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Nazir Razak : Malaysia doesn’t have an economy, it only has a political economy.

An admission by Nazir Razak. An excellent & damning read.


Thank you to Chevening Alumni Malaysia for having me back. This time I thought I would get a bit risqué and talk to you about “Making a better Malaysia”, a passion that I hope that you would all share with me.

For the benefit of those who don’t know much about me, let me first summarise my career: I joined CIMB in 1989, straight after earning my degree and masters in the UK. I was CIMB Group CEO 1999-2014 during which CIMB grew exponentially from a small local merchant bank to ASEAN universal bank, and then I became CIMB Chairman 2014-2018. During those years I also served as an EPF Investment panel member for 12 years and on the Khazanah board for 4 years; and spent 9 months as a Chevening Fellow at the Oxford Centre for Islamic Studies. Since 2018, I have been Chairman and Founder of Ikhlas Capital, an ASEAN Private Equity firm. In 2019 I was also a Visiting Fellow at the Blavatnik School of Government, Oxford University where I focused on Nationhood Recalibration, looking at preconditions for systemic reforms in Indonesia post AFC, Malaysia post May 13th and the like. Based on all of that one could say that I had a good front row seat to the Malaysian economy for over 30 years.

Whenever I am asked about the Malaysian economy, I often quip that Malaysia doesn’t have an economy, it only has a political economy. As an undergraduate I studied Economics and Politics, the joint degree, but I never anticipated the extent to which the two would be so intertwined in Malaysia. We have extensive elements of a command economy and yet our posture is one of a capitalist free market one. It is often dangerous to pretend to be what you are not.

The Government has a huge presence in the Malaysian economy. From the legacy of licenses and quotas that date back to the British, to state development agencies and affirmative action rules of the 1970’s, to Government Linked Companies, that constitute about 40% of the total market capitalization of Bursa and Government investment funds that dominate our capital markets. And, to the rampant practice of money politics which often influences decisions on government regulations, policies, procurement and GLC action.

It does take both front-line experience and then some distance from it, to fully appreciate how distortive and damaging much of this has been. While I was in the thick of it, during my CIMB career, I think I had a pretty decent moral compass, but I was a very willing actor in the system. If something didn’t seem morally right, I would sometimes speak up but more often I would prefer to say it was none of my business. Most of us in the system were like that, and when I did speak out and campaign against the shenanigans at 1MDB and Felda, the pressure to silence was intense: That is a story in itself which I won’t get into here, but suffice to say that the excessive centralisation of power in the office of the Prime Minister compounds the systemic dysfunction because of the lack of accountability and checks and balances on the part of the ultimate decision-maker.

Some symptoms of the dysfunction that I can share from my own experience: –
1MDB was the most extreme manifestation of it. A sovereign wealth fund with the explicit backing of the government was used to raise billions of dollars for both development projects and political funding, and along the way there were massive leakages of funds for nefarious purposes.
The first modern financial scandal though was the BMF affair in the early 1980’s when a Bank Bumiputra subsidiary lent billions of ringgit to a Hong Kong property developer without proper collateral or approvals and again with substantial sums diverted; many believe to political activities in Malaysia.
There were many smaller deals that would have added up to huge amounts. In the early 1990’s I was a junior CIMB officer in charge of IPO’s for listing companies on the stock exchange. Almost every case involved preferential allocation of shares to bumiputra in the name of the New Economic Policy. Yet there were never clear nor consistent processes of selecting who would get the shares (which were lucrative as IPO pricing back then was controlled by the government and set low to ensure buyers made good money). Invariably it was those with political links that had best access to share allocations; so rather than redistributing wealth to the bumiputra needy or value creators, a lot of money went into the highly distortive cauldron of politics.
In the mid 1980’s a peculiar model of developing bumiputra billionaires emerged in the name of the NEP where the government would support politician-hand-picked individuals to become businessmen. The government support included directed lending by under regulated banks. This model, grew exponentially when massive amounts of foreign capital came into our stock market in the early 1990’s; and crashed spectacularly in the Asian Financial Crisis. With hindsight, why did we think politicians can handpick good businessmen? Why did we think beneficiaries of easy contacts and access to capital can build solid businesses? Many of these companies drowned in their mountains of debt and were nationalised to become today’s GLC’s. The extent of government dominance in the economy didn’t change after the AFC; the corporate nexus between government and major businesses remained, the difference being that politician-hand-picked individuals were replaced by professional managers. But the professionals also reported ultimately to the same political masters.

I am not criticizing the system that was put in place following the May 13th, 1969 breakdown in civil order. I think there was the need for those major systemic changes- greater government involvement in the economy, affirmative action for the bumiputra, amendments to sedition laws, Rukun Negara and the formation of a grand coalition of parties (Barisan Nasional) to govern the country. They enabled peace, stability and an impressive record of sustained economic growth with greater equity and dramatically less poverty.

The authors of the new system however acknowledged that they were innovating out of desperation and that the system needed to be reviewed from time to time. In the case of the NEP, there was even a specific time-line of 20-years to eradicate poverty and redress the inter-communal economic balance seen as preconditions for the emergence of a Malaysian nation.

It has now been 50 years and the 1970-designed system remains substantially in place, entrenched by vested interest and the ease with which race and religion can be mobilized in its defence, and plagued with norms which are either compromising or outright corrupt. Tun Razak and Tun Dr Ismail, the main authors of the recalibrated system, recognized the amplified risk of corruption but they placed trust in individuals driven by the nationhood mission and didn’t do enough to build safeguards. It was actually apparent quite early on that corruption was seeping in, but it got worse in the 1980’s as competition for political positions and spoils within UMNO and BN increasingly took precedence over nation building.

The system is no longer fit for purpose and that Malaysia is in dire need of another system reset. I will leave it to the historians to argue about when and why the system fell into decline. But since the AFC of the late 1990’s we have been under-firing economically, growing apart as communities, losing our best talents and falling behind newly emerging countries like Indonesia and Vietnam for FDI. The 4th Industrial Revolution will only compound under-performance of economies that are not leveraging their best talents, struggle to attract quality investments and defer to vested interest and incumbents: Where innovation and entrepreneurship are stifled.

When PH came to power in 2018 many, including myself, were hopeful that they would follow through with their reform agenda as articulated in their election manifesto. But they did very little of it, unable even to implement UEC recognition or sign International Convention on the Elimination of Racial Discrimination; both relatively benign reform initiatives they promised. And while the end of BN’s dominance was rightly celebrated as a triumph for democracy, there was no guarantee that a more stable democracy will emerge. The political scientists among you may even point out that academic literature on plural societies would predict quite the reverse. Indeed, the collapse of PH government after 22 months and the fragility of PN, its replacement, are not encouraging early signs.
For me the PH experience reaffirmed that our system is like a badly written play. You can change the cast and have the world’s best actors but the play will still be bad. The system sets incentives for politicians and political parties to behave in a certain way and sadly our system encourages them to be too divisive, too vulnerable to monetary incentives and too deferential to power.

Another way of saying the same thing is: Our system has evolved to become one run by a three headed monster- Identity politics, money politics and power concentration. I don’t have the time to discuss how this came to be, it is more important to use the minutes left to talk about how we could fix it.

During my visiting fellowship at Oxford and now in partnership with some academics and civil society, I am pursuing the idea that we need a system reset. We have embarked on a 6-month study to gather the view of Malaysians across the various spectrums of society and are also soliciting ideas from the wider public at mybetterfuture.org. One basic question is whether we should advocate the set-up of another National Consultative Council, which was the deliberative platform used back in 1970 where a fairly representative group of 67 people – communal leaders, politicians, civil service, trade unions, media, religious groups, business, professions and small minorities – debated and endorsed systemic reforms. I don’t think we should just copy what worked then but we can learn from that experience. We can also learn from the recent trend of deliberative platforms across the western democracies, such as the national assembly in Ireland which successfully dealt with the hugely controversial issue of abortion. Deliberative platforms can complement representative democracy, in fact it can be a purer form of democracy compared to one where voters delegate their voice on all issues to one person until the next elections.

And then there is a question of whether there can be a better Malaysia at all? Whether these frustrations and failures that I mentioned are just part and parcel of democracy and growing pains of a new nation. It is therefore important that we conceptualize key reforms and whether in sum, they would make for a better Malaysia. I believe the case is compelling even if we just imagine 1) new institutional rearrangements to have an effective referee to political competition, 2) clear separation of business, government and politics and 3) electoral reforms. And I am sure many would agree that if our best minds and leaders deliberate our inter-communal social contract, education system and affirmative action, in safe spaces instead of the toxic theatre that is party politics, they would arrive at some new formulas and trade-offs that are more suited for today’s Malaysia and Malaysians.

In short, at the risk preempting the conclusion of our study, I for one am convinced that there can be a better Malaysia.

Ladies & Gentlemen

I hope I have outlined enough of my thoughts on “Making of a Better Malaysia” to stimulate a conversation this evening. The stakes are huge, the stakes are especially huge for your generation. On behalf of mine, I would apologise that we have allowed this nation that we all love to be in the state that it is today. For what it is worth though, I am actually quite optimistic because I sense that more and more people want systemic reforms, not least due to the widespread despondency with today’s politics. In the end politicians will respond to the people so long as the people are heard.





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