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Unthwarted by the polarising clutches of the either/or mindset in the West, Malaysia chose to embrace a duality of capitalistic markets and a generous social welfare state. Imagine the economy is a vehicle. Then the private sector is the engine, but the government takes the wheel. Purring along with a 300 horsepower engine, Malaysia’s government has led the country to commendable equitable growth. But any achievements are mired by unfettered authoritarianism, leading to widespread corruption that stalls progress.

To first see that Malaysian markets are capitalistic, look out for these indicators. Prices should sing to the tune of demand and supply. There should be robust competition, with free legal entry and exit allowing firms to take advantage of potential profits. Protection of property and intellectual rights allows innovations to flourish. Choices are then abundant, benefiting the consumers. To evaluate if Malaysia operates by free market principles, answer three questions. 

Firstly, how easy is it to do business in Malaysia? The 2020 World Bank report “Doing Business”, a benchmark study of business regulation, offers an answer. Impressively, Malaysia was ranked 12th amongst 190 global economies, improving its standing from 15th in the previous year. For comparison, Singapore, the United States and the United Kingdom were ranked 2nd, 6th and 8th respectively. 

Secondly, how competitive are the Malaysian markets? To answer, scrutinise its key sectors. The financial service industry thrives with 27 commercial banks competing to attract customers. Domestic car manufacturers lock horns with each other and with international firms, often enticing customers with discounts and special packages. The electrical and electronics industry, one of the largest contributors of net exports to GDP, comprises of both local and international firms harmonising operations to produce electronic products. Across the broader economy, 98.5% of businesses are classified as Small-Medium Enterprises (SMEs). To cry foul over a few large companies that dominate our markets is mostly spurious.

Lastly, how robust are Malaysian institutions when protecting property rights? The Ministry of Domestic Trade and Consumer Affairs outlines a comprehensive intellectual property protection offered in Malaysia. The World Trade Organisation finds that it conforms with international standards. The 2019 International Property Rights Index (IPRI) by Property Rights Alliance, an advocacy organization, ranked Malaysia 32nd globally and 7th in the Asia & Oceania region. The index measures the strength of physical & intellectual property rights, and the legal & political environments that enforces them. 

Elements of capitalism are widespread and pronounced in Malaysia. Yet it is not fully capitalistic either. With a hand on the wheel, the government played a significant role in moulding key sectors through the strategic allocation of funds. Recognising the importance of SMEs, the government issued extra funding worth RM10 billion to support SMEs in April. Continuing its foray into the labour market, the government further revised its minimum wage from RM1,050 to RM1,200 in February. Labour groups cheer, naturally, while businesses moan. Debates aside, it is clear that while markets are functionally capitalistic, government intervention plays a large role in shaping the decisions of the actors involved.

To the government’s credit, it drove Malaysia to a destination of economic wealth that is commendably  equitable. Analysing income inequality at the national level, researchers from The National University of Malaysia concluded that the distribution of national income in Malaysia from 1970 to 2014 was strongly inclusive. The lower income group enjoyed higher income growth compared to the middle and upper class, researchers found. From 2002 to 2014, Malaysia recorded an impressive average real growth rate of national income per adult  of 3.7 percent.  Portioning that growth, the research found that 43 percent of national income growth went to the middle 40% , 22 percent went to the bottom 50% and 35 percent went to the top 10%. 

Some credit must be given to policies such as the New Economic Policy of 1970, a controversial social re-engineering and affirmative action program that dolts out special privileges to the Bumiputera class. Although contentious, and rightly so, academics have argued that the NEP achieved its twin goals of poverty reduction and wealth distribution, especially to lift a poorer Malay class out of poverty (Lim, 2011). Specific government support to Malay SMEs, such as privileged access to suppliers or contracts, increased Malay competition in the economy and boosted their income growth (Heng, 1997). And the numbers showed it worked. Average income ratio for Malays against Chinese and Indians steadily fell after the introduction of the NEP.

After the introduction of the NEP in 1970, there was a noticeable fall in the difference of income for the Malays against the Chinese and the Indians (Thillainathan & Cheong, 2016)

The government might have one hand on the wheel. The other, frustratingly, is busy doling out business and political favours to friends and relatives. Malaysia’s economy could have driven further, had it not been hindered by crony capitalism and corruption. The Corruption Perception Index published by Transparency International, an NGO, gave a score of 53/100 (the higher score, the less corrupt) and ranked Malaysia 51 out of 198 countries. This unfettered authoritarianism anables ruling elites to siphon off taxpayers money into their own bulging pockets. 

In the same research from The National University of Malaysia, researchers stressed that although the middle 40% and bottom 50% benefited significantly from economic growth, the real winners are the ultra-rich Bumiputeras. In the top 10% and top 1%, the average growth rate of national income per Bumiputera was 5.4% and 8.3% respectively. Comparatively, the corresponding values for ultra-rich Indians are 4.6% and 3.4% respectively. These figures go lower for the ultra rich Chinese: at 1.2% and -0.5% respectively.

Sometimes, the government drives Malaysia in the right destination. Malaysia’s GDP is expected to grow 9 percent in 2021, the largest amongst ASEAN countries who recorded an average of 7.8 percent, according to the International Monetary Fund. Other times, it drives recklessly. The startling revelation that Malaysia’s debt careens north of 1 trillion ringgit reminded the nation that an incompetent government has severe consequences. A national bankruptcy could very well be a reality, had the government continued its reckless driving. 

Although there are much room for improvements, Malaysia’s centrist model of governance puts it on the right track. It is possible to achieve an equitable society that protects its weakest, while allowing its strongest to thrive on innovation and competition. A word of caution. While agents cannot observe Adam Smith’s invisible hand, they should glue their eyes sharpy on the Government’s visible hand. Too many wrong turns might careen Malaysia off a cliff, destroying its precious vehicle of economic growth. 

Bibliography 

Heng, P.K. (1997). The New Economic Policy and the Chinese community in Peninsular Malaysia. The Developing Economies, 35(3), 262–292.

Lim, D. (2011). Economic development: A historical survey. In Z.A. Mahani (Ed.), Malaysia: Policies and issues in economic development (pp. 1-38). Kuala Lumpur: Institute of Strategic and International Studies.