July 4, 2017 9:53 am JST
William Pesek

Can Mahathir's return save Malaysia?

Bold change is needed to restore Malaysia's competitiveness

Former Malaysian prime minister Mahathir Mohamad addresses supporters at the launch of the Malaysian United Indigenous Party in January. © Sipa USA/AP

Malaysians could be excused for wondering if they are stuck in a time warp as Mahathir Mohamad rails against a sinister force wrecking an economy he spent two decades building.

But times have changed. The last time 31 million Malaysians witnessed this spectacle was 1997, and the target was billionaire investor George Soros. Today, the former prime minister is denouncing the current one, Najib Razak. And in a delicious twist of irony, even Soros shares Mahathir's misgivings about Najib's willingness to burn down one of Southeast Asia's most promising economies just to stay in power.

Might this headline-grabbing tussle change policies that are undermining Malaysia's living standards? Unfortunately, the probable answer is "no."

Mahathir, 91, says he "may be forced to consider" abandoning retirement to rescue Malaysia from corruption scandals and neglect. Among the problems: since 2009, Najib has broadened affirmative action policies that benefit the ethnic Malay majority at the expense of productivity, deterring foreign investment. The state fund Najib created, 1Malaysia Development Bhd (1MDB), is the subject of money-laundering investigations from Singapore to Zurich to Washington.

The 1MDB fiasco accelerated Najib's slide from Mahathir prodigy to nemesis. Mahathir rarely misses a chance to demand Najib step down over disclosures that some $700 million found its way into the prime minister's pockets (Najib denies any wrongdoing and claims "personal donations" from Saudi Arabia, whatever that means). Soros, a U.S. citizen, appears equally aghast. According to emails released by WikiLeaks, Soros lobbied the U.S to disassociate itself from Najib even as Washington engaged with Malaysia to negotiate the Trans-Pacific Partnership trade deal.

But would a return to Mahathir's firebrand ways really help? He deserves considerable credit for transforming a tropical backwater into an Asian tiger with some of the region's most impressive skylines. But Mahathir's 22-year tenure that ended in 2003 was marred by authoritarian leanings, media intolerance and insular industrial policies like building national car brand Proton. His impolitic tirades found a global audience in 1997 and 1998 when he, bizarrely, blamed Jews -- Soros, especially -- for a plunge in Malaysia's currency. His capital controls and jailing of his pro-capitalism deputy prime minister drew admonitions from around the globe.

There is also what Mahathir's return says about today's Malaysia. For one thing, it speaks to the dearth of young leaders to replace the old warlords. For another, the opposition is too feckless to provide Mahathir a plausible route back to the premiership. His old party, United Malays National Organisation, is also Najib's, and it has held power for more than six decades. Barring a critical mass of party elders tossing Najib to the curb, which is highly unlikely, Mahathir would have to find another way in.

The wild card here is that Mahathir`s battles with Najib prod the government to do its job, not just dole out patronage. The main task is increasing competitiveness. When Mahathir left office, Malaysia ranked 37th on Transparency International's corruption index. By 2016, it had slumped to 55th place. Since Najib took over in 2009, Malaysia has also lost ground in the productivity and efficiency scales -- ranking 21th in competitiveness by the World Economic Forum then and 25th now. Najib's team is big on splashy conferences to tout success in raising Malaysia's game, even though the facts belie the claims.

The battle-scarred Mahathir is just as charismatic as Singapore's Lee Kuan Yew in his post-leadership incarnation. Some pundits argue Mahathir could act as a Trojan horse, attacking Najib's stranglehold from inside. Yet even if Mahathir outmaneuvered Najib and reclaimed the crown, there is no guarantee things would change course significantly. To do so would be to water down the policies and laws that kept Mahathir in power -- ones Najib is now using to cling on.

Only bold change will ensure Malaysia thrives in this Asian century. Its neglect of Chinese and Indian minorities, for example, is self-defeating economic apartheid. It encourages many of Malaysia's best and brightest to flee to Singapore or Hong Kong and increases the relative attractiveness of Indonesia, the Philippines and Vietnam for foreign executives.

The 1MDB scandal continues to do considerable damage to the Malaysian brand. And while 1MDB replaced Malaysia Airlines losing a Boeing 777 in the global headlines, the two incidents are not completely unrelated. The bungled search for flight MH370 -- and the opacity and cluelessness of the official response in the weeks following the disappearance in 2014 -- exposed a political system unaccustomed to basic accountability. Malaysia's clumsy response to 1MDB followed a similar pattern, offering insights into how a resource-rich nation with reasonable growth rates could be ensnared in the middle-income trap.

Instead of scrapping antiquated race-based quotas for hiring and business contracts and getting the state out of the private sector, Najib doubled down on 1971 -- the year his prime minister father introduced this "New Economic Policy." In 1991, Mahathir tried to augment it with a "National Development Strategy," but Malaysia has done much more strategy-spinning than ensuring development keeps pace with Asian peers now pulling away from Najib's economy.

Asia-based journalists long missed Mahathir's fiery rhetoric and mercurial style. I was in that Hong Kong ballroom 20 years ago when he complained bitterly about the "rape" of Malaysian markets by Soros and his ilk. And let us face it, Najib brought this wrath on himself. Entertaining as he is, though, Dr. M is a wildly imperfect messenger for what ails the economy. The time warp Malaysians should fear as Mahathir and Najib exchange blows is one that takes living standards backwards.

William Pesek is a Tokyo-based journalist and author of "Japanization: what the world can learn from Japan`s lost decades". He is a former columnist for Bloomberg.

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