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

50 Institutional and political failurein the changing composition of UMNO leaders from politicians and‘administocrats’ to a combination of politicians and businessmen (Leigh1992), with significantly more Malay politicians active as businessmen (ontheir own and on UMNO’s behalf) and Malay businessmen active in politicsafter the NEP (Ho 1988). Corporate restructuring increased Malay shareownership from 1.5 per cent in 1969 to 19.4 per cent in 1988, and individualshare ownership among Malays increased to 67 per cent. 16 State efforts tocontrol the ‘commanding heights of the economy’ (e.g. plantations and tinmines), driven by concerns with finding the quickest way to accumulate assetsand control well-managed, profitable companies, also created a powerfulgroup of former state managers increasingly active in business (Jesudason1989).The late 1970s saw the emergence and transformation of the Malay bourgeoisiefrom primarily directors – not owners – of large corporations (beforethe mid 1970s) to Malay millionaires (Lim 1985), with professional andtrustee Malay executive directors becoming prominent by the late 1980s(Searle 1999). This shift in power was accompanied by changes in the occupationalbackground and outlook of UMNO leaders and grassrootsmembers, with schoolteachers and other local leaders replaced by businessmenand university-educated professionals produced by the NEP (Crouch1992; Searle 1999). ‘Middle-class elements’ were able to completely takeover UMNO by the early 1980s (Jomo 1999b), and by the time privatizationwas introduced, there was already a large Malay middle class, including ayounger, more professionally trained managerial cadre whose support wasimportant, and who had to be accommodated (e.g. see Milne and Mauzy1999). However, as mentioned in the previous section, this group did notnecessarily represent a dynamic, independent capitalist class, being theproduct of state policies which sought the quickest and easiest way to createcapitalists. As such, they continued to be dependent on state support but werealso increasingly impatient and ambitious.The changing composition of the Malay middle class altered patron–clientrelationships and reshaped the internal politics within UMNO localbranches. UMNO’s expansion into business established the party’s economicdominance and financed intra-party/leadership contests by securing votesthrough the allocation of contracts to supporters. Increasing economicpatronage changed the nature of the patron–client relationship, transforminglocal UMNO representatives into political patrons. Elected members of parliamentwho were previously political patrons (providing political support inreturn for economic benefits) greatly increased their control of the districtdevelopment machinery, allowing them to become economic patrons, distributingdevelopment benefits and purchasing continued support (Shamsul1986). While Malay businessmen were heavily dependent on their accessto government patronage, they became an important force in the internalpolitics of UMNO through the party’s extensive patronage network (KhooK.J. 1992; Crouch 1992; Aziz 1997), increasing bitter factional struggles