IN this second article, on political economy issues that must be considered by political parties as they prepare for the 14 thGeneral Election, my focus is on modes of government intervention in the Malaysian economy. It is well-known that the government actively intervenes in the economy, primarily through the employment of government-linked companies (GLCs). However, what is not well-known is that federal ministries, under the control of cabinet ministers, also have control of GLCs.
Currently, in the Malaysian federal cabinet, there are 25 ministries. Of these 25 ministries, the Prime Minister’s Office (PMO), Ministry of Finance (MoF), Ministry of Rural and Regional Development (MRRD) and Ministry of Science, Technology and Information (MOSTI) can be classified as the ‘Big Four’ as these ministries have control of an extremely large number of GLCs. This figure indicates the scale and scope of the business involvement of the MRRD, while I have reviewed the involvement of MoF in the economy in my recently published book, Minister of Finance Incorporated: Ownership and Control of Corporate Malaysia.
Other ministries employ GLCs, with differing levels of corporate presence. For example, the Ministry of International Trade and Industry (MITI) has a low level of corporate presence, while the Ministry of Agriculture and Agro-Based Industries (MOA) has a much higher degree of business involvement. MITI, however, has oversight of important enterprises such as the Halal Development Corporation, which is responsible for creating a global halal hub with a focus on production and the trade of such products and services. Ministries without GLCs are the Ministry of Women, Family and Community Development, Ministry of Youth and Sports, Ministry of Urban Well-being, Housing and Local Government, Ministry of Natural Resources and Environment, Ministry of Foreign Affairs and Ministry of Health.
The Big Four, however, merit crucial attention, as these ministries have a direct interest in some of Malaysia’s most prominent GLCs. For example, Petronas, the Federal Land Development Authority (FELDA) and Amanah Raya, all enterprises that own numerous subsidiaries, are under the purview of the PMO. Similarly, MoF controls important institutions such as the sovereign wealth fund, Khazanah Nasional, and the extremely well-endowed savings-based Employees Provident Fund (EPF) and
Kumpulan Wang Amanah Pencen (KWAP) which, in turn, have investments in a range of enterprises in most sectors of the economy. MoF Incorporated, the ministry’s holding company, is an extremely influential enterprise given its ownership of more than 100 GLCs that are active in various sectors of the economy.
However, some companies owned by MoF Inc. are under purview of other ministries, relevant to their sector. For example, MRRD controls GLCs through important institutions such as Majlis Amanah Rakyat (MARA), Federal Land Consolidation and Rehabilitation Authority (FELCRA), Rubber Industry Smallholders’ Development Authority (RISDA) and Lembaga Kemajuan Terengganu Tengah (KETENGAH).
On the other hand, MOSTI, which oversees the development of science and technology-based firms, employs GLCs directly without any intermediary. Important GLCs employed by MOSTI include MIMOS Bhd, Technology Park Malaysia Corporation Sdn Bhd and Austronautic Technology (M) Sdn Bhd.
While the extent of these ministries involvement in the economy may confound many people, there is a reason for this form of government intervention. This diversity of ownership and control of GLCs by different ministries is primarily due to their need to serve different social and economic development goals and objectives. GLCs have long been actively employed by the Malaysian government as developmental tools to industrialize the economy, nurture domestic enterprises, including Bumiputera-owned firms, and redistribute wealth more equitably among ethnic groups.
Each ministry has clearly delineated social and economic goals that it must strive to achieve. For example, FELDA, under the PMO, was introduced as a land reform initiative to reduce poverty as well as develop rural areas through participation in the production of a major commodity, palm oil. FELDA is recognized worldwide as a major success in helping to alleviate poverty through land reform. FELDA has also produced a successful agribusiness sector.
EPF, controlled by MoF, is a retirement savings institution that is responsible for the savings of over 14 million employees. EPF has investments in a huge number of primarily publicly-listed firms, without control of these firms. MARA, under MRRD, has also benefited Malaysians over the years by providing education to under-privileged students by establishing boarding schools, Maktab Rendah Sains MARA (MRSM), all over the country. Through these schools, MARA has contributed to the creation of a Bumiputera middle class, an issue recognized by a number of developing countries.
GLCs under MOSTI have been helping potential entrepreneurs to invest in R&D to innovate and create enterprises in the fore-front of technology. For example, Malaysia Venture Capital Management Bhd (MAVCAP), a GLC under MOSTI, has effectively played this role. One central role of the government, in its endeavor to industrialize the economy, is to ensure funds are channeled to fledgling domestic firms as a means to create a large entrepreneurial enterprise base that generates employment and develops niche industries.
Indeed, such government-business ties were employed by Japan, South Korea and Taiwan when they embarked on their industrialization drive. The Malaysian government’s ideas around its ‘Look East’ policy, introduced in the early 1980s, were built on the success of these East Asian economies to generate rapid industrialisation and nurture thriving entrepreneurial firms.
However, for all the good that government intervention through these ministries’ GLCs has done, concerns have emerged about the government’s vast ownership of companies. One issue that merits attention is that many politicians serve on the boards of directors of GLCs under the purview of these ministries, evidently a form of political patronage. Another issue, involving specifically the Big Four, is about serious allegations of corruption linked to GLCs controlled by them. Among the most notable scandals include those associated with FELDA, under the PMO, and MARA, controlled by MRRD. GLCs linked to MoF have also been implicated in scandals, with the most noteworthy one being 1MBD.
Crucially too, PMO and MoF are ministries controlled by the Prime Minister who also serves as the Minister of Finance. This concentration of economic power in the office of the Prime Minister is an issue that has to be redressed given mounting criticisms, especially by civil society, about the large number of corruption cases involving GLCs.
What is evident is that government intervention in the economy through GLCs owned by ministries can be developmental in nature, seen especially in the case of MOSTI, while also serving as a mechanism for the practice of patronage and the site of much corruption. History has shown that ministries can effectively utilize GLCs to help fulfil their social and economic goals. But reforms are now imperative. These reforms include ensuring that the Prime Minister relinquishes his role as Minister of Finance to foster some check and balance in cabinet.
The management of all GLCs has to be in the hands of qualified professionals and politicians should not be allowed to serve as directors of these firms, a reform, interestingly enough, introduced by former Prime Minister Abdullah Ahmad Badawi, though his focus was primarily on what has been termed as government-linked investment companies (GLICs) such as Khazanah, EPF and KWAP, as well as publicly-listed GLCs. Another reform to ensure checks and balances in the system would entail channeling responsibility for oversight of the GLCs to parliamentary select committees to ensure they are managed well and in a transparent and accountable manner.
The Big Four, specifically the PMO, MoF and MOSTI, still has much to do to ensure new industries have adequate access to funds to drive industrialization, while MRRD must continue its focus on alleviating rural poverty and developing under-industrialized areas. But with scandals emerging as a worrisome norm from these ministries involvement in business, a progressive form of state intervention is being deeply undermined. With a general election impending, now is the time to compel politicians to commit to a devolution of power to oversight institutions to ensure such abuse of GLCs is stopped.
Terence Gomez is Professor of Political Economy at the Faculty of Economics & Administration, University of Malaya and Senior Fellow at the Institute for Democracy & Economic Affairs (IDEAS). This article was co-written with Juwairiah Tajuddin.
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