BOOKS : POLITICAL BUSINESS 
International Herald Tribune
April 29, 1994
George Hicks

POLITICAL BUSINESS: Corporate Involvement of Malaysian Political Parties

By Edmund Terence Gomez. 329 pages. 31 Australian dollars. James Cook University of North Queensland.

Reviewed by George Hicks

THIS is one of the best studies of the interaction of business and politics in any of the East and Southeast Asian economies. Almost everywhere in Asia business and politics are deeply entangled. The corrupting influence of money politics is probably best documented in the case of Japan, although in recent years China has produced the most spectacular examples, with even the People's Liberation Army appearing to put more effort into moneymaking than military matters.

Before the publication of Edmund Terence Gomez's book, the classic study of the Southeast Asian scene was Andrew Macintyre's "Business and Politics in Indonesia." In Indonesia, big business is mostly in the hands of the state or the Chinese. This is a very different from Malaysia, where Malay-controlled enterprises now share economic power with the Chinese.

This however is a relatively recent development. At the time of the traumatic race riots in Malaysia in 1969 the majority Malays owned less than 2 percent of the share capital of limited companies with the rest being in Chinese and foreign hands. In response to the riots, the Malay-dominated government introduced the New Economic Policy, which aggressively discriminated in favor of the Malays. By 1990 the Malay share of the nation's share capital was more than 20 percent, not far short of the government's 30 percent objective.

Indonesia had no equivalent to Malaysia's NEP and as a result business has remained in Chinese hands and the Malaysian story described by Gomez is radically different. I hope that in subsequent work he turns his attention to a comparative study of Asian business and politics.

The picture that emerges from this book is one of corruption and misallocation of resources on such a massive scale that it bodes ill for the future of the country's economic development and political stability. The popular view of Malaysia, led by the flamboyant Prime Minister Mahathir bin Mohamad as a budding "tiger economy" about to join the likes of Taiwan, Singapore and South Korea, is probably false.

Certainly GNP and per capita income have grown tremendously but most of the benefits of the growth have accrued to a relatively small group of well-connected Malays. Income distribution has - to use his word - become much more "jagged." Instead of achieving more equitable wealth distribution as intended, the NEP has resulted in "extensive and increasing concentration of ownership in the hands of an elite minority - who enjoy strong political ties."

This unhealthy pattern of growth developed because Malay capitalists have thrived only with "either heavy assistance from the state or by acting as proxies for political patrons." The government policy of favoritism has "allowed the Malays unequal access to rent opportunities, such as loans, licenses, and contracts - distributed by the state - for the expansion of their corporate holdings." According to Gomez the new capitalist class "are not real entrepreneurs, but rentier capitalists."

Another unintended outcome of the NEP that indicates skewed wealth concentration is the emergence of the large conglomerate. "Conglomeratization" is an ugly word to describe an ugly process that was achieved by easy access to funds from government-owned banks and various market strategies available only to the politically powerful. As a result the economy is now dominated by "politicized oligopolies" if not outright monopolies. Broadcasting, newspapers, magazine publishing and television are already "well consolidated under the control of businessmen who keep strong ties with powerful political figures" - a free press is a receding memory.

Gomez defines "money politics" as "The use of money and material benefits in the pursuit of political influence." Its corollary is "political rents, that is economic gain derived through the use - or abuse - of political power." This is the essence of the system ruled over, and largely developed by, Mahathir. Although the Chinese and Indian political parties also entered the business arena it is the dominant Malay party presided over by Mahathir that has been the main beneficiary of the system. Through its control of the state, the party was able to give "business opportunities and award lucrative contracts to party-owned companies."

Gomez argues that in the long run this triumph of money politics is likely to prove profoundly destabilizing. It has led to ugly factionalism and power struggles, with a disruptive impact on legitimate business. Most dangerous is the fueling of ethnic tensions. With the communal parties developing their corporate holdings this will probably lead to ethnic conflicts over clashes of business interests.

George Hicks, an economist and the author of several books on Asia, wrote this for the International Herald Tribune.

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