In 1998 or 1999, I wrote an essay for my Post-Graduate’s Malaysian Economy subject on relationship between business and government. The question posed by Prof. Jomo K.S was “Under what circumstances do close government-business relations lead to abuse?”. I found this piece today, hidden among many old files, and thought the issue and the points that I raised is still quite relevant, especially to country like Indonesia. This is however, does not represent my current view on Malaysian economy as time has changed considerably. 12 years is a long time for a change. I thought more of my own country when I re-read this piece.*
Any corrupt relationship between government and business sector, individual or corporate, takes place in a ‘give and take’ manner. That is both parties mutually gain. In most cases, this relationship started long before anyone of them attain power in their respective fields. They can be friends, employee-employer, etcetera. This long/special relationship later on became a basis to ‘justify’ allocation of any privileges or rents to these friends or ‘cronies’.
These and other features as outlined below are some of the circumstances that lead to abuse as the result of a close relationship between government and business sector.
1. Strong political patronage in the business sector
The rise of new political regime in early 1980s, and instalment of New Economic Policy (NEP), had created a new breed of Malay/Bumiputera businessmen with heavy political backup. The NEP, apart from achieving its poverty reduction objectives, has also increased the Bumiputera’s equity ownership across the board in the Malaysian corporate scene. And most importantly, the policy has created many Malay noveau riches. They are politically connected and gained wealth through various government projects, businesses and protections that are not available to non-bumis.
The non-Malays responded differently, some even changed the tactics. While losing some grips in the economy due to NEP, they moved on and played along. Few like Ananda Krishnan and Vincent Tan, have emerged as new taipan through their special relationship with bumi politician and UMNO (leaders). In fact, such patronage is so strong that many retired high-rank civil servants and politicians are holding patronage positions (i.e. Chairman) in many Malaysian companies, including non-bumi companies.
2. Use of economic rents by government in its pursuit of both political and economic goals
Such rents include discounted privatisation, overpriced contracts, permits and licences, special loans and credit facilities, and subsidised training and education opportunities (Gomez & Jomo, 1999).
The real purpose of the rents is arguably to encourage investment in the new productive activities and accelerate industrialisation. The other intent was to create a redistribution of wealth, through some affirmative action programs like NEP.
However, in practice, the creation and disbursement of these rents have been used to maintain a political hegemony of the ruling elite and such rent-financed and patron-client relations continue to become a political games, and not an economic policy of sort. It is still important in Malaysian politics until today.
3. Favouritism
The argument is related to the previous two. Although it is not always the case that the beneficiary of government policy in the private sector are Malays, but many argued that a lot of government policies have been directed to benefit exclusively the Bumiputeras or Malays. However, in post NEP policies – including Vision 2020, emphasis on Bumi has changed considerably.
Nevertheless, the government is still seen to practice favouritism in many of its projects and dealings with the private sector. It may have change its approach somewhat, but not in in substantial form. If the previous emphasis was “Malay”, now it is on ‘Malaysian”, that is to include Malay and some select group of non-Malays. Privatisation projects of ro Rail Transit services, Mobile Telecommunication, and few other big projects are given to this group of cronies.
In sum, if this phenomenon persist and the ruling government continue to practice a corrupt governance, only time will decide whether the fate of Soeharto will be reiterated in Malaysia. We hope not.***
Originally published on luqyantamanni.wordpress.com, January 2, 2012: view original.
