The second advent of Mahathir Mohamad
Parliamentary elections in Malaysia in May of this year caused a sensation when the Alliance of Hope, a coalition of opposition parties, defeated the National Front, whose representatives had ruled the country for the last 61 years. The Malaysian prime minister’s seat fell to the Alliance of Hope leader, the 92-year-old (at that time) Dr. Mahathir Mohamad, the former prime minister and a political giant whose name is associated with an entire era of Malaysian history. One need only recall the economic miracle he worked in his previous term as prime minister, from 1981 to 2003, when he turned Malaysia from a commodity-focused power into a high-tech exporter and took his place alongside Lee Kuan Yew and the other creators of the Asian Tigers.
At the same time, for all the services rendered, Mahathir Mohamad remains a controversial figure. When he retired in 2003, he joked: “This is the first time in history that a dictator has resigned while still in good health.” In January 2018, however, he made a serious admission on his blog: “Looking back now, I realize why, as Prime Minister of Malaysia, I was described as a dictator. There were many things I did which were typically dictatorial.”
There are many reasons for such statements. “There was democracy in Malaysia, but a very timid one, where the press agreed with almost everything the government said. Those who spoke out in opposition could find themselves behind bars without trial or investigation,” the English Times wrote. These powers were granted to the head of state by a law introduced by the British colonists in the Internal Security Act. Hundreds of opposition politicians, scientists, and activists are believed to have experienced its effects firsthand.
It is well known that he could take tough economic decisions without hesitation when necessary. In this way, Mohamad was able to freeze the exchange rate, close the banks, and organize an attack on the stock exchange.
As a leader serving a Muslim population base, he did not show himself to be particularly tolerant. “I am glad to be labelled anti-Semitic. How can I be otherwise, when the Jews who so often talk of the horrors they suffered during the Holocaust show the same Nazi cruelty and hard-heartedness towards not just their enemies but even towards their allies should any try to stop the senseless killing of their Palestinian enemies,” he said in 2003. These words followed the case, widely publicized at that time, of an Israeli soldier bulldozing a Palestinian house in the Gaza Strip who ran over an American activist trying to stop the demolition. The Israeli court acquitted the serviceman, ruling that he had not seen the American.
Comments of this sort fall far outside the global political mainstream. In order to understand the current Malaysian leader and his rhetoric, his ‘typically dictatorial’ deeds, and the economic results he achieved, one must understand where he comes from.
The Doctor from the Ghetto
Mahathir Mohamad was born into the family of a school teacher on 20 December 1925 in the town of Alor Setar in the Malaysian state of Kedah. He is descended on his father’s side from Tamil immigrants from India, and his mother was Malay.
When the British were expanding plantations and actively building their mines, they found that they lacked local workers, while those they did have were not particularly eager to descend underground with a pickaxe. They solved the problem by importing Chinese, Indian, and even Javanese workers. One of the consequences of this policy was the beginning of a serious stratification within society: The wealthy and middle classes included many enterprising Chinese and Indians, and the indigenous population felt unjustly deprived of their rightful share. Mohamad appears to have been exposed to his share of this sentiment as a child, considering himself Malay and coming to power as their defender.
One thing is certain: His childhood cannot have been easy. During the Great Depression of the 1930s, he had to fend off starvation several times. During World War II, Malaysia was occupied by the Japanese, and schools were closed. To survive, the future politician began to trade coffee and then snacks from a hawker’s tray, primarily deep-fried bananas, a traditional Malay treat.
After the war, with the help of his parents, he managed to save enough money to pursue a decent education. In 1953, he received a medical degree from the University of Malaya and settled in Singapore. During his studies, Mohamad met his future wife, Siti, to whom he is still married and with whom he raised seven children, including two adoptive children.
Mahathir recalled that it was not love at first sight but that the relationship began to develop later. “She was the only girl among the students from Malaysia. There were six more guys, and they always offered to carry her backpack,” he later recalled. “I grew up in a family made up mostly of men and did not know how to attract the attention of girls. I looked at my friends [...] and also began to offer to carry her backpack. But I always helped her [with lessons]; maybe that’s what brought us together.”
They got married in 1956, when Mahathir was 30 and Siti 29, following her father’s demand that she first receive her diploma and finish her internship. A year later, he stopped working for the state and opened a private practice.
A Time of Reforms
By this time, Mohamad had already acquired a fair amount of experience participating in the political life. He first became interested in politics in 1946, joining the newly founded United Malays National Organization (UMNO). In 1964, he was elected to the local parliament. He was already packing his things to make the long journey from the state of Kedah to Kuala Lumpur for his first session when his wife went into labor. Mahathir hesitated, though his son was ultimately born without him: He and his wife both contend that she herself ordered him to leave for his job in the capital.
In 1969, he wrote an open letter sharply criticizing Prime Minister Tunku Abdul Rahman Putra. Mahathir believed that the prime minister was ignoring the interests of Malaysia’s indigenous population.
He was expelled from the party and lost his seat in parliament as a result. He used the resulting time to write the book The Malay Dilemma, which pursued the same thought: The country’s legitimate masters, the Malays, suffered discrimination; they were considered second-class citizens in relation to the Chinese and Indians; it was time to correct the situation.
Despite criticism and accusations of nationalism, the ideas laid down in the book were met by Malay youth with enthusiasm. So, under pressure from young UMNO leaders, Mohamad’s party membership was restored. In 1974, he was again elected to parliament and made minister of education.
Particular attention was paid to the school reform; new curriculum was created, designed to provide balanced, all-encompassing knowledge with an emphasis on mathematics and exact sciences. It was Mohamad’s belief that those were the subjects that would allow the country to compete in the modern world.
The numbers speak to the results achieved: While in the early 1970s, 67% of six-year-olds attended school, the number had reached approximately 90% by the beginning of the 2000s. One percent of students went on to higher education, but by the end of Mahathir’s term, the figure had increased to 10%.
At the same time, Mahathir continued his successful career in the UMNO. In 1981, he stood at its helm and led the government, becoming Malaysia’s fourth prime minister. By this time, Malaysia was experiencing rapid growth – over the previous 10 years, the economy had increased by an average of 7.9% per year. The country was already implementing its New Economic Policy (1971-1990), and Mahathir was able to give it a new quality, redirecting Malaysia towards new partners and changing its export structure.
British and European firms owned many assets in Malaysia. For example, immediately after the war, they controlled 1.2 out of 1.4 million acres of rubber plantation. Mohamad undertook the Malayization of the economy. In 1981, for example, he sanctioned the Dawn Raid (the purchase of a large block of shares for the purpose of carrying out a hostile takeover right after bidding opened so that the company would not have time to take countermeasures) against Guthrie, which controlled 17% of the country’s agricultural lands, in order to return them to the state.
But the plantations were not a panacea. “Very early on we realized that if we followed the culture that was established during colonization, we would have no future. If only because the population was growing,” Mohamad explained. “A farmer can barely survive on one acre. But if you build a factory on the same acre, 500 people will get jobs. Since we had a lot of employees and many were not employed, we decided that we needed to develop industry and create jobs [...] We were so successful that at some point we realized there were not enough workers and we needed to bring them in from abroad.”
Malaysia’s first developmental leap forward was largely the result of Japanese money. Japan’s rapid post-war growth created a demand for raw materials, land, and labor. Production became more expensive and couldn’t compete with the US and other countries. Firms like Hitachi, Mitsui, and Toyota began to consider cheaper foreign production. Mohamad understood this and began to attract Japanese investors to Malaysia. “It is unlikely that you will find a British car after the Japanese have come to this market, because Asians have a different business philosophy. While Europeans want to make more profits, Asians are trying to take over the market, to take over a bigger share, albeit with less profit. I think it’s a strategy that works very well; they are able to develop very quickly,” he said.
He was not the first to come up with the idea of industrialization. In the 1970s, Penang Island began to actively court American corporations and became a center of electronics manufacturing. Mohamad, however, did everything on a national level. It took Malaysia less than 10 years to change from an economy dependent upon raw materials and the export of palm oil, rubber, and tin into an Asian Tiger exporting TVs, computers, refrigerators, air conditioners, and other value-added goods.
Meanwhile, the head of state had not forgotten about the oppressed Malays. In the early 1980s, before he had come to power, the lion’s share of economic activity was accounted for by ethnic Chinese. Mohamad gave advantages to the indigenous Malays all across the board. For example, under the far-reaching privatization he was carrying out, Malays had a greater chance of receiving assets, state contracts, preferential loans, and even educational subsidies. As a result, a powerful group of Malay businessmen appeared in the country.
He protected local business from foreign competitors as best he could. “Many delegations visited from America; one was led by [former Secretary of State Alexander] Haig. They insisted that we allow US banks to operate in the country with local rights,” Mohamad recalled. “We said that because of their size they would smother Malaysian banks. But [they told us] it was good for us, they would bring their expertise, efficiency; their participation would spur everyone on. We must protect our local banks. That is why we are afraid that globalization, as Western countries understand it, will not be good for us.” Furthermore, he added: “We achieved independence only recently, for us independence means the right to govern the country in our own way.”
His efforts did not always meet with success. The steel and automotive industries are proof. One such failure is Perwaja Steel, which suffered billion ringgit losses due to poor management, corruption, and the wrongly chosen business model. Malaysia still has its own steel industry, and it is still not very competitive. The government periodically receives requests from it for protection from imports and for state aid.
More interesting is the fate of the Malaysian version of AVTOVAZ, known as Proton Edar Sdr Holding. The plant started working in the 1980s with the help of Mitsubishi. One of the reasons for its initial success was state support. Mohamad imposed prohibitive import duties on cars and would not issue the permits necessary for foreign auto manufacturers to operate in the country. Another Asian country, Thailand, chose a different path. It invited in foreign companies like Toyota, Honda, Ford, and General Motors and became ASEAN’s largest producer of automobiles. When the ASEAN Free Trade Area agreement was signed and duties on cars produced in the association were removed, Proton was unable to compete with production from Thailand. In 2016, it asked the government for 1.5 billion ringgits to stay open. The government chose to allow it go bankrupt.
Nevertheless, Mohamad’s great efforts bore fruit. From 1988 to 1996, the country’s GDP grew on average by approximately eight percent per year. From 1990 to 1996, per capita income doubled. By 1997, foreign trade turnover hit $158 billion.
According to the WTO, Malaysia ranked 18th in the world in terms of exports and 17th in terms of imports. The construction of new highways and bridges was overshadowed by another project: the creation of the new capital, Putrajaya. The New York Times called it the largest construction project in Southeast Asia – 5.48 million square meters of offices, hotels, retail real estate, and housing was created for a city with a population of 1.3 million people.
Hal Hill, a professor of economics and a specialist in Southeast Asia at the Australian National University (Canberra), explained the main causes of the economic miracle. Malaysia possesses one of the most open economies in the world, with minimal barriers for direct foreign investment. In addition, inflation is low: Mohamad managed not to allow any crises in the balance of trade operations (for this he had to take such unusual steps as prohibiting bank loans for more than 75% of the cost of imported cars; Mahathir closely regulated the banking sector, which helped him in 1998). Another factor is the excellent infrastructure, from roads and ports to communications. Institutions are independent and of a high-quality, for which the colonists who built them should be thanked. Bloomberg adds that the British should be thanked for the absence of military coups. In keeping with tradition, government and the army were separated, with control in the hands of the government.
In the mid-1990s, however, a number of enterprises began to transfer production from Malaysia to countries where labor was cheaper. For example, the toy manufacturer Mattel, once attracted by low-cost workers, moved production to Indonesia. The Malaysian Chamber of Commerce explained that 66% of American companies operating in the country experienced difficulties recruiting staff. There were eight million workers in the country, and the government had to bring in another one million from abroad. But the future still seemed promising. In 1996, Citibank predicted that Malaysia would not face any long-term problems.
Its Own Way
It didn’t take long, however. In 1997, a crisis broke out in Asia. “I thought this couldn’t happen to Malaysia,” Mohamad said. “We have a very healthy economy; we have good reserves; we are very conservative in financial management. And we have a currency that has seen even worse times.”
To his disappointment, the crisis spread to Malaysia, and the authorities were completely unprepared for it. The head of state surprised the world by refusing to follow the IMF’s advice, which stood in contrast to other Asian countries: “We studied their proposals: the focus on a break-even budget, interest rate growth and all that is not good for every economy. We refused to take the IMF’s medication and watched what was going on with other countries that had accepted it. There was no improvement. All that happened was that those countries became even more indebted to the IMF, which does not bode well for the future.”
Mohamad is generally skeptical about international institutions and the West. “In the old days, you conquered a country with your army and that gave you control over it. There’s no need for that now,” he believes. “You can destabilize the country, make it poor, and force it to call for help. In exchange for this help you acquire control over the country’s policy [...] and actually colonize it.”
He did not trust the WTO and the new rules of the game in global economics: “As soon as they see that you can work by the rules, they change them. You have to start all over again, and you are constantly being destabilized. If we could change the rules, they would see who we are. But we cannot.” In response to the question of who ‘they’ were, Mohamad assured us that the West and capitalism were no longer synonymous with democracy: “It is quite obvious that so long as the Eastern Bloc existed, there was a struggle between capitalism and communism. As soon as communism was defeated, capitalism was able to spread and show its true essence. It was no longer constrained by the need to seem nice. [...] Today, nothing restrains capital, and it demands that you let it in everywhere to do whatever it pleases.”
It is true, Mohamad clarifies, that he is not anti-West: “We criticize [not the West but] ideas.” There is no guarantee that the West will not reject its sacred cows of the day: “Ideas like socialism, communism, [...] and other -isms were born in the West, and now the West rejects them as being wrong. How do we know that they will not reject their ideas about democracy and human rights in the future?”
External forces were also to blame for the crisis of 1997, Mohamad said: “[It spread to us] because we did not control currency speculation. They could speculate in any currency, and their speculations are arranged in such a way that allows them to revalue or devalue the currency to any level desired. [...] It has nothing to do with bad governance, or corruption, or transparency, because if we had a bad government, the currency collapse would have happened a long time ago.” In fact, the crisis happened under the same government that had managed to achieve the economic miracle. ‘They’ refers to people from very rich countries who use globalization for personal enrichment, Mohamad explained to PBS, causing much more harm than they could have earned: “In the case of Malaysia, we lost $250 billion, and currency traders could not have made more than $5 billion.”
As a result, he listened to the Westerners and did the opposite, introducing a rigid exchange rate of 3.80 ringgit to the dollar. He ordered investors to keep funds in ringgit for at least a year after they had sold shares in local companies, if they owned them for less than a year. Mohamad compares the attitude to globalization to migration. Talking about the free movement of capital is like insisting on uncontrolled migration: “Are you ready to let our people move to your countries en masse? For example, 300 million Chinese, 200 million Indians move to Europe. Then you start to say: ‘No, this is not what globalization means.’ If you want to regulate the migration of people into your countries, we should be able to regulate the inflow and outflow of capital to and from our country.”
The prime minister imposed restrictions on the trading of shares in Malaysian companies and simultaneously, in an attempt to attract investors, abolished the 1986 act according to which a foreigner could own 100% of a local company only if half of its output was exported.
Many private companies were saved by the state. For example, the state holding MISC purchased the debt-laden ship company Konsortium Perkapalan (which caused criticism, since the latter was controlled by the prime minister’s son Mirzan) for $220 million. A list of companies rescued at the state’s expense includes Malaysia Airlines and Renong as well as local banks.
Meanwhile, Mohamad didn’t pull the plug on ambitious, expensive projects for the development of the country, because he sought to keep growth rates high. According to him, many countries stunted growth with measures intended to combat the crisis – and with what result? They were still faced with a deficit of trade operations: “The ultimate goal we should be leading Malaysia towards is making it a fully developed country by 2020,” he said.
Internal opposition also had to be dealt with. Minister of Finance and Deputy Prime Minister Anwar Ibrahim and Central Bank Governor Ahmad Mohamed Don advocated for following the IMF’s advice. In response, Mohamad introduced the position of second minister of finance, which received all of the actual power. He appointed an old ally, Daim Zainuddin, the former treasurer of UMNO and finance minister in 1984-1991, to the post. Many of the ideas that formed the basis of the Malaysian economic miracle can be attributed to him. And in counterbalance to the Central Bank governor, the status of the Central Bank adviser was significantly increased.
The story ended with Anwar Ibrahim openly calling for economic and political reforms, being arrested, accused of corruption and homosexuality, and finally being imprisoned on the latter charge. Ironically, after his release, he was again imprisoned on the same charge under a new prime minister. He continued the political struggle from behind bars, and nowadays, Mohamad has come to power in an alliance with the party of his old enemy, Anwar Ibrahim. The second time he became prime minister, he obtained a royal pardon for Anwar.
“Although the policy of Prime Minister Mohamad, who tried to keep the refinancing rate low in an effort to stem the rapid outflow of speculative capital from the country, was criticized by all and sundry, the slump in Malaysia was shorter and more bearable than that of any other country,” economist Joseph Stiglitz wrote. “It possessed a semblance of economic stability that others lacked.”
Tax incentives and increased incomes among civil servants helped to stoke domestic demand. By the end of Mohamad’s term in 2003, however, the budget deficit was five percent of GDP. There were also other, sometimes unexpected problems. For example, rapid growth led to a labor shortage. In 1981, there were 14 million people in the country, but there were not enough workers. In 1991, the population was 19 million, and by 2003, the figure exceeded 24 million, and the problem still remained. Mohamad was forced to look for people abroad. He wants the population of Malaysia to reach 70 million by 2100 (it is 30 million at present). But he is hindered by his own success. Growing prosperity leads to a drop in the birth rate. In the 2000s, the average family was made up of four people, while in the 1980s it was five. Even so, according to UN estimates, 70 million people will live in Malaysia by the end of the century.
The level of FDI also began to fall, from 6.4% in 1990-1996 to 1.2% in 2000-2002. This is largely due to competition from China. Nevertheless, Mohamad left the post of prime minister as a conqueror, though he complained that he was leaving “disappointed [...] because I achieved too little of my main goal – to make my people a successful one that is respected”.
“I never truly retired,” Mohamad later admitted. After 2003, he travelled around the country, speaking for other people’s election campaigns and maintaining contact with politicians of different persuasions. His protégé, new Prime Minister Abdullah Ahmad Badawi, began to disappoint Mohamad. After the early parliamentary elections in 2008, when the ruling UMNO achieved lackluster results, the former prime minister quit the party in protest. Badawi was unable to withstand the pressure and resigned the following year.
Mohamad returned to the party and. in the power struggle around the position of prime minister, threw his support behind Najib Razak, son of the country’s second prime minister. He won the fight. But that turned out not to be the best choice, either. After coming to power, Najib created the sovereign investment fund 1Malaysia Development Berhad (1MDB). Funds were supposed to go to the development of the economy. But in 2015, scandals started cropping up concerning theft from the fund – it is suspected that at least $4.5 billion disappeared. Investigations are still being conducted from Malaysia to the US, from Singapore to Switzerland. Even Western tabloids began to write about the affair, especially when the names of celebrities started to pop up. For example, in 2017, actor Leonardo DiCaprio passed along a gift, a painting by Pablo Picasso, to the US authorities from Malaysian businessman Joe Lowe. The US Justice Department suspected that Lowe bought it with money from 1MDB.
In 2015, Mohamad demanded that Najib resign. He refused. Then in 2016, the former leader left the party again. “The UMNO no longer exists,” he explained. “The party works only to protect Najib. I cannot be a member of such a party.” This year, Mohamad took part in the elections in an alliance with the opposition and became a deciding factor in its victory.
Not only is he extremely popular in the country, but Mohamad also managed to neutralize Najib’s main trump card, a campaign seeking to show that the opposition was not Muslim and that victory would lead to the ousting of the Malay from power. Mohamad is well-known for striving to protect the indigenous population and managed to convince people that the coming of the opposition would not turn life in the country upside-down.
The first two days after the victory of Mohamad’s coalition were declared holidays. Banks were closed, and it was impossible to withdraw money from them. Meanwhile, the new-old prime minister began to tackle the scandal with 1MDB. Najib was immediately interrogated, and the police carried out searches in property belonging to him and members of his family. From one apartment alone, 284 ladies’ luxury handbags, 37 more bags with jewelery and expensive watches, and another $28.6 million in Malaysian ringgit, US dollars, and 24 other currencies were confiscated. It took three days to count all the money.
It is suspected that the Najib clan received more than $700 million stolen from the 1MDB fund. Mohamad promised to lay off many of the 17,000 officials appointed under Najib, suspecting them of corruption and of having been appointed unfairly as a result of connections. He announced the cancellation of the six percent tax on goods and services introduced in 2015.
Mohamad has also had to deal with unexpected discoveries. Najib’s government had declared debt to equal $170 billion. After revaluation, however, it grew to $250 billion, or 80% of the country’s GDP. “The more we find out about the affairs of the previous administration, the more bad things we turn up,” Mohamad said in conclusion. He has a strategy for the development of the country: In 1991, he introduced the Vision 2020 plan (in 2009, it was corrected and named ‘United Malaysia’). He decided to see to its implementation personally.
Whatever the case, Mohamad has changed in 15 years. “He used to think only about the centralization of power in the hands of the prime minister,” Malaysia native, James Chin, director of the Asia Institute at the University of Tasmania, told the New York Times. “Now he has realized that independent institutions are not such a bad thing.”