ability of labour unions to take a national view of issues. Labour has now been included in the partnership because its leaders have subscribed to the national leadership and ideology, and also because their participation has become more crucial in conditions of labour shortage (Chang 1996).
37. One issue is the limit to cooperation. Where the government performs a balancing role, looking after the interests of other groups (such as customers in the area of utility tariff regulation) as well as business, the relationship should be at arm's length rather than cosily cooperative. The reverse side of the partnership coin is the risk that civil servants and big business collude in their own interest at the expense of the general public, or at the expense of groups such as small and medium-sized enterprises which are left out of the mainstream of collaboration (see paras. 40-50 below). The risks of corruption, mutual favours, and "regulatory capture" are higher where the two sides come from the same socio-ethnic groups, and where social interactions such as social and sports meetings are promoted as well as strictly business interactions. Connections with the right people may be used to secure contracts, licences, import permits, etc. It should also be remembered that many of the regulatory personnel and many of the managers of the privatized State-owned enterprises were former colleagues in the same departments. This danger is recognized in Malaysia where General Orders and two circulars in 1993 have prescribed the acceptable standards of behaviour by public officials.
38. An issue which is not widely recognized is the potential conflict between government support to industry, and in particular to exporters, and the rules of the World Trade Organization. The Agreement on Subsidies and Countervailing Measures (ASCM) defines the concept of "subsidy" and establishes disciplines on the provision of subsidies. A subsidy involves a financial contribution by a government or public body, which confers a benefit. Almost all goods or services provided by a government other than general infrastructure would appear to be subsidies as defined by the ASCM. This contrasts markedly with the common practice, by all governments, of subsidizing exporters by means of tax incentives, government funding of research and development, tied official aid, export credit guarantees, commercial intelligence activities through foreign diplomatic representation, and high-profile trade missions (Economist, 1 February 1997).
39. The constraints to the development of partnerships are mainly attitudinal and organizational. The prevailing culture of government may include risk avoidance, secrecy, and suspicion (even antipathy) for the private sector. Reorientation training can displace the established culture and bridge the gap between public and private, but widespread change is a long-term process, particularly in former centrally planned command economies in which entrepreneurial activity has only recently been decriminalized. Productive interaction with the private sector may be used to reinforce responsiveness, transparency, impartiality, objectivity and accountability as major professional values of the civil service.