Privatization in Malaysia
Regulation, Rent-Seeking and Policy Failure
By Jeff Tan
Published September 27th 2007 by Routledge – 256 pages
In recent years, privatisation has fallen out of favour in many countries because the underlying political factors have not been well understood. This book examines Malaysia’s privatisation programme, focusing on how political constraints resulted in the failure of four major privatisations: the national sewerage company (IWK), Kuala Lumpur Light Rail Transit (LRT), national airline (MAS), and national car company (Proton). It considers why developing countries such as Malaysia might want to embark on privatisation, the factors that lead to policy failure, and what is needed to make it work. It shows clearly that political motives driving privatisation often dominate purely economic considerations, and thus it is necessary to analyse privatisation within the specific country context. It argues that failure in the Malaysian case was due to political considerations that compromised institutional design and regulatory enforcement, leading to problems associated with corruption. It concludes that privatisation does not necessarily improve incentives for efficiency or enhance the finance available for capital investment, and that successful privatisation depends on the state’s institutional and political capacity to design and manage an appropriate set of subsidies. Overall, this book is a comprehensive examination of privatisation in Malaysia, providing important insights for understanding the political economy of this process in other developing countries.
"This well-written and properly documented study, based on the experience of privatization of some major public enterprises in Malaysia, demolishes the commonly held view that private enterprises are necessarily more efficient than public enterprises and that privatization necessarily improves efficiency…Policy makers will find the study's conclusions useful for formulating plans for privatization, and graduate students in economic development and public administration will also benefit from this study." - J. S. Uppal, SUNY at Albany, CHOICE June 2008 Vol. 45 No. 10
"Jeff Tan advances our understanding of Malaysian privatization by reaching deeply into complex matrices of political, technical, regulatory and governance failures that undid the privatization of the national airlines company (Malaysian Airlines System, or MAS), urban rail sustem (Star, Putra and KL Monorail), national sewage treatment project (Indah Water Konsortium, or IWK), and car manufacturing plant (National Automobile Industry, or Proton). The result is a penetrating critique of the weaknesses of Malaysian privatization that has the additional and considerable merit of exposing the flaws in the neoliberal arguments that proffered provatization as the panacea to state inefficiency." - Boo-Teik Khoo, Universiti Sains Malaysia, Penang, Malaysia
"Jeff Tan's Privatisation in Malaysia…tackles the topic with an insightful and original combination of political economy perspective and detailed case studies. His framework and findings contribute richly to our understanding of Malaysia's privatization failures and challenge the continued propagation of such policies in developing countries…This books sheds valuable light in retrospect on why privatization failed." - Hwok-Aun LEE, SOJOURN: Journal of Social Issues in Southeast Asia, Volume 25, Number 2 (October 2010)
"The book presents a detailed and well-argued explanation of why privatisation in Malaysia failed. Moreover, and perhaps more importantly, the book also presents an alternative general model as to why privatisation sometimes fails." - Siaan Ansori, Australian National University, The Journal of Southeast Asian Studies, Volume 41/3, October 2010
1. Introduction: Why Privatize? 2. Privatization, Rents and Rent Seeking 3. Institutional and Political Failure: Privatization in Malaysia 4. Universal Access and Private Provision: Malaysia’s National Sewerage 5. The Fallacy of Privatized Urban Rail: Kuala Lumpur Light Rail Transit 6. Perverse Incentives: Malaysia Airlines 7. Rents and Industrial Upgrading: Proton 8. Summary and Conclusion
Jeff Tan is a political economist at the School of Oriental and African Studies, University of London. His other research interests are in regulation, state capacity, industrial policy, institutions and governance.