less competitive, and government-subsidized local
firms producing for the domestic market.
This combination of economic policies fostered
rapid economic growth, the creation
of an impressive physical infrastructure, capable
macroeconomic management, and a broad
foreign-led manufacturing industrialization.
Nevertheless, these same policies later retarded
further development by obstructing the creation
of new stocks of knowledge and skills. Thus,
despite its explosive FDI-led export growth,
Malaysia remains mired in technological mediocrity,
unable to overcome the ‘‘microlevel
rigidities’’ that keep it from achieving the same
developmental level of the East Asian NICs. 5
As more and more FDIis diverted to China,
Malaysia faces a potentially suffocating structural
squeeze: neither price competitive with
China nor technologically competitive with Singapore,
the East Asian NICs, or the OECD
countries.
Policies most detrimental to Malaysia’s technological
progress have been those that have
alienated key economic actors, particularly the
entrepreneurial small business class and labor.
Policy incentives artificially restricted firm
growth, making the ‘‘Kaldorian’’ technological
progress associated with economies of scale difficult
(as opposed to Korea). They limited the
government’s ability to acquire technology on
behalf of smaller firms (as opposed to Taiwan).
They reduced incentives to forge productive
linkages between local firms and the government
(as opposed to Japan). They created competitive
and isolated bureaucratic agencies (as opposed
to Singapore), and they restricted the linkages
between upstream and downstream producers
(ubiquitous in Japan and all the NICs).
In the end, then, Malaysia does appear to be
a critical case, but not as a shining star of openness,
growth, and development. Rather, it
shows that growth alone is insufficient to reconcile
path-dependent institutional legacies with
the rising demands for technological upgrading
necessary for sustainable development in an
increasingly liberal global economy. My argument
is that early economic policies successfully
balanced competing and complimentary demands
for growth and redistribution. But as
economic tasks changed from accumulation to
innovation, previously neutral or beneficial policies
and institutions became problematic, leading
Malaysia to ‘‘grow into trouble.’’ Whether
Malaysia can resolve these institutional legacies
depends critically on the political incentives of
its changing coalitional politics, which, with
Mahathir stepping down after more than 30
years in power, are in as much flux as at any
time since independence. In particular, Malaysia
must more fully incorporate labor and small
business in its development enterprise through
institutional configurations that foster participation.
6 While it is true that some countries,
notably Japan and Korea, developed without
labor and small business’s participation, this
was only possible within the anachronistic
‘‘technonationalist’’ development environment
of the cold war. 7 The ‘‘technoglobalist’’ development
strategies that developing countries are
constrained to use today depend on greater
participation, facilitated through different political
institutions and configurations of labor and
capital. 8
In the rest of this essay, I first explore briefly
the origins of coalitional politics in Malaysia.
Since coalitional politics is not the only variable
that matters, my arguments are necessarily
probabilistic, 9 but not in any minor sense:
Coalitional politics have been and continue to
be a primary driver of the Malaysian political
economy. Importantly, I define coalitional politics
not just within the narrow interplay of
communal preferences, but extending to all actors
who receive benefits in return for political
support. Although the coalition was initially
formed around ethnic considerations, it changed
over time to emphasize large capital interests,
albeit without ever abandoning entirely
its racial foundation. Subsequent sections then
explicate how coalitional politics impacted economic
policy change and reform during the
implementation of the New Economic Policy
(NEP) beginning in 1970–71 and lasting until
roughly 1986; the decline of the NEP in the late
1980s and implementation of the New Development
Policy (NDP), which spawned a period of
liberalization and privatization lasting approximately
until 1996; and the Asian financial crisis
period from 1997 to the present. As part of the
discussion in each section, Ievaluate how institutions
created in response to economic policy
shaped technological development in current
and later periods.