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

Privatization, rents and rent-seeking 19to occur ex ante due to informational constraints and political considerationswhich affect the choice of privatization.Conventional explanations of failureWeak political institutionsThe view that failure is due to weak institutions is grounded in the NewInstitutional Economics (NIE) which seeks to explain (market) failure interms of transaction costs, imperfect information, the structure of propertyrights and collective action problems (Clague 1997a; Williamson 2000; alsosee Bardhan 1989b). For the NIE, underlying the failure of privatization indeveloping countries is the problem of political interference which is seento undermine regulatory independence, thereby affecting private investmentand incentives. Governments in developing countries are viewed as corruptand incompetent, lacking credible commitments not to intervene, failingto safeguard property rights and being incapable of implementing proper,consistent regulatory procedures. As a result, privatization in developingcountries is poorly implemented and regulated, lacking regulatory independenceand credibility, and subject to widespread corruption, regulatoryand political capture, and arbitrary political intervention (Tullock 1967;Stiglitz 1971; Krueger 1974; Bhagwati 1982; Laffont 1996, cited in Kessides2004: 80; Daniels and Trebilcock 2000).Corruption, patrimonialism, cronyism and clientelism are seen to createserious problems for public administration in developing countries(Theobold 1990, cited in Parker and Kirkpatrick 2002: 13; also see Boeker1993, cited in Plane 1997: 364; Cook and Kirkpatrick 1995; Parker and Kirkpatrick2003). Corruption has been blamed for the failure of privatizationin Zambia and many parts of Africa, India and a number of transitionaleconomies (Tangri 1999; Tangri and Mwenda 2001; Craig 2000, 2001, allcited in Parker and Kirkpatrick 2002: 14; University of Greenwich 2001;Meseguer 2002, both cited in Parker and Kirkpatrick 2003). The absence ofregulatory independence is also argued to be a major reason for the failure ofprivatization in developing countries, made difficult by deliberate governmentactions and a lack of understanding of the importance of separation ofpowers (Kessides 2004). Regulatory capture is associated with a weightingwhich favours producer over consumer surplus, while political capture occurswhen regulation becomes a tool of self-interest within government or theruling elite. The latter is considered a much greater risk given the problemsof credible commitment, history of arbitrary administrative intervention,and discretionary use of executive power said to characterize developingcountries (Stiglitz 1998, cited in Parker and Kirkpatrick 2002: 8; Pongsiri2001; Kessides 2004).The state’s lack of credibility to commit to contracts or policies isattributed to weak political and economic institutions which safeguard