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

Institutional and political failure 533 facilitate economic growth by increasing the role of the private sector indevelopment;4 reduce the size and presence of the public sector; and5 help meet NEP targets by providing opportunities for restructuring theownership pattern.However, it is the final objective which accounts for some of the main featuresof the privatization programme. Privatization was characterized by a nontransparentselection process, weak regulation and the lack of completedivestiture (Malaysia 1991b). Decisions and regulation remained highlycentralized and personalized, reflecting the increasingly personalized patron–client networks, while the mode and sectoral distribution of privatizationallowed the government to continue directing economic activity and promotecapital accumulation methods consistent with the preferences (and abilities)of the new Malay middle class. Despite its scale and scope, privatizationinvolved relatively few (complete) divestitures and a predominance of contractingout, focusing mainly on the non-tradable sector (e.g. constructionand property development), as well as completely new projects initiated bythe private sector.All these facilitated easy capital accumulation by supporting economicactivity in rentier sectors, but affected the performance of privatizationbecause the government failed to address inherited inefficiencies and promotelearning and commercial viability due to constraints posed by patron–clientnetworks. As a result, by 2001, the government begun scaling back theprogramme following the failure and renationalization of several largeprivatizations and public companies involved in these, signalling the end ofits ‘owner-manager’ model by replacing the private owners with professional(state) managers (e.g. see The Star, 10 August 2002; Kennedy 2002).Background and main featuresThe government defines privatization as the transfer to the private sector ofactivities and functions which have traditionally rested with the public sector.This applies to enterprises already owned by the government and to newprojects normally implemented by the public sector (Malaysia 1991b), andrequires the transfer of management responsibility, assets (or the rights touse assets) or personnel. The four main modes of privatization are sale ofassets or equity; lease of assets; management contracts; and build-operatetransfer(BOT) and build-operate (BO) (Malaysia 1991b). However, privatizationis also broadly defined to include partial divestitures (with thegovernment retaining majority ownership); joint public-private sectorventures; schemes to draw private financing into construction projects(e.g. highways and low-cost housing schemes); licences to operate in sectorspreviously exclusive to the public sector (e.g. TV broadcast, telecommunications);contracting out of public services (e.g. garbage collection); contracted