Financial Times

Free markets, guided democracy
The straight talking Dr Mahathir Mohamad, former prime minister of Malaysia, had some blunt words of advice to his Sri Lankan audience last week. Addressing the CIMA Global Leaders Summit, Mahathir said Malaysia's economic prosperity was not a result of magic or miracles but hard work and pragmatic policies.

In the past 30 years, Malaysia has successfully sustained rapid economic growth, curtailed high poverty rates, and reduced income inequalities, according to the World Bank. This culturally diverse country has also prioritized more equitable distribution of wealth, and has promoted a conflict-free environment among its numerous ethnic groups.

Malaysia, with 22.7 million people, is a country with a population almost the same size as Sri Lanka's. It won independence much after we did. Since then, largely under Mahathir's leadership, it has transformed from being an exporter of primary commodities like tin and rubber to that of a hi-tech industrial manufacturing economy that makes and exports cars and electronics.

In his speeches last week, Mahathir made no attempt to hide the fact that the policies he pursued during his reign were not the standard liberal democratic free market models that are touted by the West and multilateral lending agencies. Instead, he opted for a home grown model influenced by the Far Eastern economies of Japan and South Korea. His argument is that his form of 'guided democracy' was required for a country of Malaysia's political and economic development at that point in time and that the wholesale, blind copying of the Western model does not work. It can be argued that the same is true for countries like Sri Lanka, although a word of caution is necessary because of the differences in resources, political systems and historical time scales.

Malaysia was far from a parliamentary democracy, as we know it, during its economic take-off phase. It seems fairly clear that the lack of such democracy, Mahathir's authoritarian rule and the brand of crony capitalism he was accused of did have some impact on the way Malaysia's economy grew. He opted for a controlled free market economy in which the state provided some guidance. These characteristics gave Malaysia the required 'political stability' that so many poor countries crave in their search for economic prosperity.

During the take-off phase of Malaysia's economic growth, it was heavily criticised for violating human rights and suppressing dissent and labour union activity, as in the other East Asian Tiger economies. Furthermore, Malaysia's bumiputra (sons of the soil) policy that favours ethnic Malays and indigenous people, who make up nearly 60 per cent of the population, was also very controversial. This was introduced in 1970 after race riots and was intended to narrow the wealth gap with the economically better-off Chinese minority. Mahathir was characteristically blunt about it in his speeches last week, saying the policy was adopted to bring about a better balance in wealth and economic power of the different ethnic communities and that it helped ensure ethnic harmony.

In stark contrast to Malaysia's successful (and somewhat authoritarian) management of its ethnic tensions, Sri Lanka's political history has been marked by a high degree of pluralism but has also been quite chaotic with the result that the required ethnic harmony and consistency in economic policies that served the Malaysian economy so well was not available here.

These seem to be the main reason why the Malaysian economic model is so attractive here. Its admirers here argue that Sri Lanka's model of electoral democracy and free market economics has failed and that we would have been better off with an authoritarian ruler who would have pushed through unpopular but pragmatic economic policies that would have resulted in economic stability.

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