Elsa Lafaye de Micheaux is a French professor who specialises in political economy. Her latest book, The Development of Malaysian Capitalism, provides an overview of Malaysian capitalism through readings of its history since 1874.
It’s a comprehensive volume that, among others, fleshes out the policies during the British colonial era, criticises the New Economic Policy (NEP), and exams the country’s contentious relations with China.
Given that the general election is around the corner and Malaysia has been boasting about its macroeconomic indicators, we decided to tap her expertise on how to read the country’s capitalistic structure, as well as her thoughts on some of the economic issues that have been making headlines.
Our conversation, edited for brevity, follows:
Let’s start with a definition of Malaysian capitalism. How do you read it?
Well, let’s frame capitalism according to five institutions: competition, the role of the state in the economy, the labour nexus, monetary regime, and integration with the global economy.
These five institutions are very broad but they give shape to a functional machine, and there’s a hierarchy between them. Note that each country arranges these institutions differently.
So you are saying there is an order among the five and this order, of which is above the other, is determined by the state? Like a hierarchy of institutions?
Yes. So for Malaysia, it has a functioning and consistent model of capitalism. At the pinnacle of this structure is the role of the state in the economy. This began after the New Economic Policy or NEP, which was a major shift for Malaysian capitalism.
Before the NEP, the country went through what was called the laissez faire period, brought in by the British. During this period, integration with the global economy was at the top of this hierarchy because everything that was done, was done for the export market – to make Malaya a lucrative colony.
But after the NEP, this was stopped or cut and the role of the state in the economy took the top spot, meaning capitalism now ran for an internal political agenda.
Remember, after British rule and the end of the colonisation period, Malaya/Malaysia was supposedly the most lucrative colony of the British Empire. But society was poor. The people were very poor. Malays were poor. Half of the Chinese were poor. Even after the May 1969 riots, right until the 70s, society was poor.
So the NEP changed the hierarchy of the institutions framing Malaysian capitalism by putting the state at the summit. And this has been kept all along until today. Najib Razak, when he came to power, I believe he is a liberal, educated man.
And he thought the role of the state was too much, especially that the government-linked companies (GLCs) were too big and possibly overcrowding investments. So he said he would reduce the role of the state in the economy.
But after a few months, I believe he realised how powerful this tool was and how deeply it affects policies because of the channels of the GLCs. Terence Gomez’s work, Minister of Finance Incorporated, describes these links very well.
Second in the hierarchy is integration into the global economy. The late Abdul Razak in 1972 decided to open the economy to foreign investment to create jobs and industries. Razak was a nationalist but decided to open the door to external investments. Now this could be deemed contradictory but not when you let them enter only to use them for your own purposes.
During the British era, money was sent back. So profits and dividends went back to Europe. Now fast forward to the NEP era, at that time, Penang wanted to attract these big electronic companies such as Intel, and the main problem on the island then was unemployment.
The issue was not competitiveness or being superior – it was feeding the population. Here’s where it gets interesting, the strategy was to get these companies to come and entice them to set up their base, but they could not push the wages too low. Malaysia wouldn’t accept that.
So they protected the future of the workers in the factories, as well as their living standards. That's very powerful because workers can live off their work and turn into a class of consumers, or local consumers, which was not the case during the British time.
Then third is monetary policy. For Malaysia, it is adjusting according to the needs of the international community as well as the political aim, and the political aim here is growth. So for Malaysia, the monetary policies are pro-growth. It’s not so much controlling inflation, but easing growth.
Fourth is competition. In this country, competition is very much the result of the role of the state, international foreign investments and so on.
And fifth is the labour nexus, the subaltern dimension. It has never lead the country’s capitalism structure and dimply adjusts according to the global economy.
Now for Malaysia, there are two types of labour: documented and undocumented. Usually, it is foreign labour. So, when the economy booms, foreign labour adjusts; if the economy slows down, you terminate their services.
So that’s the structure of the Malaysian capitalist system, according to how I read it. It’s consistent and powerful. If you are in Malaysia, you may think the economy is less booming than few years ago, but if you come from Europe, like myself, you can feel it’s totally dynamic.
But I have to add, it’s nothing to be praised, because it is all the result of a local and national and very idiosyncratic political struggle – so it is the result of political domination of one party for more than 50 years, and more specifically, the continuity of power since the NEP.
Now given that you have the researched the NEP, with hindsight, what is your assessment of that policy? Was it the right one to introduce during that period?
Personally, no. It was ignoring the fact that not everyone who were poor were Bumiputera. The problem was not a race problem; it was poverty problem. It was the result of the British establishing capitalism in Malaysia in a segmented way and on a territorially uneven way.
But I have to qualify that I am making this statement as an observer. The NEP has created a functional system, and a consistent one. But in and of itself, that’s what the second chapter of my book deals with, and it criticises the NEP.
During my research, I was reading about the myths that the late James Puthucheary was clearly debunking – that the Chinese were rich and the Malays were poor, “that we can redistribute to the Malays and it will solve the problem”.
In my opinion, the problem at that time was – and I don’t mean to borrow from the Marxist vocabulary here – mystification. There was a mystification during the British time.
I was impressed by the book Tragic Orphans by Carl Vadivella Belle. Have you read the book?
No, I have not.
What have you been doing?
I ask myself that question every day. And you were saying?
It’s perhaps one of the best books to come out of Malaysia in the last few years. It’s about the Malaysian Indians. They are the “orphans” of society, they belong to this society but they are treated like orphans. And the book is spot on.
Khazanah Research Institute (KRI) wrote an interesting report on social mobility not too long ago; about climbing up the ladder. Malaysians have been climbing up the ladder over the last 30 years, but there is one group where that ascend is not so clear.
For example, and this is just a rough estimate, maybe 60% of Malay children from families without formal education, go to university. That’s an incredible achievement. Even if you criticise the level of the universities, and the systems that promote the Bumiputera at the expense of others – a society where in one generation, you get children educated when their parents aren’t is an achievement.
For the Chinese, and again I am estimating here, somewhere below 45%... but the Indians is roughly 19% or lower. That means if you are not educated, there is no ladder in front of you. These are the “tragic orphans”. It’s a very good book and when you look up the KRI report, you’ll find the same story.
So the mystification during the British period was the type of colonial rule that was practiced: indirect rule. So this meant maintaining the Malay rulers at the top of the political power, at least in appearance. For the Malay society, in the kampung, in the east coast, or even in Perak, the ruler stayed the same. What we call kerajaan was maintained; nothing changed.
The British then kept this idea of a status quo – that nothing has changing – but at the same time, they brought in capitalism at a very large scale. To accomplish this, they needed workers, and back then, it was immigrants from China and south India.
But, you know what? Everything changed, and in 1957, when there was independence, a lot of people could not grasp the fact that Malaya and later Malaysia was something completely different from they perceived it to be.
So, in 1957, about 75% of the Chinese were born in Malaya. Half of the Malays, they were from Indonesia; they were immigrants. A sizeable number of Indians were not new and born in India and worked there but were given entrance into Malaya.
And during this period, some quarters demanded special rights for the Malays and the British allowed it… to me that is the mystification. During the Razak period, the administration never admitted that this was a mystification, as highlighted by Puthucheary.
Everyone formed Malaya and Malaysia and this is the country that had to be ruled. The tragedy of 1969 should have been the moment the NEP was put clearly in front of everyone.
But the contrary had been done. Bumiputera means son of the soil, but who is the son of which soil? Because everyone came from everywhere. It’s not like that saying of leaves of the same tree.
So this mystification is to imagine that the Bumiputera means something and the NEP was used to transform this mystification into something tangible and with a lot of effects. And this system relied on one consensus: a national consensus.
In Malaysia, the consensus is that there must be a redistribution towards the Bumiputera, and this was accepted as a consensus because it had to be done for society to continue and for the system to work.
Since we were talking about the Indians earlier, I have always wondered if they are an underclass. Is that so?
When I was reading the KRI report, I had the feeling that for most Indians, there was no ladder in front to climb. There was no social ladder for them.
Personally, labelling the Indians as an underclass is too much, because the Indian class itself is very diverse. And you find that the sentiment towards the political party championing the Indians reflects that diversity – the MIC is not very popular.
The working class Indians, in my opinion, are the exact definition of the proletariat, because they only had their hands to give them wages. Especially the plantation workers.
In my book, I highlight the different revenues among ethnic groups. There were a lot of debate about that in the 70s and 80s. If you study it, you’d see that the average wage of the Malays were lower than the Indians and Chinese. But, look closer, and you’d find that the Malays were mostly peasants or petani and they had rice fields, gardens, etc. All of these were not sold, or at least most of it weren’t, so revenue was low, but they enjoyed a “not-so-poor” life.
And if you put a price on what they were consuming daily according to their living conditions, the wage or revenue is definitely much higher. Also, they owned land and this was not factored into the revenue, yet it is a source of wealth.
This bit here is very important, and makes a huge difference between them and the others. Then, you look at the Indians in the plantation… a salary is a salary – nothing wrong there. But they did not own property – the rubber estate which they worked was not theirs – and no extra possibility to have some food. None of those.
Taking all these into consideration, the Indians were hit with poverty much harder, because they could not escape; they had no wealth.
What policy do you think would have helped alleviate this problem, or provide that social ladder across the ethnic divide?
The 1Malaysia policy. It was non-racial and a very good attempt at that. But it was too quickly abandoned. I believe those the poor would have benefited from such social help; it certainly would have opened that social ladder for them.
Now, on paper, Malaysia has been smashing its economic indicators, especially the macros. But people are complaining. You name it, inflation rates, rising living costs. What’s your assessment of the situation?
That’s a very complex question. To answer that, I would say it depends on which category are we talking about. It differs between skilled and unskilled workers, for example.
Yes, the goods and services tax makes some price, even primary goods, higher. Even if it was written off as zero-rated on selected food items, when you depend on the local seller, and if he raised the price, you can’t escape. So, to a certain degree, the tax has had an impoverishing effect on the lower classes.
But, we are also buying items that are very expensive. When paying for your iPhone and data plan are a big part of your revenue, and you are forced to adjust, then you will not feel any richer as per what the national reports are saying. Generally, we are not consuming exactly the same things today than before, so some items are very expensive and that would shock some people.
The other major thing, and this might be more fascinating, is about people who complain about the very fact that they are middle class but should feel richer because per capita GDP is increasing and yet they don’t feel it.
Consider that the middle class would also consist of academics – they might belong more towards the upper middle – and also journalists. They all say the exact same thing, “We couldn’t recharge financially”.
But it’s always the same story. When you look at this class – and factor in Malaysia’s income progression – and take into account that the lower and upper classes have made progress, and that the middle class is, well, in the middle… they see the poor coming closer and the rich going further, so eventually they – those in the middle – think they are becoming poorer.
I bet that would tick off some people reading this.
Well, from my studies, in every society, when you see the middle class complaining that they are getting poor, just look at the progression of revenue from the lower income group. That’s your answer right there.
Let’s wrap this up. There has been a lot of concern about China’s growing influence in the Malaysian economy. Gives us some insight into what’s going on there.
It’s a very comprehensive relationship, and it’s getting deeper each day. This is especially evident during Najib’s time; he is the prime minister in a time where China made a huge leap into the Malaysian economy.
Before, this relationship was more of a people-to-people type. Malaysian Chinese doing business with Chinese from China. Then, it turned to be a state-to-state relationship and now the state is giving the directions. So you have Malaysian GLCs and Chinese state companies coming into contact with each other, as well as the political powers making these contracts happen.
So trade has changed over the last few years. China’s dominance was because of the 2008 global finance crisis when the US and Europe collapsed, and since then, China has remained a very important partner.
This means the progress of trade is already behind us – today’s story is a new one, of growing investments. I have the data of Chinese investment into Malaysia, and the boom happened around 2013 or 2014.
By the way, I did write a very extensive book on Malaysia-China relations. It’s written in French but it deserves an update, so it will be republished with the English translation following suit.
Now, this relationship does change the landscape. It can also change some of the values, from the way you work to the country’s ecological agenda. But it also brings activity and projects.
From my point of view, what is interesting is that China’s model of capitalism is similar to Malaysia’s, whereby it’s dominated by a political agenda. State relations with the economy is at the top of the framing of Chinese capitalism.
This means both countries can understand each other very well. So the relationship is sustainable; it doesn’t go against Malaysian capitalism. Bilateral relations are excellent. Both are adjusting their monetary policy in a way that are beneficial for each other.
For Malaysia, it is organising its institutions to answer China’s needs and wishes but it is not in a way that’s destructive.
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