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

6 Introduction: why privatize?countries typically necessitates the continuation of state financial support fora variety of reasons; and 2, successful privatization will depend on the state’scapacity, in particular its ex post political capacity, to correct ex ante failureand to manage the appropriate subsidy regimes.The book is structured as follows. Chapter 2 examines the main argumentsfor privatization. These are shown to be problematic, as they do not identifythe political motivations for privatization in developing countries, and failto account for the political reasons why privatization may fail. The typicalrecommendations to strengthen institutions do not address the mainproblems that drive regulatory failure in countries like Malaysia. The chapterthen examines sources of state capacity, looking at social relations and thebalance of power specific to the country.Chapter 3 provides the background to understand the political context inwhich privatization was undertaken in Malaysia, looking at both economicand political imperatives in order to properly locate the subsequent case studychapters. Malaysia’s privatization programme will be examined within thetheoretical framework presented in Chapter 2, applying the three centralquestions to the Malaysian case. A discussion of the country’s redistributiveNew Economic Policy (NEP) shows that this was both a consequence and acause of changes in social relations, in particular the growth of and increasingdifferentiation within the Malay middle class. This provides the context inwhich to understand the drivers of the Malaysian government’s privatizationstrategy. The drivers came from both the growing political demands of a newMalay upper middle class, and the challenges faced by the government inmanaging the public sector. The chapter then provides some backgroundand details of Malaysia’s privatization programme, and evaluates its performancefrom 1983–2000. The results, measured against official objectives,will be shown to be mixed, with privatization in particular failing to developa dynamic Malay capitalist class. We then trace the failure of Malaysia’sprivatization programme to the state’s ex ante and ex post failure, and suggestwhy the latter is of far greater consequence for the success of privatization inMalaysia.Chapters 5–7 present the case studies on IWK, the Kuala Lumpur LRT,MAS and Proton respectively. The first half of each case study will examinethe challenges posed for privatization, provide the background to each ofthese decisions to privatize, and assess performance based on official objectives.The second half of the case studies then examines the problems, lookingat the state’s ex ante and ex post failure as explanations. Failure in eachcase was due to both types of state failure, but we argue that the state’s expost failure was the key factor explaining the eventual failure of the fourcase studies. Chapter 8 summarizes the main findings and presents theconclusions.