Malaysians now understand the shock Americans felt in 2016 after Donald Trump's election win. Few expected the Barisan Nasional's 61-year reign to fall victim to Mahathir Mohamad, a 92-year-old has-been, out of power for 15 years.
The Asian country's voters can also feel for themselves the surprise Britons experienced when they awoke on the day after the referendum to leave the European Union and found they had voted to quit. The local Star newspaper has even labeled the shock election result Malaysia's own "Brexit moment."
There is a bewildering quality to the spectacle of Prime Minister Najib Razak facing such an abrupt reckoning. One immediate problem: Team Najib may not go away quietly, leaving the former British colony in financial limbo.
Officially, Najib admitted defeat on May 10. But in his concession speech, he harped on a lack of cohesion he claims surrounds Mahathir's loose coalition of opposition parties. Though Mahathir has been sworn in, investors have reason to worry about the smoothness of the transition -- and efforts by Najib loyalists to stymie the process.
What this means for one of Southeast Asia's most neglected economies in terms of structural upgrades and supply-side reforms is anyone's guess.
There are two areas of confusion. First, how long this uncertainty lasts. Malaysians, after all, just voted to split their future from a once omnipotent organization that grew less and less representative and visionary. For that, Najib's Barisan Nasional suffered a well-deserved thrashing from voters. The uncertainty of a prolonged political transition has markets in a whirl, with the ringgit, bonds and stocks gyrating chaotically.
The second is what Mahathir does with his second shot at leading Malaysia's resource-rich, yet uncompetitive economy. During his 1981-2003 stint, Dr M, as he is often known, morphed Malaysia from tropical backwater into an export-driven regional hub. The gleaming skyscrapers that dotted Kuala Lumpur's skyline on his watch were like architectural punctuation marks that the nation had arrived.
But Mahathir also perfected the kleptocratic machine that enabled Barisan Nasional to wrap its tentacles around Malaysia. He deepened the race-based affirmative-action policies still undermining living standards today. He mentored Najib and the party elders who allegedly enabled the multi-billion U.S. dollar scandal surrounding state fund 1Malaysia Development, or 1MDB. While Najib denies wrongdoing and was cleared by a Malaysian investigation, other authorities from the U.S. to Switzerland are probing claims of financial malfeasance.
Meanwhile, the fallout from often-unpredictable Mahathir's bizarre attacks on currency traders and Jews during the 1997 Asian crisis still limits Malaysia's foreign-direct-investment take.
To say Dr M is not an ideal expression of Malaysians' quest for a new beginning is quite an understatement. He is the world's oldest leader, with all the health risks that brings. Yet Najib's defeat was, as much as anything, a cry of desperation by the Muslim-majority nation of 32 million people. As Mahathir gets up to speed, his new government faces a daunting to-do list.
The first priority is getting to the bottom of the 1MDB fiasco. Najib created the fund in 2009, his first year in office, to burnish Kuala Lumpur's image as a financial center. Instead, as much as $4.5 billion went missing, morphing the city into a global crime scene. Tongues still wag over the roughly $700 million found in Najib's personal accounts (he said it was a donation by wealthy Saudis and has since been returned).
While the stink surrounding 1MDB seems to have destroyed Najib, it offers Mahathir an ideal opportunity to rehabilitate Malaysia Inc.'s global image. Najib circled the wagons and blamed shadowy cabals of westerners trying to hurt Malaysia, ploys right out of Mahathir's 1997 playbook. Mahathir 2.0 should order up a no-holds-barred investigation into 1MDB and Najib's possible culpability to cleanse the system.
Next, Mahathir must confront the root of Malaysia's regional underperformance: quotas that benefit the Malay majority. Najib rode to power pledging to dismantle the "New Economic Plan" implemented by his prime minister father in the 1970s. It affords preferential access to land, education, employment and government contracts, killing productivity and innovation. Initially devised to beat poverty, the scheme now holds back Malaysia and leaves it struggling to avoid the dreaded "middle-income trap" as average incomes approach $10,000 a year.
Najib took the path of least resistance, driving ever more members of the Chinese and Indian minorities to Singapore and Hong Kong. Mahathir must phase out quotas and shift regulatory and tax incentives toward startups and away from state-linked enterprises dominating the economy. Here is but one case study: Anthony Tan, the Harvard-educated co-founder of ride-hailing sensation Grab. News outlets routinely list him among the richest Malaysians. Perhaps they should spill more ink lamenting why Tan set up shop in Singapore instead.
The goal must be to grow better, not necessarily faster. Under Najib, Malaysia averaged robust growth -- around 5%.
Yet rigidities and variable incentive systems depending on race concentrated growth among economic elites. The introduction of a 2015 consumption tax hurt the lower middle-class disproportionately. That came back to haunt Najib, as this demographic threw support behind Mahathir's coalition partners.
Mahathir needs to restrain his worst populist impulses. He arguably perfected the "fake news" strategy U.S. President Trump wields today with such aplomb. Mahathir's target in the late 90s, billionaire George Soros, is also a favorite boogeyman among Trump's surrogates. Neither currency speculators nor foreign journalists are to blame for Malaysia's return to economic backwater status. The responsibility lies with complacent leaders working harder to cling to power than modernize the nation.
If Mahathir's win can be boiled down to two words they are: corruption matters. Yes, Mahathir's tenure was dogged by cronyism scandals. Nor was he above having then-Deputy Prime Minister Anwar Ibrahim, a pro-Western progressive, imprisoned in the late 90s on questionable corruption and sodomy charges. Many human-rights groups alleged they were trumped up. Yet when Mahathir left office, he bequeathed the next government a ranking of 37 on Transparency International's corruption perceptions index. Today, Malaysia ranks 62nd, trailing Cuba.
Malaysia just displayed a heartening capacity to self-correct.
That should chasten Asian leaders chipping away at democratic norms from Cambodia to the Philippines to Thailand. The challenge now, though, is to self-correct an economic system big on spin, small on results. That means empowering non-Malays, freeing a media establishment under siege and giving Anwar carte blanche to open the economy. In the 1990s, Anwar's push to open the economy to foreign investment and level the playing field irked Mahathir. At the height of the crisis, Mahathir fired Anwar. Later, the judiciary had Anwar jailed. Anwar, now 70, spent the last two decades in and out of prison. He is due to be released again on June 8, when he will join the Mahathir 2.0 project.
First, Mahathir must secure a royal pardon for Anwar to re-enter national leadership. Once there, Mahathir must display a confidence that eluded him in 1997. Seeing Indonesian leader Suharto ousted by massive protests, Mahathir went the other way -- axing Anwar, imposing capital controls and demonizing markets. Mahathir 2.0 must create an inclusive, rules-based and innovative system to emulate Singapore's success -- rather than supplying its neighbor with so many smart workers. And then Mahathir must stand down, as he has promised to do in two years, and hand over to Anwar.
Odds are, markets will continue gyrating over an upset that analyst Aninda Mitra of BNY Mellon Investment Management says "ranks up there with Brexit and the Trump election." Yet that upset affords Mahathir that rarest of things in politics: a second chance to undo his sins from the past. It will be a big step forward for Malaysia if he seizes it.
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 and Barron's.