January 7, 2021
thoughts on
National Reset

Malaysia – Internal and External Challenges to Stability

January 7, 2021
Organized by:
ISEAS Yusof Ishak Institute Regional Outlook Forum 2021
Featured on:
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The state of the nation demands that we strive for discontinuity and the chance to reset.

Speaker Summary:

Nazir believes that Malaysia needs a system reset. From his position as former CEO and Chairman of an ASEAN bank and Malaysian GLC he has had a front row seat on Malaysian politics and its complicated relationship with the private sector. He would share a historical analysis of the Malaysian political economy and perspectives of how it has shaped Malaysian governance and business operations today. From its first electoral hurdle in 1969 to the 14th General election in 2018, he believes that the system has grown to be dysfunctional regardless of who is in power, as they too would fall into the same destructive incentive structures. Malaysia is plagued by a ‘three-headed monster’; money politics, identity politics and power concentration. It is a dangerous combination for a country like Malaysia whose political economy consists of strong linkages between business and politics which has led to the political impasse observed today. He, like many Malaysians are in search for a better Malaysia and via his research initiative explores areas of reform which include new institutional rearrangements to have an effective ‘referee’ to political competition, clear separation of business, government and politics, electoral reforms and exploring new social contracts between communities. Unless resolved, the three-headed monster will continue to stagnate economic and social development for the country. He remains optimistic that there is a better Malaysia for all.

Talking Points:

Thank you to Yusof Ishak Institute and Forum Secretariat for having me; I am thrilled to share this platform with Datuk Seri Shafie Apdal: I am a keen observer and was a bit player, Shafie has and still operates deep inside the Malaysian system. Today I will be talking about my perspectives on Making a Better Malaysia and it will be a privilege to hear his comments, as well as those of our moderator Dr Lee who I know has studied the NEP extensively. 

For over 30 years, I had a front row seat observing the workings between the government and the private sector: I had a 29 year career at CIMB, one of the largest GLC banks; served 12 years on the EPF Investment panel and 4 years on the Khazanah board; and since 2018 have been running Ikhlas Capital, an ASEAN Private Equity firm. In 2019 I was a Visiting Fellow at the Blavatnik School of Government, Oxford University where I focused on Nationhood Recalibration, looking at preconditions for systemic reforms and thus the opportunity to reflect on what I saw and learnt about Malaysian politics, economy and business. 

The turn into this new year was especially poignant to me, because we passed 2020; I vividly remember when Mahathir launched Vision 2020 back in 1993 and the sense of bravado it fuelled at the time when our economy was growing at 8-10%, and apparently only 7% was needed to get us to developed nation GDP per capita by 2020. Vision 2020 wasn’t just about the economy, it also envisioned a “united” Malaysian nation – or a bangsa Malaysia - by then. We achieved neither and sadly our politics has become so dysfunctional it is hard to imagine how we turn things around.

What is the problem?

I am of the view that Malaysia needs a system reset or nationhood recalibration. Vision 2020 is but one of a long list of great ideas and plans that went awry - the Multimedia Super Corridor, the New Economic Model, Economic Transformation Plan to name some others. 

The heart problem in my view is that Malaysia is plagued by a three-headed monster; money politics, identity politics and concentration of power. And the best of intentions and plans get munched up by this monster. To illustrate why I say that, I will briefly reflect on how the system evolved.

Historical analysis

Malaysia inherited the Westminster system from the British and the system failed at its first real hurdle in our GE3 in 1969. We then had about 21 months of Emergency Rule during which the system was recalibrated with the introduction of Rukun Negara or National Principles, sedition laws against raising sensitive or inflammatory issues in public, the New Economic Policy to eradicate poverty and rebalance wealth between races and a grand coalition government or Barisan Nasional. 

The authors of the 1970 new system however acknowledged that they were innovating out of desperation and that the system needed to be reviewed from time to time, yet after 50 years it still remains substantially intact. In the case of the NEP, there was even a specific time-frame of 20-years. 

Whereas NEP was originally all about mobilising the public sector to accelerate growth and facilitate redistribution, in the early 1980’s the introduction of the “Malaysia Inc” policy saw a shift in emphasis to the private sector, then amplified by the privatisation policy. Ironically Malaysia Inc actually increased the influence on the government in the economy with decisions on sale of government assets and public-private partnerships adding to government companies, licensing, regulation and procurement. The NEP was then used to justify the opacity in decision-making from privatisations to ubiquity of government contracts to identifying businessmen to be backed by the government and state banks. To be clear, it wasn’t just bumiputra businessmen built this way; the government also helped non bumiputra ones. 

The reason why the system had to be opaque was to enable politics to take precedence. In the mid 1980’s there were intense contests for UMNO party posts and little to prevent candidates from using cash or contracts to win support. I saw, at first-hand, IPO share allocations for bumiputra diverted from savings institutions for the masses, to individuals for political support. I saw at first hand directed lending by banks to businessmen with very little idea what they were doing. 

In a further twist, I saw businessmen who were capable to be successful on their own find that once you get to a certain size and prominence the monster comes to find you. If they don’t feed the monster then it comes to bite you - contracts blocked, licenses not renewed.  

The cancer of money politics took on another dimension when BN and UMNO’s electoral support began to wane in the late 2000’s. Huge amounts of money were mobilised to support national campaigns for the parties themselves. This of course was the genesis of the 1MDB debacle.

That 1MDB happened over a long period and to such extent was symptomatic of the concentration of power in the PM’s office which can be traced back to the mid 1980’s when the powers of the judiciary, civil service and Rulers were systematically curtailed in favour of a “the Dr knows best” system. 

The highly centralised system led to sub-par decision. It rarely came down to analysis, debate and merit. If you had the PM’s ears the path would just open up for you. I would argue that these led directly to companies or conglomerates rising on political access as opposed to business acumen, and most were brought down to earth by the Asian Financial Crisis. Many of their businesses were nationalised into GLC’s which of course also meant that there has been no change in the their presence in the nexus of politics and business. 

When PH came to power in 2018 I, like many Malaysians, was optimistic that we were on the path to major reforms, not least since that was what their manifesto said. Instead their failure to neither reform much or stay in power long reaffirmed how the system is in a log jam. When in power, PH had to compete against the outbidding by the UMNO-PAS alliance and couldn’t even deliver relatively benign reforms like signing ICERD or endorse UEC. On its part, DAP also struggled to hold on to its base as it had to moderate its position of communal issues. 

I compare Malaysia’s system with a badly written play, no matter how good the chosen actors are, the play will still be bad. What we need to change is the script itself.

What is the solution?

In partnership with some academics and civil society I have embarked on a 6 month study to gather the view of Malaysians across various spectrums of society directly and digitally at mybetterfuture.org. Our aim is to describe what a better Malaysia could look like and convince people that it is worth embarking on a system reset.

Malaysia is fortunate to have gone through the process of a reset, back in 1970 we set up a NCC, comprising 67 people that represented a cross section of society from politicians to businessmen to trade unions to religious groups and so on. In the safety of a deliberative platform they rigorously debated what needed to be done to bring the country back from the abyss of racial strife which led to the reforms I mentioned earlier.

Interestingly the deliberative platform as an alternative to parliament of elected representatives is gaining significant currency around the world. We can think of James Fishkin’s America in one room, Belgium’s Ostelbelgian model and of course the Irish Citizen’s Assembly that debated the hugely controversial issue of legalising abortion. It is clear to me that there is room to innovate the basic democratic structures that we have become accustomed to, where we elected one person to represent us on every issue for 4 to 5 years. And we find that most of the time they don’t speak for us but in accordance with the instruction of the party whip and always with a view to the timing of the next election. How can that be a good platform to discuss long term structural issues, to negotiate a new deal of the scale and complexity that Malaysia now needs? 

What would be the key foundations of a Better Malaysia? At the risk of pre-empting the results of the study I would suggest- 

  • New institutional arrangements to have an effective referee to political competition
  • Clear separation of business, government and politics
  • Electoral reforms with some form of proportional representation
  • New social contracts between communities and between the government and the governed
  • Greater clarity in the role of Islam and the state

This project cannot just be an academic exercise, it has to be implementable and realistic. The immediate goal of the project is to garner support for the setting up of another NCC-like deliberative platform. Perhaps starting with support from Warisan?

In tying back with the forum on Malaysia’s political economic outlook; my view is that we need to be brutally honest and acknowledge that the system no longer works. Unless we take that bold step, my fear is that we continue to plod along and remain in this state of subpar economic growth, dysfunctional politics and divided communities. The state of the nation demands that we strive for discontinuity and the chance to reset. And if the conventional wisdom is that resets need a proper crisis then perhaps this is the year :- Either COVID-19 or that we do no not have anyone with enough MP support to form government.

Thank you