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1、Part 1: Chapter x Malaysias Personal Capitalism Dr Michael Carney and Dr Edo Andriesse1. IntroductionSince the implementation of the New Economic Policy (NEP) in 1971 Malaysia has attained several notable social achievements, including the virtual eradication of poverty, relatively low levels of inc
2、ome inequality, and significant improvements in a variety of quality-of-life indicators including life expectancy, infant mortality, and primary school enrolment (Roslan 2003). In doing so, the state has also maintained enduring social peace among an ethnically diverse population, made up of ethnic
3、Malays (65%), ethnic Chinese (25%), ethnic Indians (8%), and others (2%). The NEP has also been accompanied by an impressive economic performance resulting in high levels of economic growth, low unemployment, and the construction of a world-class infrastructure, and Malaysia has become a major expor
4、ter based on the production of high-quality electronics (Asian Development Bank 2011). Despite these achievements signs of economic inertia have become apparent over the past decade. Private investment as a percentage of GDP has declined to very low levels and the country is losing its attractivenes
5、s as a destination for foreign investment. Malaysia has seen its ranking in the Global Competitiveness Index fall from eighteenth in 2006 to twenty-sixth in 2010 (Schwab 2010). Analysts suggest that Malaysias economic development has stalled (Henderson and Phillips 2007) and hit a glass ceiling (Ohn
6、o 2009). Others suggest that Malaysia is enmeshed in a middle-income trap characterized by continuing dependence upon exports of low value-added primary commodities and low-wage, low-skill manufacturing (Woo 2009; World Bank 2009, 2010). Statistics show stagnant labour productivity, as well as growi
7、ng inequality between the wealthy capital city region and Penang on the one hand and a lagging periphery on the other (Woo 2009; World Bank 2010).Successive governments have recognized the structural nature of these interrelated problems and have launched bold initiatives such as a national informat
8、ion technology agenda to promote the development of information and communications technology (ICT) and the establishment of the multimedia super corridor. There are also plans to establish a biotechnology industry (Ahn and York 2009) and a financial services hub focusing on Islamic banking (Elgindi
9、, Said, and Salevarukis 2009). Unfortunately, there are few indications that these initiatives are meeting their primary objective of driving Malaysian industry up the value-added ladder. In this chapter we trace the origins of this incipient economic inertia to the institutionalization of statebusi
10、ness relations that we describe as personal capitalism. Personal capitalism is characterized by concentrated enterprise ownership and the use of corporate control devices such as pyramids, dual class shares, restricted voting, and other arrangements that place significant discretion in the hands of
11、an owner-entrepreneur (Morck, Wofenzen and Yeung 2005). This discretion is exercised in a preference for relational contracting in which relationships with politicians and gatekeepers to financial and material resources are predicated upon patronage and the expectation of reciprocity. Owner-entrepre
12、neurs exercise little managerial control over their subsidiaries (Tipton 2009) and rarely manage their enterprises according to a strategic plan, preferring instead to engage in opportunistic investments to buy and sell business units according to purely financial criteria (Gomez 2006, 2009. Owner-e
13、ntrepreneurs are often reluctant to delegate authority and rarely dedicate resources to the development of a cadre of professional management. Personalism in the corporation is nurtured and sustained by personalism in the political domain. Politicians, and other senior officials in political parties
14、 and the public bureaucracy, operate a patronage-driven system in which leaders rely upon their capacity to distribute economic rents to secure political support and to advance their own private business interests (Siddiquee 2010).2. The role of the stateThe socio-political objectives of the NEP wer
15、e joined with a developmental state model aimed at creating a population of Malay-owned competitive and self-sustaining corporate enterprises. Part of the developmental state model embodied a Look East policy intended to imitate Japan and Koreas diversified business groups, which had pioneered techn
16、ology development and the establishment of large-scale managerial enterprise (Jomo 2003). However, Malaysias version of the developmental state differed in three key respects from the Japanese and Korean approach. First, Japan and Korea were unfriendly towards foreign investment by multinationals (M
17、NEs). As a condition for entering into relationships with domestic firms both Japan and Korea required significant transfers of technology by foreign partners (Amsden 2009). Secondly, the governments of Japan and Korea rationed state credit and made its allocation conditional upon the attainment of
18、specific export goals and organizational development. Third, to assure monopoly control over credit governments both Japan and Korea suppressed the development of public equity markets, which made domestic growth-oriented firms dependent upon state credit. Together, these mechanisms fostered the dev
19、elopment of infant industries because they provided protection, resources, and discipline for firms to develop strong organizational and technological capabilities to compete effectively with the established international competition (Amsden and Hikino 1994).While the Malaysian state adopted an ambi
20、tious economic development agenda, several basic tenets of the Japanese/Korean developmental state model were not fully applied (Gomez 2009). First, Malaysia adopted highly liberal policies toward foreign direct investment, which resulted in substantial investment in the country but not in the trans
21、fer of technology and organizational know-how to local firms. Moreover, while the state generously allocated credit to state-owned enterprises (SOEs) and government-linked companies (GLC), it did not make credit conditional upon the attainment of specific performance goals, nor did the state effecti
22、vely monitor these loans. Third, the state also encouraged the development of public equity markets, which provided domestic firms with an alternative source of working capital. In these three respects Malaysia simultaneously adopted a combination of the developmental state and liberal market models
23、 of development. We propose that this combination produced personal capitalism, which we survey in the following sections. The personal nature of Malaysian capitalism also dictates that the identity of an enterprises owner will determine his or her treatment in the hands of the state. Since gaining
24、its independence in 1957 the Malaysian state has effected four major movements against or in favour of specific types of owners. The first movement, in the immediate post-independence period, was a drive to displace the colonial-era business groups that owned and controlled large sectors of the agri
25、cultural and resource economy (Drabble and Drake 1981). The second movement consists of continuing efforts to contain ownership and control over capital by ethnic Chinese entrepreneurs. This largely self-made entrepreneurial class quickly filled the vacuum left by departing colonial owners. As ethni
26、c Chinese business groups consolidated their position as the dominant capitalist class in Malaysia, the state engaged in countervailing action to provide space for ethnic Malay entrepreneurs. Hence, the third movement consists of long-standing efforts to create an indigenous Malay entrepreneurial cl
27、ass. Affirmative action programmes are intended to place 30% of the ownership of the corporate sector into the hands of Muslim Malays, known as the Bumiputera (literally, sons of the soil). These programmes have engendered a variety of new government agencies, including federal and provincial invest
28、ment holding companies (for example, Khazanah Nasional), trusteeships (for example, Amanah Raya), which nominally hold corporate assets in trust for the benefit of the ethnic Malays (Tam and Tan 2007), and government-controlled pension funds (for example, the Employment Provident Fund). Also include
29、d in this category are GLCs, which are business groups and holding companies that are closely connected to government elites. Nevertheless, whereas the Bumiputera population represents around 65% of the total households in Malaysia, it controlled 21.9% of the share capital of limited companies and o
30、nly 14% of commercial buildings and premises in 2008 (Economic Planning Unit 2010: 166). Correspondingly, ethnic Chinese and foreigners control a disproportionately large amount of share capital. The fourth movement is the product of a policy designed to attract foreign direct investment, which prod
31、uced an export-oriented electronics manufacturing industry largely owned and controlled by Japanese, American, and Korean multinational enterprises.While the state has orchestrated the cultivation and containment of specific types of owner, it has not developed an administrative capacity sufficient
32、to coordinate and monitor the achievement of its ambitious economic developmental goals (Tipton 2009; Siddiquee 2010). At the heart of our analysis is the idea that Malaysias capitalist institutions have been indelibly marked by personalized relationships in the political and corporate domains. 3. T
33、he financial system The financial system is very much an equitycredit hybrid with both a stock market (Bursa Malaysia) in publicly listed firms and a substantial banking system. The former appears to serve as a mechanism for politically connected entrepreneurs to capitalize on the value of their con
34、nections by means of financial manipulation and speculation (see also the next section) (Gomez 2009). The banking system has gradually been brought under either direct state ownership or indirect state control. The banking and credit system, including a variety of state credit allocation agencies, s
35、uch as the MARA, part of the Ministry of Entrepreneur and Co-operative Development and the Co-operative Development Department (JPS), has engendered criticism for systematic discrimination in favouring Bumiputera firms with soft loans (Saleh and Ndubisi 2006). Recently, the government has taken step
36、s to strengthen Malaysias position as a global hub of Islamic finance, which some expect will encourage higher levels of social equity and economic stability (Elgindi, Said, and Salevarukis 2009). However, Islamic finance does little to fund the small ethnic Chinese and ethnic Indians firms. One stu
37、dy investigating the activities of small ethnic Chinese firms in a rural setting finds that they obtained capital mainly from their owners and their extended families, rather than from banks or the governmental authorities (Rutten 2003). The major beneficiaries of government credit are large SOE tru
38、steeships and other government agencies. These include state government-owned firms, through their respective State Economic Development Corporations. Some, such as those in Johor and Sarawak, have become substantial owners of publicly listed firms through their investment arms. Affirmative action p
39、rogrammes entailed the creation of trust agencies, such as the Permodalan Nasional Berhad (PNB) and the Employees Provident Fund (EPF), Perbadanan Nasional Berhad (Pernas), whose social purpose is to accumulate capital on behalf of Malays. SOEs and trusts are the most stable Malaysian business organ
40、izations but they are not particularly dynamic. Their relative stability is in part attributable to state protection and easy access to capital. Malaysian SOEs, state investment funds, and trust agencies are typically connected to senior politicians such as former PM Matihir, former finance minister
41、s Daim and Anwar, or leading members of the ruling UMNO party (Gomez 2006). In contrast, they tend to be an ephemeral form of enterprise because their success and survival are tied closely to the political fortunes of their patron. The typical trajectory of these enterprises is captured by the follo
42、wing anecdote (Gomez 2006): Mahathir appointed Daim as finance minister in 1984 and depended heavily on him to create privately-owned Malay conglomerates. Daim approved of Mahathirs promotion of Malay capital, but did not appear supportive of Mahathirs use of state enterprises to develop heavy indus
43、tries Daim soon came to be seen as the most powerful figure in the corporate scene as his business associates rapidly secured leading privatisations. For example, in 1990, Daims protg Halim Saad obtained control of a multi-billion ringgit privatised North-South highway project, and swapped it for ma
44、jority ownership of Renong, a moribund but quoted firm. In just five years, Renong would become the leading Malay-owned conglomerate, with a place among the top ten publicly-listed companies. Renong became the symbol of Mahathirs success in creating a class of Malay new rich through selective govern
45、ment patronage Daims total wealth reportedly amounted to a billion ringgit, including assets in foreign countries. When Daim fell out of favor with Matihir in 2001, the corporate assets owned by his business allies and proxies were taken over by GLCs. In July 2001, the government announced a takeove
46、r of Renong.Gomez (2009: 24) concludes that the so-called captains of industry of the 1990s having fallen away; and none of the Malays groomed by Mahathir, Anwar and Daim retain control of any major enterprise. Ethnic Malay-owned firms focusing upon sectors such as finance and telecommunications are
47、 protected from international competition. No major ethnic Malay firms have appeared in manufacturing sectors that are exposed to international competition.In sum, the financial system encourages rent-seeking behaviour by entrepreneurs and the misallocation of capital to unproductive ends and facili
48、tates the expropriation of minority shareholders. The allocation of bank credit favours Bumiputra firms and hampers the development of a healthy small and medium-size enterprise sector. It is therefore hardly surprising that Schwab (2010) finds that access to finance is the second most problematic f
49、actor in conducting business in Malaysia. A recent World Bank report concludes that private investment collapsed after the Asian crisis and never recovered and remains an impediment to the goal of becoming a high-income economy (2009: 53).4. Ownership and corporate governance Before we discuss corporate governance we outline the main characteristics of three types of firms that appear in Malaysias political economy. These are: 1) firms owned and controlled by ethnic M
