[2844] Evolution of corporate ownership in Malaysia

Terence Gomez is embarking on a massive project investigating quantitatively the influence of government-linked companies in the Malaysian economy. The dominance of government in business and in the economy is no mystery. What is special here is that he is analyzing the numbers more comprehensively than many had done before. He is currently focusing his research at the federal level but if I remember correctly, he plans to delve into state level bodies, looking into bodies like Kumpulan Perangsang Selangor, which are much less known than those like Khazanah Nasional.

Together with Jomo Kwame Sundaram, Gomez in 1997 wrote the go-to book — Malaysia’s Political Economy: Politics, Patronage and Profits — exploring the ownership of corporate Malaysia in the 1990s and its links to politics, namely Umno. To understand political financing during the Mahathir era, this is the book to read.

The scale of Gomez’s latest project on ownership is larger than anything available before. There have been work done on corporate ownership in Malaysia after his 1997 book but they provided only partial view of the whole story while nibbling at the edge.

Gomez in his lecture, which I attended at the University of Malaya earlier this year (and later at an event organized by the Institute for Democracy and Economic Affairs; Ideas is funding of the project) made the connection between previous ownership literature and showed how the majority ownership changed from the 1950s to the 2010s, the present time.

He is continuing the work pioneered by James Puthucheary, who back in the 1950s went through official colonial and Malayan documents to understand who owned what in the economy. Through that, he corrected the idea that the Chinese had controlled the economy when in fact it were the Europeans. Gomez mentioned Lim Mui Hui’s work as the other important literature in the 1970s tracing capital ownership in the Malayan-Malaysian economy in the early days of the New Economic Policy period.

Gomez in his lecture showed just as Puthucheary demonstrated decades ago that the British and other European bodies controlled the majority of the top Malayan companies in the 1950s. This changed in the 1960s and the 1970s when Chinese tycoons rose up in the list. By the 1980s and the 1990s, due to the implementation of the New Economic Policy and Mahathir’s industrialization drive, the list was dominated by Malay industrialists. The ownership list was also more diverse than it ever was, with Genting, Berjaya and YTL were among the biggest then.

But in the aftermath of the Asian Financial Crisis, something fundamental happened. Most of top Malaysian companies were owned by the government and no longer belonged to private individuals or groups. There were bailed out or acquired by the government through the Government-Linked Investment Companies. Gomez listed the usual seven: the Employees Provident Fund, Kumpulan Wang Persaraan, Permodalan Nasional, Lembaga Tabung Haji, the Armed Forces Fund, Khanazah Nasional and the Ministry of Finance Incorporated. Many of the Malay industrialist companies like UEM were now owned by the government.

Not all of those seven government-linked investment companies are the same. The EPF, for instance, is not strictly a government company, in the same Khazanah is. But nevertheless, the EPF does have an extremely strong presence in the Malaysian economy, in both the equity and the debt markets.

In a different talk of a more casual style, historian Khoo Kay Kim claimed the Germans controlled the Malayan economy before the First World War. Their influence diminished after their lost the war and was replaced by the Japanese during the interwar period. I have not read a proper document to ascertain the claim but I have read from various sources that Japanese companies were active in Malaya prior to the Second World War.

Gomez’s work has implications beyond economics. Control over of these government-linked corporations and entities enables political control and enhances political power, just has the Umno’s ties to various the 1980s-1990s Malay industrialists had kept the party’s machinery going. But unlike then, when those funds were private money from private companies (public companies privatized), the government today does enforce spending or procurement requirement to benefit certain parties. While Gomez did not cover 1MDB, the 1MDB corruption scandal, provides the starkest example of public resources being used directly and illegally to finance Umno’s (and even its president’s personal) requirement. The connection is starker and more corrupt now than ever before.

The evolution of corporate ownership in Malaysia simply does not inspire confidence, and the completion of Gomez’s work will truly show how big the beast has become.