Voodoonomics: How successive governments impoverished Malaysians

March 15, 2018

Voodoonomics: How successive governments impoverished Malaysians

by P. Gunasegaran@www.malaysiakini.com

A QUESTION OF BUSINESS | At least two ways – both very wrong in the longer term – were used to support the export sector in Malaysia in believing that growth through exports was the right thing for a developing country like Malaysia.

Even though there was economic growth, which means more wealth was created, there was impoverishment too. But how could that be? Basically, those who were rich got richer and those who were poor got poorer.

How did the government achieve export competitiveness over the years? Through two measures. First, they reduced the number of things Malaysians generally could buy by opting for a policy which weakened the ringgit. And two, they imported poverty by allowing the uncontrolled import of cheap labour.

Both improved Malaysia’s competitiveness not by raising productivity, although there was some of that, but by cutting down the cost of labour through the import of cheap labour (imported poverty) and lowering the relative value of the currency or currency depreciation, effectively lowering costs in US dollars.

Let’s look at these measures in turn.

1. Currency Depreciation

The ringgit fell in value from around as strong as around RM2.2 to the US dollar in 1980 to around RM4.0 now. The US dollar appreciated by over 80% during the period and the ringgit lost over four-tenths of its value relative to the US dollar.

Consider what that does: if an imported food item cost US$1, it was RM2.2 in 1980. But it rises to RM4 now, an increase of some 82%. But consider it now from the exporter’s perspective: If he sells something for US$1 overseas now, he gets RM4 versus RM2.2 then, again 82% more.

Unless he shares this benefit equitably with the worker – and in practice, he does not – a depreciated currency is a subsidy to exporters and a tax on workers because everyone depends on imported goods and even services for a good part of what they consume. Think in terms of food, clothing and buying from foreign chains.

While a depreciated currency improves the appearance of export figures in ringgit terms, it is still not a long-term solution for the betterment of people because it directly impoverishes a major part of the public by reducing their purchasing power – the amount they can buy with the ringgit.

2. Importing poverty through cheap foreign labour

The next major stupid move successive governments did was to import cheap labour from overseas. Until today, this is largely from Indonesia, Philippines, Bangladesh and India.

In the 1980s, this happened in the plantations affecting mainly Indian Malaysians who were displaced from the estates due to cheap Indonesian legal and illegal labour. Soon, this imported cheap labour spread into all areas, heavily depressing labour wages, affecting all Malaysian labour including Malays.

Was wealth ever created?

How terribly short-sighted! While developed countries were importing skilled and white-collar workers from developing countries, Malaysia, still very much a developing country then (and still is despite what others say), was importing cheap labour from other countries, depressing wages of a large section – probably as much as 50% – of its own workforce.

What kind of a madness was this that at the same time inhibited improved productivity by opening the tap to cheap labour and delayed the invention and adoption of new processes to reduce labour input while improving productivity per person through training and automation?

Till this day, when employers complain of labour shortage, it irritates one to see imported labour at car parks, for instance, being used to hand out parking tickets even after the process has been automated at the entry points.

Drive further in and you see others directing traffic and blowing loudly on whistles. The price of labour is so cheap that imported labour is used for such menial tasks. Are Malaysians so illiterate that they can’t read and follow signs?

As if the whole situation is not ridiculous enough, government officials and ministers regularly regurgitate garbage by saying that labour imports are necessary because Malaysians do not want to do these jobs. Pay them enough and Malaysians will do the job. Perhaps the ministers should send their daughters and sons to do this kind of work for a pittance.

And as many millions of workers are imported, a thriving business sanctioned by the government sprouts up living off the blood and sweat of workers and exploiting employers by making both parties pay ridiculous amounts for legal import, driving them towards employing illegal workers.

One may ask, what then is the alternative? If you want a broad section of the public to get richer and more affluent, the only way is to create wealth for everyone.

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That means improving the overall productivity or output per person so that he or she deserves a higher wage. Not by creating wealth for some and impoverishing most via currency depreciation and depressing wages.

Ah, yes but how do you do that? There is only the hard way. First, improve the quality of education for all and focus on the right kind of education which will make people employable.

Next promote the kind of industries which will increase the dollar value of output per person and ensure that productivity gains drive wealth creation, not cost-cutting.

Third, ensure that as much as possible of the resources go towards improving educational opportunities and building the necessary infrastructure for continuing productivity improvements with as little leakage as possible.

How much of this has been done since independence? Little.

The frightening part

According to Khazanah Research Institute’s (KRI) ‘State of Household Report’ dated November 2014 and Employees Provident Fund (EPF) data on individual incomes which includes salary or wages, overtime payments and bonus in 2013:

  • 96 percent of active EPF members earned less than RM6,000 a month
  • 85 percent less than RM4,000
  • 62 percent less than RM2,000

That’s a telling figure – 62 percent of workers earn less than RM2,000 a month. How can many of them live comfortably with such an income, especially when they have children to support?

Meantime, the median monthly salaries and wages per month for individuals was RM1,700 in 2013 (see chart below). That means half of all workers get this much or less, KRI explains.

And what does an illegal Indonesian worker earn in a month these days? In March, there are 27 working days including Saturdays on which they typically work as well. Industry employers say Indonesian illegal workers cost RM70 a day, casual, that means not contracted. Multiply that figure by 27, we get RM1,890 for the month of March.

Now, the frightening part is that this is more than the RM1,700 median salary for Malaysia which means that 50% of Malaysians earn less than casual Indonesian workers!

Clearly, the majority of the country lives in poverty. Income gains for the wage-earner have not gone up enough. And for a country like Malaysia with abundant resources and which once had the highest income in Asia after Japan, that reflects a failure of government.

If one needs an example of successful economic development, you just need to look across the Causeway which started pretty much from where Malaysia did and look where it is now with the adoption of the right policy mix coupled with an incorruptible government.

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The currency–the Singapore Dollar– is now valued at three times Malaysia’s against about parity in 1980 and its per capita income is among the highest in the world.

We are not saying that Singapore is the perfect state but in terms of economic development, they have beaten us by far and continue to do so.

P GUNASEGARAM still hopes that sometime in the future (perhaps soon?) there will be a government not only of the people but for the people. E-mail him at t.p.guna@gmail.com

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

Why There Is No “Beijing Consensus”

March 1, 2018

Why There Is No “Beijing Consensus”

 by Andrew Sheng and Xiao Geng


China observers can’t seem to agree on the underlying logic of the country’s development model. But, with faith in the West’s long-dominant Washington Consensus breaking down, both sides may be in a similar position – a reality that could facilitate cooperation to deliver global public goods.


HONG KONG – Four decades would seem to be plenty of time to identify the underlying logic of China’s development model. Yet, 40 years after Deng Xiaoping initiated the country’s “reform and opening up,” a “Beijing Consensus” – that is, a Chinese rival to the Western neoliberal Washington Consensus – has yet to be articulated.

Over the years, China has worked to transform its closed, planned economy into a more open, market-based system. Industry and, increasingly, services have replaced agriculture as the main drivers of growth, and the country has gone from technological copycat to global innovator. Meanwhile, China has tackled several difficult challenges, from excessive debt and overcapacity to severe pollution and official corruption.

This has been a highly complex process. According to China Academy of Social Sciences economist Cai Fang, it can be understood only in the context of the country’s unique history, demography, and geography, not to mention broader technological and global trends. All of these factors have, after all, helped to shape China’s governance and institutions.

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Yet the veteran China watcher Bill Overholt – one of the first to predict China’s rise – argues in his latest book, China’s Crisis of Success, that the country’s reforms were driven by “fear and simplicity.” The same factors, he asserts, drove East Asia’s post-1945 development.

Other observers – including the World Bank, the OECD, and think tanks like Harvard’s Fairbank Center for China studies – can’t seem to agree on who is right. They are not accustomed to assessing an economy whose primary influences – including historical legacies, values and ideologies, and institutional and governance traditions – differ so profoundly from those of the West.

Consider governance. Western economic dogma holds that the state should intervene in markets as little as possible. Yet, for China’s leaders, it is not clear whether the state can even be separated, conceptually or operationally, from the market.

For thousands of years, state control was China’s default governance strategy, with a strong central government overseeing stability and preventing regional and factional rivalries from causing chaos. So when China wanted to increase its leaders’ accountability, for example, it focused not on creating a market-based, much less democratic, system, but rather on introducing regulations to curb abuses of power and facilitate the flow of products, capital, people, and information.

Within the constraints of this paternalistic approach, the experimentation and adaptation that have been so crucial to China’s growth had to be carried out by local governments, which have enjoyed considerable, albeit uncertain, authority to do so. The idea was that, by using local-government (and market) expertise, China could generate growth without disturbing social cohesion or compromising national integrity.

Yet Chinese governance has not exactly been beyond reproach. When it comes to the quality of market competition, questions about the state sector’s dominance, as well as the effectiveness of regulations and adherence to international laws, standards, and practices, have persisted. And while China’s government has proved adept at providing “hard” infrastructure, such as highways, railroads, and airports, it has far to go in developing soft infrastructure, such as that related to education, health care, energy, the environment, and finance.

So China continues to grapple with the question of how to balance the state and the market, in order to ensure accountability, market competition, and adequate provision of public goods for one-fifth of the world’s population. Compounding the challenge are rapid technological change, globalization (and the backlash against it), and geopolitical considerations.

But it is not as if the West has proved definitively that its free-market approach works. The state’s role – measured according to the public sector’s share of GDP, for example, and the depth and complexity of laws governing private activities – has been expanding in almost every economy since the beginning of the twentieth century.

The United States, in particular, provides a useful benchmark. Like China, it is a continental economy. But it also represents the global gold standard in many fields, including technology, defense, and research and development.

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Contrary to China’s statist legacy, America’s historical experience has instilled in citizens and leaders a devotion to liberty, including free markets, and local autonomy. The US federal government’s size and power grew only very slowly until the 1930s, when the New Deal – which included federal programs, public works projects, and financial reforms and regulations – was implemented in response to the Great Depression.

The US federal government expanded again during and after WWII, reflecting the country’s new global hegemony and the prosperity of its middle class (created in no small part by the New Deal’s support for unionization and home ownership). The government assumed a larger role in areas ranging from defense and foreign policy to health care and social security.

But even as the federal government increased regulation in some areas, the US remained highly reliant on the market, resulting in rising inequality, the deterioration of public infrastructure, and an unsustainable fiscal deficit and debt. The global recession triggered by the 2008 financial crisis intensified growing doubts about the Washington Consensus.

So some of America’s most fundamental challenges – such as reducing inequality, supporting stable fiscal and financial conditions, and ensuring environmental sustainability – are the same as China’s, and neither country has a clear and proven “consensus” to guide it. Against this background, cooperation to deliver global public goods – including peace – should be possible.

The key is for the two sides to work toward common goals, while agreeing to disagree on certain ideological tenets. Here, the US needs to recognize that global cooperation is not a zero-sum game, and that China’s rise need not be viewed as a threat. On the contrary, China – along with other emerging economies, such as India – can contribute to a global rebalancing that actually strengthens economic and geopolitical stability.

Andrew Sheng, Distinguished Fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance, is a former chairman of the Hong Kong Securities and Futures Commission, and is currently an Adjunct Professor at Tsinghua University in Beijing. His latest book is From Asian to Global Financial Crisis.

Xiao Geng

Xiao Geng

Wealth Concentration Continues to Increase

January 23, 2018

Wealth Concentration Continues to Increase


SYDNEY and KUALA LUMPUR, January 23, 2018 (IPS) – As the ‘masters of the universe’ gather for their annual retreat at Davos, the World Economic Forum (WEF) has just published its Inclusive Development Index (IDI) for the second time.

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After moderating from the 1920s until the 1970s, inequality has grown with a vengeance from the 1980s as neoliberal ascendance unleashing regressive reforms on various fronts.

Sensing the growing outrage at earlier neo-liberal reforms and their consequences, as well as the financial sector bail-outs and fiscal austerity after the 2008-2009 global financial crisis, politicians and business leaders have expressed concerns about inequality’s resurgence.

The record is more nuanced. While national level inequalities have grown in most economies over the last four decades, international income disparities between North and South have actually narrowed, largely due to growth accelerations in much of the latter.

But while income inequality trends have been mixed, wealth concentration has picked up steam, recently enabled by the low cost of credit, thanks to ‘unconventional monetary policies’ in the North.

According to the World Inequality Report 2018, the top 1% in the world had twice as much income growth as the bottom half since 1980. Meanwhile, income growth has been sluggish or even flat for those with incomes between the bottom half and the top 1%. Oxfam’s new Reward Work, Not Wealth report reveals that the world’s wealthiest 1% got 82% of the wealth generated in 2017, while the bottom 50% saw no increase at all!

The world’s 500 richest, according to Bloomberg Billionaires Index, became US$1 trillion richer during 2017, “more than four times” the gain in 2016, as their wealth increased by 23%, taking their combined fortunes to US$5.3 trillion. According to the UBS/PwC Billionaires Report 2017, there are now 1,542 US dollar billionaires in the world, after 145 more joined their ranks in 2016.

Worsening wealth inequality

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Meanwhile, the latest Credit Suisse Report found that the world’s richest 1% increased their share of total wealth from 42.5% at the height of the 2008-2009 global financial crisis to 50.1% in 2017, or US$140 trillion.

It shows that the bottom half together owned less than 1% of global wealth, while the richest 10% owned 88% of all wealth, and the top 1% alone accounted for half of all assets. Thus, global household debt rose by nearly 5% in 2017 despite total wealth increasing by US$16.7 trillion, or 6.4%.

The Report attributes this to uneven asset price inflation with financial asset prices growing much faster than non-financial asset values. Recent unconventional monetary policies of the world’s major central banks contributed to such asset price inflation.

The European Central Bank has acknowledged that quantitative easing (QE) has fuelled asset price inflation. Kevin Warsh, a former US Federal Reserve Board member, has argued that QE has only worked through the ‘asset price channel’, enriching those who own financial assets, not the 96% who mainly rely on income from labour.

An IMF study found that ‘fiscal consolidation’, typically involving austerity, has significantly worsened inequality, depressed labour income shares and increased long-term unemployment.

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MOZAMBIQUE, Beira, Grande Hotel, opened 1955 during portuguese colonial time, today some thousand homeless people living here.

Another IMF research report shows that capital account liberalization — typically recommended to attract foreign capital inflows without due attention to the consequences of sudden outflows — has generally significantly and persistently increased national-level inequalities.

The World Inequality Report 2018 also observed that rising income inequality has largely been driven by unequal wealth ownership. Privatization in most countries since the 1980s has resulted in negative ‘public wealth’ — public assets minus public debt — in rich countries, even as national wealth has grown substantially. Over recent decades, countries have become richer as governments have become poorer, constraining governments’ ability to address inequality by increasing public provisioning of essential services.

An earlier IMF study also noted that the neoliberal reforms — promoting privatization, cutting government spending, and strictly limiting fiscal deficits and government debt — have also increased economic inequality.

On average, net private wealth in most rich countries rose from 200–350% of national income in 1970 to 400-700% recently as marginal tax rates for the rich and super-rich have fallen. The Oxfam report identifies tax evasion, corporate capture of public policy, erosion of workers’ rights and cost cutting as major contributors to widening inequalities.

The IMF’s recent Fiscal Monitor acknowledges that regressive tax reforms have caused tax incidence to be far less progressive, if not regressive, while failure to tax the rich more has increased inequality. Besides new tax evasion opportunities and much lower marginal income tax rates, capital gains are hardly taxed, encouraging top executives to pay themselves with stock options.


It is quite remarkable how increasing wealth concentration has been described and presented to the public. For example, the Allianz Global Wealth Report 2016 has described the trends as ‘inclusive inequality’, claiming a growing global middle class even as inequality has been rising.

Similarly, the Credit Suisse Report argues that wealth distribution is shifting as the world becomes wealthier, thus lowering barriers to wealth acquisition. Increasing wealth and income inequality are thus merely reflecting faster asset accumulation, including the pace at which new millionaires are being created.

Josef Stadler, UBS head of global ultra-high net worth and lead author of the UBS/PwC Billionaires Report 2017, decries “the perception that billionaires make money for themselves at the expense of the wider population” as incorrect, attributing billionaires’ fortunes to the strong performance of their companies and investments.

Besides their philanthropic contributions and patronage of the arts, culture and sports, 98% of billionaires’ wealth are said by him to contribute to society as the world’s super-rich employed 27.7 million people. Rather than making money from their employees’ efforts, billionaires apparently make private welfare payments to them out of the goodness of their hearts!



Ownership and Control in 21st century Malaysia

January 17, 2018

Ownership and Control in 21st century Malaysia

by Charles Brophy


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In a series of public lectures beginning in 2016, Professor Terence Gomez began to distil the findings of his latest research into corporate governance in Malaysia. The first finding was a marked reduction in the holding of private directorships by members of the ruling Barisan Nasional coalition. The second was a major growth in the influence and power of Government Linked Companies (GLCs; individual state-owned enterprises) and Government Linked Investment Companies (GLICs; state-owned investment vehicles) over the Malaysian economy.

What such findings did was to challenge typical understandings of “money politics”, and the relationship between politics and business, in Malaysia. The data pointed not towards the direct influence of the political class over private enterprise, but rather a growing centralisation of economic and political power in the Office of the Prime Minister and the Minister of Finance (an office which is today held concurrently), and the influence of the state over the economy through the GLCs and seven large GLICs. The resulting book, Minister of Finance Incorporated: Ownership and Control of Corporate Malaysia, written alongside Gomez’s team of research assistants, has brought into the spotlight not only problems of political centralisation and GLC/GLIC governance reform, but also the effect of the very structure of the Malaysian economy on the country’s continuing prospects for development. (Disclosure: the author works for Gerakbudaya, the Malaysia/Singapore publisher of Prof Gomez’s book, but writes here in a personal capacity.)

Malaysia’s state developmentalism

Many of the GLICs have their origins in the period from the 1950s to the 1970s, and during this time came to play an important role in the project of state developmentalism. Gomez, however, marks the Asian Financial Crisis—and the political and economic crisis it produced—as a crucial moment in the emergence of GLCs and GLICs. With highly indebted, “too-big-to-fail” companies in the private sector bankrupted by the crisis, GLICs were mobilised by the government to bail them out. After Anwar Ibrahim’s failed challenge to the leadership of Prime Minister Mahathir Mohamad, GLICs were mobilised to appropriate the businesses of Anwar’s cronies.

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The growth of GLICs was then a means to resolve the contradictions and limitations of the political and economic development that arose under Mahathir. This was to continue during the fallout of the conflict between Mahathir and Daim Zainuddin—which saw the assets of Daim’s allies and proxies transferred to GLICs—and a program of bank consolidation which, in the name of rationalisation, drastically increased the role of government in the banking sector.

The growing importance of the GLICs to economic development seen in the attention paid to them by Malaysia’s next two prime ministers. Under Abdullah Badawi the GLC Transformation Programme was launched. It sought to have GLCs operate on a more commercial basis, divesting from non-core investments, offering higher dividend returns, cooperating more with the private sector, and internationalising their operations. Just as significantly, through the emphasis on the vendor system, they were to help link up Malaysia’s large SME sector with local and foreign supply chains.

When Najib came to power with his transformation agenda, he noted the way in which rent seeking and patronage was harming the economy. Through the New Economic Model he called for the reduction in the role of the state in business, an overhaul of the system of race-based affirmative action, and the reform and privatisation of GLCs. Nevertheless, pushback from prominent politicians such as Mahathir and right-wing Malay NGOs led to a reversal of this policy. By 2013, Najib had unveiled the Bumiputera Economic Empowerment (BEE) policy which, against the prescriptions of the New Economic Model, mobilised GLCs to promote “market friendly affirmative action” through the Bumiputera Vendor Development Programme. From 2009 onwards, Najib would increasingly tap GLCs to generate growth and infrastructure development, as well as to draw investments from foreign State Owned Enterprises (SOEs), particularly from China, which saw the state come to play an increasingly dominant role in the economy.

This about turn was more than anything rooted in the political legacy of the New Economic Policy, with its twin-pronged focus on state intervention to correct race-based distributional inequalities and to promote continuous economic development.

Ownership and control

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When James Puthucheary, from his cell in Changi Prison, embarked on his investigation into the structure and organisation of the Malayan economy, it was to the twin problems of ownership and control that he turned. Defined, he argued, by an uneven and unequal model of colonial development, the central economic problem of Malaya was not the role played by the Chinese middleman but the domination of foreign clearing houses and foreign capital over key areas of economic life. This structure was, he said, central to understanding the exploitation of the peasant as well as the limitations on the future development of the Malayan economy. To overcome this, Puthucheary would argue for a program of state intervention in the economy to mobilise the state to overcome existing inequalities and unevenness and to transform the dominant model of ownership and control.

Post-1969, intervention occurred under the New Economic Policy, but without reaching a fundamental resolution to the uneven patterns of ownership and control. While foreign ownership of the economy was reduced, this was largely undertaken without radically affecting major foreign interests in the economy. Malaysia’s development was to continue to depend heavily on foreign direct investment rather than domestic capital, ensuring that, unlike South Korea and Taiwan, Malaysia wasn’t to nurture domestic giants such as Samsung or Foxconn. Rather, the state, in alliance with wealthy tycoons, was to play an increasing role in the economy, maintaining a centralisation and inequality of assets and wealth, both through systems of selective privatisation and later through the GLCs.

More recently, one of the findings of Gomez’s research is the resurgence of foreign ownership in the Malaysian economy, with companies such as Digi, Nestlé, and British American Tobacco leading the list of Malaysian companies by market capitalisation, highlighting the continuing dependence and openness of the Malaysian economy. Meanwhile, in the realm of rural development, the focus was not on major land redistribution—which kickstarted economic miracles in South Korea and Taiwan—but more selective land distribution through FELDA and rural development schemes.

Central to Puthucheary’s analysis of ownership and control was the problem of national development, both in terms of the development of a nation out of the various races of Malaya and the mobilisation of the economy for the development and prosperity of such a nation. In similar terms, central to the critique of Gomez and others of the NEP has been its inability to promote such a meaningful and broad-based national development. Gomez’s research into relations between politics and business has been highly critical of the role of selective privatisation and bumiputera equity quotas in the promotion of money politics at the expense of meaningful economic development.

In a 2005 report, Gomez, alongside Lim Teck Ghee, was also to note how the focus on bumiputera equity had ignored the problem of the broad-based development of the Malay community and the growth of the country’s SMEs. He noted how within the SME sphere successful multi-ethnic business relations were being fostered outside of the scope of the NEP. In his latest book, Gomez has highlighted the role played by the concentration of economic control in the Ministry of Finance in disincentivising industrial growth and investment for fear of expropriation of business by the state—evidenced, he argues, by Malaysia’s premature deindustrialisation, and the growing dominance of the service sector within the Malaysian economy.

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Here the problem of the middle-income trap emerges as central to the contemporary pattern of ownership and control as outlined by Gomez—and thus the problem of the inner limits of modes of development, as proposed by Puthucheary, becomes restated. Today, can a political economy model defined by high levels of centralisation, and dominated by the interests of GLICs, provide the kind of broad-based economic development that can move Malaysia, and bangsa Malaysia, towards high-income status? Or is a new model of ownership and control required?

The new developmentalism in Southeast Asia

In an earlier co-edited volume, Government-Linked Companies and Sustainable, Equitable Development, Gomez and other scholars highlighted the growing importance of GLCs and SOEs in the aftermath of the 2008 economic crisis in challenging liberal capitalist understandings of economic development. Taking a broader view, Joshua Kurtlantzick has highlighted the contemporary resurgence of state capitalism within global political economy. Fundamental to this has been the growing importance of SOEs, from Petrobras in Brazil to Gazprom in Russia or Deutsche Bahn in Germany.

This tendency is becoming increasingly evident in Southeast Asia’s contemporary political economy.

In Indonesia, SOEs have formed the centrepiece of Joko Widodo’s developmental agenda, being mobilised to fill the gaps in the development of major infrastructure projects, where the private sector has been reluctant to invest in high-risk or capital intensive projects, while busying itself with rent-seeking behaviour. More recently, Danang Widoyoko has read the fall of former Jakarta governor Ahok as a struggle between Ahok’s SOE-centric development agenda—evident in the major land clearance projects in Jakarta—and politically-connected private interests who came to resent the increased role of SOEs in key economic sectors. The struggle in Jakarta was thus, on Widoyoko’s reading, a struggle between two factions of capital: state, and crony.

In the Philippines, Rodrigo Duterte has begun to pursue a similarly ambitious development agenda, headlined by massive infrastructure plans, under his “Build, Build, Build” program. Similar to the case of Indonesia, in the face of private sector inertia in infrastructure development the state has moved in to directly finance and organise such infrastructure projects both through the mobilisation of SOEs as well as through the promotion of public-private partnerships. The emphasis in the Philippines, however, is on the public sector’s leading projects through “Hybrid PPPs”, with projects then subsequently bid out to the private sector. Such a program relies heavily on Chinese official development assistance, with Duterte keen to see the Philippines integrated into China’s Belt and Road initiative.

In Thailand, control and reform of SOEs has been a point of struggle between the military and the followers of Thaksin Shinawatra. SOE reform has emerged as an important plank of junta policy, led by an attempt to form a strategic holding company capable of managing SOEs, similar to Singapore’s Temasek or Malaysia’s Khazanah. More recently, in response to a slowdown in the Thai economy, the government has ramped up spending through SOEs, in particular through a new series of infrastructure projects with the aim of boosting growth.

Yet this trend does not represent the re-emergence of a postcolonial developmental state, of the kind Puthucheary and his contemporaries examined. Instead, a new model is emerging, one which tends to blur the difference between the state and market, led by the growing importance of substantially commercialised GLCs, GLICs and SOEs.


If in the 1980s the emergence of “state corporatism”—with concepts such as Malaysia Incorporated—saw close cooperation between the corporate sector and the state, the growing importance of GLCs and GLICs has increasingly promoted parts of the state which do themselves function as corporate entities.  Such arrangements allow the state to assume the organisational effectiveness of the market-driven corporate organisation, in combination with the executive authority of the state and offering governments the ability to both financialise assets and render debts “off the books”.

Such strategies are not only economically useful, but also relevant in electoral terms in Southeast Asia. In the context of Indonesia, Eve Warburton has talked of the emergence of a new developmentalism, which places a developmental nationalism at the heart of the political arena—not dissimilar to the effect of Dutertenomics in the Philippines. In the Malaysian context Bridget Welsh has talked of a commercialisation of electoral politics, highlighting the importance of financial transactions emanating from the state and big business in the accrual of electoral support.

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In both of these forms, GLCs and GLICs have emerged as central to electoral politics. In the case of Malaysia they have formed the direct vehicles through which the government can raise (or launder) campaign finances, and provide electoral groups with patronage resources during election periods. More generally, they have become vehicles to fill the gap created by the demise of the classic developmental state, exemplified by the establishment of GLC foundations from Yayasan 1MDB, to Yayasan Rakyat 1Malaysia and Yayasan Hasanah, and through the practice of corporate social responsibility. In the same way, GLCs are increasingly used as vehicles for policies of affirmative action or “sustainable” and “inclusive” development.

Alternative visions

This process does not continue uncontested. In Malaysia, a debate is emerging regarding the role played by GLCs and GLICs, and around the role of the state in the corporate sector. The liberal Institute for Democracy and Economic Affairs (IDEAS) has called for government divestment from GLCs, particularly highlighting the tendencies for GLCs to crowd out private sector investment (to which one prominent GLIC responded at length). The G25, a group of Malay thought leaders, has called in a new report for a review of the economic efficacy and impact of GLCs and GLICs, urging the privatisation of non-strategic GLCs and the regulation of existing GLCs to turn them into a catalyst of private sector growth.

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Political contestation has also emerged within UMNO over the management of GLICs. Members of Najib’s inner circle and UMNO Youth executive council member Rahman Hussin have accused Khazanah Nasional of underperformance resulting in low dividend returns and a lack of reinvestment into the Malaysian economy. This comes at a time when Khazanah prepares for a change of top management in 2019 amid calls for a new strategic direction.

The opposition coalition Pakatan Harapan used its 2018 Alternative Budget to note the contemporary problem of premature deindustrialisation, and argued for an industrialisation policy driven by SMEs. A key component of this is the privatisation of GLCs, to produce a more level playing field for private enterprise. To this end, Pakatan Harapan proposes to promote a better environment for FDI as well as incentivising domestic direct investments through tax cuts. Yet whether or not this will remain possible, and whether or not it would lapse into FDI-driven privatisation and liberalisation, remains an important question.


For his part, Gomez has noted the ability of GLCs to perform well and contribute towards economic growth. Yet he remains a critic of their centralised political control, and of their use as mechanisms for race-based affirmative action by a predatory state. Such a dichotomy is also applicable to many developing states: while SOEs can help resolve some of the contradictions of economic liberalisation and privatisation, and can act as engines for growth, their ability to act as engines of economic transformation—raising states up the economic value chain—remains more doubtful, as does their ability to produce broad-based and inclusive economic development.

Today this realisation is itself at the centre of ongoing processes of reform within the developmental state. Yet such projects of reform have been undertaken within the context of self-imposed limits, guaranteeing such reforms remain largely conservative: the resurgence of the developmental state in its contemporary form does not imply a substantial redistribution of economic power, let alone its democratisation.

The political power of labour has continuously been suppressed through a curtailment of labour organisation. Welfare policy has been restricted to hardcore poverty alleviation largely through micro-credit schemes and cash transfers, as against more robust responses to marketplace disadvantage. In the area of investment, the emphasis upon fiscal restraint and debt management has meant not only a lack of industrial investment programs, but also a lack of meaningful investment in education and skills, particularly through higher education reform. Similarly, while the rationalisation of the state apparatus has been a central theme for many governments, a more meaningful redistribution of public funds towards development and away from traditional power centres, such as the security sector or bureaucracy, has been ignored. Most importantly, the question of inequality has been constrained to the arena of populist politics, leaving the economic and political problems of unequal distributions of wealth, income, and opportunity unresolved. In short, the “revolution from above” has been particularly wary of any “revolution from below”.

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This program of limited reformism has reproduced a limited model of development, one which a growing source of discontent. On the one hand a politician such as Rodrigo Duterte has been able to rise to power on an impatience with the outcomes of state-led reform, while on the other hand there has emerged a growing politicisation of current models of development in the form of growing labour activism, popular protests (such as those in Malaysia against GST and the TPP), as well the growth of political movements that place at the centre of their politics problems of labour, welfare, investment, state reform, and inequality.

What is needed today is a critique of contemporary processes of reform capable of exposing their limitations and contradictions, and which therefore lays the groundwork for a politics of development that brings into question contemporary patterns of ownership and control, and their effect on development. Terence Gomez’s critique of government–business ties in Malaysia’s current model of development, and their relationship to the rise of GLCs and GLICs, marks a particularly important step in this direction.



Politics and the Changing Face of Corporate Malaysia

January 3, 2018

Politics and the Changing Face of Corporate Malaysia

by Chua Su-Ann



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Dr. Edmund Terence Gomez and Dr. Jomo Kwame Sundaram

THE face of Corporate Malaysia has changed many times over the decades and it is not driven by pure market forces. Instead, it is inextricably linked to state intervention in the economy and politics, says Universiti Malaya’s Prof. Dr. Edmund Terence Gomez.

“The nature of state intervention in the economy is very much driven by the politics of the country,” Gomez says at a lecture at Monash University Malaysia in Bandar Sunway, Selangor.

His lecture illustrated the scale and implication of the nexus between politics and business. These are among the findings that will appear in his book Minister of Finance Inc: Ownership and Control of Corporate Malaysia.

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From Gomez’s research, there are several defining moments that are inextricably linked to Malaysia’s politics and history.

“Many of the outcomes we see today have been shaped by who was the prime minister at particular moments in Malaysian history,” says Gomez.

The first defining moment, according to him, was in 1970 when the New Economic Policy (NEP) was introduced by then Prime Minister Tun Abdul Razak Hussein (dec 1976) to fight poverty and redistribute wealth more equitably. It was then that the government decided to cast away its laissez-faire policy and actively intervene in the corporate sector.

“The NEP was a policy that the country needed. It involves state intervention to rectify the problems that had occurred under colonial rule where the bypassing of Malays in business was a key problem,” says Gomez.

According to his analysis of the most valuable companies in 1971, the key players in the economy were foreign-owned firms and family businesses — owned mostly by the Chinese — which controlled 61% and 23% of the economy respectively.

It was in the 1970s that the state intervened by creating well-funded public enterprises that went out and acquired the assets of foreign companies.

The next turning point came in 1981, when Tun Dr Mahathir Mohamad became Prime Minister.

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Malaysia’s Father of Crony Capitalism

“He decided that the purpose of the NEP was to create bumiputera capitalists or bumiputera businessmen, not GLCs (government-linked companies). The [NEP’s] emphasis on education diminished and its focus moved to business,” says Gomez.

This is notwithstanding the fact that the most valuable companies in 1997 were still government controlled, including Telekom Malaysia Bhd, Tenaga Nasional Bhd, Malayan Banking Bhd and Petronas Gas Bhd, all in the top four.

But it marked the start of an era where many public enterprises were privatised in order to help create a class of bumiputera capitalists.

Gomez’s analysis of the top 30 most valuable Malaysian companies in 1997 shows that prominent businessmen controlled 11 of the top 30 firms. They included Tan Sri Halim Saad (United Engineers Malaysia Bhd, Renong Bhd), Tan Sri Tajudin Ramli (TR Industries Bhd, Malaysian Airline System Bhd), Tan Sri Rashid Hussain (Development and Commercial Bank Bhd), Tan Sri Yahaya Ahmad (Edaran Otomobil Nasional Bhd, Perusahaan Otomobil Nasional Bhd, Heavy Industries Corp of Malaysia Bhd) and Tan Sri Azman Hashim (AMMB Holdings Bhd).

Then came the 1997 Asian financial crisis, another turning point. “The financial crisis came and all this fell apart. We see the move from private businesses to GLCs coming to the fore and taking control,” says Gomez.

Analysis of the most valuable companies in 2001, after the financial crisis was over, shows the fall of the bumiputera capitalist class. Among the top 30 most valuable firms, Rashid’s RHB Capital comes in at No 14 and Azman’s AMMB Holdings clocked in at 23rd.

Similarly, in 2013, the year of the last general election, the only two bumiputera-controlled companies in the top 30 list were SapuraKencana Petroleum Bhd (controlled by the Shamsudin family) and Azman’s AMMB Holdings at No 15 and 20 respectively.

“The key figures in 2001 were the GLCs, and 12 years later, in 2013, the key figures in the corporate sectors were still the GLCs. The GLCs have emerged as key players in the economy and have sustained themselves,” say Gomez.

What does this say about the GLCs? Gomez cautions against assuming that GLCs are underperformers or run-of-the-mill firms. “What we are seeing here are dynamic firms maintaining their performance as the top companies in the country.”

By 2013, seven of the top 10 companies were GLCs, which also made half of the top 30.

During Tun Abdullah Ahmad Badawi’s time, he pushed for GLC transformation, which saw a new class of professional managers take the reins at important companies.

The other interesting development in 2013 is that foreign-controlled firms were re-emerging as important players in the economy. They included DiGi.Com Bhd, British American Tobacco (M) Bhd and Nestlé (M) Bhd, which are among the top 30 most valuable companies in Malaysia in 2013.

Gomez also points out another important finding — manufacturing firms are no longer a major force in the economy. “The industrial elite of old have fallen away. Industrial companies have not been investing in R&D. They have been fearful of the state,” says Gomez.

“Where are all the companies involved in the high-technology sector or highly innovative companies? If you look at this list, we are looking at companies involved in utilities, finance, construction and property development. It’s not going to take you anywhere in the long run.”

Where does it leave us today?

The first phase of Gomez’s research focuses on the government-linked investment companies (GLICs), which are major players in the economy by virtue of their web of ownership and control over a vast empire of companies.

The seven GLICs analysed by Gomez’s team are Minister of Finance Inc, Permodalan Nasional Bhd, Khazanah Nasional Bhd, Kumpulan Wang Persaraan (KWAP), the Employees Provident Fund (EPF), Lembaga Tabung Haji and Lembaga Tabung Angkatan Tentera.

These GLICs control over 68,000 companies directly and indirectly with minority interest. “The seven GLICs control important companies in the economy. They have majority ownership of 35 public-listed companies and in terms of market capitalisation, they control about 42% of the entire Bursa Malaysia,” Gomez says.

He argues that this is of concern because this points to extreme concentration of power in Minister of Finance Inc.

The nature of corporate control was different under the different prime ministers. “The nexus between state and business is under constant transition. Under Razak, it was about public enterprises, Mahathir was about big business, Abdullah was focused on SMEs and [Datuk Seri] Najib [Razak] is back to the GLICs.”

As Gomez describes it, Dr Mahathir was “extremely involved” in the economy while Abdullah was not very involved. Najib, on the other hand, is selectively involved in the economy.

“There is an unprecedented concentration of power in the executive. The key company here is MoF Inc, the super entity … What does this control allow the executive to do?” he asks.

Gomez is proposing several reforms to reduce this concentration of power. He says that to ensure proper checks and balances, the prime minister cannot also maintain the finance portfolio.

Gomez is also calling for an operational oversight body for GLICs and GLCs, instead of concentrating it in the Ministry of Finance. This could provide policy coherence and coordinate GLIC and GLC activities to achieve specific social and economic objectives.

Gomez points out that the professional managers of the GLICs and GLCs should be given autonomy to run their respective companies. “Professional managers with autonomy but accountable to parliamentary select committees headed by opposition members. This can be done tomorrow.”



Beware Public Private Partnerships

November 29, 2017

Beware Public Private Partnerships

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Prof. Jomo Kwame Sundaram

Public-private partnerships (PPPs) are essentially long-term contracts, underwritten by government guarantees, with which the private sector builds (and sometimes runs) major infrastructure projects or services traditionally provided by the state, such as hospitals, schools, roads, railways, water, sanitation and energy.

Embracing PPPs

PPPs are promoted by many OECD governments, and some multilateral development banks – especially the World Bank – as the solution to the shortfall in financing needed to achieve development including the Sustainable Development Goals (SDGs).

Since the late 1990s, many countries have embraced PPPs for areas ranging from healthcare and education to transport and infrastructure with problematic consequences. They were less common in developing countries, but that is changing rapidly, with many countries in Asia, Latin America and Africa now passing enabling legislation and initiating PPP projects.

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Nevertheless, experiences with PPPs have been largely, although not exclusively negative, and very few PPPs have delivered results in the public interest. However, the recent period has seen tremendous enthusiasm for PPPs.

Financing PPPs

Undoubtedly, there has been some success with infrastructure PPPs, but these appear to have been due to the financing arrangements. Generally, PPPs for social services, e.g., for hospitals and schools, have much poorer records compared to some infrastructure projects.

One can have good financing arrangements, e.g., due to low interest rates, for a bad PPP project. All over the world, private finance still accounts for a small share of infrastructure financing. However, concessional financing arrangements cannot save a poor project although they may reduce its financial burden.

PPPs often involve public financing for developing countries to ‘sweeten’ the bid from an influential private company from the country concerned. ‘Blended finance’, export financing, and new aid arrangements have become means for governments to support their corporations’ bids for PPP contracts abroad, especially in developing countries. Such business support arrangements are increasingly passed off and counted as overseas development assistance (ODA).

Undermining rights

PPPs often increase fees or charges for users of services. PPP contracts often undermine consumer, citizen and human rights, and the state’s obligation to regulate in the public interest. PPPs can limit government capacity to enact new policies – e.g., strengthened environmental or social regulations – that might affect certain projects.

PPPs are now an increasingly popular way to finance ‘mega-infrastructure projects’, but dams, highways, large-scale plantations, pipelines, and energy or transport infrastructure can ruin habitats, displace communities and devastate natural resources. PPPs have also led to forced displacement, repression and other abuses of local communities and indigenous peoples.

There are also growing numbers of ‘dirty’ energy PPPs, exacerbating environmental destruction, undermining progressive environmental conservation efforts and worsening climate change. Typically, social and environmental legislation is weakened to create attractive business environments for PPPs.

PPPs often expensive, risky

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Since the late 1990s, many countries have embraced Public-Private Partnerships for areas ranging from healthcare and education to transport and infrastructure as a solution to persistent underdevelopment. Credit: IPS


In many cases, PPPs are the most expensive financing option, and hardly cost-effective compared to good government procurement. They cost governments – and citizens – significantly more in the long run than if the projects had been directly financed with government borrowing.

It is important to establish the circumstances required to make efficiency gains, and to recognize the longer term fiscal implications due to PPP-related ‘contingent liabilities’. Shifting public debt to government guaranteed debt does not really reduce government debt liabilities, but obscures accountability as it is taken ‘off-budget’ and no longer subject to parliamentary, let alone public scrutiny.

Hence, PPPs are attractive because they can be hidden ‘off balance sheet’ so they do not show up in budget and government debt figures, giving the illusion of ‘free money’. Hence, despite claims to the contrary, PPPs are often riskier for governments than for the private companies involved, as the government may be required to step in to assume costs if things go wrong.

Marginalizing public interest

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Malaysia’s Corrupter-in-Chief Najib Razak

Undoubtedly, PPP contracts are typically complex. Negotiations are subject to commercial confidentiality, making it hard for parliamentarians, let alone civil society, to scrutinize them. This lack of transparency significantly increases the likelihood of corruption and undermines democratic accountability.

PPPs also undermine democracy and national sovereignty as contracts tend to be opaque and subject to unaccountable international adjudication due to investor-state dispute settlement (ISDS) commitments rather than national or international courts. Under World Bank-proposed PPP contracts, national governments can even be liable for losses due to strikes by workers.

Thus, PPPs tend to exacerbate inequality by enriching the wealthy who invest in and profit from PPP projects, thus accumulating even more wealth at the expense of others, especially the poor and the vulnerable. The more governments pay to private firms, the less they can spend on essential social services, such as universal social protection and healthcare. Hence, PPP experiences suggest not only higher financial costs, but also modest efficiency gains.

Government procurement viable

One alternative, of course, is government or public procurement. Generally, PPPs are much more expensive than government procurement despite government subsidized credit. With a competent government doing good work, government procurement can be efficient and low cost.

Yet, international trade and investment agreements are eroding the rights of governments to pursue such alternatives in the national interest. With a competent government and an incorruptible civil service or competent accountable consultants doing good work, efficient government procurement has generally proved far more cost-effective than PPP alternatives. It is therefore important to establish under what circumstances one can achieve gains and when these are unlikely.