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

70 Institutional and political failurelittle evidence of rent deployment favouring industrialization or productiveuse, and a reliance on foreign rather than domestic-led manufacturing growth(due to the lack of Malay entrepreneurial ability and the desire to constrainChinese capital) (Jomo and Tan 1999). The state’s failure to direct domesticcapital into strategic manufacturing industries adversely affected industrialization(Jesudason 1989; Bowie 1991; Felker 1998; Jomo and Tan 1999), preventingthe emergence of an efficient, ‘deepening’ industrial policy (Jomoand Tan 1999: 303). Instead, rents provided wrong incentives, encouragingefficient companies into protected sectors. Furthermore, foreign-dominatedmanufactured exports had few production or technological linkages (seeFelker 1998: 83). The result was a weak technological base and inadequatehuman resource development and skills formation (Malaysia 1985). Theprivate sector was unable to provide comprehensive and detailed industrylevelinformation (to guide policymaking) or mobilize large networks ofproducers to respond to government initiatives and incentives due to the topdownnature of networks (where private sector appointments are based onpersonal friendship or reputation) and the legacy of ethnically fragmentedbusiness networks and representation (Felker 1998).Central to the discussion of industrialization is thus the process of technologicalinnovation and, related to this, the role of the state. The state needsto underwrite the high cost of information about technology, especially whengains are large, with economies of scale (Jomo and Edwards 1993), and provideincentives for innovation (i.e. Schumpeterian rents) (e.g. see Khan2000b). However, protection does not guarantee success unless it induceslearning (Bruton 1998). The capacity to learn is said to depend on industry’s‘collective learning’ ability (facilitated by human capital and competitivepressures from exporting) and ‘knowledge accumulation’ (learning-bydoing),as well as the ability of the government to learn from its mistakes(Bell et al. 1984; Jacobsson 1993; Bruton 1998; Kim 2004). More importantly,learning will depend on the government’s capacity to enforce conditionalsubsidies and correct mistakes once identified.The Heavy Industries Corporation (HICOM) was the government’sattempt to address the issue of absorbing complex organizational and productionprocesses necessary for technological upgrading and industrylinkages. 35 However, as heavy industries were set up to serve domestic, ratherthan export, markets, there was no systematic attempt to guide or monitorthe technological development process, with the sector characterized bysoft budgets (Lall 1995) and the lack of performance targets and conditionalities.Learning was also compromised by the complex nature of thetechnology, lack of (Malay) skills and desire to bypass Chinese capital. Thegovernment later sought to address HICOM’s poor performance byreplacing the (Malay) management with foreigners and non-Malays inthe 1980s, and later privatizing the company (which included its subsidiaryProton). Privatization can therefore be partly seen as an attempt to improvethe technological acquisition and industrial upgrading process. The success