Personality Characteristics Hampering the New Economic Models

This paper is presented on

Malaysian Technical Universities International Conference on Engineering & Technology (MUiCET 2011)

click the link  here: MUICET 2011 Program Book

ABSTRACT

Malaysia is under economic reform from New Economic Policy to New Economic Model.  Unlike the previous model, The New Economic Model implicitly will lead the Malays to market based-economy. Conditioned this way, all ethnics forming 1 Malaysia will compete. Drawing on cultural approach, characteristics of South East Asian Malays   (hereafter referred to as Bumiputera) are identified which may account for selected personality characteristics being significant predictors of entrepreneurial spirit. Although numerous personality characteristics have been associated with entrepreneurs, this study is limited to; risk-taking propensity, tolerance for ambiguity, internal locus of control, innovativeness, and independence.  Generally, these characteristics are not prevalent in Malayan Bumiputera’s culture. Lack of these characteristics may hamper the effectiveness of the rhetoric of entrepreneurship, as expressed in the language of New Economic Model.

 

Keywords: entrepreneurs; risk-taking propensity; tolerance for ambiguity; internal locus of control; innovativeness; independence.

 

 INTRODUCTION

Identifying and inculcating potential entrepreneurs is one way towards finding solutions to stimulate the economy.  This particularly is useful in South East Asian economies, where the economic crisis in the late 1990s has seen rising unemployment and recession. Malaysia is studied because this country has a deep interest in developing an entrepreneurial spirit among its people in an effort to achieve the country mission to be a fully developed country in 2020. Since Malaysia’s success has deep roots in Malaysia’s history, governments and the public management scholars who seek to adopt the model need to understand both the strengths and weaknesses of administrations like Malaysia’s, and understand the character and origins of a policy that they wish to transfer.

Malaysia is a multi-racial country of about 23.27 million people (Census, 2010) consisting of the indigenous Bumiputeras (65.1 percent), Chinese (26 percent), Indians (7.7 percent) and others (1.2 percent). The  study is  particularly important for  Malayan Bumiputeras  as they were historically farmers and fishermen   with little interest  in  business, while , the immigrant Chinese and Indians in  tin mines and rubber plantation that later on become the modern economic sectors.   Malays formerly were economic laggards. There were two schools of thought; structural and cultural hypothesis, as to their economic predicament (Lim, 2001). The structural hypothesis blamed   the structural impediments erected by non-Malays (especially the colonial British and the immigrant Chinese). The cultural hypothesis proposed that Malay values were instrumental in obstructing their economic advancement.

In 1970, the Malay-led government launched New Economy Policy to eradicate poverty, especially among the Bumiputeras, and to restructure society as well as to diffuse the correlation between ethnicity and occupation. By 1990, Malays were to secure 30% (from only 4.3% in 1970) of the corporate assets as well as their proportionate share of employment in commercial activities. This policy effectively removed the structural impediments, providing the smooth way for Malays to advance into the commercial arena once dominated by non-Malays. However, when the policy expired in 1990, Malays were able to obtain only 19% of the corporate wealth instead of the targeted 30% (Kamal and Yusof, 1989). In 2000, their share further deteriorated to 16% (Strait Times).  From this point, it is obvious that structural hypothesis  has only  limited power to explain the phenomena.  Furthermore, National Economic Advisory Council (NEAC) on the New Economic Model for Malaysia (2010) stated:

Ethnic-based economic policies worked but implementation issues also created problems. The NEP has reduced poverty and substantially addressed inter-ethnic economic imbalances. However, its implementation has also increasingly and inadvertently raised the cost of doing business.

Based on previous experience, NEM very likely will emphasize the concept of equal opportunity. This way, it is time to observe the cultural hypothesis that proposes   Malay values are   instrumental in obstructing their economic advancement. Specific to this research, cultural characteristics of Malayan (hereafter referred to as Bumiputera) are identified which may account for selected personality characteristics being significant predictors of entrepreneurial spirit. Since culture affects personality (Hofstede & Mc.Crae, 2004, Rajiani, 2012), the objective of this article is to develop a model of the predictor personality characteristics that identify individuals with more versus less entrepreneurial spirit. 

Reynolds et.al (2002) find the three main obstacles to entrepreneurial activity; (1) financial support; (2) social and cultural norms that oppose the entrepreneurial spirit; and (3) inadequate or insufficient governmental policies.  Up to this point the Malaysian government has been supportive of entrepreneurship. It has taken various steps to promote the development of entrepreneurs in general (including providing conducive  economic environment, various financing and funding schemes, tax incentives, as well as business advisory centers). The government has regarded nurturing entrepreneurs as a way to facilitate and upgrade the industrial structure so as to create industries for the next generation. However a common critique is the extent of the bureaucracy or “red tape” with which entrepreneurs must contend when dealing with.  As such this article also   highlights empirical   findings on the role of government agencies readiness in adopting the concept of New Economic Model.

 

ENTREPRENEURIAL PERSONALITY THEORY

Ang and Hong (2000) proposed several factors that may influence the emergence of entrepreneurship. Economic factors, such as market incentives and capital availability, are necessary to start these ventures. In comparison with the rest of the countries in the region, Malaysia has always had a healthy banking and financial sector. While there were some concerns raised during the height of the crisis, the financial and banking sector is currently regarded as one of the healthiest in the region. The government continues to develop the financial system, implement policies to promote a robust and resilient financial system, and reduce the potential for financial instability. These efforts have been undertaken in order to ensure that the financial sector is able to remain sound and intact despite the severe consequences of the recession following the Asian economic crisis. Before capital is needed for funding   , there have to be factors that foster entrepreneurial inclination. Noneconomic factors, such as culture and psychological factors, such as achievement orientation and motivation, have been identified as encouraging entrepreneurship. As this study is on the spirit of entrepreneurship rather than the extent to which such entrepreneurial activities exist, economic factors are not discussed. Instead, noneconomic factors, such as personality   characteristics that influence entrepreneurial spirit, are examined.

Entrepreneurial spirit pertains to the entrepreneurial outlook and stance. As an entrepreneur often is defined as an individual who undertakes new, innovative, and risky ventures, entrepreneurial spirit often is referred to as the possession of such personality characteristics as risk-taking propensity (Tan, Siew, Tan, & Wong, 1995). These characteristics enable a person to be entrepreneurial (Ang and Hong, 2000).  Although numerous personality characteristics have been associated with entrepreneurs (Hornaday, 1982), the more commonly observed and cited ones are risk-taking propensity, tolerance for ambiguity, persistence, achievement orientation, internal locus of control, innovativeness, and independence (Ang and Hong, 2000).

Entrepreneurs are generally believed to take more risks than do managers because the entrepreneur actually bears the ultimate responsibility for the decision. Palich and Bagby (1995) suggested that a possible reason for the higher risk-taking behavior is because entrepreneurs tend to view business situations more positively and perceive them as “opportunities” while non entrepreneurs may see little potential in them. Therefore, they are more likely to undertake these “opportunities” compared to less entrepreneurial individuals. Among the South East Asians, risk-taking propensity is not a common characteristic. Hofstede (1980) found that South East Asians, including Malays, generally avoid uncertainty and seek assurance. Bumiputera Malayan     culture is classically uncertainty avoiding, tends to generate predictable behavior and does not tolerate breaking the rules. They suggested that  bertolak-ansur  (or tolerance ), a characteristic of many Malayan  relationships, is practiced in part to minimize risk among individuals. Mahathir (1970) emphasizes; “it is typical of the Malay to stand aside and let someone else pass.” Therefore, based on the above discussion, risk-taking propensity is a differentiating cue because it is not a common characteristic among the Malayan Bumiputera.  An individual who is willing to take risk and face uncertainty is more likely to have an entrepreneurial spirit compared to one who avoids uncertainty.

Thus, the following proposition is proposed:

Low    risk taking propensity hampers Malayan Bumiputera to be an entrepreneur.

Entrepreneurs face an uncertainty that is introduced by the dynamic business world. Besides setbacks and surprises, an entrepreneurial environment often lacks organization, structure, and order. Yet, entrepreneurs thrive in such an ambiguous existence. Therefore, entrepreneurs are said to have a higher tolerance for ambiguity and enjoy situations without structure and procedure (Begley & Boyd, 1986; Timmons, 1978; Ang and Hong, 2000). Similar to the above argument forwarded on risk-taking propensity, the low tolerance for uncertainty among Malayan Bumiputera would suggest that tolerance for ambiguity is a significant predictor of entrepreneurial spirit.

Thus, the following proposition is proposed:

Low    tolerance for ambiguity hampers Malayan Bumiputera to be an entrepreneur

Entrepreneurs also have a high internal locus of control (Timmons, 1978), believing that they can control their life’s events. Thus, when failures are encountered, they attribute them to their own actions (Brockhaus, 1982; Ang and Hong, 2000). In Malay culture, Islam constitutes the key elements in ethnic identity.  Almost all Malayan Bumiputera are Muslim and since Independence in 1957 Islam has been adopted ‘the religion of Federation.”   This way Islam permeates every aspects of life in the realm of value and behavior. As Islam teacher that divine law is immutable and absolute, (takdir) it is in a very rare occasion to find any Malayan Bumiputera opposes the absoluteness of value written in the Quran. The concept of takdir, or pre destiny, is endorsed widely. Takdir refers to the belief that fate or supernatural forces determine personal outcomes. Therefore, given Malayan Bumiputera’s general reliance on external rather than internal locus of control, it is expected individuals who prefer to have control of their own lives to be more entrepreneurial which is very rarely found among Malayan Bumiputera.

Thus, the following proposition is proposed:

External locus of control hampers Malayan Bumiputera to be an entrepreneur.

Because entrepreneurs tend to be discontented with routine and regularity, they often come up with new ideas (Bajaro, 1981) and become more innovative (Buttner & Gryskiewicz, 1993). Their indifference towards making mistakes also serves as an advantage in overcoming the creativity barrier (Adams, 1980). However, Malayan Bumiputera is not known for innovativeness. One reason is Malayan Bumiputera’s paternalistic environment. The well-defined hierarchy, with its explicit roles for each member (Hofstede, 1980), inhibits creativity and innovation. Further, face—a measure of social value—is an important concept to the Malays. The potential loss of face from failure may discourage innovativeness. Therefore, in a culture where innovativeness is not encouraged, it becomes a differentiating cue that discriminates more from less entrepreneurial spirit.

Thus, the following proposition is proposed:

Innovativeness hampers Malayan Bumiputera to be an entrepreneur

Entrepreneurs also tend to be self-reliant and independent (Bajaro, 1981). They are able to work on their own and need less social support than non-entrepreneurs. Lodge (1975) argued that an individualistic culture promotes entrepreneurship because it allows an individual to do and change whatever he wants regardless of whether these are planned, exploratory, or experimental. Further, as observed by Levenhagen and Thomas (1990), individuals become entrepreneurs because they are dedicated to certain values that are in conflict with those of their previous employer. These conflicts draw them to be independent and set up their own business.

In contrast, Malays are known to be collectivistic (Hofstede, 1980), where social bonding plays an instrumental role in many aspects of living.  Alike other collectivist South East Asian countries, business are commonly patrimonialistic, where there exists paternalism, hierarchy, responsibility, mutual obligation, family atmosphere, personalism, and protection. Hofstede (1991) studied the work-related values of employees in IBM’s subsidiaries in numerous countries and proposed that the ethnic groups of Malaysia ‘may really be culturally not so different’. This proposition was defended based on approximation data from ethnically related neighboring countries (i.e. Indonesian data is used to approximate for Malays, Singaporean data for Malaysian Chinese, and Indian data for Malaysian Indian).  This practice has been legally adopted since 1970 under the existence of affirmative action    the “New Economic Policy “. These characteristics discourage change, which impedes entrepreneurial growth. Given the relationship between independence and entrepreneurship, we expect such independence to be a predictor of entrepreneurial spirit. Thus, the following proposition is proposed:

Dependence hampers Malayan Bumiputera to be an entrepreneur.

Lack of these entrepreneurship characteristic    dated back to as Malaysia’s first prime minister, Tunku Abdul Rahman, put it: ‘The Malays have gained for themselves political power. The Chinese and Indians have won for themselves economic power. The blending of the two . . . has brought about peace and harmony’ (Case, 2002). Since ‘political power’ included the power to shape the bureaucracy, ‘the bargain’ ratified what Crouch (1996) calls: ‘The old stereotypes – Malay bureaucrats and peasants, Chinese business and trades people, Indian professionals and estate labourers.’ (McCourt & Foon, 2007).

Some observers have suggested that ethnic identity has begun to weaken or fragment (Weiss 1999; Thompson 2001; Choi 2003), leading Case (1995) in McCourt & Foon (2007) to make the intriguing suggestion that there is now room for farsighted leaders to innovate within the parameters of cultural familiarity, couching initiatives in enough palliatives that they can push cultural change along a desired direction. This is reflected in political moves to sponsor a single Malaysian identity, or Satu Malaysia and economic reform under New Economic Model. Governments will only voluntarily adopt a policy if they believe it is successful.  Although keen to trumpet Malaysia’s achievements, affirmative action   is one crucial and distinctive aspect of civil service management, the political reflection of Malaysia’s precarious ethnic mix but blamed for bureaucratic inefficiency. Under the rhetoric of  New Economic Model  government policy demands public sector to reengineer its orientation to be more customer-oriented and entrepreneurial-driven. However, Zamhury  et.al (2010)  noted that  to change traditional bureaucratic culture that has long been embedded in the culture of Malaysian civil service is not an easy task. Their finding in Malaysia governmental organizations indicates that entrepreneurial culture is statistically insignificant relative to the adoption of market orientation philosophy.

Conclusion

Since end of New Economic Policy in 1990, Malaysia has been undertaking public sector restructuring until the formulation of the concept New Economic Model.  Concerning the concept of entrepreneur government, Turner (2002) utilized a metaphor of three types of diners to illustrate this point in South East Asia Country. According to this metaphor, enthusiastic diners are represented by Singapore and Malaysia, cautious diners are represented by Philippines, Thailand and Indonesia and diners who are unfamiliar with the menu are represented by Laos, Vietnam and Cambodia. The enthusiastic diners have bureaucracies that are capable of learning and adapting from successes elsewhere.  In Malaysia context, professional attitudes and macro environment (government policy) has been ready to adopt the policy. However attention must be given to organizational leadership and entrepreneurial culture (Zamhury et.al 2010) which seem not ready yet to adopt the policy of entrepreneurial government. The cautious diners demonstrate some degree of decentralization and privatization, but with only minimal overall changes having taken place within the centralized state. The unfamiliar diners have yet to build capacity and systemic processes to initiate and sustain public sector reform.

The present study argues that Malaysia is placed between the cautious diners and the unfamiliar diners. If so, pragmatic and contextual application and adaptations of NEM are required in dealing with the menu; that is the entrepreneurial spirit of Malayan Bumiputera and   entrepreneurial culture of Malaysia governmental organizations.

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