Wednesday, 18 April 2007

Malaysia – A Crisis of Norms and Institutions (1)

Why Malaysia Needs More Governance and Less Corruption

I have some ideas with me on the state of Malaysia which I wish to develop formally in the near future. Unfortunately, those ideas are still patchy and insufficiently coherent and robust to build a strong and persuasive thesis. To assist me in forming my arguments, I will be using this blog as a guiding notepad for me to jot down ideas every time I find some inspiration on the topic. These entries will carry the common title of “Malaysia – A Crisis of Norms and Institutions”.

Anyway, Martin Wolf’s latest op-ed on is again very interesting. Titled The World Bank must regain the high ground, he basically said that for the world leading institution in fighting global poverty to remain relevant and credible, Paul Wolfowitz must step down. As he put it eloquently:

The moral authority of the bank is in the dust. Only one decent outcome of this tragically unnecessary affair exists. The cause on which so many rightly agree is bigger than the fate of one man.

Anyway, the article also explained succinctly on the importance of governance in ensuring the development of any nation:

“If you want to make poverty history you have to make corruption history”… Governance (is defined) as “the combination of transparent and accountable institutions, strong skills and competence, and a fundamental willingness to do the right thing”. Corruption is narrower: it is the abuse of public position for private gain. Corruption… is “a cancer on the development process”.

Yet corruption is also the natural thing to do. That is why it has always been pervasive. It is its absence that is unnatural. A society relatively free of corruption has removed the motivations of the marketplace from politics, public administration and the law. Since rich countries are far less corrupt than poor ones, the former have a better-enforced line between what lies within the market and what lies outside it (see chart).

Yet is it their wealth that causes the low corruption or the low corruption that causes their wealth?…[A]s Daniel Kaufmann, the bank’s leading researcher on governance, argues, the relationship works both ways. “We estimate”, writes Mr Kaufmann, “that a country that improved its governance from a relatively low level to an average level could almost triple the income per capita of its population in the long term, and similarly reduce infant mortality and illiteracy.”

And more importantly:

As Paul Collier of Oxford university notes in a wonderful forthcoming book, development depends on two things: opportunity and the ability to seize it.* The quality of governance is an important determinant of the latter. But a country’s resources, size, location, environmental condition and disease load determine the former.

The argument between those who stress institutions and those who stress underlying conditions is fatuous. Both matter… [T]his…does not make the quality of governance less important, but rather more so.

In the significant case of corruption, it is a question of changing incentives and moral norms. Changing incentives involves: paying officials more; removing unnecessary and, above all, unnecessarily complex regulation; increasing transparency, not least through free media; and allowing citizens to exercise a “voice” through elections. Making such changes is hard technically and politically, since the beneficiaries of the corrupt status quo have the power to make progress difficult. But it is sometimes possible.

Mental Note 1:
Malaysia is blessed with favourable underlying conditions. Very unfortunately, the current institutions are squandering all the wealth and opportunities away.

Mental Note 2:
Vote for change. As Fukuyama said, the road to modernisation requires a society that desires democracy.


(Emphases added)

* The Bottom Billion, Oxford University Press


cantab said...

Got directed to your site from Wonderful article, wish I was reading Econs for a change instead : )

Vote for a change? Democracy only works if there are viable alternatives. At the moment, the opposition are a motley crew of political personalities (not even parties, me thinks), clambering to oppose for opposing's sake.

What happens then? Do we put these people in power anyways, just for the sake of change? Or do we tolerate the status quo, until something better comes along?

We cannot win.

elegant lily said...

Malaysia was a strong state-weak institutions country under Mahathir. Despite having weak institutions, the economy thrived because of a 'benevolent' dictatorial regime to chart the growth trajectory.

Presently, the state has weakened under Badawi's leadership. With no 'strongman' to lead, and with institutions continuing to remain weak (weak state-weak institutions), the country is seen to have lost its direction. Corrupt practices are surfacing whereas these have been supressed under Mahathir. Coordination of various government ministries and bodies has also deteriorated. Each minister/ministry is like a territorial warlord,reminiscent of the Republic of China immediately after the collapse of the Qing dynasty.

Given the state of things, where is the country headed? strong state and weak institutions again? and how to foster strong institutions in the presence of little political competition? it will be interesting if these issues can be illuminated.

just thinking aloud.