This article first appeared in Forum, The Edge Malaysia Weekly on September 5, 2022 - September 11, 2022
In Malaysia, this time of year is typically existential. We spend some time taking stock of what we have achieved as a nation — usually along the lines of, “We’ve come so far, but we still have a long way to go” — and where we need to go next as a nation — usually along the lines of, “What reforms we need to make politically, economically, institutionally [and] culturally to take us ‘there’, wherever ‘there’ may be”. These are all important; self-reflection is a crucial part of any journey. This is especially true given recent political events in Malaysia and an imminent general election.
The area with which I am most familiar is economic development. And in reading the reflections of others on our economic development, whether in this newspaper or otherwise, there are two ideas that, even if they are not explicitly stated, appear over and over again. They are, first, a complete non-linearity of our collective journey and, second, that how we proceed on this journey really depends on the complex interplay between politics and economics; the two are intertwined, analyses that attempt to separate the two and assume some form of optimal independence, however well-intentioned, are limited.
With regard to the first idea, the path from being a low-income country to a middle-income country to a high-income country is rarely ever linear. A reversion to a previous state is entirely possible and not uncommon. Argentina is a clear example. Dani Rodrik, an economist at Harvard University argues, “… igniting economic growth and sustaining it are somewhat different enterprises. The former generally requires a limited range of (often unconventional) reforms that need not overly tax the institutional capacity of the economy. The latter challenge is in many ways harder, as it requires constructing a sound institutional underpinning to maintain productive dynamism and endow the economy with resilience to shocks over the long term.”
I think the first is actually pretty analogous to something many Malaysians are obsessed about, Premier League football. The past few years have been a pretty good time to be a Liverpool fan. I wasn’t around in the 1980s, so I never experienced the dominance Liverpool teams of that era imposed on their rivals, both in the domestic league and in the European Cup. So the past few years, the 2021 season aside, have been really fun, being in the mix for trophies, even if state-owned enterprises like Manchester City seem to have all kinds of unfair advantages (irony well-noted).
As I said, I never experienced the Liverpool dominance of the 1980s. Instead, for the most part, I experienced the relative mediocrity of the late 1990s, 2000s and mid-2010s. In some sense, mediocrity is not so bad — at least Liverpool never had to weather relegation battles and I could enjoy wins and goals more often than not. But in terms of dominance, what I did experience was the dominance of Manchester United in the 1990s, all the way up to Sir Alex Ferguson’s retirement in 2013.
Since then, the Manchester United journey has been really enjoyable too from my point of view. Their dysfunctionality is great. The entitled-ness of their best players and the impact on squad morale has also been fun. Having Ole Gunnar Solskjær at the wheel was especially fun. That being said, does this mean their spell of mediocrity will not end? Of course not. Their dominance from 1993 to 2013 was preceded by 26 years without a league title. And, given their commercial strength in a sport where wages are correlated with league performance, they will come back to win league titles sooner rather than later.
The experiences of Liverpool and Manchester United — successful teams that have seen both dynastic periods of success and prolonged eras of mediocrity — are a lesson that success and failure are non-linear. Just because something has gone well for a long time does not mean it will keep going well. The opposite is also true. Just because something has been underwhelming for some time does not mean it will keep on being underwhelming.
On the second idea, which is the interplay between politics and economics, a wonderful starting point is a recent book called Gambling on Development by Stefan Dercon, a professor at Oxford University and former chief economist at the UK’s Department for International Development. Without hyperbole, this is probably the most important book on economic development in the past decade or so. The book’s essential thesis, as described by Dercon is, “… for take-off through growth and development, elites with power and influence in poor countries must be committed to growth and development, and be willing to make economic and political choices that reflect this. Such elite bargain is a development bargain.”
This idea is similar to Jared Rubin, an economist at California’s Chapman University, who discusses the role of politically legitimising elites in the Middle Ages in explaining the separation in economic and political fortunes and power between the Western world and the Islamic empires in the Middle East. The elite bargain is based on a pretty straightforward assumption — political choices are made according to the interests of the politically powerful. These choices have important consequences for economic growth. According to Rubin, if the politically powerful are the merchant class, such as in Great Britain following the Glorious Revolution, then we can expect commerce- or business-friendly policies. If the politically powerful are the military class, then we may expect more defence-oriented (or offence…) policies.
Malaysia’s economic journey would never have hit the heights it did from the 1970s to the Asian financial crisis if it were not also intertwined with the political desire for economic growth (as opposed to say a political desire for military prowess). This is not to say our journey was perfect, or even that elites did not partake in rent-seeking or cronyism, but rather that, as a whole, policies in our politics and economics were, on a nett basis, supportive of stability, growth and development, which in itself requires serious political commitment. Dercon provides a wonderful set of perspectives in different nations, based on his work in those countries, describing how differently elite bargains may turn out. And he certainly is not naive; he points out that, unquestionably, elites have always had self-interests — it is whether those self-interests are aligned with economic development as opposed to an alternative national agenda.
Not surprisingly, there are analogies with football as well. Football clubs with owners who prioritise commercial profit, even at the expense of on-the-field performance, will differ in many aspects from football clubs with owners who prioritise both. It is naive to believe that rich owners will not want to make money off of their investments; the question is whether they care about a larger goal than pure profit. Similarly, countries with elites in any economy who care solely about self-interested extraction will have different development equilibriums and outcomes versus elites whose legitimacy also depends on more inclusive growth.
The reality of economic development is that, however we feel about them, elites exist and the elite bargain does matter. And an elite bargain that accelerates economic growth may not necessarily be the same bargain that maintains that growth. Growth periods are completely un-linear due to changes in that political bargain. And how we hold elites to account in any country therefore matters; leave them to go unchecked and a country will serve the few at the expense of the many. Have them be accountable to the people — and this is precisely why elections and an independent judiciary are so crucial — and perhaps we have a chance at a development bargain that will be inclusive and sustainable.
Nicholas Khaw is an economist and head of research at Khazanah Nasional Bhd
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