Capital in Malaysia #4: Conglomerate Capital vs Crony Capital vs State Capital
Disentangling the complex web of Malaysia’s political economy by delineating the forms of capital favoured by the state and political and economic elite
To make the case for my model of political capitalism in Malaysia, an accurate picture of conglomerate capital needs to be drawn up. Clear boundaries need to be given the the categories of state, crony, and conglomerate capital.
Defining Capital and Conglomerates
But before that, it is worthwhile to clarify what the term “capital” will refer to in the rest of this article and the whole series. Capital will be interchangeably used to refer to a class — that of capitalists — or the firms that deploy the capital of said capitalists. The individual capitalist is sometimes indistinguishable from or even synonymous with the firm or holding company they control. Additionally, I will refer the the fractions of capital, such as the three aforementioned ones. I will attempt to reduce use of the word capital in reference to money used in the pursuit of profits or surplus and will do my best to use funds or just money to lessen any confusion.
Conglomerates simply mean a widely diversified corporation. For my purpose in working out the category of conglomerate capital within the context of Malaysian political capitalism, said category would have the added criteria of operating in two or more different and unrelated sectors (i.e. palm oil plantations and automotive distribution).
State Capital
The most straightforward category to define first is state capital. The involvement of government bodies that partake in market activity can clearly be seen in the myriad of government-linked companies (GLCs) and government-linked investment companies (GLICs). Among these GLCs are conglomerates like Sime Darby and Boustead Holdings.
For a time, the Najib-era Ministry of Finance Incorporated controlled the seven GLICs, from which a whole ecosystem of GLCs and private firms was organized. Terence Gomez’s book on the subject details the nature of ownership and control of this large state-business nexus. These holding patterns constitute a fraction of capital best described as state finance capital. This fraction plays a significant role within the Malaysian economy in two critical aspects, reproducing the state through its revenue, and more interestingly, legitimising the businesses it is involved in. The latter aspect will be developed in more detail in the next entry.
Crony Capital
This category also has a definition that is relatively easy to lay out. Crony capital refers to firms and capitalists that have access to contracts, resource rents and favourable access to funds through opaque political or state access. It goes without saying that these types of transactions or arrangements have elements of corruption and illegal or unethical means of reciprocation. Firms and holding companies owned by political parties or their bagmen very likely contain elements of crony capital (for more on this read Political Business: Corporate involvement of Malaysian political parties by Terence Gomez).
In regards to this fraction of capital, there is often no explicit directive or immediate urgency to reinvest profits from a no-bid contract or secret sweetheart deal. This is because the goals of the transaction for both the crony and the crony-enabler may have been achieved — the generation of an extraordinary sum of money with little to no investment and its subsequent distribution between the two parties. The lack of any capitalist profit motive underlying the crony capital enterprise means that in many instances, they can vanish as quickly as it appears once its purpose is completed. It is this lack that rightfully leads many to assert the unproductive nature of crony capital.
Conglomerate Capital
Of the three, conglomerate capital would be the harder one to strictly delineate. Many if not most Malaysian conglomerates contain within their firms or holding companies elements of state capital (through equity holdings) and crony capital (through political access and backroom deals). An example would be POS Malaysia which is owned largely by Syed Mokhtar affiliated firms (HICOM Holdings Berhad and DRB HICOM Berhad) and two GLICs (KWAP and EPF).
In addition to the aforementioned criteria of operating in two or more different and unrelated sectors, another feature of conglomerate capital is its size as generally, a combined network of firms has to reach a high degree of capital accumulated — or gifted by the state or party — before it can venture into other economic sectors. In some cases, there are elements of monopoly in the energy, utilities, commodities or gambling business granted by the state.
Conclusion and Next Entry
Despite the heavy overlap between these three fractions of capital, conglomerate capital stands apart from crony and state capital for a few reasons. Firstly, unlike state capital, conglomerate capital is not bound to serve state, developmental or social aims. Thus, it is more easily able to avoid accountability for mismanagement, misappropriation or excessive profits. Secondly, a combination of size, diversification and monopolies is likely the source of conglomerate capital’s staying power as compared to crony capital. It is for these reasons that I want to argue that conglomerate capital in Malaysia represents a unique intersection of private, state and political power.
The next entry will return to the question of profitability. It will examine the “sectors in which state policies and protection made the difference between success and failure”, as described by Khoo Boo Teik (page 193, The state and the market in Malaysian political economy in The political economy of South-East Asia: Conflicts, crises, and changes). A broad outline will be laid out defining the ‘safe’ sectors in the Malaysian economy through access to finance, availability of labour, access to various forms of rents, and state-backed business legitimacy.