Lim Kit Siang

A Blueprint for Malaysia

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Opinion Asia | The Wall Street Journal
Prime Minister Najib Razak sounds a reform note, but will he follow through?

The times they are a-changin’ in Malaysia. A few years ago it was inconceivable that a Malaysian premier would express dissatisfaction with the “rent-seeking and patronage” inherent in the country’s four-decade-old affirmative action policies and call for a more “transparent” system based on merit and need. Former strongman Mahathir Mohamad used to label people with such ideas “extremists.”

Yet today Dr. Mahathir, who has thrown his lot in with nativist groups like Perkasa, looks extreme. Prime Minister Najib Razak, by contrast, is reflecting the popular will. In announcing what he dubbed a “New Economic Model” Tuesday, Mr. Najib is responding to the obvious: His country’s extensive system of hiring rules, investment quotas and various other perquisites for the majority ethnic Malays drives away capital and labor and entrenches corruption and poverty.

It’s a story investors already understand. For the past few years, foreign direct investment in Malaysia has slowed to a trickle in an economy that used to be one of Southeast Asia’s dynamos. On a net basis, money is flowing out of the country. Part of this trend has to do with state-owned oil behemoth Petronas’s investments abroad. But it also reflects that many Malaysian companies don’t repatriate capital because they see fewer decent investment opportunities at home. The same goes for foreign investors.

The only way to change this trend is to roll back Malaysia’s overweening public sector and open space for competition and creative destruction. Mr. Najib acknowledged this Tuesday, saying “we need a new way of doing things.” He laid out a plan for privatization of state-owned companies, sales of government land, a reassessment of subsidies and a review of restrictions on foreign investment in services.

As importantly, Mr. Najib mentioned education reform—an area in which pro-Malay admissions policies have made meritocracy a dirty word and denied opportunities to bright minority students, especially from the Chinese and Indian communities. Malaysian companies often complain about the lack of skilled labor, and the country’s universities are a big part of the problem.

So far, so good. However, Mr. Najib has made these promises before, and there’s no evidence beyond his words that he has the gumption to press ahead. He announced a small services liberalization in April last year, but it wasn’t the big-bang reform that Malaysia needs. Not much has happened since. The markets yesterday greeted the New Economic Model with a yawn.

Most investors simply don’t believe Mr. Najib is willing to take on the biggest entrenched interest of all—his own political party, the United Malays National Organization. For decades, UMNO has monopolized power by divvying up economic spoils on political and ethnic grounds. If Mr. Najib is serious about reform, that’s the place to start.

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