Capital in Malaysia #2: What is Political Capitalism, and Why?
I work through the definition of political capitalism and contextualise it to Malaysia, making the case for it as a distinct category of analysis that is relevant to our political economy.
Malaysia’s economy has been described as many things. The 1MDB scandal and the whole discourse on kleptocracy have led it to be described as a classic case of crony capitalism. For all the involvement of the state in the economy, state capitalism has been used by both its supporters and critics. Both have limited explanatory powers. Crony capitalism is not able to explain why Malaysia is able to consistently grow its GDP on average by 3-5% annually in the 21st century, a rare feat given the stagnation of the West and the slow growth in much of the Global South. State capitalism, on the other hand, does not account for the changing economic fortunes of certain capitalists when political alliances shift or disintegrate — detailed examples will come in future articles. Nor is it necessarily able to explain the labour, finance and fiscal regime that is conducive to some fractions of capital and not others. I want to consider the concept of political capitalism — defined in the US context in the midst of economic stagnation and political turbulence — for Malaysia where we experience stagnation of a different kind, one where the possibilities for different economic pathways have been seemingly foreclosed.
Defining Political Capitalism (against Monopoly Capitalism)
This term is used by Marxist theorists, Robert Brenner and Dylan Riley, in demarcating a type of capitalism in which “raw political power, rather than productive investment, is the key determinant of the rate of return”. This stands in contrast to monopoly capitalism where concentrated market power allowed for monopoly pricing and thus, generated greater profits and a sustained rate of return. Under monopoly capitalism, large corporations have political sway by virtue of their size, and, therefore unparalleled importance of their investment in the economy, creation of jobs and reproduction of the state through taxes. In a regime of political capitalism, it is the reverse such that the sustainability of your business is much less about innovating your firm’s operations or inventing new products or services but rather about what state contracts and subsidies you can accrue through political means.
The United States’ political capitalism manifests in large sums spent by corporations and individual capitalists on campaign contributions, lobbying and salaries for politicians to join their board of directors. Sometimes, these funds are dispersed along sectoral lines — oil interests give to Republicans and big finance give to Democrats — but some firms have also simply chosen to play both sides — see the recent example of FTX. This manner of political spending is in exchange for the subsidies, tax breaks and government contracts that are vital to large firms in the US, especially under conditions of low to no growth since the 1970s. Some of the most prominent examples are the billions in government contracts for defence companies, state subsidies for Amazon, and a combination of both for Elon Musk’s companies.
Political Capitalism vs State Capitalism
While the US may be seeing political capitalism as a recent development, it can then seem like Malaysia has always had political capitalism in some form, at least since our independence. The Malayan colonial economy favoured British big capital over and above domestic capital and other fractions of foreign capital. The New Economic Policy (NEP), brought about by Tun Razak, would normally be seen that starting point for Malaysia’s state capitalism given the heavy involvement of government in the economy. The political element, however, is not insignificant given UMNO’s — and by extension, BN’s — long reign as a dominant party such that the wishes of the party and that of the state become almost identical. The unseen complication of this setup would only be revealed from the 1980s onwards when factional fights in UMNO would spill over into sections of the economy.
The disentangling of Malaysia’s political capitalism and state capitalism is made more difficult by their similar features. No doubt both capitalisms share the ‘picking economic winners and losers’ aspect. Much like the ‘purer’ state capitalisms of dictator-era South Korea and Taiwan, corruption was rife within the system. Where it may be possible to distinguish between the two capitalisms are their stated aims and economic outcomes. Where state capitalism has the capacity to achieve social and developmental aims, political capitalism does not. This is something I will expand on in later pieces but I want to argue that the demands of patronage- and machinery-dependent political setup, create incentives for low-productivity but quick-turnover sectors. These sectors need and benefit from cheap labour, easy access to finance and in the case of certain sectors, a captive domestic market. My third (next) entry will address the broader Malaysian economic system to locate where rents and profits are derived, and under what conditions our economy grows.
Crony Capitalism and Corruption
One may then wonder, why is this concept of political capitalism worth distinguishing against simple cronyism or the even more poorly defined crony capitalism? Crony capitalism as a term only captures the less-than-legal or criminal nature of acquiring wealth rather than the structural source of surplus and reproduction of capital under political capitalism. These two economic forms are not necessarily exclusive, especially in Malaysia but ought to be examined separately. Political capitalism is then useful to describe the economic incentives and overall trajectory of investments in Malaysia as it is not purely predatory but is ‘productive’ in the most minimal sense and does engage in the M-C-M’ cycle. My fourth entry in this series will attempt to draw the boundaries around conglomerate capital, crony capital and state capital as these categories are important ones under political capitalism but — as I will argue — not central to its systemic reproduction.
Summary: What Defines Political Capitalism in Malaysia
Raw political power over productive investment as determining the rate of return in the first instance.
More than just distributing rents, political forces — through the state — generate and reproduce the necessary conditions for profitability. The state does not adjudicate conflict between classes but leans towards the elites who allow for the state to be reproduced.
Rents and profits primarily benefit politicians and capitalists and do not directly serve state, developmental or social aims (develop human capital, generate employment, fund social services, etc.). Neither are they purely predatory or rentier in the case of conglomerate capital.
Political capitalism produces various fractions of capital like crony capital (more fleeting), state and finance capital but the most enduring fraction is conglomerate capital, in both private, public and hybrid forms. Its sheer size may be key to its survival despite political turbulence or isolation.
One additional caveat is that conglomerate capital in Malaysia, unlike other countries, exists in private, public and hybrid forms likely due to the tightly-linked party-state nexus under UMNO/BN that has been so entrenched for so long. Like Brenner and Riley’s Seven Theses, these four points are rough sketches that I will attempt to refine by the end of this series. I may end up being unsuccessful but I hope to have provoked more nuanced thoughts and discussions about how Malaysia’s politics and economy interact.