Privatized statism and ethnic capitalism in Malaysia

Abstract

Theories of the developmental state assume astute bureaucratic interventionism protected from organized societal interests by authoritarian regimes; close bureaucracy-business ties supposedly facilitate prescient policy-making. In Malaysia, the bureaucracy did feature prominently in developmental policy-making, in an alliance with the political leadership in the seventies. Legitimated by a state ideology of ethnicity, this alliance created a Malay middle class through a legal, open, and centralized system of rents distribution to the Malay majority. In addition, ethnic quotas ensured extensive Malay participation in Corporate Malaysia and in the largest state-owned enterprise program outside the centrally-planned economies. This process also began the atrophy of ethnic Chinese capital. From the mid-eighties, through a carefully targeted program of privatization that divested state- and party-holdings of equity to co-ethnic proxies, the political leadership insinuated itself into the market. In the process, it sidelined the bureaucracy, forming an alliance with a consolidated Malay big business class instead. While proxies legally own these privatized entities, ultimate control inheres with the political leadership. However, day-to-day corporate life is not subject to the politician's micro-management. Thus, the political leadership has been able to bypass bureaucratic structures without relinquishing its control of the economy. While the bureaucracy prefers more regulation, policy controls, and state planning, the politician-businessman alliance is determined to negotiate these constraints. Because these corporations are subject to market discipline, this .. privatized statism" tracks market structural changes; the ethnic capitalism so wrought has proven robust despite expectations of an enervating cronyist dissipation of rents. Mainstream developmentalist perspectives fail to anticipate the creation of an ethnic bourgeoisie, the intentional withering of a contending ethnic fraction of domestic capital and, crucially, the bureaucracy's role-inversion. Bureaucratic capacity cannot be assumed to define fully state power. To explain how the state structures domestic markets, state capacity must be characterized empirically by attending to historically determined coalitions and conflicts. Privatized statism also suggests a new mix of property regimes, and implies that each system of economic arrangements is historically constructed with resources and within contexts bequeathed from the past. But that endeavor is always constrained by politics; that is, markets are shaped by considerations of, not only, economic efficiency but, also, political power.