The term robber baron was originally made aware to me by educator and writer Dr Azly Rahman. Robber baron is a derogative US term to describe how the powerful 19th Century American industrialists and financiers made fortunes by monopolizing industries through engaging in unethical business practices, exploiting workers, and paying little heed to the law. These were the elite of the US at the time, and Malaysia has its very own class of robber barons, conceptualized and created by former prime minister Mahathir Mohamed during his first term of office.
Creating a kleptocratic state
Mahathir with his then protégé Anwar Ibrahim turned Malaysia into a crony capitalist state. They attempted to create a Malay entrepreneurial class in a failed feat of social engineering. Mahathir provided selected cronies with exclusive opportunities, licensed monopolies, and exclusive market rights. Some major state assets like the national airline MAS were privatised without transparency, building a rent-seeking rather than an entrepreneurial class. People like Halim Saad, Tajuddin Ramli, Vincent Tan, and Syed Mokhtar Al-Bukhary, just to name a few, were greatly enriched not because of their business prowess and innovation, but simply because being allies to the ruling class gave them market exclusivity.
The same thing happened to Malaysia’s government owned corporations or GLCs. These companies are established to enjoy monopolies or near monopolies across many industries, while being managed without much transparency.
The USD 4.5 billion financial scandal of the state-owned sovereign fund 1MDB, according to the US Justice Department funded the financial activities of convicted felon and former prime minister Najib Razak and his cohorts. This misuse of public funds is only the tip of the iceberg. In fact, focus upon the 1MDB financial scandal has effectively covered up abuses and misallocation of public funds across all sectors of government. Corruption within GLCs and other so called independent agencies are the gravy-train of many ex-politicians and cronies. The sad reality is that most of these scandals never reach public knowledge, as they are hidden and hushed up within government.
This type of patronage is perpetuating a crony economy run by robber barons and their collaborators. On many occasions sovereign funds GLCs like Khazanah Nasional Berhad and Permodalan Nasional Berhad act as lifeguards to bail-out those robber barons in trouble. This happened to Halim Saad’s Renong back in 2001, Tajuddin Ramli’s MAS in 2000, and even bailed out a failed online lingerie venture. Other GLCs like state economic development corporations assist ruling parties during elections to maintain power.
Mahathir and Anwar’s legacy today is an economy, where many sectors are controlled by large corporations, through monopolies, restricted licenses, import permits, and exclusive rights to operate. Malaysia today is full of oligopolies that operate their businesses as rent-seekers rather than astute customer oriented entrepreneurial corporations.
For years buying an imported car was out of the question due to the high import duties levied on cars to protect Mahathir’s vision of the national car Proton. Toll fees from secret concessions make travelling by road the most expensive exercise within the region. The capital’s LRT system had to be bailed out to keep cronies afloat. The interstate bus system is controlled by cronies. Internet costs are some of the most expensive in the region due to cronyism.
This momentum if not checked with market deregulation, and opening up sectors to free competition will hinder future economic development and diversity.
However, the opposite is occurring. Further restrictions are being applied across a number of industries to eliminate free competition. The freight forwarding industry is the latest sector under attack by the robber barons. Existing companies are being forced to sell out to Bumiputra interests, with the enforcement of race base equity rules. One can be assured, it won’t be the moms and pops of the Malay heartlands that benefit from this. The robber barons will move in.
Ministries are mini kingdoms
Malaysia with 27 ministries and even more agencies and statutory bodies can be seen as a network of independent mini-kingdoms. They are ruled by a minister or director general, usually a civil servant, with a sense of absolute power over their respective domains. Where ministries have deputy ministers, certain sections of the ministry fall under the deputy to administrate.
Ministries, seen in the paradigm of kingdoms, goes some way to explaining why a minister is such a coveted position. Likewise, within the states, the Menteri Besar or chief minister has almost absolute authority in making decisions in regards to matters under state responsibility. Land being one of the most important.
For a minister, director general or chief minister to be able to rule with maximum authority, he or she must employ two strategies, sometimes simultaneously.
The first is patriarchy like a feudal lord who works within a hierarchy of influence and loyalty to govern. In order to obtain and maintain loyalty, the ruler must dish out economic opportunities to members of the hierarchy to maintain favour and authority.
The second approach is a Machiavellian one, where the ruler must apply political tactics, both overt and covert to embed their authority over the institution. Many rulers find constant challenges, undermining, and even sabotage against their authority, and hence rule with an iron first.
As prime minister Mahathir Mohamed did just that. He made new appointees sign a blank letter of resignation before taking the position. Mahathir also utilized Special branch resources to surveil, record and even film embarrassing situations that could lead to the end of a political career very suddenly, if they fell out of favour. It’s strongly speculated that Anwar and other politicians have fallen into honey traps to keep in check any ambitions of more power.
One of the most powerful enablers within the Malaysian government and civil service is the school tie network. This enables like minded politicians to launch and develop business projects where mutual interest is the same among closely knit groups. The same school tie network protects many of these top politicians and civil servants, as there is a deep culture of protecting their own, no matter what was done wrong.
Once a minister or top civil servant has a friendly environment, many initiatives for self-benefit can be undertaken. These range from promoting major infrastructure development projects where money can be siphoned off through the employment of their own companies as contractors, fixing tenders for selected contractors to win, collecting donations or straight out bribes for positive decisions affecting the benefactors, contracting work out to their preferred suppliers, and manipulating land deals.
A minister’s or civil servant’s financial interests are held by proxy directors and shareholders. A minister’s or civil servant’s name will never appear on any official paperwork. Usually a lifelong trusted friend, friend of a friend, or member of the extended family will hold shares and directorships, or trust to them. Sometime sophisticated overseas trust companies might be used, where funds are channelled for retirement.
During the years that UMNO dominated government, ex-politicians and favoured civil servants were appointed to agencies and GLCs to continue running a corporate empire that is far beyond any public transparency. For example, disgraced former Melaka chief minister Abdul Rahim Thamby Chik held the position of chairman of the Rubber Industry Smallholders Development Authority (RISDA) from 2010-2015, and now is the executive director of the Gagasan Badan Ekonomi Melayu (GABEM).
Ministries and agencies also have mini-feudaldoms
The robber barons at the top also have their minions emulating their examples at department level. Department heads and officers develop different schemes to add to their wealth, according to the nature of their department’s scope of responsibilities and work.
This could be as simple as directing all vehicle repairs to a certain bengkel or repairer. Officers may set up proxy companies to supply stationary, service equipment, or even cater for functions. Those departments serving ministers on development projects may even set up project management companies to implement projects. These are wide and varied and amount to the leakage of billions of Ringgit from the government coffers each year.
If the Malaysian Anti-Corruption Commission (MACC) statistics are examined, only a very small proportion, most probably less than one percent are ever investigated, or face any disciplinary action. Civil servants understand, if they cover their tracks well, and keep favour with superiors, they will never get caught. The current case of Azam Baki, the chief commissioner of the MACC indicates how staunchly Malaysia’s institutional system of governance protects their own. There are hundreds of cases of top civil servants under investigation for corruption that led nowhere.
Robber barons control more than 30 percent of the Malaysian economy
The objective of the New Economic Policy (NEP) was to put 30 percent of equity into the hands of Bumiputeras. Sadly, it didn’t achieve that, the NEP put 30 percent of the economy into the hands of the robber barons.
The 12th Malaysian Plan has been written to ensure a continuation of this trend. The advocation of setting up an aerospace cluster is just a thinly disguised plan to put more equity into the hands of the robber barons, who already control much of the media, telecommunications, transport, plantation, and other service industries.
The ailment of robber barons controlling sparse sectors of the economy is inefficiency. This holds back growth and equity, further concentrating wealth into the hands of a privileged few. There is a rent-seeker culture rather than an environment of innovation around business in the country.
With the robber baron class so integrated with the ruling classes, this sinister institution plaguing the Malaysian nation state and economy will be almost impossible to dismantle.
Even if the top corporations were taken out of the hands of the elite, it would take many years to clean up the agencies and ministries run by the minions who are profiteering without restraint. Even if the MACC wasn’t corrupt itself, it would need massive resources and incorruptible officers to sweep out Malaysia’s institutions of government. Without a strongly moral based education system to teach the next generation that corruption is evil and against every religion, the cause is a hopeless one.
The personal wealth of former prime minister Mahathir Mohamed’s children is rarely questioned, as are other former politicians. Mirzan, Mokhzani, Mukhriz, and Marina are all extremely wealthy with significant assets and seats on company boards. Other members of the extended family control listed companies in construction and hotels. Former prime minister Hajib Razak’s family has great wealth and involved across many businesses, and many former ministers and high ranking civil servants have substantial business interests.
One can see the reluctance of the government to pursue any hints of corruption with impunity, as we see with the half-heartedness in the investigation of former Bank Negara Malaysia governor Zeti Akhtar Aziz. It’s amazing Malaysia is still placed 62 on the Transparency International Corruption Perceptions Index 2021. Expect Malaysia’s ranking to continue falling.