Author: Teck Chi Wong, University of Queensland

During Anwar Ibrahim’s first stint as Malaysia’s finance minister in the 1990s, Putrajaya was still under construction. After more than two decades of political struggles, including two imprisonments, Anwar now leads the country as prime minister and again as finance minister. But this time his offices are in the no-longer-new administrative capital, which he didn’t get to use two decades ago.

Malaysian Prime Minister Anwar Ibrahim speaks during a news conference announcing his cabinet at Putrajaya, Malaysia, 2 December 2022 (Photo: Reuters/Hasnoor Hussain)

Malaysian Prime Minister Anwar Ibrahim speaks during a news conference announcing his cabinet at Putrajaya, Malaysia, 2 December 2022 (Photo: Reuters/Hasnoor Hussain)

An analogy can be drawn with the political economy system he now helms. While the state still maintains a near omnipresence in the Malaysian economy, it is a different beast from the 1990s. New Economic Policy (GLICs) are now dominant in the economy, with shareholdings in most major sectors. GLICs are a primary tool to drive national development. In 2020, they managed more than RM1.7 trillion (US$385.8 billion) worth of assets, equivalent to over 120 per cent of Malaysia’s GDP and over a quarter of the local stock market capitalisation.

These state funds can be a powerful agent of change for a reformist government. But any economic change must also be mediated by GLICs and their constellation of underlying interests from political elites, capital and citizens.

State power relations within Malaysian capitalist society further complicate matters. Most GLICs are funded by members’ savings, such as the retirement savings of public and private sector workers and those of Muslim pilgrims and Bumiputera investors. Some of these constituencies are more dependent on the state than others.

The interests of different constituencies are also subject to varying political and financial controls — so control of the board and executive of GLICs and the government-linked companies (GLCs) that they own matters. One of the first moves of Anwar’s government was to terminate all chairmen and board members of GLICs and GLCs politically appointed by the previous administration. Such are the contemporary dynamics of Malaysia’s increasingly financialised state capitalism.

Before the Asian financial crisis of 1997–98, privatisation was the mainstay of government policies. Public shareholding was often deemed transitionary. The aim was to cultivate a more competitive and influential private business class in line with social restructuring under the New Economic Policy. While state funds such as Permodalan Nasional Berhad and Ministry of Finance Inc. had large shareholdings in the local stock market by the 1990s, they played a largely passive role in the political economy. State-cultivated private conglomerates, with close links to the United Malays National Organisation party, dominated and a crony-based capitalist economy emerged.

The Asian financial crisis was a turning point. Many politically-linked conglomerates collapsed. GLICs, particularly Khazanah Nasional (Malaysia’s flagship sovereign wealth fund), were mobilised by the government to take over these firms. Khazanah was given a central role in restructuring and rehabilitating these firms, rebranded as GLCs, via financial and corporate governance reforms modelled after Singapore’s Temasek and the Anglo-American model of shareholder orientation.

The rise of GLICs and GLCs generated and reflected three distinct yet interrelated dynamics of state transformation. At the macro level, financial markets and GLICs became central to the coordination between state and private capital, surpassing the role of commercial and development banks controlled by the state. This resulted in the increasing influence of professional financial elites such as Khazanah’s Azman Mokhtar.

At the meso level, shareholder value became an ascendant and guiding principle. GLICs and GLCs were expected to have better corporate governance and deliver a financial performance that enhances shareholder value. They became more like private sector organisations, adopting shareholder-orientated corporate governance practices and hiring professional managers. This increased the appearance of independence from the state and politicians, though not necessarily the substance.

At the micro level, the rise of GLICs and GLCs also transformed state-society relations. Individuals and households are increasingly regarded as investors or financial owners of state assets. About 16 million Malaysians now manage their mandated retirement savings via GLICs.

GLICs funded by savings from members of the public expanded the social bases of Malaysia’s state capitalism and helped legitimise state control of the economy. But improvements to corporate governance and economic efficiency have varied because state power relations differ across GLICs and GLCs.

Depending on the coalition of interests that emerges, companies can be used to drive socio-economic development or provide patronage to maintain incumbents’ political power. GLICs and GLCs can also be the subject of a predatory state or kleptocrats, which are helped by professional financial elites, as in the case of Najib Razak’s infamous 1Malaysia Development Berhad corruption scandal.

In companies such as Lembaga Tabung Angkatan Tentera (the army pension fund) and Lembaga Tabung Haji (the Islamic hajj savings fund), their constituencies — army veterans and pilgrims — are more dependent on the state to provide and distribute resources. This makes them more beholden to a dominant state compared to other constituencies, such as private sector workers (under the Employees Provident Fund) or Bumiputera investors (under Permodalan Nasional Berhad).

Under the Anwar government, a wholesale retreat of the state from the economy is unlikely. But Anwar might see GLICs’ shareholder and asset manager power as a tool for affecting socio-economic transformation. In sectors where Anwar’s Pakatan Harapan party coalition promised reform, any economic change must be agreeable to the GLICs to avoid political backlash.

Control over GLICs is certain to become a source of political struggle — both for defenders and opponents of existing state power relations. Any boardroom and managerial changes will indicate Anwar’s direction, guaranteed to test the possibilities and limits of reform under the new Malaysian government.

Teck Chi Wong is a PhD Candidate at the School of Political Science and International Studies at the University of Queensland.