ECONOMICS: by Colin TeeseNews Weekly
Lessons from Malaysia's Mahathir
, April 22, 2000
Colin Teese is former Deputy Secretary of the Department of Trade, looks at the Malaysian economy, and asks the question: what lessons does it have for Australia?
The right-wing, London-based Spectator (March 8) rejoiced in the success of Malaysia's Prime Minister Mahathir, who defied the prescription for the economic rescue of his country as laid down by the International Monetary Fund (IMF). Dr Mahathir Mohamad, it will be recalled - to the horror of the orthodox economists and their fellow travellers - chose, instead, to re-regulate foreign investment and peg his currency to the US dollar.
No amount of persuasion, so it seemed, could convince Dr Mahathir to abandon his preference for interventionist capitalism.
Three years on, Dr Mahathir has been vindicated. The Malaysian economy has not merely recovered, but is booming. And, as much to the point, the Malaysian Prime Minister has undermined the credibility of those who insist that current economic orthodoxy is the only way. Bad news for the IMF, and indeed for economic orthodoxy, some would be tempted to conclude. The IMF will never again be able to speak with the same authoritative voice.
Mahathir's actions merit close attention by those in Australia who believe our existing commitment to current economic orthodoxies will one day require revision. Superficially, it is tempting to conclude that Malaysia's success with interventionist measures is proof that orthodox economic solutions don't work. Success or failure is measured by an economy's capacity to generate and sustain growth in per capita Gross Domestic Product (GDP).
It may however, be premature to embrace so sweeping a conclusion. Malaysia, its true, took a different path and succeeded. And Indonesia which took the IMF medicine, seems to have failed.
On the other hand, Korea has wholeheartedly adopted the IMF prescriptions, and succeeded. Whatever its limitations, GDP is, nevertheless, the only universally acceptable basis for comparison. Working within this conventional measure of economic success, what may we conclude from these contradictory outcomes?
The Australian economist John Quiggan has previously asserted (and, though he was speaking generally, his opinions apply equally to Asia) that neither Keynesian interventionism nor neo-classical deregulation and free trade, of themselves, much influence the course of growth.
These different economic strategies differ, not in their capacity to determine growth outcomes, but in their influence over who most benefits from economic growth.
Interventionist capitalism, as proposed by the famous economist John Maynard Keynes, assumes a considerable amount of direct government involvement in the economy.
First, the government is a regulator for the purpose of safeguarding community interests, and especially of those members of the community with insufficient economic power to look after themselves. Secondly, the government is a means of achieving income redistribution through tax collections and allocations.
Current economic orthodoxy rejects all of this in favour of deregulation and lower taxes, especially income taxes. More importantly, it threatens punishment, especially at the hands of the international financial community, for any deviationists. Thus have Western economies and their followers endured and even applauded cuts in community services, including health, transport, education and welfare, and an ever increasing concentration of wealth in fewer hands.
Neo-classical economics, by discrediting the legitimacy of elected governments, and undermining their authority, tend also to confer still greater strength on the rich and powerful. One consequence has been for governments increasingly to pass effective control over economic policy into the hands of ideologically committed central banks.
Not to do so, they have been encouraged to believe, is to risk the wrath of the market forces, which are said to determine the course of economic life. Even if they wish to do so, governments cannot control or regulate these forces.
These so-called realities also provide a convenient foil against the criticism of electors, and thus undermine the democratic process.
Meanwhile part of the process of demonisation of Dr Mahathir has been to characterise him as a dictator. Notably by those in the democracies have happily seen both power and authority pass to unelected, and sometimes foreign, interests.
Dr Mahathir may or may not be committed democrat. Probably he would wish for nothing more than to be regarded as a Malaysian nationalist who has jousted with international markets - or more accurately, those controlling them - and won. Inadvertently, he may have done more. If his example has encouraged other countries to re-evaluate the benefits of independent economic thought in the shaping of policy, he will have done a greater service to the wider international community and perhaps even to the democratic process than his detractors.