Misgovernance: Grand Corruption in Malaysia by Edmund Terence Gomez - Articles

Misgovernance: Grand Corruption in Malaysia by Edmund Terence Gomez

Penguin Books, Singapore, 2025

Reviewed by Hal Hill, H. W. Arndt Professor Emeritus, Southeast Asian Economies, Crawford School, Australian National University

There is much to admire about Malaysia. It is one of the world’s most prosperous developing countries. It is relatively stable economically and politically, attracting millions of foreign workers to its shores. It is a constructive member of regional and global communities. It has managed its diverse multi-ethnic communities better than most similar such countries, including in the wake of the May 1969 riots. It was identified as one of the seven ‘miracle’ economies in the World Bank’s landmark 1993 study The East Asian Miracle. In a follow-up study in 2008, it was also identified as one of only 13 economies (out of 150 for which there were data) to have achieved rapid economic growth for a sustained period over the preceding century (Commission on Growth and Development, 2008).

Malaysia has achieved rapid structural change from its earlier reliance on rubber and tin to modern manufacturing and services, especially as an early mover in the internationally oriented electronics industry. The government’s innovative macroeconomic response to the 1997–98 Asian financial crisis (AFC) contributed to a significant rethink about the prevailing International Monetary Fund orthodoxy of unfettered international capital flows. It has become a major regional centre for activities as diverse as higher education and Islamic finance. As a result of all this, absolute poverty has fallen to very low levels.

In his seminal study of Malaysian politics, the late Professor Harold Crouch characterized its political system as ‘responsive-repressive’ (Crouch, 1996). Yet after decades of one-party-dominant coalition rule, more recently the country has achieved peaceful democratic political transitions.¹ Moreover, its federal political structure provides sufficient policy space for reform-minded states to innovate faster than is possible at the national level. The dynamic Penang economy is the prime example of this proposition.

Nevertheless, the country has clearly lost some of its earlier economic dynamism. From 1970 to 1995, that is, up to just before the AFC, gross domestic product (GDP) per capita grew at an annual average rate of 5.2 per cent, whereas from 2000 to 2019, after the AFC and immediately before the onset of the Covid pandemic, it was 3.5 per cent.² Household survey research also reports considerable community unease, even unhappiness (Asadullah and Simler, 2025). The earlier narratives of economic miracles have given way to notions of the middle-income trap. Why the slowdown? It cannot be due to external factors—during the latter period the global economy was buoyant, apart from a brief dip during the 2008 global financial crisis, and Malaysia in particular benefited greatly from China’s economic boom.

In search of an answer, Professor Terence Gomez, the eminent Universiti Malaya academic, shines a light on the country’s political economy, in particular what he argues is misgovernance, indeed ‘grand corruption’, in the large and politicized government-linked corporations (GLCs) sector. The author has been examining these entities, and their political underpinnings, for decades, and in this study, he uses his formidable forensic skills to examine GLC operations. The result is a most important book on Malaysian politics, and one that is sure to be widely read.

Chapter 1 sets the scene. Why he asks, in spite of widespread allegations and well-documented cases of corruption, have practically no senior public officials been held to account? It took the arrest and subsequent sentencing in August 2022 of former Prime Minister Najib Razak over his involvement in the notorious 1Malaysia Development Bhd (1MDB) scandal to bring things to a head, which the author describes as ‘a defining moment in Malaysian history’.

The nub of the problem is the very large GLC sector, which is under the direct control of the executive and the political parties. The reporting and accountability standards of these GLCs are highly opaque. In fact, many of them are ‘riddled with patronage and graft, as well as stupefying levels of elite impunity whereby even repeat offenders evade punishment’ (p. 10). In Table 1, the author documents ‘varieties of corruption’—16 in total—with analytical clarification together with Malaysian illustrations in each case.

Gomez argues that the problems date back to the aftermath of the May 1969 riots, and the imperative to introduce comprehensive affirmative action programmes to improve the socio-economic conditions of the majority Bumiputera community. A large number of commercial agencies and statutory bodies was established, while major infrastructure, defence, and other contracts were to be awarded preferentially to nascent Bumiputera enterprises. Other ethnic hiring and promotion measures were also introduced. A turning point in the operations of these GLCs, and in the quality of public administration more generally, occurred during the 1980s, as privatization gathered momentum, partly in response to a looming macroeconomic crisis as commodity prices fell sharply.

Privatization was a global trend during this decade, but in the Malaysian case it took the form of asset disposal through non-transparent means to selected business cronies (not all of whom were Bumiputera, it should be noted). Standards of probity and efficiency began to deteriorate, including in formerly well-run agencies such as the legendary FELDA (Federal Land Development Authority). Indeed, the long-time Prime Minister Dr Mahathir Mohamad, who presided over this process, is later quoted as saying that ‘we created a monster!’.

Chapter 2 extends the analysis. Table 2.1 lists the myriad institutional forms—eight—that GLCs take. Observing the ‘bewildering number of enterprises’ (p. 59), Figure 2.2 lists in minute detail the plethora of corporate networks in four key ministries: the Prime Minister’s Department, the Ministry of Finance, the Ministry of Rural and Regional Development, and the Ministry of Defence. Connecting the political and the corporate, the author then lists the politicians appointed to generally lucrative GLC directorships.

These totalled 59 during just the short, 17-month tenure of Prime Minister Muhyiddin Yassin (March 2020–August 2021). Not surprisingly, members of the political parties in his coalition—United Malays National Organisation, Bersatu, Malaysian Islamic Party, and offshoots—were the prime beneficiaries. As expected, appointments to government-owned or controlled banks and other financial institutions feature prominently, both as attractive sinecures and as a means of directing resources to favoured constituencies. Public sector procurements emerged as another lucrative form of rent seeking.

Chapter 3 digs deeper still by providing three highly informative case studies. These are Jana Wibawa, a finance facility designed to assist Bumiputera-owned small- and medium-sized enterprises during the Covid pandemic; the case of the Littoral Combat Ship, one of the many cases in a defence department ‘riddled with corruption’ (p. 94); and mismanagement in three major statutory authorities, all of which were established to promote Bumiputera interests. These cases entailed ‘corruption involving a secret exchange of formally allocated contracts [the first case], … abuse of publicly-generated concessions contributing to a serious debt crisis … [the second case], … and where public funds are used to buy resources in domestic and foreign markets at an inflated price’ [the third case] (pp. 81–82).

The common elements in all three case studies were the scale of corruption, the blatant misuse of public office for private gain, and the minimal sanctions imposed on the offenders. In some respects, the FELDA case was the most egregious since its mandate was to assist poor Malay farmers and its work had received global praise, including from the World Bank. Much of the mismanagement associated with privatization occurred during the long tenure of Prime Minister Mahathir, and his rule therefore attracts much critical attention.

Chapter 4 distils the lessons learned from the analysis in the preceding three chapters: first, the political–GLC complex is ‘deeply corrupt’; second, while there is much government discussion about persistent corruption, no politician ‘has called for the dismantling or even restructuring of the GLC ecosystem’; and third, ‘legal avenues to curb ministerial misgovernance … are inadequate’ (p. 151).

Chapter 5 concludes with ‘the reforms Malaysia needs’. The author focuses on three core areas. The first is ‘prevention’, by instituting wide-ranging structural reforms, including arm’s-length governance of GLCs and establishment of an independent public prosecutor. The second is termed ‘corrective public governance’. A long list includes placing limits on cabinet authority, developing transparent political–bureaucratic relations, adopting measures to reform the GLC ecosystem, restructuring institutional governance, and appointing professional and independent GLC directors. The third is ‘criminalization’, including the power to prosecute malfeasance.

Looking forward, the author sees civil society activism as a source of hope. Organizations like the Center to Combat Corruption and Cronyism (the sponsor of the study) and the Bersih movement (the Coalition for Clean and Fair Elections) are active, and evidently their operations are unhindered, as indeed was the publication of this book. With Thailand, Malaysia is ranked as having relatively free media compared with its neighbours.³ The contents of the Panama Papers and the Pandora Papers, which listed the extensive wealth holdings of several prominent Malaysian political families, were widely publicized in the country.

A detailed Appendix 1 lists no fewer than 70 cases stretching over 41 pages of public controversies involving ‘state–business ties in the GLC ecosystem’ in 1980–2023.

This is a dismal yet enlightening study. Dismal because the problems appear to be so serious and so deeply entrenched in the country’s political economy. And yet enlightening because there are rays of hope arising from the systematic exposure and vigorous public airing of the issues.

The uninformed reader of this pioneering study might be left with a puzzle: how can Malaysia’s development success, even with its slower growth, coexist with such egregious rent seeking? The answer is that, while promoting the GLCs, successive administrations have also pursued a strategy that promotes economic development. In effect, a dualistic economy has emerged with an efficient export-oriented sector existing alongside a protected and politicized GLC sector.

Thinking comparatively, at least three factors that explain the country’s respectable economic performance have been consistently present.

First, Malaysia remains one of the most open economies in the developing world. In Sachs-Warner (1995) parlance, it is one of the very few ‘always open’ developing economies in the world and, other things equal, more open economies generally grow faster. For example, in the search for locational alternatives to China during the China–United States trade disputes, foreign investors have reportedly been flocking to Malaysia (although the ‘Liberation Day’ tariffs, if eventually implemented, may stem the flow). Moreover, the political economy of a strong export constituency imposes at least some constraints on political-bureaucratic excesses, at least in tradable goods sectors. For example, the Malaysia Competition Commission may not be a particularly effective body, but at least the existence of Air Asia places some sort of check on rent-seeking activities at Malaysia Airlines.

Second, although its public debt is rising, the country’s macroeconomic credentials remain relatively strong and comparatively crisis-proof. Of Malaysia’s three significant economic slowdowns since the 1970s—the AFC, the global financial crisis, and the Covid pandemic—only one, the AFC, had (partial) domestic origins. This matters, as deep economic crises can degrade standards of governance.

Third, the incentives to engage in corrupt behaviour shape outcomes, and in at least one respect Malaysia is well placed. That is, unlike in some of its neighbours, civil servants are relatively well paid—moonlighting and illegality are not essential to maintain a reasonable living standard.

On the author’s remedies, reform of the political system is arguably foundational. If corruption is so deeply embedded in the GLC sector, could it be that change at the ballot box is the only lasting solution? That is, political leadership that wins power with an explicit mandate for fundamental reform. One wonders whether the strength of the civil society groups highlighted in the study suggests that this could be a winning political reform strategy. Relatedly, would not the promise of a powerful and independent anti-corruption agency be a vote winner? (According to the study, the Malaysian Anti-Corruption Commission is largely ineffective.) In the wake of Indonesia’s political and economic reforms at the turn of the century, for example, its effective anti-corruption commission—known by the acronym KPK—was the most popular national institution, until its operations were hobbled in recent years.

Summing up, in spite of all the misgovernance comprehensively dissected in the study, the Malaysian economy has continued to grow at a respectable rate, sustained by its sizeable, efficient, and internationally oriented sectors. Provided that its political system continues to provide enough economic space for these sectors, the ‘grand corruption’ described in this volume is unlikely to lead to a serious economic crisis. Rather, the likely scenarios are sluggish economic growth, disaffection among the politically non-connected communities, and the continued exodus of some of Malaysia’s best and brightest (including not just non-Bumiputera as has traditionally been the case). That is—invoking the analytical framework developed by Dercon (2022)—the ‘middle-income trap’ will persist, not for any technical economic reasons but because, like neighbouring Thailand, Malaysia’s dominant political–business class implicitly prefers an advantageous commercial position in a slower-growing economy over the alternative of a faster-growing economy in which the value of political rents are eroded by an open, competitive, and entrepreneurial environment.