Financialisation capitalism ramifications on a national economy

23rd April 2023

1] INTRODUCTION

By financialization capitalism we shall mean an emerging form of capitalism that increasingly uses finance, and apply financial tools and means, in the operations of capitalism (John Bellamy Foster, The Financialization of Accumulation, Monthly Review vol:62, issue 05 October 2010), or simply as the financialization of the accumulation of capital process (Paul Sweezy, “More (or Less) on Globalization,”  Monthly Review 49, no: 4 (September 1997). 

The defining process of accumulation in financial capital would involve the investment of money or any financial asset to increase the initial monetary value of said asset as a financial return whether in the form of profit, rent, interest, royalties or capital gains.

This shift in economic activity from production, and in the service sector, to financial activities that generate high private rewards disproportionate to their social productivity (James Tobin, Nobel Prize in Economics 1981) is one central aspect whereby the surplus value, that is, the added value created by workers in excess of their own labour-cost is being appropriated by the new financial capitalists as profits, (Marx, The Capital, chapter 8). This surplus value as the source of society’s accumulation of fund or investment of fund, part of is re-invested, but part of it appropriated as personal income, and used for consumption purposes by the owners of capital assets. The workers cannot capture this benefit directly because they have no claim to the means of financial creation or its final production.

2] MONOPOLY-FINANCE CAPITALISATION

The creation of monopoly-finance capitals in the neoliberalism economy of Malaysia is no more than the hegemonic economic ideology of the Thatcher and Reagan regimes reflecting the new imperatives of capital – advancing IT-geared financial globalization planted in Malaysia as the engine of financialization capitalism model (Lena Rethel,  Malaysian Capitalism, Rents, and Financialisation, University of Southampton, 2010).

In the early 1990s, Malaysia corporations sought funds from the domestic equity market while non-financial enterprises relied on bank debt and the issuance of bonds abroad. Since 2003, however, the corporate bond market has reached an unprecedented size of RM$190 billion, while similarly since 1999 the total private sector bonds outstanding have surpassed that of public sector bonds (Bank Negara, 2007). This expansion of bond finance favours bigger corporations linked to the government – much to the disadvantage of the Chinese and Indian capitals’ SMEs that do not have the sizeable funding resources.

The ensuing financialization of Malaysian capitalism led to the emergence of a new politics of debts, and it also coincides with rising levels of household indebtedness. It reconfigures society where share ownership and shareholder value take preeminence, a growing influence from capital market-based financial system, the further entrenchment of the political renter class power as well as the polarization of wealth and income, and the explosion of financial innovation and trading that led an economy more towards “speculation” than the engenderment of production to be equally shared by rakyat (Costa Lapavitsas, “The financialization of capitalism”, SOAS abstract).

The above processes occurred when the existing relationship between the various forms of capital rent-seekers collude. Under the New Economic Policy (NEP) with state capitalism this process only accentuated with increased financialization, reinforcing the existing strand of an ethnically divided capitalism (Searle 1999, Riddle of Malaysian Capitalism, Asian Studies Association of Australia). The country’s economic initiative was to be in alliance with the private sector, especially while in collaboration with Chinese capitals during the early 1980s, was also evidently prominent in the collusion of the privatization of state assets at that period, (Heng Pek Koon, The New Economic Policy and the Chinese Community in Peninsular Malaysia,  The Developing Economics, 1997).

Whereas the majority of businesses built during the prewar period were found in the tin and rubber industries that comprised illustrious family firms built by Low Yat, Loke Yew, Chong Yoke Choy, H.S, Lee, Tan Chay Yan and Lau Pak Khuan who colluded with imperial British plantation interests to build their empires, the “new money-capital” entities like YTL Corp’s Yeoh Tiong Lay, Berjaya’s Vincent Tan, Genting’s Lim Goh Tong, Sunway’s Jeffrey Cheah, Lion’s William Cheng and the Ananda Krishnan groups and business stables attempted the forging of more Sino-Indo-Malay corporations, that is, a co-opetition strategy whereby Chinese and Indian capitals can compete as well as co-operate with Malay interests, (see Neo Yee Pan “The Role of Chinese Business in the Context of Our National Objective” paper delivered at the MCA Economic Congress, March 3^rd. 1974; Jesudason 1989,  Ethnicity and the Economy: the State, Chinese Business, and Multinationals in Malaysia, Oxford University Press, Singapore; Heng,  op.cit.).

Those Chinese capitals and Indian compradors would, by forming joint ventures with Malay capitals, tap upon the vast capital resources of State agencies such as PERNAS, PNB and Peremba Bhd, besides

1. UMNO-controlled corporations like the Fleet Group and Media Prima
2. Institutional funds such as Lembaga Urusan Tabung Haji (LUTH or Islamic Pilgrims Management and Funds Board) and Lembaga Tabung Angkatan Tentera (Armed Forces Funds Board)
3. Private sector capital held by new class of Malay millionaires such as Tun Daim Zainuddin, Tun Sri Azman Hashim, Tan Sri Wan Hamzah and Tun Sri Rashid Hussein as well as royal entrepreneurs like Tunku Imran ibni Tuanku Ja’afar of Negeri Sembilan

Then, the ordinary category of depositors are redefined as fee-paying consumers of financial products such as car and motor-cycle hire-purchase loans and credit cards payment to consumer products besides those remitting housing mortgages.

Thus, in 2005, the ratio of total household debt to GDP amounted to 72.6%, of which nearly 85% was provided by banks (Bank Negara Annual Report 2006), and that between 1999 and 2006, total Malaysian household debt grew at an annualized rate of 15%. From a base in 2000 over RM$160 billion in household debt, this amount had risen over a short period to nearly RM$400 billion by 2006.

Consequently, the national domestic and external debt, between 1991 and 2011 soared:

What is beginning to happen is that compared to the NEP period, between 1970-1980, the bank-based development state model was that the consumption needs of households had been subordinated to the financing needs of the industrial sector as well as the ethnic-based distributive policy, whereas post-economic downturn 1980s had seen private consumption (and thus household borrowing) is increasingly seen as the important driver of domestic growth. This also means that bank lending is much about sustaining consumption than that of production.

The fifth point is that the passing of the buck-ringgit, so to say, is the “individualization of risk” had meant a high incidence of household debts arising from marketed consumption patterns whereby April 2006 the Credit Counseling and Debt Management Agency (AKPK) has to be established as part of the government approach – to develop a personalised debt repayment plan in consultation with financial service providers – to confront the ever increasing consumer debt that was primary affecting many in the Malay (youthful) community. Unfortunately, AKPK had often portrayed these debtors as “innocent victims of circumstances” or as “hapless” or being “foolish” whereas the main underlying and real reason is that the rising household debt owes too much kleptocratic capitalistic instinct to empower capitalism, and more recently the financialisation of capitalism by ethnocapital rentiers.

As of March 2016, more than 148,000 borrowers have joined the debt management programme conducted by AKPK (Malaysian Reserve, May 25th. 2016).

Finally, public interest rates were driven to very low rate to enable such banks to make secure guaranteed profits by lending to their customers and households at higher rates. In short, the financialization of Malaysian capitalism had only encouraged public funds being injected into private and kleptocratic banks to boost capital and enlarge capital formation, and further where this public liquidity was to enable these banks to sustain their continuous siphoning operations.

Therein highlights the contradictions of poverty and inequality within society.

The second key point is that the rise of a ‘mass investment culture’ has strengthened the ‘dominance of finance capital’ (Harmes 2001, Mass investment culture?, New Left Review, 9, pp 103-24), and is a contributing trend in the financialization of capitalism in Malaysia today. Take as an example, PNB has also nowadays invests in bonds and structured instruments, thus assisting in the reproduction of a sustainable capital market-based financial system – a collateral vulnerabilities of increasing individual exposure to the capital market whereby inevitably “households had become financialized, too” (Costas Lapavitsas, Financialised Capitalism: Crisis and Financial Expropriation,  Historical Materialism 17 (2009), School of Oriental and African Studies, London).

In effect, the evolution of unit trust investment, on one side though deviating from NEP redistributive schemes, has on the other hand, turns the capital markets as part of social policymaking, too. By October 2008, the ruling regime borrowed RM$5 billion to shore up the credit-crunch-affected equity market, with the money provided by EPF but disbursed by Khazanah jointly owned by EPF, PNB and Khazanah itself.

Thirdly, this shore up of government interests (not dissimilar to crony capitalism in the early stage of the NEP implementation during the 1970s) that only act as a political behaviour to protect the up-and-coming Malay middle class (Embong, State-led Modernisation and the New Middle Class in Malaysia) and the Barisan Nasional clientel, but also as a conduit on preserving the wellbeing of the capital market so as to be used to bail out Malaysian corporations and favoured individual capitalists.

As the state’s role was being transformed to meet the new imperatives of financialization, the kleptocratic governance had to assume as lender of last resort –bailing out crony capitalists like Malaysian Airline System’s  Tajudin and Halim Saad’s United Engineers Malaysia (UEM) and the Renong Group (the largest bumiputera-owned conglomerate then) when in August 2001, Syarikat Danasaham – the wholly subsidiary of state-owned investment house Khazanah Nasional – made a conditional voluntary offer to purchase the entire shares and warrants of UEM, including Renong’s stake.

Lastly, PNB evolution from changing state investment practices to assume increasingly a role as ‘market players’ where the investment strategy has become more neoliberal following financial considerations on return-oriented basis, there is a competitive stance in maintaining, and retaining, share of the market than that of a distributive expression as articulated within the 1970s’ NEP objectives. It started as a state investment vehicle to strip off government assets for private Bumiputera interest. Using these ill-gotten funds, by 1981 PNB became one of the leading Bumiputera investment institutions acquiring RM$487 million shares in 60-odd companies.

3] ECONOMIC DEVELOPMENT REVISIONISM

With this expanded capital base, the 1980s economic development revisionism only contributed to the seedling of fund that eventually induced the introduction of financialization capitalism in the country. For example, PNB has together with Khazanah, implicated in the launch of the “transformation programme for government-linked companies”. For instance, Pemandu (Performance Management Delivery Unit) was set up under the Prime Minister Department on Sept 16, 2009 to oversee the implementation of the Economic Transformation Programme (ETP) and the Government Transformation Programme (GTP), the two key pillars of the government’s New Economic Model (NEM) introduced in 2010.

Secondly, the reforms heralded by Prime Minister Najib in 2009 and implemented by Idris Jala, Minister in the PM’s Department heading the Performance Management and Delivery Unit (Pemandu) have been lackluster, and not as successful in their implementation as often propogated (Research for Social Advancement (REFSA), A Critique of the ETP, Part I and Part II, January 2012). According to other analyses of the 12 national key economic areas that Pemandu targeted upon, they averaged lower gross national income growth than non-key sectors between 2011 and 2014 at 4.99 percent against a national average at 8.77 percent.

These state-funded vehicles, instead of overseeing the New Economic Model progress, have willingly driven public funds being routed into the banking system to boost capital. With the availability of ready liquidity of public fund, the consolidated domestic banks nowadays are able to more than sustain their profitable operations.

The third pointer is that public interest rates – by which the central bank in hoarding  dollar reserves, Bank Negara is able to “sterilize the reserves” – are being driven down to enable the banking system to make secured profits by lending to their clienteles at higher rates.

4] GROWTH OF FINANCIALISATION OF WORLD ECONOMY lies in the deeper imperial penetration into underdeveloped economies with wider financial dependence, (see Magdoff 1978,  Imperialism: From the Colonial Age to the Present  and Magdoff, 1969, The Age of Imperialism; also refer to Foster “The New Imperialism of Globalized Monopoly-Finance Capital – An Introduction”,  Monthly Review, Vol:67, Issue 03), like in Brazil where the domination of global monopoly-finance capital has attracted portfolio investment, and to pay off its external debts to international capital, including the IMF that accrued high interest rates, de-industrialization, a slow growth in its economy, and the continuance vulnerability to the often rapid movements of global finance (IMF, World Economic Outlook, 2015).

The daily average volume of foreign exchange transactions, even from old data set had indicated the magnitude the seriousness and depth of neo-imperial financialization penetration: US$570 billion (1989) had increased to US$2.7 trillion by 2006, and US$5.7 trillion in 2013 (Bank of International Settlements, various reports). Therefore, the agglomeration of wealth, and its continuous transferring across the globe, had pointed to the increasingly related to finance transactions than the physical material mode of production. It also indicative in some ways through transfer-pricing by trans-national corporations (TNCs) that there is a constant leaking of investment fund from Malaysia, and there is consultancy advisory on how to minimize it (see Juliana Tan Ming Qing, Malaysia: Transfer pricing aspects of restructuring, KPMG 2014; Bob Kee and Mei Seen Chang,  Malaysia: Malaysia’s evolving transfer pricing landscape, KPMG 2014).

5] THE FINANCIAL SUPERSTRUCTURE STRANGLING HOMEOWNERS

The financial superstructure’s demand for new cash infusions to keep speculative financial derivatives expanding (see Foster “The Financialization of Capitalism”, op.cit.), has meant that it encourages homeowners to maintain their lifestyles even with stagnant real wages that are causing the Malaysia’s household debts being the highest in Asia – as at August 2015, the country’s household debt-to-GDP ratio stood as high as 88.1% (The Edge  22/02/2016; by March 2016, the total household debt in Malaysia stood at 89% of the Gross Domestic Product or RM$1 trillion, consisting 80% from the banking system, with 20% from non-banking financial institutions,  Malaysian Reserve, 26th. May 2016); whereas, collectively, the 9 richest men in Malaysia have a total capital asset of RM$175 billion (Forbes 2016).

Existing data have also signified that the rapid increase in inequality have become built-in necessities of the monopoly-finance capital phase in the neo-imperialism system. The wealth gap among Malay Malaysians has grown larger significantly with the Gini Coefficient among the bumiputeras having the highest inequality (Hwok-Aun Lee and Muhammad Abdul Khalid, Is inequality in Malaysia really going down?, Faculty of Economics Administration Working paper 2014/09, University of Malaya).

This is duly noted by the  Khalid research paper at the London School of Economics and Political Science, where presented, the disparity among the Malay community – the top 1% – is much acute, and accentuated as ever.

After six and half decades of sustained  neoliberalism economic developmental  effort, the nation of Malaysia is still as disparity in absolute income inequality as ever, (see lower right chart below)

Sources: World Bank datasets and DoSM statistics

It is also an era of a generation when  70% of lower-income households  cannot even meet monthly basic needs – indeed, more than 60% of these households reported having no savings at all – not much of a difference than 10 years ago:

According to the Employees Provident Fund, over two million contributors aged between 40 and 54 have less than RM10,000 in their retirement savings accounts; and

where increasingly these household expenditures are expansively spent on food:

Thus, the nation of Malaysia is still encasted in acutely absolute income inequality as ever:

As an instance, Bantuan Tunai Rahmah, the cash aid scheme, reportedly has 8.7 million recipients – a quarter of the population – which gives a damning statement on the extent of low incomes among our workers.

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Related Readings

1. Unequal Exchange under Neo-Imperialism

2. Capitalism in Crisis

Financialisation capitalism deepening neoimperialism penetration

21st April 2023

1] INTRODUCTION

Capitalism  distinctive trends in contemporary history have been:

(1) slowing down of the overall economic growth rate;
(2) internationalisation of monopolistic transnational corporations (TNCs); and
(3) emergence of the “capital accumulation process” or financialization capitalism

Since the 1974-1975  recession, there is an economic slowdown in advanced capitalist economies with impactful economic effects on the poorest countries. Scouting for wider markets to sustain capitalism, a proliferation of corporations – with neoliberalism policies – begins setting up assembly lines across borders in different geographical locations, especially inside developing countries – the Global South – where by 2010, more than half of all foreign direct investment (FDI) went to third world and transition and emerging economies. With this strategic positioning in place, and world production dominated by a relatively few transnational corporations (TNC) exercising considerable monopoly power over states and labour, the migration towards the international concentration of capital clearly reflected on the work of Lenin (Imperialism, the Highest Stage of Capitalism, New York: International Publishers, 1939) and, on the other hand, confirms Amin’s imperialism of generalized-monopoly capitalism and Emmanuel’s unequal exchange under Neo-Imperialism that widened underdevelopment under monopoly-capitalism practice through sheer economic expropriation and labour exploitation.

2] INTERNATIONALISATION OF FINANCE CAPITAL

The international concentration of capital invertibly gives birth to international monopoly-finance capital that ensues the emergence of financialization capitalism (see John Bellamy Foster, The Financialization of Accumulation, Monthly Review vol:62, issue 05 October 2010). Financialization capitalism becomes prominent because the TNCs are unable to find sufficient investment outlets for their huge economic surpluses from production, increasingly turn to speculation within the global financial sphere, (see John Bellamy Foster and Fred Magdoff, The Great Financial Crisis (New York: Monthly Review  Press, 2009).

Even households had become financialized, (see Costas Lapavitsas,   Financialised Capitalism: Crisis and Financial Expropriation,  Historical Materialism 17 (2009), School of Oriental and African Studies, London and Costas Lapavitsas, The Era of Financialization, Part 3, TripleCrisis).

a) In this country, financialization capitalism is engaging – and entangling – the political economy of Malaysia even during a Covid19 pandemic situation when such capitalism is as contiguous as the virus itself, and became the dominance of financial monopoly-capitalism in the nation, and consequently indebted the country. The urban poors are distressing in debts as reported by UNICEF 2020; Khazanah 17/03/2023.

The inevitable collusion of monopoly-capitalism with clientel capitalism is clearly evident during the acquisition, distribution and Covid19 vaccination processes; see STORM 2021, A case of ownership and control of vaccines distribution.

Fifty years ago, the penetration of neoimperialism is distinctively sharpened because during the 1970s, Malaysia went through an industrialisation initiative though did not employ as many workers as projected, but FDI still created an  underdevelopment in monopoly-capitalism  environment that inevitably invited these TNCs exploiting precarious labour. Presently, the few TNCs dominating particular industries or in the sectors of electrical and electronic production are confronted with a dialectic of rivalry and collusion: the mobile phone industry and a infrastructural platform, like Google, are prime examples of the control of telecommunication services:

b) There is a “competition” between firms in search for low labour cost  (economics term: labour arbitrage) and low-cost production  processes (operations management from lean to just-in-time and flexible production),  competition for resources and markets (strategic management term: competitive advantages) and marketing principles on product differentiation (varied products with many features and multi-functionalities at various price structures in different marketspheres).

By 2008, those top one hundred global corporations which had shifted their production to foreign affiliates or subsidiaries accounted worldwide for 60 percent of their total assets and employment, and more than 60 percent of their total sales.

c) During an era of global monopoly-finance capital, financial capital is part of the transnational migration of capital with Information Technology augmenting the monopolisation trends primarily, (see John Bellamy Foster and Robert W. McChesney, The Internet’s Unholy Marriage to Capitalism, Monthly Review 62, no. 10 (March 2011): 1-30).

Increasingly, capital accumulation – real capital formation in the realm of goods and services – has become widely subordinate to finance, including the public healthcare and  pharmaceutical  providers, housings development through Real Estate Investment Trust (REIT) and many other entities.

Whereas labour ( owing to a combination of cultural, political, economic, legal and geographical reasons ) is rooted in particular nations – ensuring a constant and growing  supply to the global reserve army of workers – capital is globally mobile, thus consolidating the Global Labour Arbitrage advantages with Global Value Chains bounding TNCs conglomerates cohesively and binding the global commodity supply chainings completely.

Therefore, one would present Amin’s arguments that as a system, generalized and globalised monopoly capitalism ensures that these monopolies derive a monopoly rent levied on the mass of surplus value (transformed into profits) that capital extracts from the exploitation of labour. Even though these monopolies operate in the peripheries of the globalised system, this monopoly rent becomes an imperialist rent. The capital accumulation process is consequently governed by the maximization of monopolistic/imperialist rent.

Anchored upon a capital-market system, this leads to the emergence to, and the pervasion of, financialization capitalism in Malaysia.

3] THE TECH-VENTURE CAPITAL COLLUSION

The 1990s’  unrestricted movement of international finance capital, public sector enterprises and even the government-link companies (GLCs) increasingly are controlled by the hounds of financialization capitalism. The metropolitan capital-as-finance (Patnaik 1999), gets control over Third World resources and enterprises to see the rise to international finance capital in league with the local neocomprador class becoming crony capitalism through the force of accumulation as articulated by Samir Amin (2019) in The New Imperialist Structure,  Monthly Review, July 01, 2019.

This Capital Internationalisation fragments, and weakens, labour organizations, and during the Covid19 pandemic especially in union bursting regionally,  including Malaysia  – specifically in the electrical and electronic industrial sector.

To separate the physical outputs in manufactured productions, one has to distinguish the soft elements in the digital economy, too.

Firstly, the Intellectual Property Rights (IPR) is a monopoly regime. Intellectual property includes product design, brand names, and symbols and images used in marketing. These are protected by rules and laws covering patents, copyrights, and trademarks. Figures from the UN Conference on Trade and Development (UNCTAD) show that royalties and licensing fees paid to multinational corporations increased from US$31 billion in 1990 to US$333 billion in 2017, (United Nations Conference on Trade and Development,  World Investment Report 2018).

According to the figures from Science and Engineering Indicators 2018 Digest, released by the National Science Council of America in January 2018, the total global cross-border licensing income from intellectual property in 2016 was worth US$272 billion alone. The United States was the largest exporter of intellectual property, with income from this source comprising as much as 45 percent of the global total.

With the TRIPs/WTO (Agreement on Trade-Related Aspects of Intellectual Property Rights and the World Trade Organization as an international legal agreement between all the member nations of the World Trade Organization), the intellectual property regime has only strengthened monopoly-capital stronghold, (Cédric Durand, William Milberg, Intellectual Monopoly in Global Value Chains, 2018).

Through the ownership and control of information, monopoly-capital dominates the digital capital, too. Capital accumulation permeates the entire production chain but through soft elements in the ownership of patents, copyrights, brands and logistical systems impoverishing the poors but enrich the bourgeoisie class by way of   financialisation capitalism.

Secondly, the tech-venture capital bloc’s reducing capital gains taxes in 1978 from 50% to 28% became known as the Silicon Valley model, now emulated much all over the world (Marxist Sociology April 2021).

Thirdly, without promulgated regulations, financial monopoly capital is very likely to work against the vision and goals set by any country for her industrialisation initiatives. The insurgent of capital financialization in the late 1990s had already created an increased circulation of paper instruments and their associated debts :

Malaysia increasingly national debts: 1970-2014

Indeed, three Swiss scholar-researchers had uncovered that a core of 147 MNCs multinational corporations controlled nearly 40 percent of the economic value; out of the 147 corporations, some three-quarters were regarded as financial intermediaries, (Stefania Vitali, James B. Glattfelder, and Stefano Battiston, “The Network of Global Corporate Control,”  PLoS ONE 6, no. 10 (2011): e25995). The empirical study undertaken by them has further indicated that a relatively small number of multinational banks effectively dominate the whole global economy.

“Based on their analysis of 43,060 multinational corporations all over the world and the shareholding relationships between them, they found that the top 737 multinational corporations controlled 80 percent of total global output,” as cited by (Cheng Enfu and Lu Baolin in Monthly Review May 2021).

4]

THE VALUE CHAIN EXTRACTIONS

There is a new battle on unequal exchange – not merely or only in the Production-exchange-Consumption model in physical goods – but in the soft digital arena presence in the infrastructural platforms horizon: Digital generation-exchange-Usage model which is equally expropriational besides sheer exploitative, too.

That under an e-commerce environment,  digitally neo-imperialism is routed onto a refreshed monopoly-capital commodity supply chain pathway that shall have these ramifications :

Instead of exerting downward pressure in the middle of the curve – the part on processes of production – intellectual monopoly has inadvertently points to an upward pressure at both ends of the smiley curve where the control over intangible assets (like R&D and design, and e-commerce marketing and post-sales interfaces) is most concentrated.

This upward pressure on both left and right sides of the curve is a resultant outcome from dynamics arising from the growing role of intangible assets in the value chain processes, and also from tighter Intellectual Property Rights. This means that the market power of leading firms – the product/service initiators or front-runners – is often enhanced by intellectual monopoly endorsement which is fueled on one part by the dynamic advantages arising from global value chains network externalities, and on the other side, by the increasing returns on intangibles and legally-enforced proprietary control over standards, technologies and brands, (UNCTAD, The Digital Economy Report 2019: Value Creation and Capture: Implications for Developing Countries; Jomo 2020; Jomo 2021).

The implications for third world countries are that due to the monopoly-capital competition dynamics in the Global North, developing-country platforms that are trying to scale up typically face an uphill battle. The dominance of global digital platforms, their control of data, as well as their capacity to create and capture the ensuing value, tend to further accentuate concentration and consolidation rather than reduce inequalities between and within countries.

Secondly, in the global “data value chain”, many countries are already entrenched in subordinate positions, with value and data being concentrated in the few global platforms and other leading transnational corporations. One only have to peel away the infrastructural TNCs platforms like Microsoft, Alphabet and Meta to view the extensive intrusion of neoimperialism design in the digital economy; see STORM 2023, tigthening Infrastructural platforms stronghold.

Thirdly, the surfing serfs of the world are increasing commodified into digitised slavery to the triad of capitalism, monopoly-capitalism and financialisation capitalism where labour is outsmarted by digital machines; see STORM 2023, Short-circuiting the rakyat.

5] THE LABOUR EXPLOITATION

For Global North workers, today’s real average wage (that is, the wage after accounting for inflation) in USA has about the same purchasing power it did 40 years ago; and, what wage gains there have been have mostly flowed to the highest-paid tier of workers, of workers, (PewResearch 2018) :

with mitigated effect on “contingent workers”, (Fortune 2019).

Between 1982 and 2006, the average annual growth of the real wages of production workers in nonfinancial corporations in the United States was just 1.1 percent, not only much lower than the 2.43 percent recorded from 1958 to 1966, but also lower than the 1.68 percent during the economic downturn from 1966 to 1982. The slowing of wage growth allowed the corporations’ profit share to rise by 4.6 percent during this period and accounted for 82 percent of the recovery in the rate of profit.

Further, Noam  Chomsky  had once explained that “what you find is that US$47 trillion were taken from the bottom 90%, the middle class and the working class, and put in the hands of the top 10%. But if you look closely, it’s a fraction of the top 10% which takes the greatest wealth. Since Reagan, they have doubled their ownership of society’s wealth from 10% to 20%.” 

Indeed, the profits of U.S. corporations increased from 5 percent in 1950 to 35 percent in 2008. The proportion of overseas-retained profits increased from 2 percent in 1950 to 113 percent in 2000. The proportion of overseas profits within the total profits of Japanese corporations increased from 23.4 percent in 1997 to 52.5 percent in 2008, (Cui Xuedong, “Is the Contemporary Capitalist Crisis a Minsky-Type Crisis or a Marxist Crisis?” [in Chinese], Studies on Marxism 9 (2018).

In a slightly different accounting, the share of foreign profits of U.S. corporations as a percent of U.S. domestic corporate profits increased from 4 percent in 1950 to 29 percent in 2019, (John Bellamy Foster, R. Jamil Jonna, and Brett Clark, “The Contagion of Capital,”  Monthly Review 72, no. 8 (January 2021): 9).

6] CONCLUSION

The penetration of neoimperialism design in the Global South emerging economies are real, and realistically uncomfortable and unaccommodating to the poverty poors of the world.

i) Emmanuel’s  premised that unequal exchange characterises the trade rela­tion between the Global North centre and Global South periphery whereby ‘the inequality of wages as such, all other things being equal, is alone the cause of the inequality of exchange.’

ii) Capital accumulation is immense on a global scale because of the existence of a large, low-cost global workforce. According to data from the International Labor Organization, the world’s total workforce grew from 1.9 to 3.1 billion between 1980 and 2007. Of these people, 73 percent were from developing countries, with China and India accounting for 40 percent, (John Bellamy Foster, Robert W. McChesney, and R. Jamil Jonna, “The Global Reserve Army of Labor and the New Imperialism,” Monthly Review 63, no. 6 (November 2011): 3).

iii) With the advent and advancement in the financial liberalization process, finance capital is thus no longer just serving industrial capital, but has far overtaken it. The financial oligarchs and capital rentiers are now dominant; more so, with an ethnocapital assertion in the national banking sector, too, as in the case of Malaysia.

iv) World-wide, within twenty years since 1987, debt in the international credit market soared from just under US$11 billion to $48 billion, with a rate of growth far exceeding that of the world economy as a whole, (Cheng Enfu and Hou Weimin, “The Root of the Western Financial Crisis Lies in the Intensification of the Basic Contradiction of Capitalism” [in Chinese], Hongqi Wengao 7 (2018).

v) As a corollary, Emmanuel had argued that “by transferring through non-equivalent exchange, a large part of its surplus to the rich coun­tries, the periphery deprives itself of the means of accumulation and growth.”  Thus, an impor­tant implication of Emmanuel’s theory is that a widening wage gap leads to a deterioration of the periphery’s terms of trade, and a subsequent reduction in its rate of economic growth, see Emmanuel’s formulation of his theory; STORM 2021, Unequal Exchanges and STORM 2020, Gross Inequality in Global Wealth.

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Big Pharma Big Monopoly

21st April 2023

With that statement, a governance is controlled by the Big Pharma, and that monopoly-capital is owning the public health sector: much detrimental to a community-based healthcare system in the country. On the pinnacle of government-linked companies, a holding entity entrapped in a scandal of naval ships building got involved in the continuance of ethnocapital clientel-rentiership. Furtherance in entrenchment , not only in the healthcare social welfare provision, are the dire consequences of many other monopolies still festering in the country.

Reposted is the story of Pharmaniaga and the multilayered processes, personnel and politics that are colliding in the circuitry of capitalism.

[ First published as BIG PHARMA WIDE CLIENTELISM DEEP FINANCIALIZATION IN HEALTHCARE CAPITALISM (MARCH 5, 2021), STORM ; with additional material contents herein]

PROLOGUE

The international vaccine distribution effort is hindered by the global power and wealth imbalance

1] INTRODUCTION

The spikes of COVID19 add an epidemiological dimension to the political economy of nation that opens a prised can of  capitalism worms to display the vagaries of clientiel-rentier capitalism in a financialization capitalised healthcare provider.

The emergence of a new class of compradore capitalist under present politico-economic situations requires a new narrative on the role of clientele capitalism inserting into the monopoly-capital supply chain. Under a post-independence environment with ardent economic nationalism craving, to cultivate support from their respective political bases, ruling elites are often in alignment with economic oligarchs by accepting rentier capitalism to sustain their hold on power. They adopt this clientelism as solicitations for votes at the grassroots level, allowing ruling elites the party patronage and political power to “effectively partisanizing them and ensuring ground-level officials with whom most voters interacted with ……are political party loyalists” (Weiss, 2020).

This is part and parcel of a rent-seeking class spritzered with the particular burden of privilege under a clientele capitalism downpour. Under this category of clientelism, goverment-link companies (GLCs) are connected through old-boy networks on a musical chairmanship to retrieve generated accumulation of surplus wealth to distribute among their oligarch collectives.

To complement this circus of capitalism is to connect to the circuitry in capital with globalisation of monopoly-capital commodity chains – controlled by transnational corporations (TNCs) in connecting production zones in the Global South, but with the apex of world consumption, finance, and accumulation primarily in the Global North – in the rise of generalized monopoly-finance capital, defined as a late imperialism episode, (John Bellamy Foster,  Late Imperialism, Monthly Review, 71 No 3, July-August 2019). Under a crisis at present Ecological-Epidemiological-Economic environment, the control and distribution of vaccines shall entangle oligarchy associates with Big Pharma capital linking to Global North monopoly capital and its financialisation capitalism domain.

2] RENTIER CAPITALISM IN HEALTHCARE

Pharmaniaga is given sole distribution rights on the Pfizer’s vaccine in Malaysia (Boustead Holdings owns 55.93% of Pharmaniaga, while Lembaga Tabung Angkatam (LTAT) owns 11.12%, as at May 29, 2020, and through a reverse ownership, the major owner of Boustead Holdings is LTAT).

Ruling regimes through the years have been acting not unlike a tripartite healthcare agent: as a public healthcare provider and regulatory agency, as financial capitalisation with it’s own private hospitals in Sime Darby, Pantai, Khazanah, KPJ Healthcare Berhad, and as rentier capitalism with a disposition to the private pharmaceutical companies.

Pharmaniaga is such an intermediary Big Pharma GLC.

The role of Pharmaniaga in the public healthcare system is essentially acting as a middleman. It is rare for countries to rely on a single concessionaire company to supply biopharmaceutical products, and for such a long period of time, too. More than an ownership, Pharmaniaga is the sole concession holder to purchase, store, supply and distribute both branded and generic approved drugs and medical products to 148 government hospitals  and 2,871 clinics and district health offices nationwide.

Of the RM$27 billion allocated for public healthcare in 2018, at least RM$2.5 billion was for medical supplies and RM$1.6 billion for consumable and medical support items. Indeed, with 100% market share of the government concession, more than RM$1 billion goes to Pharmaniaga annually whence the GLC had a 10-year concession agreement with the Ministry of Health (MoH).

It is through this unfavourable arrangement  whereby Pharmaniaga would source for required medicines and sell them to the health ministry at a pre-determined price with an additional mark-up and commission rate to cover the costs of distribution, inventory holding and procurement.

It is prudent to ask appropriately and timely now whether the ministry deals directly with pharmaceutical companies rather than depend on a middleman to save millions of ringgit. It is also timely rakyat2 are able to have accessible and affordable equity healthcare, and that there should be competition in the drug procurement process, not dependance on a monopolistic company that has oligarchic links with political rulers.

In June 2018, with a changed political environment, a new government had decided to replace Pharmaniaga’s concession for public drug procurement with an open tender system after what the then Finance Minister Lim Guan Eng deemed it a “monopoly” that cost the government over RM$1 billion annually.

More than a decade ago, in 2010, Pharmaniaga Manufacturing Bhd (PMB), a wholly owned unit of Pharmaniaga Bhd, has had its manufacturing licence revoked  following a routine audit by the pharmaceutical services division of the health ministry. Pharmaniaga had stated that it is a diversified healthcare group with business in logistics, distribution and medical equipping; according to its FY09 financial results, manufacturing contributed about 10.8% to its then full-year turnover of RM1.3 billion. The bulk of their income comes from running government hospitals and clinics. So the revoking of their manufacturing licence would not have a big impact on their numbers, an analyst had told The Edge  financial daily. The analyst said Pharmaniaga, being a government-linked company (GLC), should be able to get its act together promptly. However, the analyst noted that this development shows a lack of competency, especially for a GLC. “There is still obviously a lot to be done for KPIs,” the analyst concluded.

The Edge reported then that Pharmaniaga major shareholder, UEM Group Bhd, is in negotiations with several parties to dispose of its entire 86.81% equity stake in Pharmaniaga which could fetch a whopping RM$414 million for UEM’s stake. However, given the turn of events, the sale of any stake may yet materialise but at a huge discount, the analyst said. UEM had once held about 30% of Pharmaniaga before purchasing an additional 16% stake for RM90 million and another 40.81% stake at RM$5.50 per share.

It was reported that among parties that would be interested to purchase UEM’s stake in Pharmaniaga were Tan Sri Rozali Ismail, executive chairman of Puncak Niaga Holdings Bhd, and Equiti Nasional Bhd (Equinas). In February, 2021, Ekuinas  made its maiden investment into the pharmaceutical industry with the acquisition of a controlling stake in Medispec (M) Sdn Bhd, based on an enterprise value of RM$88.5mil.

UEM is a crony company of successive ruling regimes which had their unlimited euphoria in forsaken corruptive indulgents before and during the Asian Financial Crisis (AFC1997), and an unpleasant union busting episode in 2020.

But then the super bull-run for Malaysia came in 1993 when the index moved from a low of 645 points to a high of 1332. Everyone was a winner then and I remember the words of my remisier friend, “money is like free!”. From thereon I was hooked. The adrenalin rush, the excitement of coming to the office every morning and feeling smug given that all your BUY recommendations are winners.

Its was am amazing ride right  to the BIG crash in 1997. Along the way I became the infrastructure analyst and was right at the epicenter of the major infrastructure projects from the North South Expressway, the Second Link, LRT and all the highways and byways and the KLCC twin towers, Gelang Patah – now known as Iskandar Malaysia and Putrajaya.

Naturally I was the analyst for the infamous UMNO related UEM/Renong group.  I still remember accompanying clients on helicopters to have an overview of  the construction works and the countless roadshows globally. I even travelled on the Concorde from London to New York for an IPO. Those were the go-go days. …. Of course I was not with [company] then!

UEM/Renong was also the tipping point for both the Malaysia market and me as an analyst for the w9ron reasons.  It was the stocks to own in Malaysia as there were the prime beneficiaries of the government’s infrastructure spending and took the market to dizzy heights. The music stopped 17th November 1997 when UEM bought a 33% stake in its parent Renong @ RM$3.24 a piece when the market price was RM$1.90 for USD$685.8m. This was  just when the Asian Financial crisis was unravelling!  The market lost 20% in value in three days. Talk about governance. 

Of course, the Malaysian market had gone through those pulsating periods many a time since. 

Even through the years of control and in the domination of the pharmaceutical market, whatever the new “changeover “, Pharmaniaga would still be the only tender agent in the country with exclusive concession to supply 700 items in the Approved Product Purchase List (APPL) comprising medicines and other medical items, determined by MoH, to government hospitals, institutions, and clinics. This comprises over a third of the government’s drug supply.

The 700 drugs that Pharmaniaga procures for MoH, according to the then Pakatan Harapan government health minister Dzulkefly, are essential medicines. The health minister had even said that the direct procurement of certain medicines by some government hospitals from pharmaceutical manufacturers without a Bumiputera tender agent, such as cancer or palliative drugs, would remain.

MoH will slowly take over Pharmaniaga’s functions and buy medicines directly from other pharmaceutical companies.

(The Health Minister Dzulkefly Ahmad was speaking at the launch of the National Palliative Care Policy and Strategic Plan 2019-2030 at Hospital Selayang on November 6, 2019; three months later, he ceased to be the Health Minister when there was a change of government).

The Harapan government had decided to extend Pharmaniaga Berhad’s concession with the Ministry of Health (MoH) to procure certain essential medicines for until December 2021. The interim extension of Pharmaniaga’s 10-year  concession ending in November 30, 2021 is to allow MoH to take over the Bumiputera tender agent’s functions so that the government can purchase medicines directly from pharmaceutical manufacturers without going through a middleman. On top of these concessions, the government-linked company (GLC) will also get another five-year contract to store and distribute MoH’s medical supplies.

The Sheraton Move in February 2020 changed the political dynamics when an unelected government took the backdoor way to emerge as the new ruling regime.

Pharmaniaga’s management, inadvertently, underwent a change following Datuk Farshila Emran’s departure as MD in March 2020. Subsequently, the firm named former Felcra Bhd CEO Datuk Zulkarnain Md Eusope as MD on Sept 1, 2020. For the third quarter ended Sept 30, 2020, Pharmaniaga’s net profit rose to RM$1.44 million on better demand for protective equipment during a pandemic. However, revenue fell to RM$624.8 million against RM$716.85 million.

The Malaysian Reserve  learned that its current chairman Datuk Dr Hafsah Hashim was recently asked to vacate her post before her contract is due. She is one of the few appointees under the previous Pakatan Harapan administration that remain in position after the government changed in February 2020.

Datuk Seri Mohamed Shazalli Ramly has been appointed the non-independent non-executive chairman of Pharmaniaga Bhd as on 1st March 2021. In December, 2021, he was appointed the managing director (MD) of Boustead Holdings Bhd. Prior to this post in Pharmaniaga, he was MD and chief executive officer of Telekom Malaysia Bhd (TM) since April 2017. TM is the exclusive shining digital knight intermediary  controlling the “last-mile” internet hub in the country over which all broadband telecommunication companies have to connect to TM before entering onto the world wide web of the monopoly-capital Global North infrastructural platforms.

Boustead’s executive director of group business development Izaddeen Daud has also joined the board of Pharmaniaga as a non-independent and non-executive director. He also sits on the board of listed companies that include Boustead Heavy Industries Corp Bhd, Boustead Properties Bhd, UAC Bhd, and Olympia Industries Bhd, the latter entity, according to Bloomberg’s, through its subsidiaries, the Company develops, invests and manages property, organizes and manages public lotteries, and provides stock broking services besides operations in construction of storage tanks, money lending services, recreation club, and land reclamation. Tengku Y A M Tunku Naquiyuddin Ibni Ja’afar is a board member; the eldest son of the Grand Ruler of Negeri Sembilan state, who was once the King of Malaysia.

Leadership changes are normal, but having a corporate upheaval in the midst of a pandemic, and in a current Covid19 ongoing vaccination programme, raises concern that it will affect the rollout as well as compromising the integrity of corporate governance.

Anyway, by January 12, 2021, Pharmaniaga had partnered China’s Sinovac Life Sciences Co Ltd for the supply of the 14 million doses of Covid-19 vaccine, enough to cover 22% population in Malaysia. The country has received Sinovac’s first 200-litre Covid-19 vaccines on 27th. February,  2021, equalling to 300,000 doses.

Pharmaniaga’s wholly-owned subsidiary Pharmaniaga LifeScience Sdn. Bhd. (PLS) had entered into a term sheet agreement with the Ministry of Health (MoH) for the purchase and distribution of the vaccine developed by Sinovac Life Sciences Co Ltd (Sinovac LS), a subsidiary of Sinovac Bi-otech Ltd., (theedge, 27/01/2021). The agreement will enable PLS to supply doses of finished Covid-19 CoronaVac, SARS-CoV-2 Vaccine (Vero Cell), Inactivated (developed by Sinovac LS), and filled and finished by PLS to be delivered to hospitals, clinics and any other facilities nationwide as instructed by MoH.  

Duopharma, a different pharmaceutical firm, on the other hand, will be supplying 6.4 million doses of the Russian-developed “Sputnik V” Covid-19 vaccine.

There are other vaccine distributors such as Yong Tai Bhd, Bintai Kinden Corp Bhd and INIX Technologies Holdings Bhd.

Yong Tai had said that it had inked agreement with Shenzhen Kangtai Biological Products Co Ltd for the development and exclusive commercialisation of the latter’s inactivated Covid-19 vaccine in Malaysia. Under the deal, Yong Tai will supply 100 million doses of the vaccine over a five-year period.

Also, Bioalpha Holdings Bhd is the latest to jump on the bandwagon when it entered into a two-year procurement and distribution agreement with Shanghai Bukun Trading Co Ltd for the procurement and distribution of vaccines in Malaysia, including the Covid-19 vaccine developed by Sinovac Biotech.

Bintai Kinden, a mechanical and electrical engineering services company, has also said it is partnering US-based Generex Biotechnology Corp and its subsidiary NuGenerex Immuno-Oncology Inc to distribute and sell their Covid-19 vaccine in Southeast Asia.

Any supply of Covid-19 vaccine will be subject to the approval of NPRA, the National Pharmaceutical Regulatory Agency (NPRA), under the Ministry of Health’s Drug Control Authority. Special Vaccine Supply Access Guarantee Committee co-chairperson Khairy Jamaluddin had assured that Malaysia will not go through with its Covid-19 vaccine procurement deals if the vaccine in question does not meet standards. Further, he reiterated that the agreements are subject to approval by the National Pharmaceutical Regulatory Agency, which would assess the vaccine candidates for its safety and efficacy.

Thus, overall, Malaysia had reached an agreement to get a total of 66.7 million doses of vaccines from Pfizer-BioNTech, AstraZeneca, Sinovac, CanSinoBIO and Sputnik V, aiming to create 70% immunity in the country.

With the start of mass vaccinations, 126,000 people are planned to be vaccinated daily at 600 vaccination centers in the country. As part of its national COVID-19 immunization program, Malaysia kicked off vaccinations on Feb. 24, 2021 and it is prioritising with the vaccination of health care workers and security forces.

In the excitement over the rollout of vaccination, the whole spectre of ethnocratic administration and rentier capitalism eclipsed from public discussion when  bumiputera agents act as intermediaries between government hospitals on one hand, and foreign and Malaysian non-bumiputera pharmaceutical companies on the other, who bid for public procurement of drugs and other medical supplies. In fact, bumiputera tender agents shall continue to provide additional services like warehousing and distribution, while others are purely middlemen.  Bumiputera tender agents charge a fee of between 2 per cent and 3 per cent for their services.

Further, unlike typical logistics companies that charge shipping based on product weight and distance of the destination, Pharmaniaga charges MoH a percentage of the value of products purchased to cover logistics and  distribution expenses, even though the MoH owned the IT system developed by Pharmaniaga to manage drug procurement.

With the complexity of pharmaceutical product acquisition and continuance of a lack of competition, the nation is stunted with a lack in the development of a truly equitable public healthcare system and limiting patient access to simple clinical facilities, and importantly, life-saving drugs, especially to communities who are in the mountainous interiors.

Malaysian Pharmaceutical Society (MPS) president Amrahi Buang voiced opinions saying the government should review the roles played by all GLCs in the healthcare system, including Pharmaniaga.

Opposition DAP MP Tony Pua had once in the past said the prices of medicines in Malaysian hospitals were up to 148% higher than in Australia, as previous ruling regimes “forced” hospitals to purchase them through Pharmaniaga.

Australia, with its  Pharmaceutical Benefits Scheme that covers the entire population, negotiates prices at a national level. If drugs are not listed on its formulary, sales suffer significantly. Therefore, Australia is able to achieve prices for brand-name drugs that are about 9 to 10 percent lower than Canada’s, (Productivity Commission, 2003,  Evaluation of the Pharmaceutical Industry Investment Program, Research Report  (Canberra: AusInfo, 2003). New Zealand is even more aggressive and uses competitive bidding for generic drugs and reference-based pricing for brand-name drugs. Reference-based pricing groups all drugs that are therapeutically equivalent for a particular problem, and the government then pays only for the lowest-priced drug in the group. Using these two approaches and a few others, instead of spending an expected NZ$2.34 billion in 2012, based on the rate of rise in drug spending in 2000, New Zealand paid out only $777 million, see  Pharmaceutical Management Agency,  Annual Review 2012  (Wellington: PHARMAC, 2013), http://pharmac.govt.nz, as referenced from the Monthly Review March 2018’s article on The pharmaceutical industry in contemporary capitalism.

Meanwhile,

Pharmaniaga LifeScience Bhd has been selected to complete the fill-and-finish process of the Sinovac vaccine, but NPRA is still evaluating Pharmaniaga’s fill-and-finish facility and has yet to give the company approval to undergo the process.

3] FINANCIALIZATION CAPITALISM OF BIG PHARMA

There are two physician organizations, one in the United States (Physicians for a National Health Program) and one in Canada (Canadian Doctors for Medicare), that have developed a comprehensive strategy to restrict the power of the pharmaceutical industry and to improve access to medications, (Monthly Review, ibid.)

There is no such an entity, nor a civil pressure group, with the exception of the think tank Galen Centre for Health and Social Policy, to emasculate Pharmaniaga dominative power and to ameliorate broad community-based access to affordable medicines.

It comes at a time while Malaysia merely spends 4.4 percent of its GDP on healthcare of which 52.4 percent of the expenses is funded by the government compared to Japan’s 8 % and 80 %, respectively. The total expenditure for both public and private healthcare is at RM$50.3 billion; where Operational costs itself takes up 93 percent of the expenditure and only 7 percent is allocated for Development purposes.

The lackluster healthcare provision is compounded when in 1983, then-prime minister Dr Mahathir Mohamad introduced privatisation policies that encourages the private sector to intrude wide sphere by taking away the state’s responsibilities in both healthcare and education; healthcare has shown ever increasing costs since then. The privatisation lead to government-linked companies (GLC) like Sime Darby, Pantai, Khazanah, KPJ and others that account for more than 40 percent of private hospital beds.

Even private hospitals that were formerly run by non-profit organisations or religious organisations are now increasingly run as profit-oriented private hospitals. The underlying argument is that the rich can afford private hospitals and this would reduce the traffic at government facilities where public hospitals should be providing better services for the poorer patients.

Of course, this approach only cause a majority of Malaysian rakyat2, and migrant workers, go to public healthcare facilities where seventy-five percent of Malaysian seek in-patient treatment and 90 percent of Malaysians seek out-patient treatment at public facilities which are already underfunded. The resultant picture is not that healthy as the GDP percentage spent on healthcare ranks Malaysia at number 156 in the world.

To compound the predicaments of national healthcare provision, in 1993 the pharmaceutical services under the Health Ministry were privatised where a crony company Renong was awarded an exclusive long-term contract to supply medicines and supplies, and other support services follows by financialization capitalising activities such as laundry and linen, clinical waste management, cleaning, facility engineering and maintenance. Within a year, the cost of these latter services in the public health sector shot up.from RN$140 million to RM$450 million.

Further, as a result of these processes of privatisation, highly qualified and experienced doctors flocked to the private sector. In fact, within a short span of twenty years, the private sector held two-thirds of the total number of medical, surgical consultants, and specialists. Consequently, the waiting time and quality of service in government hospitals deteriorated significantly.

The second emergence consequent of financialization capitalising on medical services is that to distribute the burden of healthcare to the private sector, the financial model needs to be established to bear the cost lies with the insurance industry. It is estimated that the cost to insure every Malaysian at a minimum premium to cover hospitalisation costs would be at RM$30 billion per year. The insatiable urge in capitalism in profit-takings means the number of insurance policy holders has increased and more capitals are attracted in developing private hospitals, (malaysiakini, 2016).

With the equilibrium of such supply versus demand, the cost of healthcare should, one can argue, be reduced. However, it is not the case; indeed, the past years had seen a sharp spike in the cost of healthcare services.

With insurances bearing medical costs, the financialization of capital only attract unnecessary clinical investigations and over-treatments being performed at private hospitals inducing profit-gorging by these enterprising ventures.

That the cost of healthcare is increasing unnecessarily is due to the existence of this industry’s middle-men, termed as the Third Party Administrators (TPA) or sometimes called the Managed Care Organisations (MCO) where they provide interface administration between medical providers, corporations, and the insurance companies. They assist in processing claims, corporate and retail policies and also financial facilities. Their major revenue is in the form of fees or commissions on premium, which though standardised by the Insurance Regulatory Development Authority (IRDA), there is the extra premium charged by insurance companies for TPA services.

Even with privatization, the medical labour is still unheathily expropriated by capital. The financialization of capitalism has exploited the medical professional in so far that the money that goes to the salaries of doctors is a small proportion of the medical services’ throughput. The healthcare’s EBITDA/Revenue percentage is approximately at 35 percent while Wages/Revenue is at 20 percent. If we take Australia as a developed nation as a benchmark, the respective figures are approximately 12 percent EBITDA/Revenue and 45 percent Wages/Revenue.

The third central aspect in the financialization capitalism in the healthcare provision is the Global North monopoly-capital domination in the supply and distribution of pharmaceutical products – and services – throughout the commodity supply chain where undue processes and procedures as illustrated in the rollout of Pfizer Covid19 vaccine have caused intermediary commissions and offset costs to be incurred.

This is where, in the pharmaceutical industry, that prescription drug manufacturers have tremendous influence over prescription medicine pricing. Typically, they gather projected demand and future competitive market costs data to come out with the wholesale acquisition cost (WAC) where this is the “list price” of a brand medicine before any discounts, rebates or other price reductions are applied. This becomes the baseline price at which wholesale distributors purchase prescription medicinal products. The manufacturers often can choose to issue discounts and rebates based on such other factors like market share, volume and even prompt payment. These wholesale distributors are paid a distribution service fee for their services, like to Pharmaniaga. Not infrequently, basing on a percentage of WAC, the distribution service fee is paid in exchange for services including financial management, distribution service, inventory management and data processing where, in the Pharmaniaga case, the latter ownership, in fact, belongs to MoH.

The above-stated factors are some of the ramifications affecting our national healthcare services, and the associated issues regarding equity in healthcare provisions :

a) That the global pharmaceutical industry and the main corporate actors not infrequently target small therapeutic markets with drugs that they can sell for hundreds of thousands of dollars per year per patient than to promote unprofitable medicines. Indeed, pharmaceutical companies view the coronavirus pandemic as a once-in-a-lifetime business opportunity.

b) That there is the issue of fixed-dose combination (FDC) products, that is, products that contain two or more active ingredients where researchers recently found often corporations do take advantage of lax regulatory standards to sell “many millions of dose of FDCs that included drugs restricted, banned, or never approved in other countries owing to their association with serious adverse events including fatality.” (Patricia McGettigan, Peter Roderick, Rushikesh Mahajan, Abhay Kadam, and Allyson M. Pollock, “Use of Fixed Dose Combination (FDC) Drugs in India: Central Regulatory Approval and Sales of FDCs Containing Non-Steroidal Anti-Inflammatory Drugs (NSAIDs), Metformin, or Psychotropic Drugs,” PLoS Medicine 12 (2015): e1001826 as referred in the March 2018 Monthly Review op.cit.

c) That drug regulation in the United States and the European Union has been corrupted through the influence of the pharmaceutical industry. Courtney Davis and John Abraham, who teach pharmaceutical policy at King’s College London, observe that “the last 30 years have seen a raft of deregulatory reforms, ostensibly to promote pharmaceutical innovation deemed to be simultaneously in the commercial interests getting drug company representatives appointed to task forces that help form overall government policy. The ultimate result is that the state actively supports the broad regulatory goals of industry” as cited in Monthly Review, ibid.

So much so that though U.S. and Germany — along with Canada and the rest of the European Union — have contracted for enough doses of various Covid-19 vaccines to inoculate their populations several times over, countries that hosted vaccine trials — like Argentina, South Africa, Brazil, and Turkey — will not receive adequate supplies. In fact, it is not disputed that the world is facing a Covid19 vaccine apartheid, as expressed by Yanis Iqbal and Jomo  Kwame Sundaram.

d) That with limited patent life, the longer drugs are on the market the greater the return to the corporations marketing them. The Prescription Drug User Fee Act (PDUFA) was a law passed by the United States Congress in 1992 which allowed the Food and Drug Administration to collect fees from drug manufacturers to fund the new drug approval process, by getting drugs to the market faster, meant more profits for the corporations.

e) That Intellectual property rights (IPRs) are the key factor in driving revenue and profits for pharmaceutical corporations.

In 1994, it was the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which required uniform patent standards for all WTO member countries, meaning product patents for pharmaceuticals of twenty years and limiting the use of compulsory licensing as a tool for accelerating the appearance of generic products.

Pfizer and its then CEO Edmund Pratt played a key role in convincing the U.S. to adopt a more pro-enterprise posture. Links to cases where Pfizer bribed Nigerian families and doctors, overcharging the UK National Health Service, illegal marketing, misleading drug studies and other unethical cases in international arena can be found HERE  besides profit-taking HERE.

In the 1980s, it was found that the most common reason for terminating trials in the late stages of research, including treatments for cancer, cardiovascular disease, and neonatal sepsis, was financial consideration (43 percent), compared to efficacy (31 percent) and safety (21 percent). Though, if adequate funding is available as in January 2020, Regeneron  could struck an agreement with a division of Department of Health and Human Services known as the Biomedical Advanced Research and Development Authority, or BARDA, to receive up to US$81 million for work on antibodies that would prevent Covid-19 from infecting cells by attaching to the spikes on its surface.

It is also eloquently argued by Jomo and  Anis Chowdhury that the refusal to temporarily suspend several World Trade Organization (WTO) intellectual property (IP) provisions to enable much faster and broader progress in addressing the COVID-19 pandemic should be grounds for International Criminal Court prosecution for genocide; making life-saving vaccines, medicines and equipment available, freely or affordably, has been crucial for containing the spread of many infectious diseases such as tuberculosis, HIV-AIDS, polio and smallpox.

On the other hand, the Mario Negri Institute in Italy, in existence since the early 1960s, offers an alternative way for doing pharmacological research. It is willing to accept money from pharmaceutical corporations for research, but it insists on maintaining its independence by designing the trials, conducting them, collecting and analyzing the data, and writing up the results without any interference from the funding source. In addition, the Institute declines to take out any patents or to demand any other form of IPRs and makes all data freely available. Finally, it rejects any funding when its scientists conclude that the results will not further the interest of public health, (Donald W. Light and Antonio F. Maturo,  Good Pharma: The Public-Health Model of the Mario Negri Institute (New York: Palgrave Macmillan, 2015).

To endorse and adopt to an equity healthcare provision, the country may care to look at the Cuban community model, the Indonesian reformists organisation Muhammadiyah’s venture in running non-profit medical clinics and hospitals or the Karnataka model – a state in the south western region of India – which is leading the way for affordable healthcare when it introduced the Yeshasvini Health Scheme, a scheme for the rural masses to access quality healthcare at only RM$0.30 (5 Rupees) per month with free outpatient consultations and 1,700 different types of operations entirely free of cost.

However, as we have seen, the pharmaceutical companies in our country are not only dominated by ethnocratic-oligarchy entities serving political kleptocrates, but as the only Big Pharma in the country, Pharmaniaga is perceived as to colluding with Global North monopoly-capital and deepening the  financialization capitalism in commodity sourcing supply chains.

EPILOGUE

The more desperate patients become, the higher the price they are willing to pay.

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Structuring institutional reforms for economic development

20th April 2023

1] INSTITUTIONAL REFORMS

There are various reasons why institutions strongly affect the economic development of countries. Their activities and implementation of national policies often have immense impact upon  society at all levels. In a way,  by determining the frameworks in which economic exchange occurs, instititions shall determine the volume of interactions available, the benefits from economic exchange and the form from which they can partake. The ramifications and effects of good institutional reforms shall ensue a better economic development advancement for a nation. Therefore, one of the most important aspect of institutional changes is to understand the needs of the public, which will constructively lead to bottom-up policy development and implementation.

As an instance, reforms related to land ownership, crop subsidies, and selling of farm produce are called institutional reforms, too. These reforms ensure a holistic development of the farming sector, making agriculture a profitable activity, and improving socio-economic conditions of the farmers and titleless settlers in the mountainous hinterlands of Sarawak and Sabah.

2] ECONOMIC DEVELOPMENT

Institutions also have an important redistributive role to play in the economy – they make sure that resources are properly allocated, and ensure that the poor or those with fewer economic resources are protected. They also encourage trust by providing policing and justice systems which adhere to a common set of laws. In any Policy Reform with economic developmental criteria, there is a process in which changes are made to the formal “rules of the game” – including laws, regulations and institutions – to address a problem or achieve a goal such as economic growth, environmental protection or poverty alleviation. Making government more responsive and efficient. Two important objectives of Progressivism are giving the public the opportunity to participate more directly in the political process and limiting the power of Big Capital. 

Since Olin Liu’s IMF Report is there now a structural approach to national economic development that is more strategic and formative in dealing with politico-economic realities faced by the nation in totality. However, the tasks ahead are still daunting, (STORM 2023, Towards structuring economic development with sustainability).

Firstly, the national coffer is depleting – both from odious transactional practices through the decades, and by the  public sector with supporting dastard nature of kleptocractic practices – has not met the  performance criteria  deemed a necessity to spur economic development, but furnished as an intermediary medium between political master and to rentier capitalism in vested projects’ implementation. Some elements have even aligned with the political kleptocrats and clientele capitalists in helping themselves in gorging unfetted gains.

More than ever, the government should consider seriously to increase its revenue base by improving and extending the tax system. With the uncalled expansion of government-linked companies and public authorities in the 1970s and 1980s, the nation is facing difficulties in maintaining and sustaining these parasite entities. One option is to raise the Goods and Services Tax (GST), but with the provisio where some of the GST is redirected to lower-income groups to improve their living conditions, (STORM 2023, Financing debts to a progressive growth path).

Secondly, ruling regimes should not perpetually rely on Petronas for funds. Instead, like other resource-rich countries,  the nation should setup an investment fund which, in the long run will provide revenue to assist in its budget planning and allocation. With Malaysia petroleum reserves for oil and gas resources projected – according to the Reserve Life Index – to last another 15 years only, Malaysia’s probable and proven reserves of petroleum totalled 6.9 billion barrels of oil equivalent. The way foward is to optimise present petroleum resource and to stretch to over 40 years with high capital investment, new technology as well as more stable and competitive investment landscape.

Indeed, Emir Research consultancy has indicated that the country should strengthen the oil and gas (O&G) sector by enhancing the attractiveness of existing energy and petrochemical hubs, increasing and intensifying exploration in the South China Sea and offshore deepwater elsewhere in the world. The primary objective is to maximise outputs and include a more robust national stockpiling policy and stabilising infrastructure ecosystem in place.

Under this approach, through diversification and expansion, the O&G sector can then be transformed. Petronas and its subsidiaries from an O&G base or oil and energy corporation into a global industrial conglomerate. In fact, Petronas should not be limited in expansion and investments on the energy and renewable enery business and assets, but also leading to renewable  chemicals, petrochemicals, materials and other businesses.

Thirdly, the oil palm sector is likely to remain a major food oil for the world  and as a base oil for various other products. The ‘core’ business shall be widened with a flexibility to quickly adapt to market forces and competitive disruptions. For once, palm oil mills generate biomass (from palm residues) that can be utilised for power generation and other renewables, such as fuels, chemicals and materials.

Fourthly, other  economic sectors also need to move from lower value, high-volume commodities or simpler products to high-value end-user products to reap more from the value chains. An early de-industrialisation process in the 1990s had impaired the dynamics of the Electrical and Electronic sector in its contribution to higher commodity value chain.

The E&E sector shall need to coordinate with present infrastructural platforms implementation processes to connect high-value commodity and value chains towards a digital economy.

Fifthly, institutional reforms are not only to pertinent major institutional structural reforms. There shall also be a demanding need in a good governance to ensure justice, equity, insuring talent availability is fully mobilised. Without these, policies and strategies will not be successfully or sustainably implemented.  Therefore, policies must become needs based instead of previous kleptocractic ethnocapital hangovers with discriminatory, arbitrary or very not infrequently on a knee-jerk non-visionary reaction to developmental effort.

3] Can it be SIRED?

With a Madani ethos as the philosophy base in economic  development, and a TAPAO praxis in committment to shared prosperity, it is doable.

Notwithstanding that there are still many weaknesses include (but not limited to) institutional framework and governance, public and private sector digital transformation, education sector, natural resource resilience and protection of biodiversity, relatively unfair and unattractive business landscape, improper management wealth/investment funds, and food security.

Rather than mere ministry-centric, a strategic economic development initiative should embrace the quintuple helix approach where The State mobilises five subsystems (helices), comprising:

(1) education system,

(2) economic system,

(3) natural environment, (4) civil society, and

(5) the political system

to formulate a critical vision in not only articulating the objectives in the inter-linkages on conceptual visionalisation, but also the design and development of such vital mission objectives to implement: maintainable – yet sustainability in the long economic development haul ahead.

However, not infrequent harsh critique of an ethno-administrative regime is the poor performance of the civil service, its sluggish deliverance of public goods and services, slackness in work productivity, and widening misuse of public funds.

Over the years, various efforts have been undertaken to improve public sector productivity in Malaysia, but not unsurprisingly, with limited resultant outcomes. Core difficulties often lie in researches on public sector productivity findings not being translated into policy actions. The elements constraining effort on improving public sector performance centre on administrative human-resource incapacity, a broadbase corruptive regime with burden of privileges mentality, a lost community soul living in a society laced with serial systemic odious practices, including money-laundering.

Therefore, the way forward is to accept the idealism of socialism realities to adopt a new economic development domain.

Financialisation of the Capitalist System

5the April 2023

1] CAPITAL ACCUMULATION

Capitalism is a system that pursues accumulation and growth for its own sake, whatever the consequences. It is driven by the focused goal of business corporate capital accumulation strategies. Capitalism dictates how much production to appropriate, which capital might generate less incentives for production and which capital accumulation approach to undertake for ever-greater accumulation of capital.

By accumulation, we shall refer broadly to the process of wealth creation through productive or unproductive investments in productive or unproductive sectors. The accumulation of capital, we mean an increase in assets from investments or profits. The goal is to increase the value of an initial investment to a return on that investment, whether through appreciation, rent, capital gains, interest or under-the-table money.

Rentier capitalism – so enduring in the country with entrenched oligarchy monopolies -incorporates those aspects of capital and its accumulation process, including increasingly the spectres and spread of financialization capitalism. With globalisation, rentier capitalism attaches to the neo-imperial monopoly capitalism and its link to the global commodity chain dimension because of the multiple roles of rent intermediaries between capital and its accumulation.

2] IMF and GEF

It is expressed that trade deepening – fragmentation in global trade through geoeconomic instability – has helped catalyze catch-up in per capita incomes across countries and a large reduction in global poverty, while in advanced economies, low-income
consumers have benefited disproportionately through lower prices. Conversely, the unraveling of trade links have most adversely impact low-income countries and less well-off consumers in the advanced economies. IMF and neoliberal promoters have the audacity to say that if there are controls and or restrictions on cross-border migration, more likely than not, these actions would deprive host economies of “valuable” (even if low-level?) skills while reducing remittances to migrant-sending economies. Rather, the reduced capital flows would limit financial gouging in
destination countries, and exploitation of labour – home-based and migrant serfs.

As Baran and Sweezy  observed: “One can only conclude that foreign investment, far from being an outlet for domestically generated surplus, is a most efficient device for transferring surplus generated abroad to the investing country.”

Could the decoupling assist the capitalist system or that the geoeconomic fragmentation (GEF) suggests that by deepening the fragmentation process, the deeper the costs to capital? That even the technological decoupling may have significantly amplifies losses from such trade restrictions or trade sanctions to the technological metropolitan centres in the Global North than that in the emerging market economies and low-income countries.

According to IMF, the cost to global output from trade fragmentation could range from 0.2 percent (in a limited fragmentation / low-cost adjustment scenario) to up to 7 percent of GDP (in a severe fragmentation / high-cost
adjustment scenario); with the addition of technological decoupling, the loss in output could reach 8 to 12 percent in most advance economies.

Therefore, GEF is straining the Washington Consensus monetary system and even their global financial safety net (GFSN).

The entrenched financial
globalization could possibly and eventually give way to “financial regionalization” and a fragmented global payment system, not only impacting upon the big monetary barons, but with probably less
international risk-sharing, GEF could lead to higher macroeconomic volatility, more severe crises, and greater pressures on national buffers among western-dominated financial centres, including the diversifying away from traditional reserve assets like the US dollar — a process that could be accelerated by the digitalization of China’s Yuan.

Indeed, by hampering international cooperation, GEF could also weaken the capacity of the GFSN to support crisis countries and complicate the depth of capitalism in crisis: existing, emerging and future sovereign debt crises that the capitalist system resides therein.

3] Financialisation of the Capitalist Economy

Writing in 2013 on the financialization of the capitalist economy in his book Profiting Without Production, economist Costas Lapavitsas of the University of London observed that, “Close association of financialization with Marxism goes back at least to the insights advanced by the current of Monthly Review,” as exemplified by the work of MR editors Harry Magdoff and Paul M. Sweezy. Decades before the question of the explosive growth of finance in the capitalist economy was taken seriously by the economic establishment, Magdoff and Sweezy argued that the secular stagnation of production under monopoly capital and the financial explosion were connected in a symbiotic relationship from which there was no visible escape within the system. This was succinctly expressed in their 1983 MR article, “Production and Finance.”

In the present article, originally published as the October 1993 “Notes from the Editors” in MR, Magdoff and Sweezy argued that while both the long-term slowdown of the capitalist economy and the growth of finance relative to production were sometimes recognized in the economic and business literature, the connection between the two processes was largely ignored. Four years later, in “More (or Less) on Globalization” in the September 1997 issue of MR, Sweezy referred to “the financialization of the capital accumulation process.” Today, the stagnation-financialization problem remains the main economic contradiction in the capitalist core — a specter that continues to haunt Wall Street.

Read the full article in the Monthly Review.

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Related Readings

Benjamin Selwyn, Limits to Supply Chain Resilience: A Monopoly Capital Critique, Monthly Review, March 01 2023.

csloh, Concentration of Capital

STORM, Capitalism, Capital Accumulation and Clientele Capitalism