Capital in Malaysia #5 Defining ‘Safe’ Sectors of the Malaysian Economy
Explaining the link between these 'safe' sectors of conglomerate capital and its relationship to the state and indirectly, politics.
This long quote from Khoo Boo Teik, a Malaysian political economist captures the general pattern of conglomerate capital development:
”Some [conglomerates] operated in primary commodity production that could trace its competitiveness to colonial times, or in source-based industries where local sourcing was an obvious strength. Most of the conglomerates congregated in banking, resource exploitation, construction, property and real estate, gaming, tourism, transport, utilities and services, and selected import-substituting industries. These were precisely sectors in which state policies and protection made the difference between success and failure. The conglomerates adopted an almost standard business strategy (although not necessarily in the following order of activity): deal in property and real estate; build up construction capacity; lobby for infrastructural and utility works; secure a banking or finance arm, or a brokerage licence; buy up plantations; diversify into tourism; and enter newly privatised areas such as telecommunications and social services." — Khoo, page 193, The state and the market in Malaysian political economy in The political economy of South-East Asia: Conflicts, crises, and changes
Given the previous entries’ exposition on the nature of Malaysia’s political capitalism, the dynamics of investment and profits, and the specific differentiation of conglomerate capital, the task at hand is to define the ‘safety’ of the aforementioned “state policies and protection” that allow for the steady profits on conglomerate capital. Four realms of policy will be explored: labour, rents, finance and — the more murky and unspoken — state backing.
Labour
One of the most obvious ways capitalists generate profits when they cannot raise prices is to squeeze wages. In Malaysia, many major industries — with the exception of our petroleum sector — rely on cheap labour. Of interest are the safe sectors in which wages are some of the lowest. The table below of mean and median wages by industry in 2022 shows that many of the sectors in which conglomerate capital heavily partakes pay the lowest wages in the country — relative to the national average and manufacturing: plantations, construction, tourism, transport and utilities (Salaries & Wages Survey Report Malaysia 2022, DOSM).
On this count, the state suppresses the wages of local and foreign labour to different degrees. After the brief proletarianisation of Malay labour from independence until the 1990s, cheap, exploitable local labour was primarily drawn from the Indian community and the indigenous peoples of East and West Malaysia. Despite the recent amendment to the Trade Union Act in 2022 which will allow for more than one union to be formed in a single workplace, the long-standing weakness of Malaysia’s labour movement means that only 5.8% of the Malaysian workforce is represented by unions and less than 2% covered by collective agreements (https://www.centre.my/post/what-you-need-to-know-about-unionisation-in-malaysia). Compounding the non-existent role of trade unions in social life, Malaysian workers in these sectors would be at the mercy of state regulation and the market — and to some extent, conglomerate capital.
On foreign labour, it should be no surprise that the plantation, construction and manufacturing sectors have large concentrations of these workers. The precarity of their employment terms and rights within the country allows for the preconditions of their low wages. Furthermore, because the state regulates the flow of foreign labour — both legal and illegal, it sets these conditions for the labour market, particularly the market for cheap foreign labour. The table below (6 industries with the highest concentration of foreign labour) reaffirms the point that foreign workers have been put into the aforementioned low-wage sectors (Labour Force Survey Report, Malaysia 2022, DOSM, Table A4.13). All other industries had less than 1% of foreign workers aside from transportation and storage (1.2%) and activities of households as employers (3%).
Finance and Unspoken State Backing
These two factors of profitability are interrelated, particularly in a relatively financialised Malaysia. Access to credit through financial institutions — largely state-owned here — is an essential facility for reproducing capital for corporate expansion. There has been a precedent of banks favouring big firms over small and medium ones as the profits from larger bank loans would be greater on the whole with a perceived lower risk. Banks who provide loans are looking for firms and capitalists who — in the absence of a proven business track record or verifiable cash flow — have credibility or legitimacy in any form to offset the risk of default.
The process of legitimation takes place in several forms. The first is to have prominent individuals on a firm's board of directors, be they politicians, members of the nobility and above, high-level professionals, or fellow capitalists. A second and equally overt form of legitimation is the very public winning of big government tenders or contracts. The first form often heavily aids with the said contract being won.
The last I wish to discuss is the ‘unspoken state backing’ of GLIC investment in a conglomerate’s firm. This particular form of legitimation does not always help with a firm's share price performance. Still, it does signal to potential investors that the firm is now deemed too important to fail as the state has a direct interest in it. Notwithstanding the directly government-linked conglomerates like Sime Darby and Boustead, others like Genting (through HRDF and CIMB), IOI (through EPF and KWAP) and YTL (through EPF).
Resource Rents (Monopolies, Land, Licenses and Approvals)
Aside from loans and equity financing (raising capital through the sale of shares), another way to quickly acquire the mass of capital needed to expand into other sectors is to be awarded or granted an extraordinarily profitable business in a sector. More than the previous three factors discussed, this element of conglomerate capital’s rise is the most apparent because, citing Khoo again, “state policies and protection [would make] the difference between success and failure”. These sectors often generate rents above the marginal cost and thus allow for greater profits relative to the existing economic conditions of the time (refer to the appendix of my third entry in this series for more on the types and characteristics of rents)
Monopolies — literal and virtual — abound in Malaysia in industries like gaming (Genting and Berjaya), certain commodity import and export (BERNAS and Sugar under Robert Kuok) and social services (POS Malaysia under Syed Mokhtar). In other sectors, duopolies and oligopolies are more than capable of delivering outsized profits; in telecommunications (Ananda Krishnan’s Maxis and Berjaya’s U Mobile), power (YTL and Genting through Mahathir’s IPP scheme), automotive (Proton: DRB HICOM and Syed Mokhtar, Perodua: Sime Darby through UMW) and palm oil (Sime Darby and IOI). All these sectors are regulated by the state and hence, under the discretion of politicians and bureaucrats, can (allegedly) lubricate the entry of firms and individuals into — and reproduction within — these sectors.
Conclusion - Politics at the Heart of Conglomerate Reproduction
I hope this entry has made a somewhat convincing case that conglomerate capital relies on the state — and by extension the ruling political class — for its reproduction. The four factors — labour, finance, state backing and rents, listed in order of increasing state and political discretion — are vitally necessary for profits to be made consistently. The plan for now is to examine five conglomerates (Vincent Tan’s Berjaya, Syed Mokhtar’s ‘business empire’, Sime Darby, Boustead and Hong Leong Group) to map out their sectors and update their corporate history, primarily to analyse their pattern of expansion and investment. This should (hopefully) show that conglomerates take the path of least resistance when acquiring profits and stick to the ‘safe sectors’ that we will discuss in more detail. While this may seem obvious to do under the capitalist system, its implications for Malaysia’s development would be detrimental, to say the least.