Politics and Economic Reform in Malaysia

Abstract

Malaysia’s admirable economic growth is often attributed to liberal, open economic policies. Aggregate measures of openness, however, often veil the way coalitional politics drove illiberal government intervention in the economy to correct ethnically based economic inequality, create national heavy industries, and favor politically well-connected entrepreneurs. A more nuanced analysis reveals a complex mix of liberal and illiberal economic policies designed to balance competing coalitional interests. These policies created a “dual economy” that successfully replaced growing political and social instability with rapid economic growth sufficient to support redistributive politics. Yet this same dual economy also slowed further reform and retarded technological development, leaving Malaysia mired in mediocrity: neither price competitive with China nor technologically competitive with Singapore, the East Asian NICs, or the OECD countries.