Financialisation capitalism impact upon national economy

15/02/24

first posted on 23/04/2023

[Additional embedded referenced-sources on 18/2/24]

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 (as stated by 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 in neoliberalism-is-neo-imperialism of the Thatcher and Reagan regimes reflecting the new imperatives of capital – especially by 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; STORM April 2023, the financialization of capitalist system; csloh 2022, Concentration of Capital), whence increasingly, that specific

In the early 1990s, Malaysia corporations used to seek 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 (the small and medium-sized enterprises) that do not have the sizeable funding resources, though presently, 98.5% out of the total 49101 establishments in Malaysia manufacturing sector are SMEs whilst the rest of 1403 companies are large firms, majority are the transnational corporations (TNCs); see  STORM 2023, Industry 4.0 Initiative; STORM 2021, TNCs’ labour exploitation.

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 (Geneva Graduate Institute, Global Challenges, issue 12, November 2022), globally reconfiguring 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 – wealthy rich and poverty poors – especially with 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 (see 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
4. Royal entrepreneurs like Tunku Imran ibni Tuanku Ja’afar of Negeri Sembilan and Sultan Ibrahim Iskandar of Johore whose latter’s wealth estimated by Bloomberg is a conservative worth around US$5.7 billion, and the royal family’s due US$1.1 billion investment portfolio, which includes US$105 million worth of investments in public companies, US$483 million worth of investments in other private companies, and various real-estate projects.

Then, one has to look at the ordinary category of depositors who 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, that is the NEP, 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 speak, 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 – whether enticing youths to possess new versions of motorcycles or a variety of credit-cards.

By 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 other 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, too. 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 has had 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 and Venezuela 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; csloh, destined-to-debts; ks jomo, IMF-deepening-world-stagnation; csloh, debt-crisis-threatening-Global-South).

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).

Rich countries has had drained US$152Trillion from the Global South since 1960.

Imperialism never ended, it just changed form.

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.

Indeed, an UNHDP Report shows that the richest 10% in Malaysia control 38.4% of the economic income as compared to the poorest 10% who control only 1.7%.

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Related Readings

Capitalism in Crisis

Financialisation of the Capitalist System

Unequal Exchange under Neo-Imperialism

Financialisation capitalism deepening neoimperialism penetration

Financial imperialism – the globalisation of monopoly-finance capital

From Colonial Capitalism to Ethnocapital Colonialism

15/02/24

1] INTRODUCTION

In his chapter on “The Genesis of the Industrial Capitalist” in the first volume of Capital, Karl Marx placed special emphasis on the notion of colonialism proper — that is, settler colonialism (from the Latin  colonus, meaning settler). In his words, “The treatment of the indigenous population [of the Americas] was…most frightful in plantation-colonies set up exclusively for the export trade.…“.

The actual situation is that large-scale plantations supplied consumption commodities such as coffee, sugar, cotton, and tea – and the rubber latex tapped as rolls of  caoutchouc  and balls of rubber – known as “niggerheads” from their alleged resemblance to the skulls of black people – arrived in Europe aboard returning slave ships where England had a 33 percent total share of the slave-trading in the Caribbean West Indies and North America in 1673 and 74 percent by 1683; indeed, the Royal African Company, under the ruling arms of the British Crown, owned and controlled 90 percent of the African-slave share by 1690. The transatlantic slave trade allowed for both elimination of Indigenous peoples and the insertion of a racialized Black body marked as slave labour.

From the explicit exploitation of the dark and brown proletariats comes the Surplus Value filched from human beasts’ hearts and souls, Du Bois intoned: Black Reconstruction in America 1860–1880 (1935; repr. New York: Free Press, 1992), 15–16).

Marxist feminists like Claudia Jones in the 1940s and many others today argue that Black women face a triple or interlocking oppression when neither the induction to work nor the surplus value created by all workers is the same because capitalist exploitation is more intensive and brutal for workers of colour. Through the structural and historical framework of racial capitalism, it is determined that capital accumulation depends on this global racialised division of labour and who would eventually be disproportionately impacted, (Claudia Jones, An End to the Neglect of the Problems of the Negro Woman! (New York: National Women’s Commission CPUSA, 1949; read the other works of FEMALE black Marxist writers; Jean Alt Belkhir).

2] COLONIAL CAPITALISM

A few hundred years ago, colonial capital ploughing through our pristine forests opened up settlement plantations and mineral mines had brought about rubber latex and tin ores for new product consumption in the western hemisphere what is commonly referred to as the Global North. Under this imperial process, indenture labour and labour slavery were introduced to peninsula Malaya, Sarawak and British North Borneo:

The plantation system was based on the superexploitation of labour. Pay was so low that the English assistant Leopold Ainsworth wondered how the Tamil workers and their families could “possibly exist as ordinary human beings” on the wages paid on his boss’s Malayan plantation. In 1926, the cost of a Papuan indentured laborer was 20 percent of that of a white worker, 25 percent of that of an employed estate manager, and 10 percent of that of a white unskilled laborer. Racist humiliation, insult, and cruelty were part of the everyday lives of the coolies ( a humiliating term given to the local inhabitants ), while the pale-skin estate owner sipped at stengahs (whisky and sodas) clad in sweatstained khakis, summoning a “boy” with a teapot or gin bottle to the veranda at the end of another hot and humid day with the topee on his head.

It was during a time in the 15th century that the Roman Catholic Church divided the world in half, granting Portugal a monopoly on trade in West Africa and Spain the right to colonize the New World in its quest for land and gold. Pope Nicholas V buoyed Portuguese efforts and issued the Romanus Pontifex of 1455, which affirmed Portugal’s exclusive rights to territories it claimed along the West African coast and the trade from those areas. It granted the right to invade, plunder and “reduce their persons to perpetual slavery.” Queen Isabella invested in Christopher Columbus’s exploration to increase her wealth and ultimately rejected the enslavement of Native Americans, claiming that they were Spanish subjects.

Spain established an asiento, or contract, that authorized the direct shipment of captive Africans for trade as human commodities in the Spanish colonies in the Americas.

When the Spanish conquistadors reached the shores of The Philippines in 1521, the people of Mactan, led by Lapu-Lapu, resisted. Magellan burnt down their villages after they resisted demands for tribute as well as accepting his god and king.

Eventually other European nation-states — the Netherlands, France, Denmark and England — seeking similar economic and geopolitical power joined in the trade, exchanging goods and people with leaders along the West African coast, who ran self-sustaining societies known for their mineral-rich land and wealth in gold and other trade goods. They competed to secure the asiento and colonize the New World. With these efforts, a new form of slavery came into being. It was endorsed by the European nation-states and based on race, and it resulted in the largest forced migration in the world: Some 12.5 million men, women and children of African descent were forced into the trans-Atlantic slave trade.

The sale of their bodies and the product of their labor brought the Atlantic world into being, including colonial North America. In the colonies, status began to be defined by race and class, and whether by custom, case law or statute, freedom was limited to maintain the enterprise of slavery and ensure power.

Even presently, as an instance, thirty percent or more of Congolese cobalt mining is “artisanal”. By sourcing copper in an artisan manner (ASM), it is no more than miners using rudimentary tools and work in a most hazardous condition to extract dozens of minerals andll South. Because ASM is almost entirely informal, artisanal miners rarely have formal agreements for wages and working conditions. There are usually no avenues to seek assistance for injuries or redress for abuse. Artisanal miners are almost always paid paltry wages on a piece-rate basis and must assume all risks of injury, illness, or death,(review Cobalt Red).

This extraction – and exploitative – process is no more any different from the Great Powers colonialism era on their forward movements to exploit raw resources in Africa, Asia and south America where in the latter continent between 1849 and 1874, over 90,000 Chinese workers were contracted to be shipped to Peru. Around 10 percent of those transported died during the voyage across the Pacific. Besides working on plantations or railroads, the most unfortunates were sent to work in the guano pits, where they were forbidden to leave the islands. The total workforce fluctuated between 200 and 800 Chinese workers; new workers simply replaced those who died, given the extensive coolie labour system, (Michael J. Gonzales, “Chinese Plantation Workers and Social Conflict in Peru in the Late Nineteenth Century,” Journal of Latin American Studies 21, 1955: 385–424).

It involved grueling physical labour by males, using picks and shovels to extract the guano from the mountainous deposits, loading wheelbarrows and sacks, and transporting the manure to chutes for loading boats. Each worker was expected to load five tons of guano each day. Behavioral infractions and failure to meet daily quotas were met with physical punishment. The work was exhausting; the stench was overwhelming; and guano dust coated everything, penetrating the eyes, noses, and mouths of the workers. Opium was imported in an attempt to prevent further revolt and suicides among the workers, (see  Lawrence A. Clayton, “Chinese Indentured Labor in Peru,”   History Today  30, no. 6, 1980: 19–23); Alanson Nash and contemporary witnesses reflecting on these conditions, elaborated, “once on the islands a Chinaman seldom gets off, but remains a slave, to die there…….They were seen as expendable beasts, forced to “live and feed like dogs.”

An account, in the Christian Review  noted that “the subtle dust and pungent odor of the new-found fertilizer were not favorable to inordinate longevity.” Guano labour involved “the infernal art of using up human life to the very last inch,” in Chinese Coolie Trade, Christian Review, April 1862;  The Chinese Coolie Trade, 1862; see also Basil Lubbock,  Coolie Ships and Oil Sailers, Glasgow: Brown, Son and Ferguson, 1955, 35; Charles Wingfield,   The China Coolie Traffic from Macao to Peru and Cuba, London: British and Foreign Anti-Slavery Society, 1873.

Even after slavery was abolished, millions of people in the Global South still fell victim to the continuing worst of the “free” marketplace. Even after the Second World War, when decolonization led to the end of the so-called “Golden Age of Capitalism,” new liberal economics’ adventurers returned boldly to rob again the wealth of Global South during an era known as neo-colonialism.

3] NEO-COLONIALISM

Michael Morgan in his contribution in Malaya: The Making of a Neo-Colony – (edited by Malcolm Caldwell and Mohamed Amin is a collection of articles with a socialist analysis of Malayan History from 1874 to independence) – pointed out Malayan rubber alone in 1947 earned for Britain US$200 million in comparison to US$180 million earned by all its manufactured exports.

To get some perspective on the magnitude of the US$200 million in 1947 which the British earned from the sale of Malayan rubber to the US, it would be more than 2 billion dollars (US$2,337,051,162) in today’s value, or more than 9 and a half billion ringgits (RM$9,544,012,524).

Bearing in mind the total national expenditure budget in the 2000s was averaging RM$42 billion, you get a sense of the scale of exploitation. That was in that one year alone and only for the one product.

By 1951, the rubber export from Malaya to the United States was estimated to be 370,000 tons valued at US$405,000,000. Britain’s total manufactured exports to the US in that year earned US$400,000,000 – again less than its earnings from Malayan rubber. (Natural Rubber News, January 1952, p 1, cited in Li Dun Jen, British Malaya. An Economic Analysis, InstitutAnalisa Sosial., Kuala Lumpur, 1982).

In today’s value we would be looking at such a figure as US$3,913,000,000 or over RM$18 billion.

Indeed, The Annual Report of the Federation of Malaya for 1948 reported “…of the world’s total output of rubber and tin in 1948 this country produced 45.8 per cent of the former and 28.1 per cent of the latter. This achievement afforded more assistance to the UK and Commonwealth in terms of gold and dollars earned than was afforded to the UK and Commonwealth in terms of gold and dollars earned by the total export drive of Great Britain over the same period.

By way of a fact, in the 1949 annual report of the Lenadoon Rubber Estates, Sir Eric Macfadyen observed: “…rubber is of more importance to the British economy than Marshall Aid. Last year Malaya alone produced just about 700,000 tons. The USA imported from the country over 450,000 tons…Every penny in the price per pound up or down means about US$17 million in our balance of trade.”

What is often neglected to mention – until Gordon and Jomo set to dissect archived colonial records – is that besides the raw materials extraction were taxes levied, land and mining concessions gained, opium sales, and dividends paid that were administered by the British raj who as a regime of expatriates having
its control over the colonial state that metropolitan capitalism is able to control, subordinate and exploit the colony society which
served as a channel for surplus appropriation or wealth draining, (Chandra 1980: 278).

Indeed, Utsa Patnaik has calculated the British Raj siphoned out at least
£9.2 trillion, or US$44.6 trillion from India, whereas the UK’s GNP before the pandemic and ‘Brexit’ was a mere US$3 trillion. The estimated colonial contributions to the UK’s dollar pool were at US$2,115 million for 1946-52; thus, Malaya alone contributed US$1,475 million, or 70 per cent of British domestic budgetary, (Gordon and Jomo, ibid.)

That nugget of neoliberal policy paradigm, however, favours expanding the scope of markets – including global markets – by restricting the role of government action that failed. It widened inequality in and within nations, avoid promoting the climate transition, and in fact neglecting a range of global issues from public health, education, social welfare to supply-chain resilience, (so expressed by Dani Rodrik of Harvard).

4] ETHNOCAPITAL COLONIALISM

Even after post-independence, emerging clientel ethnocapitalism replaced colonial racial capitalism by enforcing drastic bad union-bursting labour measures on the working rakyat2, in an imputation of neo-colonialism; see also,  Bhopal, University of North London; and STORM’s  Rentier Capitalism in Accumulation, 2021).

By ethnocapital we mean a (malay) bumiputra owned and controlled an entity performing under a rentier or clientel capitalism approach whether it is a public agency, a government-linked company (GLC) or a privatised and or commercial enterprise.

On this exploratory enquiry we are to delve on the power or dominance relations among persons, their subsumed class to entitled positions that enforce political power which defines economic dominance and social status deference.

Between the dominating and the dominated, under capitalism the capitalists
are dominant at each level, the proletarians are dominated at each.

5] CAPITAL AND CLASS

Neoclassical theory premises on individual preferences, resource endowments and technological capability, while Marxian theory begins with class and class processes.

Nicos Poulantzas conceives a concept of class “places” as distinguished from class positions where “places” exist at each of the these levels of society: economic, political, and ideological (or cultural) levels where at the latter, social dominance regards bumiputeras status and on an islamic allegiance, for instance.

The issues relating to where the economic power emits from could be identified from the stronghold of clientelism and the ensuring political clientel relationship where ruling elites in the United Malay National Organisation (UMNO) [place] had aligned with economic oligarchs [positions] in accepting rentier capitalism to sustain their hold on [power]. They adopt this clientelism as solicitations for votes at the grassroots level, allowing ruling elites [place] the party patronage [position] and political [power] to “effectively partisanizing them and ensuring ground-level officials with whom most voters interacted with ……are political party loyalists” (Weiss, 2020), resulting in the skewed distribution of profits by political stakeholders and the stark inequality of wealth permeating in the country (Khalid):

Bumiputera in the top income groups (the top 1 per cent and the 10 per cent) benefited the most from economic development and its ensuing growth

There is every reason to say that patronage position is never moved from place prescence of ruling elite and the political power that oozes. Indeed, ruling elites are the biggest “owners” of divisional-level of UMNO constituency places with the office-bearing posts that defined political positioning posts with the ensuing power distributing spoils that emit therefrom. This is similar to what in management term that owners and managers if are taken as a whole, are elements of the same class. Their differences on this issue are of degree and not of kind. The ownership of the place loci, by situating in a position, the control of vested power elements is explicit.

The two class processes of capitalism are defined as the extraction and distribution of surplus labour in the form of value. The class positions of the capitalist fundamental class processes are productive workers (performers) and productive capitalists (extractors). Capitalists appropriate surplus value from the consumption of labour power during the production of commodities. The surplus is distributed among occupants of subsumed class positions associated with say the state, merchants, financiers, landlords, managers  and monopolies. Therefore, class position is determined by the relationship of the individual to the appropriation and distribution of surplus value.

That positioning presupposes a “place” is already in place or existence – as a political party or as an enterprise entity.

It needs to be emphasised that financial control is merely the outcome of the process of capitalist reproduction. On the one hand, the gradual concentration and centralization of capital forces corporations to rely, over time, on the large pools of capital made available by financial institutions. On the other, the ups and downs of the business cycle force the corporation to rely on external capital at critical conjectures in its development.

Thereby, the value of the state of a nation lies on political stability, a performing economic outlook and achievable results with due inflow of economic developmental funds both domestic and foreign investments, a pulsating economy sustainable within competitive market conditions while reducing wastage and eradicting odious practices so as in generating confidence all-around when rakyat² are happy, educated and knowledge-imbued in excelling productivity towards the common goodness – and betterment – of the country in the sharing of a common wealth.

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Related Readings

Colonial Capitalism and clientel ethnocapitalism

Imperialism, Globalisation and its Discontents

Unequal exchange under Neo-Imperialism

Continuance of neo-colonialism

SIRED

Developing countries widening investment deficit while in pursuit to achieve Sustainable Development Goals

14/02/24

INTRODUCTION

Global foreign direct investment (FDI) defied earlier expectations for 2023, growing by 3% and finishing the year at an estimated US$1.37 trillion, according to UNCTAD’s latest  Global Investment Trends Monitor published on January 17, 2024.

However, the overall surge was driven mainly by a few European “conduit” economies, which often act as intermediaries for FDI destined to other nations. Indeed, strikingly, when these conduit economies are excluded, global FDI flows show a steep 18% decline in 2023. The rest of the European Union also recorded a steep 23% decline, and the United States, the world’s leading FDI recipient, even experienced a 3% dip.

The overall FDI landscape for developing countries in 2023 exposed a 9% decline, amounting to US$841 billion. Developing Asian countries bore the brunt with a 12% decrease. China reportedly ensues an unusual 6% drop in FDI inflows but showed an 8% growth in new greenfield project announcements, ( see firesstorms January 2024, cobalt-red-colonialism-raids).

So much was the peak China narrative regurgitated (financial review, 2/02/24; John Ross) that there is even a Bloomberg headline which displayed an innocuous banner that a momentous shift is under way in global markets as investors pull billions of dollars from China’s sputtering economy, two decades after betting on the country as the world’s biggest growth story. Much of that cash is now supposedly heading to India.

What was not emphasised is that China’s investment climate and fiscal management are still clear and in fairweather:

Further, China’s trade surplus is hard to fully account for, but it is clearly gigantic and increasing in recent years. A figure of around $800 billion in surplus seems reasonable at the current time.

Source: Brad Setser after Adam Tooze, Chartbook, 12/02/24.

India, the other regional giant, on the other hand, saw a 47% drop in FDI inflows but remained among the top five global destinations for greenfield projects.

The Association of Southeast Asian countries (ASEAN), traditionally an engine of FDI growth, recorded a 16% decline. Yet the region remained attractive for manufacturing investments with a remarkable 37% increase in greenfield project announcements in nations like Viet Nam, Thailand, Indonesia, Malaysia, the Philippines, and Cambodia.

Conversely, FDI flows fell by a modest 1% in Africa and held steady in Latin America and the Caribbean, graciously in part to increases to Central America and 21% growth in Mexico, the region’s second-largest economy. The investment landscape in Latin America witnessed contrasting trends in 2023 because its largest economy, Brazil, recorded a 22% decrease in FDI inflows; while the country’s greenfield project numbers remained stable, international project finance deals plummeted by 40% compared to 2022.

GLOBAL VALUE CHAINS

Overall, the report’s sectoral analysis for 2023 showed an uptick in project numbers in sectors that rely heavily on global value chains, including automotive, textiles, machinery and electronics.

Meanwhile, the semiconductors sector recorded a 10% decline in the number of greenfield projects and a 39% drop in their value, following robust growth in 2022; read STORM, November 2023, smiley semiconductor supply chains.

The number of international investment projects announced in developing countries in sectors relevant to the Sustainable Development Goals (SDGs) remained relatively stable in 2023. However, SDG-related international project finance deals showed a 27% decline in numbers and a 40% drop in value. On the other hand, greenfield projects aligned with SDGs recorded 12% growth in number and a 6% rise in value. The food and agriculture sector showed marginal growth, while most other sectors reported declines.

It’s another peak Global South narrative that hides the Global North capital-monopoly intrusion into the Global South economies that mired the domestic industrialisation processes of developing nations, slowing growth in emerging economies, and the continuance vulnerability in the rapid movements of global finance (IMF, World Economic Outlook, 2015; IMF squeezing poorer nations; New debt crisis threatening Global South; IMF’ed with Global Debts).

There is mounting evidence to suggest that global supply chain as the organisational forms of capitalism are designed to raise the rate of surplus value extraction from labour by capital and facilitate its geographic transfer from the Global South to the Global North as articulated in a Monthly Review  article (“World Development under Monopoly Capitalism,” November 2021), where global supply chains have contributed to dynamics of concentration in leading firms, and a marked shift in national income from labour to capital across much of the world, (see Developing Economics, A Monopoly Capital Critique).

Global supply chains are representing the integrative structure of contemporary global capitalism, and any disruption to them potentially threatens the functioning of the system itself.

Capitalism, as Karl Marx observed, is rooted in the exploitation of labour by capital through the latter’s ability to extract surplus value from the former, (Capital, vol. 1 (London: Penguin, 1990). It is characterized by dynamics of concentration and centralization of capital, where fewer and larger firms increasingly dominate each economic sector. These dynamics are intrinsically related to capitalism’s uneven geographical development and the reproduction of geopolitical tensions and rivalries: STORM, June ’23, capitalism-crisis-to-crisis; KS Jomo, February 2024, north-ignores-perfect-storm-in-global south.

ADMIST GLOBAL UNCERTAINTIES

Looking ahead, the UNCTAD report says 2024 could see a modest increase in FDI flows citing stabilisation for inflation and borrowing costs in major markets.

UNCTAD, however, also cautious that significant risks persist, including geopolitical tensions, mounting debt in many countries and concerns about further global economic fragmentation.

We are at a turning point at this juncture where global trade is fragmenting when countries erect barriers in the name of “friendshoring,” “de-risking,” and “self-reliance.” More than ever, policymakers should attempt – in handling a fragmented world – on avoiding the worst-case scenario of a new economic cold war, (Gita Gopinath, Foreign Policy, 6th. February 2024).

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RELATED READINGS

Sovereign debts Debt dependency and Financialisation capitalism

Financialisation Capitalism deepening neo-imperialism penetration

Globalisation of monopoly finance capital

Financing Economic Development

12/02/24

[ The approaches were explored in 2023; additional frameworks, tools and techniques are incorporated herein ]

I] INTRODUCTION

The national revenue is remaining low and  structural expenditures are expected to continue remaining high, leading to further narrowing of Malaysia’s fiscal space, especially at a time when the activity in Emerging Markets and Developing Economies (EMDE), excluding China, is forecasted to slow from 3.8 percent in 2022 to 2.7  percent in 2023 on account of weaker external demand and tighter financing conditions.

Indeed, Malaysia’s economy only grew 3.7% in 2023, Bank Negara Malaysia reported, coming in below the target of 4% to 5% due to “prolonged weakness” of external demand. The annual result was far off the 8.7% pace recorded for the previous year, (asia-nikkei, 16th. February 2024; as was concurred by AHAM Capital Malaysia.

Using the ratio of the Federal Government Debt to the revenue collection as a reference point, the World Bank has indicated that Malaysia’s fiscal space has gradually narrowed since 2012 and has had even became tighter post-pandemic. 

The current fiscal consolidation strategy – via spending reduction – is, to many national economists and political analysts, rather challenging, given the current tight spending domain. Firstly, the combined spending on structural expenditures is already at high levels; and secondly, other Operating Expenditures components such as supplies and  services, and grants and transfers have been on a declining trend or are already at low levels.

Thirdly, whereas interest rate hikes are supposed to stem inflation but given that prices have mainly risen due to supply chain disruptions caused by war, sanctions and pandemic, interest rate increases are likely to trigger more debt crises, much worse than before. Therefore, the  government’s current fiscal consolidation plan would have to include a higher revenue collection target.

II] SOURCES OF DEVELOPMENT REVENUE

1) Sovereigns often borrow from within their own countries or from abroad.

Domestic borrowing – from local banks and asset managers or directly from households (EPF employees’ money or PNB owners’ saved trust units) could likely be a steady and reliable source of financing. However, there is a limited amount of money available and repayment maturities tend to be short. Not infrequently, governments also borrow from international capital markets, in larger amounts and usually at longer maturities. 

Otherwise, there is a wide and diverse range of private sector entities willing to lend to sovereigns, too. Asset managers, such as pension funds, typically hold a large amount of government debt. They need relatively safe long-term assets to match their long-term liabilities.

2) In Big Projects

typically, such infrastructural undertakings have been financed typically through government budgets, either from tax revenue or from government borrowings; some had often been financed through special-purpose vehicles (SPVs) — for example, DanaInfra, which was set up to raise financing for several infrastructure projects. The debts of these SPVs are guaranteed by the government, and hence, can be considered ultimately as government debt.

It needs to be emphasised that many public infrastructure projects have also been privatised, and the private investors would recover their cost of investment through collecting tolls or charges from the users. Examples of these include the toll roads, independent power producers and land-swap projects. In such cases, the government does not carry any liability for these projects unless it has given some form of revenue guarantees to these private investors. This financing model (using private-sector finance and project development expertise) is known as a public private partnership (PPP) which has various governance and operational issues that at high cost and with dubious efficiency, often increased private profits at the public expense, and as such PPPs have proved costly in financing public projects, (KS Jomo, 24/01/2024).

Not often publicised is another variant of PPP, where private investors recover their cost of investment through  payments from the government. This is generally known as a private finance initiative (PFI) which has its many odious transactional issues.

PFI payment obligations comprise a large proportion of the PPP debt of RM$201.4 billion, which was only known, and later announced, by the preceeding government in May, 2022, (read PFI,2022).

3) Inevitably, instead of borrowings that incurred interests, a progressive way is to implement a windfall tax on industries that benefit greatly as during the Covid-19 crisis, according to Khazanah Research Institute senior advisor,  Professor Dr Jomo Kwame Sundaram.

“This is precisely the time when you must reform taxes as you have it (windfall tax) all the time amid extraordinarily high petroleum prices or palm oil prices.” 

This is concurred by the Institute of Malaysian and International Studies research fellow Dr Muhammed Abdul Khalid who pointed out that policy-makers tend to ignore the imposition of capital gains tax when it comes to the issue of tax reform.

Even former Bank Negara Malaysia (BNM) assistant governor Dr Norhana Endut once noted that the government’s tax collection capacity had not kept pace with the economic growth.

Indeed, Malaysia tax to gross domestic product (GDP) ratio, has been on a steady decline over the medium term. It fell to 12% in 2019 from 15.6% in 2012.

Further, Malaysia’s individual income tax also continued to come from a narrow pool of taxpayers. For instance, in 2018, among a labour force of 15 million people, only 2.5 million were taxpayers!

There is a definite need in expanding the tax base be a priority over the medium term, besides existing tax incentives and exemptions should be reviewed on a regular basis as some of them are outdated and ineffective, affecting the beneficial economic development among the marginalized poor’s.

This is also during an era of inflationary trend. Global inflation is expected to fall to 6.6 percent in 2023 and 4.3 percent in 2024, still above pre-pandemic levels, thus socio-economic impacting heavily on the B40 rakyat².

According to Richard Record, one-time the World Bank Group’s lead economist for Malaysia, the country needs to raise more revenue and spend it more effectively. “Malaysia, of course, benefits from having oil and gas revenues as a source of non-tax revenue, but these have tended to be quite volatile,” he tells The Edge.

Present revenue collection is low mostly because rates are low and there are so many allowances and exemptions. Reforming the SST (Sales and Services Tax), and in particular sharply reducing the number of non-essential items that are zero-rated or exempted from.

Indeed, there should be greater effort across tax instruments: to increase the progressivity of personal income tax, re-examine the number and targeting of corporate income tax incentives and to consider new sources of revenue such as  environmental taxation  and capital gains taxation.

The introduction of capital gains tax, raising the tax rate for those in the top individual tax bracket and imposing a tax on retirement savings above a certain threshold were already among the suggestions on how to enhance revenue in the World Bank Report, 2021.

If the present Government continues to borrowing – the interest rate has to be minimal – then it has to prevent the structure of such debts from becoming too risky. This is because, at one time, we find it cheaper to borrow in US dollars or euros than in our own currency. However, this finanancial method can cause problems if the ringgit depreciates further because this increases the real burden of the debt – as was clearly exemplified proportionately in the 1MDB case:

4) Otherwise, the nation can try to apply traditional methods like using Government bonds issued to finance budget deficits but with a glaring pitfall. If there is a continuous growth of debt, the private sector creditors may become concerned about the government’s initiative to repay it. Over time, these creditors will expect higher interest payments to provide a greater return for their increased perceived risk as it is widely acknowledged that higher interest costs dampen economic growth.

On the other hand, Danaharta uses cash to purchase loans from the domestic banking system by paying sharp discounts of as much as 50 per cent on a loan that was either collateralised by property or shares listed on the stock exchange. The consequence is too much liquidity in the matket, and the country went south can be partly identified to the solidification of financialisation capitalism (see: Southampton’s Lena Rethel  Financialisation and the Malaysian Political Economy; STORM, 2023, deepening neo-imperialism penetration).

Danaharta was a national asset management company. The government established Danaharta with the purpose of removing nonperforming loans (NPL) from the financial system and maximizing their recovery, alongside a recapitalization agency, Danamodal, and a debt restructuring body, the CDRC, to address instability in the financial system.

Over its lifetime, Danaharta’s portfolio totaled RM$52.42 billion in face value of NPLs, and it recovered RM$30.35 billion (58 percent), and recognized a net loss of RM$1.14 billion on RM$8.94 billion total invested. When Danaharta ceased operations in December 2005, the remaining residual assets were transferred to a subsidiary of the Ministry of Finance, Prokhas, for collection.

The flooding of money in the market is not to generate wealth but within the circuit of financialization capitalism  components of FIREs (finance, interests, real estate) in furtherance of repaying mortgage loans, hire purchases, insurances, real estates tax dues and other debt interests. In Rajah Rasiah, 2011’s article it has ambly demonstrated that with accentuated and expanded monetary instruments circulation, the national economy had impaired, through wide currency circulation, unfavourably:

5) Inheriting such a burgeoning debt burden,

i} sovereign wealth fund   Khazanah Nasional Bhd could sell its assets to raise cash for the state of a nation as she is sitting on assets easily worth more than US$30.5 billion  (December 2021) that could probably raise over 10% of the then government’s +RM$1.5 trillion debt and contingent liabilities.

ii} Another financial resource lies with Petronas as it is financially in a comfortable position to pay, given that its total assets has strengthened to RM$699.5 billion in the first half of 2022.

iii} Alternatively, government-linked companies (GLCs) and government-linked investment corporations (GLICs) would also likely be encouraged to pay higher dividends. The government could tap these state enterprises to help out just as like the recent RM$58 billion stimulus package to counter impact of the Covid-19 pandemic 2020 crisis.

6) In light of the ongoing Daim’s wealth investigations, it has been proposed that a Truth, Recovery and Amnesty Commission (TRAC) be formed to diligently track and recover the monies where RM$4.5 trillion, as a frugally conservative estimate of the total (direct + opportunity) economic cost of corruption to Malaysia society.

Through TRAC, those who voluntarily return the monies, holiday mansions, moveable and/or immovable assets etc. can be accorded some form of amnesty from prosecution with some restriction from participating and/or being appointed in public office. For those who choose to go through the investigation and prosecution stage and are eventually found guilty of corruption must be brought to justice while given an option for amnesty upon returning the misappropriated assets. Owing to such an enormity of accumulated losses, the recovered funds would be a great source of government revenues to consolidate our huge budget deficit and recalibrate it for productive use.

7) Long term, supporting all those tools stated and to be employed, the nation needs to institutionalise the technique of Input-Output-Outcome-Impact (IOOI) framework at every level of decision-making and policy planning — from budget planning to budget execution, thereby “Recalibrating National Budget – Eradicating Leakages and Corruption” and  to “Transforming Malaysia from third- to first-world country”, (EMIR Research 2024).

In brief, the IOOI framework is logical and robust reasoning (solely based on data, science and economics) of the entire causal path from inputs (finite resources/capitals) to outputs (tangible and intangible manifestation of intervention activities) to outcomes (real-world benefits/changed lives) and finally to impacts (higher-level intergenerational goals, if we speak in the context of a nation). Importantly, each level comes with a set of metrics to track the progress of transforming inputs into outcomes and impacts; see figure below:

III] CONCLUSION

From The Quest for Growth  (World Bank, 2016), and to Surge Ahead  (World Bank 2021), the country is still, catastrophically, mired and entrapped within   capitalism crisis to crisis in a struggle to Catching Up, (World Bank, 2022) among ASEAN peers:

To undertake an emancipatory project may necessarily has to migrate pass through various revolutionary socio-economic phases such the community-based projects of various scopes, scales and dimensions, (read chi-sigma, Towards a Socialist Community with Solidarity Involvement as one such possible undertaking).

To be successful, therefore,, requires a commitment to a pulsating socio-economic change that seeks to make itself irreversible through the promotion of an organic system directed at genuine human needs, rooted in substantive equality and the rational regulation of the human social metabolism with nature.

In building an equity society with socialism as the dominant foundation, we must do all we can to develop the productive forces and gradually eliminate poverty, constantly raising the people’s living standards. Only when this outcome is achieved and there is significant prosperity for all will it become possible to begin the shift to advanced stage of an economy that is highly developed and where there is overwhelming material abundance. Only by this process that we shall be able to apply the principle of from each according to his ability, to each according to his needs.

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SIRED

TAPAO

PRAXIS

Renewal of the Socialist Ideal

Financialisation capitalism ramifications

Economic Development with sustainability

Financial imperialism – the globalisation of monopoly-finance capital

12/02/24

I] THE BEGINNING

By financialization capitalism one means 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 any said asset in anticipation of 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 – according to 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 themselves. The workers cannot capture this benefit directly because they have no claim whatsoever to the means of financial creation or its final production.

The thrust of imperial penetration into underdeveloped economies resulted in deepened 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 presently in Brazil, Venezuela and countries in the sub-Sahara region where the domination of global monopoly-finance capital has attracted portfolio investment, and to pay off their external debts to international capital, including the IMF (where global debt remained at USD 235 trillion) that accrued high interest rates, de-industrialisation of developing nations, slowing growth in emerging economies, and the continuance vulnerability in the rapid movements of global finance (IMF, World Economic Outlook, 2015; IMF squeezing poorer nations; New debt crisis threatening Global South; IMF’ed with Global Debts).

II] THE PROCESS

From 1913 to the early 1980s, the US generated more surplus than it invested ‘domestically’. It had a surplus of capital that it could invest in other countries and extend its international hegemony not only through violence. Post-WWII, the particular beneficiaries of this form of neo-colonialism were imperialist countries whom the US wished to enmesh, integrate, and dominate, as exemplarily executed by the Marshall Plan in Europe. Other beneficiaries, such as the Republic of Korea, became military frontier states to constrain Russia and China and thus received predominantly US economic investment.

To prevent effective economic competition from these countries, the United States used political and military pressure to force down their rates of investment and, therefore, growth rates. The decoupling of the US dollar from gold in 1971, and hencefore the removal of restraints on the weaponisation of the US control of the international monetary system, played a key role in this process, (see Hyper-imperialism, 2024).

However, despite this ability to slow down her imperialist rivals, the US proved incapable of raising its own economic growth rate (to achieve a new higher rate of investment and exploitation), partly because of the withdrawal of US-based capitalists from long-term productive investments within the United States, (read STORM, 24/08/23, Capital Imperfection and Socialism Efficiency). Indeed, US economic growth decelerated further – the average annual economic growth of the US today is only 2.0%, less than half its growth rate in the 1960s and far behind the rate of growth of China or even compared to some Asian tiger economies. The figure below shows that the US has had a long-term overall decline in average growth rate since 1953, (see STORM Capital Imperfection, ibid).

Confronted with this situation, the US has subsequently turned to tariffs, economic sanctions, and technology bans, leading to an increasingly protectionist environment where sanctions warfare doesn’t work. Despite its economic decline, the US still maintains a military lead over all other states. US Imperialism, therefore, now turns to a growing reliance on her armed force, (US Military Spending, MR November 1st. 2023).

With a multi-prong and  multidimensional approach to maintain, and retain, as the sole hegemonic power – within an imperial hubris – the U.S. is attempting through tariffs, financial and technology sanctions, political provocations to – and military maneuvers near – Taiwan and a neo-imperialism policy pivot as an encirclement of China, and the economics in threaten banning of Chinese companies such as Huawei and Tik Tok. Now, more than ever, it is an appropriate time when readers should begin to dissect the imperfections of a capitalist economy when competing with a state-run socialist model like China.

III] RAMIFICATIONS

The creation of monopoly-finance capitals in the neoliberalism economy of Malaysia is no more than the hegemonic economic ideology of the thenThatcher 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; read also STORM, 21/04/2023, Financialisation of Capitalism in Malaysia).

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 (the GLCs) – 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. In a way, 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; STORM, June 2021, clientele capitalism collusion). 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; STORM, June 2022, capital accumulation and clientele capitalism).

Whereas the majority of businesses built during the prewar period were found in the tin and rubber industries that comprised illustrious family firms founded and 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
4. As well as royal entrepreneurs like Tunku Imran ibni Tuanku Ja’afar of Negeri Sembilan and Sultan Ibrahim Iskandar of Johore whose latter’s wealth as estimated by Bloomberg with a conservative worth around US$5.7 billion, and the royal family’s due US$1.1 billion investment portfolio, which includes US$105 million worth of investments in public companies, US$483 million worth of investments in other private companies, and various real-estate projects.

EPILOGUE

With the birth of government-linked companies (GLCs) and the rearing of an ethnocapital-ethnocratic-clientel-capitalism class, therefore, after six and half decades despite 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 any difference more 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 whereas the top well-off 1.7% of depositors have more accumulation than the entire savings of bottom 57% of depositors; and where,increasingly, these household expenditures are expansively spent just on food alone:

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. Directly, it is the concurrent exploitation of labour under capitalism and the deepening penetration in global financialisation of capital imperialism.

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Related Readings

@STORM & csloh.substack

1. Ethnocapital-ethnocratic-clientel-capitalism in class analysis

2. Unequal Exchange under Neo-Imperialism

3. Ethnocapital capitalism in calamity crisis

4. Sovereignty debts: Debts dependency

5. Capitalism in Crisis

Malaysia economic reforms – a trunkful of dirty linens

collective on geoeconomics

1st February 2024, updated with additional data and comments 21/02/2024

In an eastasia forum (EAF) posting, there is an editorial piece on Malaysia’s economic reform still caught in the baggage of the old politics, published 29 January 2024 by the Australia National University.

[ To READ also Malaysia’s path from recovery to reform, Hidekatsu Asada, Saitama University, 24/01/24 ]

We shall identify and link the various essays published primarily in STORM [smaller fonts] and, secondarily from other sources to augment the EAF comments herein.

IN BRIEF

Anwar Ibrahim, Malaysia’s Prime Minister, has created unexpected stability in the government since his party’s victory in 2022, boosting his parliamentary support, despite growing economic challenges and a decline in personal popularity. However, his strategy of brokering access to state power in exchange for loyalty has led to slower progress on economic and democratic reforms, leaving Malaysia’s issues of socioeconomic inequality and middle-income issues unresolved.

• In NEP-inequality-ethnocractic-hegemony, we have elaborated upon not only on the inequity application of the National Economic Policy – newleftmalaysia, Ethnic Inequality and Poverty, but the finance monopoly capitalism residence in the national economy that retarded our economic performance in comparison to other southeast Asian countries. The other weak policy articulation includes the acceptance of neoliberalism-is-neo-imperialism as the developmental model so much so that the country incurred indebtness through-and-by-neoimperialism with the unhealthy involvement of IMF / World Bank intruding emerging and developing economies, (see IMF on Malaysia). The resultant outcome is poverty debts and inequality spreading into the urban sector where three-fourths of Malaysians reside. The UNICEF 2020 Report has shown that low income female-headed households are exceptionally vulnerable. World Bank advocating of high growth rate only aggravate an economic situation encouraged and encrouched by monopoly-capital, especially since the continuance of neo-colonialism post-independence and in furtherance the penetration of neoimperialism onto Malaysia in the form of financialization capitalism.
• 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 in dominance; more so, with an ethnocapital insertion, and an assertion, in the govertmenr link-companies and the national banking sector; see STORM, April 2021, Class analysis of banks and corporate capital; see also, Colonialism, Capital and Class {forthcoming}.

When Anwar Ibrahim finally won the prime ministership, supporters might have been happy for his Pakatan Harapan coalition government to bring reform to Malaysian government and politics, even at the price of stability. Instead, Anwar has brought an unexpected stability — at the price of slow-pedalling economic and democratic reforms.

On the economic front, structuring the economic development was slowed by decision-making processes; worst, structuring institutional reforms for economic development (SIRED) was not fully executed; the big push was amissed; and, concurrently, the deglobalisation effect is impacting upon the national economy GDP growth performance.

Already, as early as July 2023, a IMF Report has projected that under its baseline forecast, growth will slow from last year’s 3.5 percent to 3 percent this year and next – a 0.2 percentage points. Our MIDF Research data have maintained its forecast that Malaysia’s GDP growth would moderate at 4.2% in 2023 (2022: 8.7%), weighed down by uninspiring external trade performance as real export of goods is predicted to contract by 2.8% (2022: +11.1), reflecting weakness in regional and global demand.

United Overseas Bank (M) Bhd senior economist Julia Goh has had said despite the narrower year-to-date contraction in exports, global demand has yet to show signs of rebounding. This is further concurred by OCBC Banking Group Ltd senior Asean economist Lavanya Venkateswaran who said the contraction in exports was broadly in line with the bank’s expectation. In fact, the combined April/May 2023 data hae confirmed that an external sector slowdown was already and duly underway, in fact, way back during the early quarters of 2023, (theedgemalaysia 20/06/2023).

According to the seasonally adjusted S&P Global  Malaysia Manufacturing Purchasing Managers’ Index (PMI) was unchanged at 48.8 in April 2023 then, indicating that business conditions remained challenging for firms.

Thus, it transpires, indeed, Malaysia’s economy only grew 3.7% in 2023, according to the Bank Negara Malaysia February 2024 announcement, coming well below the target of even the cited IMF Report of 4% to 5% due to “prolonged weakness” of external demand. The annual result was far off the 8.7% pace recorded for the previous year, (asia-nikkei, 16th. February 2024; as was concurred by AHAM Capital Malaysia.

After the removal of the United Malays National Organisation (UMNO) party machine as the cornerstone of Malaysian politics in the historic 2018 elections, no single party was able to act as the dominant and disciplining force in the system. Powerbrokers competed for the support of blocs of parliamentarians, with factional defections causing the mid-term collapse of both Mahathir Mohamad’s government in 2020 and Muhyiddin Yassin’s in 2021.

Inherent within the politico-economic domain is the continuance of clientele capitalism in the country, and the retention of class segments in the ethnocapital sphere that is contributing to the capital crisis within.

When Anwar was appointed prime minister after his Pakatan Harapan coalition placed first in the November 2022 general election, the spectre of a similar parliamentary coup hung over him. But Anwar has defied those anxieties. Since coming to power, he has enlarged his buffer of parliamentary support, which remains above the crucial psychological — as well as legal — barrier of the two-thirds of parliamentary seats required to amend Malaysia’s constitution. The right-wing Perikatan Nasional opposition coalition has had no success in peeling off pro-Anwar parties into its camp, most recently in a meeting of opposition powerbrokers in Dubai.

READ : “It’s a Chow Kit move“; “may have been a mirage“; “doomed to fail“; Bridget Welsh; James Chin/Oh Ei Sun; goodman44u.

It now seems completely plausible that Anwar will serve out a full term as prime minister, all the way to general elections that must be held by 2027.

The Strategist, December 2022, Malaysia’s new government could bring stability—or chaos

Anwar’s unexpectedly secure standing isn’t born of a surge in his popularity. A poll on the first anniversary of Pakatan Harapan’s election in November 2023 showed he had a personal approval rating of just 50 per cent, down from 68 per cent in February that year. Cost of living challenges are weighing on the government’s support among lower-income voters, despite the World Bank tipping growth to accelerate to 4.3 per cent in 2024.

However, the spectre of global poverty poors and the incurring, and increasing, sovereign debts in the country and a challenging geoeconomic environment does not give much comfort, especially while servicing debts

As a sideline, 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).

We shall define the Global debt as borrowing by governments, businesses and people. Presently, it is at dangerously high levels. In 2021, global debt reached a record US$303 trillion, a further jump from what was record global debt in 2020 of US$226 trillion, as reported by the International Monetary Fund (IMF) in its Global Debt Database,21 Dec 2023.

Anwar has built up a broad elite coalition even as his popularity has slumped thanks to his understanding — as a UMNO warlord in a previous political life — of the importance of brokering access to state power and patronage in bringing allies on board. He has been strategic in handing out big-budget cabinet portfolios to kingmakers in UMNO and parties representing the resource-rich but underdeveloped states of East Malaysia. Political parties linked to the government can also expect to have their friends appointed to positions in Malaysia’s state-owned enterprises, or to statutory appointments throughout the federal bureaucracy.

Again the remnants of ethnocapital-ethnocractic-clientele-capitalism is maintained to support warring factions and economic warlords. The capitalisation of government is well-entrenched, (nlm, Nov’21, Capitalism State Corporations. The ruling regime’s governing public sector has to be taken care off, too, for the sake of “development” but whereas in reality the productivity and economic outcome have much to be attained, (csloh, slack and slag in deliverance).

Loopholes in an anti-‘party hopping’ law, passed just before the last general election, have also allowed the government to expand its majority by peeling off individual members of the opposition. Malaysia has weak local and state governments, so parliamentarians seeking to steer pork-barrel projects to their constituents are well-advised to be on good terms with federal political leaders to ensure the flow of development funds — as opposition MPs who have pledged to support Anwar openly admit.

The politicisation of the justice system is part of the formula, too, despite government insistence that its efforts to bring accountability for historical misconduct is all above board. A new anti-corruption drive has conspicuously included the tycoon and former finance minister Daim Zainuddi , a key ally of former prime minister and now prominent opposition activist Mahathir Mohamad, as well as Mahathir’s son Mirzan. Anwar allies like UMNO chair Zahid Hamidi, meanwhile, have seen their own corruption charges conveniently dropped.

(read Hussein Hamid; Daim’s Damned Wealth; The Untouchables)

As Dan Slater observes in a lead article, Anwar’s political consolidation, and the slow start his government has made on reform, are two sides of the same coin. Anwar’s government, he says, ‘still labours under a sword of Damocles — the threat that the authoritarian old guard will conspire to topple it before the next national election’.

The initial slow acceptance of the Madani Malaysia model and the initial hiccups to start the developmental implementation coupled with global instability further exacerbated the conversation whether Madani Malaysia is maintainable and sustainable.

Malaysia’s efforts to break out from the middle-income trap and ameliorate its significant socioeconomic inequalities will require a welfare state and productivity-raising public investments that the current tax system can’t support.

This has been stated and cajoled to preceeding regimes many a time by World Bank and in the Madani Budget 2024. More so, when a government is indecisive to tax the TNCs transnational corporations. Coupled to these situations rest on one prime aspect is that lower economic growth translates into lower ROE for FDI which is the Malaysia’s structural weakness of
relying on debt-driven domestic consumption to fuel economic growth.
Basically, Malaysia’s growth strategy of the last 25 years since the Asian Financial Crisis was a debt-driven domestic consumption story. This is the dominant structural issue that Malaysia now faces conspicuously, and has not only to destruct its legacy and lack lustre entities but has to endeavour to reconstruct a new economic development mode, (see STORM April 2023, Structuring lnstitutional Reforms for Economic Development {SIRED} ;  TAPAO; and Madani Malaysia praxis).

But as Francis Hutchinson argues in a second lead article, Anwar’s government ‘has limited fiscal room for manoeuvre. Over the past decades, Malaysia’s oil reserves have accounted for a decreasing proportion of state revenue and the reimposition of a goods and services tax is politically taboo’. Tax revenues are just 12 per cent of GDP, well below the norm for a country at Malaysia’s development levels.

It is a situational case of unpreparedness for Industry 4.0, in a geoeconimic challenging conditions and the haplessness of lifting rakyat² from the rising tides.

A glance over the Java Sea to a less wealthy but more mature multiparty democracy provides a clue to the future. In Indonesia, supporters of presidents Susilo Bambang Yudhoyono and Joko Widodo always reassured those barracking for institutional reforms that political consolidation came first, then bold policy action. In both cases deep reform never came, as the presidents grappling with a corrupt and fragmented political elite found they had a perverse interest in some of the problems that reforms sought to address. An over-regulated economy allows favours to be done for allies, after all, and a justice system susceptible to political influence allows protection from the law to be extended as a reward for support.

Despite all their differences, Southeast Asia’s middle-income electoral democracies — a club Malaysia has now clearly joined — face a situation where the goals of strengthening the rule of law, shrinking the role of the state in the economy, and combating patronage politics are in conflict with their leaders’ political authority, or even their political survival.

Without a doubt, the fight against patronage and ethnocapitals will be a long battle ahead.

With his coalition stable for now, Anwar Ibrahim may have bought himself time to find a way out of this trap before elections are due. But a comparative view suggests that it might be best to revise down expectations of what a realistic reform agenda looks like for Malaysia.

Whereas labour shall be marginalised once again under yet another wage parity system to be considered whether it is implementable, and more importantly, to be seen maintainable and sustainable.

 

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