PRIVATIZATION Privatization in Malaysia, Regulation, rent-seeking and policy failure

Notes2 Privatization, rents and rent-seeking1 A more uncompromising view is that uneconomic services (e.g. loss-making butsocially desirable transport routes) do not make sense and should be abolished(e.g. see Hakim et al. 1996b). However, the alternative of addressing equitableaccess through a coupon system merely sidesteps the issue of who should pay foressential services.2 Bardhan (2000) provides a critical discussion.3 Price cap regulation ‘caps’ prices and pegs price increases to an independent measure,usually determined by reference to the inflation rate and an assessment of thepotential for efficiency improvements (i.e. a retail price index, possibly adjusted forexpected efficiency gains). Rate of return regulation establishes an acceptable profiton the firm’s regulatory asset base after allowing for efficient capital and operatingcosts (Parker 2001: 14).4 The developmental state ‘establishes as its principle of legitimacy its ability topromote and sustain development, understanding by development the combinationof high rates of growth and structural change in the productive system’ (see Castells1992: 56).5 See Kessides (2004: 112) and Stottmann (2000).3 Institutional and political failure: privatization in Malaysia1 Malay businessmen have been variously categorized as independently wealthy(e.g. aristocrats), government proxies or rentiers (Tan T.W. 1982: 291); politiciansor aristocrats or those with close political connections with such people (Lim1981; Lim 1985: 54); and figurehead capitalists, executive professional and executive-trusteedirectors, functional capitalists and bureaucrats-turned-businessmen)(Searle 1999: 81).2 Even though Malay businessmen in parliament were small in absolute terms,their numbers were high relative to their proportion in Malay society (Neuman1971). Similarly, Malay politicians were overrepresented among Malay companydirectors, with the highest representation from UMNO (Lim 1981). For example,in 1972, 13.2 per cent of Malaysian directors were politicians, a ‘very high percentage’given the small size of MPs. Furthermore, 26 per cent of Malay directors(rising to 50 per cent if we include civil servants), compared to 6 per cent of non-Malay directors, had political backgrounds (Lim 1981: 55–61).3 Malay classes have been categorized by income, with the middle class at RM3,600–RM7,000 per household per year and upper income at RM 12,000 (Aris Othman1977: 106).4 The frustration of this group at making inroads into the modern sector was