Privatization in Malaysia: Regulation, Rent-seeking and Policy Failure
1 Jan 2007
In recent years, privatization has fallen out of favour in many countries because the underlying political factors have not been well understood. This book explores privatization in Malaysia, focusing in particular on how political constraints resulted in the failure of four major privatizations: the national sewerage company (IWK), Kuala Lumpur Light Rail Transit (LRT), national airline (MAS), and national car company (Proton). Considering why developing countries such as Malaysia might want to embark upon privatization, the factors that lead to policy failure, and what is needed to make it work, it shows clearly that political motives driving privatization often dominate purely economic considerations, and thus it is necessary to analyze privatization within the specific country context. The author 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; and concludes that privatization does not necessarily improve incentives for efficiency or enhance the finance available for capital investment, and that therefore successful privatization depends on the state's institutional and political capacity to design and manage an appropriate set of subsidies.