Malaysia: What is the Nexus of State and Business?

 

IDEAS, the think tank, had a policy paper (No. 45) published in 2017 that touched on the above topic. Jayant Menon, the Lead Economist at ADB, propounded various issues in this paper.

The nexus between state and business in Malaysia is not only strong, but growing. Good governance poses a challenge where patronage keep institutions weak and subject to manipulation. GLCs not only operate within such a system but contribute to it.

The GLCs are, in fact, a complex ensemble of statutory bodies, foundations, trust agencies, investment enterprises and a sovereign wealth fund, as well as companies, with representation in a wide array of industries. These institutions, controlled by the central and 13 state governments in the Malaysian federation, officially function primarily as “enablers” of domestic firms, to nurture a dynamic privately-owned enterprise base. But GLCs also constitute an estimated 42 percent of total market capitalization of all publicly-listed firms. Approximately 67 quoted firms can be classified as GLCs.

Federal ministries, under the ambit of cabinet ministers, also control a vast number of quoted and unlisted GLCs that do a variety of things, including promoting development of strategic economic sectors, redressing spatial inequities by developing rural areas and industries, and financing research and development to drive industrialization.

At the state level, different public institutions own GLCs through the states’ chief ministers, i.e.  Chief Minister Incorporated (CMI). CMIs establish companies to undertake activities in specific constituencies to mobilize electoral support. Party members are liberally appointed as directors of these GLCs, a major source of political financing as their stipends are used for political activities. Through the CMIs, what had emerged was the fusing of bureaucratic and party apparatuses, allowing politicians to selectively channel government resources in a manner that would help them consolidate or enhance their political base. (This perspective was expressed by Prof. Edmund Terence Gomez in GlobalAsia).

Another factor that shaped modes of GLC development is a communal perspective to policy implementation. This is in keeping with the government’s long-standing affirmative action-based redistributive agenda to transfer corporate equity to the Bumiputera (Malays and other indigenous groups). Eventually, these GLCs became sites of political struggles among elites attempting to consolidate power through patronage, a reason why critics have persistently excoriated them as inefficient and loss-making concerns.

Interestingly, the GLC framework has become entrenched in the economy as well as the political system during Mahathir’s 22-year reign as prime minister, from 1981 until 2003. By the time of GE14, this GLC structure had become so huge — and so abused by the Barisan Nasional — that Mahathir himself described it as a “monster.”

GLCs therefore serve as instrument of Government policy. This is the legacy of NEP – an objective to have Bumiputra wealth ownership share of 30% by 1990. Under the guise that it has not been met, the policy has morphed into various names including “Shared Vision”.

All of it sounds good in theory but evidence suggests a rise in rent-seekers or cronies. In 2016, Malaysia had the second highest share of crony wealth as a share of GDP (the title went to Russia, according to The Economist). Despite numerous Government-supported programs, the expected Bumiputra SME sector remains nascent. And on unemployment, the highest is amongst Bumiputra graduates.

Affirmative action policies may improve horizontal inequality but tend to worsen intra-group and vertical or overall inequality. Although Malaysia’s Gini coefficient has improved to 0.399 (2016) from 0.456 (1995), it remains stubbornly sticky. Disparities between communities may have improved but inequality within communities has increased. What do you say when Shan, Daniel, Yusof or Tan have the best grades but fall through the cracks because their father is a gardener or odd job worker or itinerant stall vendor without a permit? In the current environment they may not even enter a university let alone find a scholarship!

The solution remains affirmative action. But it must be on a needs-based affirmative action for all communities that will result in a more united nation. And GLCs re-oriented and implementation mechanisms improved may justify continuance of a social action initiative for the harmony of all.

 

Reference:

1.     Jayant Menon (2017), Government-Linked Corporations: Impacts on the Malaysian Economy, IDEAS

2.     Edmund Terence Gomez, Business as Usual: Regime Change and Government-Linked Companies in Malaysia, GlobalAsia