Privatization in Malaysia : regulation, rent-seeking, and policy failure

In recent years, privatisation has fallen out of favour in many countries because the underlying political factors have not been well understood. This book examines Malaysia's privatisation programme, focusing on how political constraints resulted in the failure of four major privatisations: the national sewerage company (IWK), Kuala Lumpur Light Rail Transit (LRT), national airline (MAS), and national car company (Proton). It considers why developing countries such as Malaysia might want to embark on privatisation, the factors that lead to policy failure, and what is needed to make it work. It shows clearly that political motives driving privatisation often dominate purely economic considerations, and thus it is necessary to analyse privatisation within the specific country context. It argues that failure in the Malaysian case was due to political considerations that compromised institutional design and regulatory enforcement, leading to problems associated with corruption. It concludes that privatisation does not necessarily improve incentives for efficiency or enhance the finance available for capital investment, and that successful privatisation depends on the state's institutional and political capacity to design and manage an appropriate set of subsidies. Overall, this book is a comprehensive examination of privatisation in Malaysia, providing important insights for understanding the political economy of this process in other developing countries.

Author Notes

Jeff Tan is a political economist at the School of Oriental and African Studies, University of London. His other research interests are in regulation, state capacity, industrial policy, institutions and governance.

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Privatization of public enterprises is a crucial issue, particularly for underdeveloped countries confronted with the conditions imposed by structural adjustment programs of the World Bank and other donor agencies. This well-written and properly documented study, based on the experience of privatization of some major public enterprises in Malaysia, demolishes the commonly held view that private enterprises are necessarily more efficient than public enterprises and that privatization necessarily improves efficiency. This study clearly outlines the circumstances and conditions under which privatization might fail and what policies would be needed to make it work. The author provides case examples on Malaysia's national sewerage system, rail transit, airlines, and automobiles. Policy makers will find the study's conclusions useful for formulating plans for privatization, and graduate students in economic development and public administration will also benefit from this study. Summing Up: Recommended. Graduate, research, and professional collections. J. S. Uppal SUNY at Albany

List of tables	p. ix
Acknowledgements	p. xi
Abbreviations	p. xiii
1 Introduction: why privatize?	p. 1
2 Privatization, rents and rent-seeking	p. 7
Why privatize in developing countries?	p. 10
Why may privatization fail?	p. 18
What is needed to make privatization work?	p. 33
3 Institutional and political failure: privatization in Malaysia	p. 39
Why did Malaysia privatize?	p. 41
Malaysia's privatization programme (1983-2000)	p. 52
Why did privatization fail?	p. 64
Conditions for successful privatization	p. 72
4 Universal access and private provision: Malaysia's national sewerage system	p. 78
Challenges	p. 80
Background	p. 82
Performance	p. 84
Problems	p. 90
Conclusion	p. 103
5 The myth of privatized urban rail: Kuala Lumpur Light Rail Transit	p. 106
Challenges	p. 107
Background	p. 111
Performance	p. 114
Problems	p. 123
Conclusion	p. 131
6 Perverse incentives: Malaysia Airlines	p. 133
Challenges	p. 135
Background	p. 139
Performance	p. 140
Problems	p. 147
Conclusion	p. 156
7 Rents and industrial upgrading: Proton	p. 158
Challenges	p. 161
Background	p. 164
Performance	p. 167
Problems	p. 179
Conclusion	p. 186
8 Summary and conclusion	p. 188
Notes	p. 196
References	p. 206
Index	p. 225

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