In defence of national economic autonomy? Malaysia's response to the financial crisis

As a result of the financial crisis, some commentators see the reform process in the East Asian states as an outcome of the disciplining behaviour of financial markets that will lead to the emergence of a neoliberal form of capitalism. The Malaysian experience suggests, however, that progress to neoliberal forms of economic organization will not be inevitable, despite governments having to increasingly accommodate global markets. In Malaysia, the degree to which a neoliberal adjustment response could be embraced was limited by domestic political factors. First, the government needed to maintain the ethnic based distributive policy that favours ethnic Malays with material entitlements for reasons of state and regime security. Second, the state was not wholly insulated from a key social group that emerged as a result of the ethnic-based distributive policy, namely an elite Malay corporate group. A third reason was economic nationalism, a major component of Prime Minister Mahathir's vision for the country that stressed the building up of Malaysian corporations and conglomerates. Access to domestic sources of funds for adjustment and the centralization of power in the government, particularly in the office of the Prime Minister, facilitated this process of defending national economic arrangements, at least during the period in question. The limited liberalization of the ethnic based distributive policy did not, however, imply a shift in the ideological and policy agenda towards complete embrace of neoliberal norms and practices. The imposition of capital controls, although announced as a temporary measure to allow space for the government to pursue its preferred course of adjustment, further indicates that the commitment to free markets in Malaysia is instrumental. The Malaysian case suggests that movement towards neoliberal forms of economic organization as a result of the financial crisis may be limited and is not inevitable.