Malaysian Maverick: Mahathir Mohamad in Turbulent Times Read online

  The NEP itself, originally meant to last for 20 years, morphed into a semipermanent policy and was regarded by most beneficiaries as an entitlement. Deeply resented by other Malays, as well as non-Malays, it posed an obstacle to national integration. It also hindered the country's external performance, just when Malaysia needed to sharpen its game to participate in a more competitive international environment.

  Although the NEP had been running for ten years and was half completed when Dr. Mahathir took over in 1981, it fell short in his eyes. In urbanizing many Malays and helping them acquire new skills, in free-trade zone factories and in universities at home and abroad, the NEP was meeting some of his earlier demands. But Dr. Mahathir aimed for nothing less than the creation of a "new Malay". It would take a mental revolution[6] and a cultural transformation to rescue the Malays from their economic backwardness, which amounted to a "millstone around the nation's neck".

  In his writings, Dr. Mahathir identified what he called Malay traits, such as passivity and laziness, as well as negative attitudes to money, property and time, as impediments to progress. He sought to instill in Malays a competitive spirit to replace fatalistic tendencies and low aspirations. The new Malay would possess "a culture suitable to the modern period, capable of meeting all challenges, able to compete without assistance, learned and knowledgeable, sophisticated, honest, disciplined, trustworthy and competent".[7]

  Dr. Mahathir's endeavour to modify Malay culture and remove barriers to advancement invites comparison with Turkey's Mustafa Kemal Ataturk, whose national revolution in the 1920s and 30s influenced the independence generation of Malay intellectuals. Ideologically, Dr. Mahathir can be described as an Ataturk-reformer, particularly in terms of development.[8] After victory in a nationalist war, Ataturk secularized Turkey by abolishing the sultanate and the caliphate, "disestablishing" Islam and replacing sharia with European laws. Emphasizing education, he opened modern schools in place of madrassahs, outlawed polygamy and granted women equal rights with men. His abrupt, top-down, total cultural restructuring aimed to lift Turkey from the depths of ignorance — the literacy rate was a bare 10 per cent — into the age of modern civilization.

  In response to Islam, however, Dr. Mahathir and Ataturk differed fundamentally. Where Ataturk boldly chose secularism, Dr. Mahathir adopted an Islamization policy, leading UMNO to abandon its secular character as it tried to outbid the opposition Parti Islam Se-Malaysia (PAS) on religion. The two countries ended up strikingly different. In Turkey, with a population 99 per cent Muslim, citizens readily identified themselves by their Turkish nationality, not the religion. By contrast, in 60 per cent-Muslim Malaysia, Islam became the most important identity marker for the Malays. Most Malays thought of themselves as Muslim first, Malaysian next, then Malay.[9] Turkey eventually applied to join the European Union, while Dr. Mahathir's Malaysia proclaimed itself an Islamic state, though it lacked the attributes of one.

  While that might be considered a huge disappointment for Dr. Mahathir, regarded as the foremost Malay nationalist of his time,[10] he breezily declared that "Ataturk was wrong" to blame religion for the downfall of the Ottoman empire. Since Islam "is a way of life" and "includes everything that you do", church and state cannot "really" be separated, he said.[11]

  On the job, Dr. Mahathir felt the imperative, as did his predecessors, to represent all Malaysians and not just a single ethnic community. The NEP recipients were bumiputras, a term coined from Sanskrit meaning "sons of the soil", covering not only Malays but those judged to be "other native races". They included the Orang Asli, original inhabitants, in peninsular Malaysia, the Dusuns, Kadazans, Bajans and many smaller tribes in Sabah, and the Ibans, Bidayuhs, Melanaus and others in Sarawak. Non-Malay bumiputras, a substantial number of them Christian, formed a majority in both East Malaysian states, though official figures showed a Muslim majority in Sabah from 1980.

  Without lessening his commitment to the Malays, Dr. Mahathir subsumed his most cherished goal within a wider one, that of a rapidly modernizing Malaysia able to compete and stand proudly with other economically successful nations. Dr. Mahathir, the Malay champion, assumed the mantle of a Malaysian nationalist, adjusting the country's sights away from Malay versus Chinese to Malaysians against the rest — usually the West. As one analyst put it, Dr. Mahathir, at his most imaginative, looked decades ahead and envisaged a society "in which the races stop looking inwards with prejudice but rather outwards with pride".[12]

  Dr. Mahathir set his sights on:

  ...creating a psychologically liberated, secure and developed Malaysian society with faith and confidence in itself, justifiably proud of what it is, of what it has accomplished, robust enough to face all manner of adversity. This Malaysian society must be distinguished by the pursuit of excellence, fully aware of all its potentials, psychologically subservient to none, and respected by the peoples of other nations.[13]

  Over the years, Dr. Mahathir reformulated, repackaged and refined his vision, but never wavered in his commitment to it. He relentlessly badgered, berated and browbeat Malaysians, especially the Malays, to shape up and convert his dreams into reality. If necessary, he would crucify opponents, sacrifice allies and tolerate monumental institutional and social abuses to advance his project. Much of what he did, or did not do, could be explained by devotion to this cause.

  When Dr. Mahathir became prime minister, Malaysia was growing at a lively clip, with a focus on the export of light industrial products. Foreign companies, responding to a range of incentives, were producing toys, air conditioners and electronic components for sale overseas in free-trade zones and providing jobs for tens of thousands of young women drawn from rural homes. Malaysia's switch to the export-oriented, employment generating industrialization that was to characterize East Asia's dynamic economies had taken place in the late 1960s. It was a step towards recognizing that without structural change, the patterns established by colonialism would persist and fail to deliver the dividends most Malaysians expected from independence.

  Producing greater quantities of tin and rubber than anywhere else, Malaya had been Britain's most profitable colony, integrated into the world economy through the trade in both commodities. While the British left Malaya with one of the highest living standards in Asia, much of the economy was in foreign hands. The small local business community was mostly Chinese. And the main ethnic groups lived separately, the Chinese around the urban tin mines and the Indians on semi-rural rubber plantations, leaving the peasant Malays to their traditional farming and fishing in more remote areas. Conscious that tin deposits were running out while rubber products might be replaced by synthetics, and also trying to guard against commodity price fluctuations, Malaysia pursued crop diversification. Cocoa and pepper were added, and the country became the world's biggest producer and exporter of palm oil. The production of oil and the discovery of natural gas significantly boosted exports from the second half of the 1970s.

  The neglect of Malay interests contributed to the "May 13" riots in 1969 and resulted in the redistributive NEP, which required the government to abandon the hands-off approach followed since colonial times and intervene deeply in the economy. In practice, the government gave priority to restructuring to end the identification of race with economic function, ahead of the other main objective, eliminating poverty. The basic focus was on raising bumiputra corporate ownership from 2.4 per cent in 1970 to 30 per cent in 1990. Other Malaysians would be allowed to own 40 per cent, while the foreign stake would be reduced to 30 per cent. A 30 per cent quota became the minimum bumiputra requirement for many things, including company ownership, government contracts, public share listings, employment and new private housing plans.

  As individual bumiputras lacked capital and expertise, the government established state-owned enterprises to enter business on their behalf. All 13 states set up development corporations, which registered companies that were given bumiputra status and fed with resources, such as timber and minerals. The central government
also established corporations to hold in trust the shares issued to bumiputras when a company expanded or initially listed. To distribute the shares to individual bumiputras, the government formed the National Equity Corporation, which also bought shares and took over blue-chip companies on the open market and channeled its portfolio into unit trusts. The number of state-owned enterprises in Malaysia rose dramatically, from 54 in 1965, to 656 in 1980 and 1,010 in 1985. Overall, they performed poorly, losing RM6.8 billion in 1984.[14]

  Dr. Mahathir brought strong and idiosyncratic ideas to the economy. "We run development as if we are executing a war," he said,[15] a comment that recalled former premier Razak's "operations room" for rural development a couple of decades earlier. Long before he read an economics textbook, Dr. Mahathir believed governments should spend generously, not just Keynesian-style with borrowed money in economic downturns, but at all times. "I had this crazy idea" that if the government outlays money, "it stimulates the economy...usually it generates a lot of economic activity, and people make money, and of course they have to pay taxes, so the government gets back its money".[16] Conversely, "if you don't spend money, then the country will not grow".[17] It went back to what a teacher had told him in primary school, that when the Malayan government built the railway line from Penang to Padang Besar on the border with Thailand, settlements sprang up along the tracks.[18] Although he was personally frugal, Dr. Mahathir spent freely and Malaysia's economy grew fast along the lines he decreed, unhindered by such concepts as cost-benefit analysis and seemingly unconcerned about a future without oil and gas.

  With a poor opinion of the civil service and determined not to be hamstrung by resistance, red tape and incompetence, Dr. Mahathir devised alternative ways to speed up decision making and build momentum for his initiatives. As he centralized authority within the executive branch, he increasingly bypassed the bureaucracy in favour of special planning bodies answerable to him, as well as independent state agencies and corporations.[19] The Prime Minister's Department was more influential than any of the regular ministries, containing national oil and gas company Petronas and the Economic Planning Unit, as well as the politically powerful Attorney General Chambers, Anti-Corruption Agency, Public Service Commission, Election Commission and others.

  Dr. Mahathir's partner on the economy for much of the time was lawyer-turned-businessman Daim Zainuddin. Serving twice as finance minister, from 1984 to 1991 and from 1998 to 2001, Daim was at other times a government economic adviser. When the Asian financial crisis spread to Malaysia in 1997, Dr. Mahathir brought Daim back to head an emergency task force that undercut Bank Negara and the finance ministry. Daim was made minister with special functions in early 1998, before becoming finance minister for the second time later that year. He was UMNO treasurer throughout this entire period, from 1984 to 2001.

  Both from Kedah, Dr. Mahathir and Daim enjoyed a friendship that contributed to the image and tone of the Mahathir administration. By his actions, Daim made it clear he was not going to let conventional notions of conflict of interest interfere with the way he ran his private business empire, the economy, or UMNO's financial affairs. They became deeply entangled. Daim's provocative stance added to the perception that the government was conducting its business first and foremost for the benefit of insiders. Although they remained on talking terms, Dr. Mahathir and Daim fell out politically and parted ways in 2001, with Dr. Mahathir making the extraordinary comment that he was tired of defending Daim against allegations of corruption, "trying to whitewash him, literally".[20] The same accusations had not unduly troubled Dr. Mahathir for the preceding 17 years.

  The duo dovetailed in practical ways. With his heart in the business world, Daim was content to try to make Dr. Mahathir's policies work, even after registering his disagreement with some of them.[21] As Dr. Mahathir said of Daim, "he knows the nitty gritty, the way to carry out" a mandate. "For example, if I say privatization, his job is to find the means of privatizing. He showed how it should be done and all that."[22]

  Lacking political ambition, Daim was never a threat to Dr. Mahathir, as were Musa Hitam and Tengku Razaleigh Hamzah. Daim declined to seek elected office in UMNO so that he did not have to worry about making friends, or perhaps, face the public and the media to explain his wealth. As he put it, "I was not prepared to be blackmailed with votes."[23] He even resented having to campaign for Dr. Mahathir's faction when UMNO split in 1987, despite Daim's handling of the economy and the party's finances being hot issues. His usual reaction to the severest and most pertinent criticism was to ignore it, regarding it as "a waste of time" to respond. More than anyone else in the administration, Daim had a fairly free hand, because everyone who mattered knew he had Dr. Mahathir's ear and steadfast backing. In return, he was loyal.

  Known to his friends as "Muscles", the soft-spoken and diminutive Daim, who usually shunned the press and often conducted business dressed in jeans, a casual batik shirt and sandals without socks, saw no reason to change his ways because he was in the Cabinet. He dismissed concerns about his overlapping public and private interests. An accelerated acquisition spree, in which Daim bought significant stakes in food, property and building-materials companies, culminated in his biggest and potentially most lucrative deal a week before he was named finance minister. He swapped his 51 per cent interest in Malaysian French Bank and RM125 million in cash for a co-dominant, 40.7 per cent stake in the much bigger United Malayan Banking Corporation. The timing was most convenient, as allowing a serving finance minister to assume shared control of the country's third-largest bank would have given the government a political headache.

  Although Daim pledged to put his businesses in a blind trust, out of sight two of his family-owned companies did not complete their purchase of the bank stake until five months after he joined the Cabinet. More seriously, the two companies took outright control of the bank the following year in a move that was not publicly disclosed. On top of that, Bank Negara two months later announced sweeping policy changes that may have pre-empted the takeover by the Daim companies. New guidelines, which had been drawn up and awaiting implementation for some time, forbid individuals or family-owned companies from owning more than 10 per cent of the equity of a local bank. Crucially, the guidelines were not made retroactive.[24]

  Once they surfaced, the transactions raised legal and ethical issues as well as thorny political problems. Malaysia's Banking Act of 1973 required the approval of the finance minister for any "agreement or arrangement" for the sale or disposal of shares in a Malaysian bank or affecting management and other matters "which will result in a change in the control or management of the bank". The minister's approval was also required for any "reconstruction" of the bank that transferred any part of the bank to another corporation. While Bank Negara said the Cabinet had approved Daim's purchase of the bank shares and he "was never at any stage involved", the explanation left the question of legality unsettled, since the Banking Act made no specific provision for the minister to delegate authority for such approvals. And neither did it provide for the Cabinet to play any role in the approval process.

  After Dr. Mahathir announced in 1986 that ministers, deputy ministers and their immediate family would no longer be able to buy shares in companies and would be required to reduce any existing holdings, Daim's planned sale of his controlling interest in United Malayan Banking Corporation proved every bit as contentious as its purchase. He sold out to state-owned Perbadanan Nasional Bhd., the previously co-dominant shareholder that had not subscribed to a preferentially priced rights issue in 1985, which had allowed Daim to take outright control of the bank. A year later, the state enterprise was paying at least RM27 million more for those shares, bankers estimated, though the price was not disclosed.[25]

  Announcing his Look East policy in late 1981, Dr. Mahathir sought a paradigm shift in the mentality of Malaysians, especially in the Malay-dominated bureaucracy, which had defied all previous efforts to eliminate the influence of the long-gone British. Decla
ring that the West was in decline and had lost the values that made it great, he urged Malaysia to consider Japan, South Korea and Taiwan — and, publicly unstated, Singapore — as models for economic development. While the West itself was awestruck at the time over Japan's seemingly inexorable rise, Southeast Asia's bitter wartime memories precluded any spontaneous inclination to look northward with affection.

  As Dr. Mahathir understood from his visits to Japan, a competent political and bureaucratic establishment was guiding the country to an economic miracle. With the government and business cooperating closely, industrial action was rare and economic performance did not come at the expense of national solidarity and social stability.[26] If Malaysia could similarly blend economic achievement with local values and nationalistic pride, it would facilitate Dr. Mahathir's aim of transforming the Malay community.[27]

  In practice, however, Look East remained a confusing concept. With Dr. Mahathir closing meetings by intoning domo arigato gozaimashita and politely bowing his head in place of the usual "thank you", the government dispatched thousands of students and skilled workers to Japan to learn its secrets.[28] Among them was a disappointed Mukhriz Mahathir, who had obtained a scholarship to study in the United States, but was directed to Japan for five years instead by his father. "I didn't like it at first, but now I have no regrets," he said later.[29] The Japanese view of themselves as culturally unique, and more aligned with the industrial West than developing Asia, made it difficult to transfer some of their practices to Malaysia. With English the widely spoken foreign language in Malaysia, plans to teach Japanese and Korean to workers, and make Japanese an optional language in secondary schools, made little headway.

  In a memo to senior government officials in mid-1983, Dr. Mahathir said, "Looking East does not mean begging from the East or shifting responsibility for developing Malaysia" to the East. Nor did it mean "buying all goods from, or granting all contracts to, companies of the East, unless their offer is best".[30] Yet the idea persisted that Malaysia would be doing more business with Japan and South Korea and expected something concrete in return, especially for being such an ardent admirer and willing student of their winning ways. Hoping flattery would soften the hearts of the Japanese, who had built the world's second-largest economy with practices so predatory they were sometimes depicted as "economic animals", was more than a little naive.