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

32 Privatization, rents and rent-seekingare faced with the problem of incompetent (non-capitalist) candidates whoare also harder to discipline.As the state’s connection with society in developing countries may not beproduction-oriented alliances but rather with unproductive ‘non-capitalist’classes created and brought together by the colonial legacy and struggle forindependence, these groups have had to be accommodated. These groupshave been variously described as ‘a well-educated but economicallyunproductive professional class’ (Pempel 1999: 169–170), the ‘educatedsalaried middle classes’ (Alavi, H. 1982: 299), and the intermediate class leftbehind in the development process (Khan 1998: 19), whose political role isof considerable importance, organizing resistance and developing ways to‘modify certain market outcomes “politically”’ (Alavi, H. 1982: 299; Khan1998: 19). State capacity therefore not only depends on the state’s relationshipwith segments of capital but also on political constraints posed by othergroups in society outside the ‘developmental alliance’.Furthermore, the state–society relationship in developing countries is notformalized or ‘institutionalized’ (as has been argued by some in the SouthKorean case [e.g. see Evans 1994]) but personalized, usually between patronsand clients. Patron–client relationships are repeated relationships of exchangebetween specific patrons and their clients. The nature of this relationship (interms of how it is likely to influence economic decisions) depends on theobjectives and ideologies of the patrons and clients; the number of potentialclients and their degree of organization; the homogeneity of clients; and theinstitutions through which patrons and clients interact, including the degreeof fragmentation of institutions (Khan 1998: 23–26). More critically, therelative power of patrons and clients can determine how resources are allocated.In South Korea, it was possible for the state to extract the maximumeconomic payoff while ensuring that resource allocation was efficient becauseclients of the state both in the business sector and in politics were weak.Inefficient clients could not defend themselves and the state had no interest indefending them.However, where the patron is politically weak, inefficient clients may easilysurvive because clients in this context may be offering political support (orthe absence of political opposition) rather than an economic payoff. Thispolitical corruption may be necessary to ensure stability but can also begrowth-reducing. This depends in part on the degree of centralization, withcentralized corruption being potentially less harmful (Bardhan 1997; also seeShleifer and Vishny 1993) as reflected in the different impact of corruptionon economic growth in South Korea and South Asia (e.g. see Khan 1998).Patron–client networks in India and Pakistan reveal the substantial politicalpower of clients from intermediate ‘non-capitalist’ classes whose necessaryaccommodation made it more difficult for the state to reallocate rents moreefficiently. This partly explains the persistence of inefficient rents in theIndian subcontinent (Khan 1998, undated).