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

26 Privatization, rents and rent-seekingA historical view of institutionsConventional institutional recommendations are unrealistic as they arebenchmarked against Western norms that do not account for the politicalrealities in developing countries nor explain the performance of countries inEast Asia which industrialized without these institutions in place. For thatmatter, they do not even reflect the experiences of advanced countries atsimilar stages of their economic development (e.g. see Chang 2002; Huberet al. 1993).There is no clear correlation between governance indicators (such asdemocracy and transparency/low corruption) and performance (e.g. seePrzeworski and Limongi 1993; Khan 2004). This claim is a fairly recent onegiven that democracy (i.e. universal suffrage and the freedom to form unions)was historically seen to threaten property rights (Przeworski and Limongi1993). Rather, democracy in Europe was the outcome of shifts in the balanceof class power as a result of capitalist development which transformedthe class structure, enlarging the working and middle classes (e.g. seeHuber et al. 1993). That is to say, institutions are a product of both social,economic and political history, and current conditions (e.g. see Parker 2001),and institutional change depends on the nature of social relations and thebalance of power in society, with the emergence of efficiency-improvingarrangements affected by redistributive considerations (Bardhan 1989b;Parker and Kirkpatrick 2002). This perspective gives us a different set ofinsights when we try to make sense of the constraints facing privatizationstrategies.The experiences of advanced countries and late industrializers duringtheir transition to capitalism demonstrate that the allocation of new propertyrights, through political processes that implicitly grants some individualsmassive rents, is an important part of the process of capital accumulation(Khan 2004). This process has not been transparent and indeed, corruptionhas played a historical role in the emergence of the entrepreneurial class inEurope (Bardhan 1997). In the case of South Korea in the 1980s and 1990s,more recent evidence reveals substantial corruption was involved in theallocation of new property rights or rents. As competition for resourceswill be intense and thus more heavily contested in developing countries, thecreation of new property rights (e.g. through privatization) is unlikely to beallocated through transparent processes but instead in personalized and partisanways, and through patron–client networks (Khan 1998, forthcoming).As such, anti-corruption measures will be difficult to implement as itmay not be in the interest of the state or powerful groups. Moreover, wherenon-capitalist or unproductive groups are politically dominant, efforts topromote good governance institutions such as democracy may simply lead topolitical capture by these groups becoming easier. Political and nationalisticconsiderations also prevent privatization to specific ethnic groups or foreigninterests (Cook and Kirkpatrick 1988; Parker and Kirkpatrick 2003), further