Malaysia Needs to Get Off the Road to Mediocrity By William Pesek

Apr 23, 2013 10:00 AM GMT+0800 .

In his bid for re-election, Malaysian Prime Minister Najib Razak has dispensed with all shame. Vote for me, he has essentially declared, or Malaysia will suffer "catastrophic ruin" and an "Arab Winter" of the kind that has undone economies from Egypt to Libya.

Both warnings are ludicrous -- signs of how worried Najib's National Front coalition is of losing power for the first time since 1957. They speak to the desperation of a government that has come to serve itself, not Malaysia's 29 million people. And they are emblematic of a leader whose talk of bold change hasn't been matched by action

Najib's claim is this: Giving the opposition, led by former Finance Minister Anwar Ibrahim, a chance to lead on May 5 would reverse all the gains Malaysia has made since the 2008 financial crisis. The economy would crater, stocks and the currency would plunge, and chaos would reign.

Change through the ballot box in a democracy should never be disruptive or chaotic, and rhetoric suggesting otherwise is disingenuous. Najib likes to say: "The time has come for Malaysians to make a decision." Actually, the time has come for Malaysia's government to grow up.

Najib's scaremongering, some of which came out of an April 17 Bloomberg News interview, smacks of the re-election campaign run almost a decade ago by then U.S. President George W. Bush. Instead of this vote-for-me-or-you're-in-danger appeal, Najib should scare up some headline-grabbing reforms that leave Malaysia better off in the future.

Najib's scaremongering, some of which came out of an April 17 Bloomberg News interview, smacks of the re-election campaign run almost a decade ago by then U.S. President George W. Bush. Instead of this vote-for-me-or-you're-in-danger appeal, Najib should scare up some headline-grabbing reforms that leave Malaysia better off in the future.

Developing Complacency

The country's biggest problem is complacency. Malaysia Inc. can be a slow-moving, change-resistant animal in a very dynamic neighborhood. Nations as diverse as China, Indonesia, the Philippines, Thailand and Vietnam are evolving in ways that have enabled them to leapfrog peers in a few years. They are all competing for the same infrastructure dollars, factory projects, bond deals and stock issues. Singapore, meanwhile, has become the beneficiary of many of Malaysia's best and brightest, who have emigrated in search of a more merit-based economy.

Malaysia is a resource-rich nation with huge potential. But it remains shackled to a four-decade-old affirmative-action program -- favoring ethnic Malays -- that turns off foreign investors and undermines national productivity. This so-called New Economic Policy was devised by Najib's father, Abdul Razak Hussein, the country's second prime minister.

Najib, 59, has indeed rolled back some of those preferences to encourage investment. He did away with a requirement that foreign companies investing in Malaysia and locally listed businesses set aside 30 percent of their equity for ethnic Malays and indigenous peoples known as "bumiputera." It's time to go much further and dismantle all race-based policies.

Little Difference

When, for example, can more ethnic Chinese expect to start winning the really big government contracts? Here, Najib's real quarrel may be with his own government. Anwar is pro-markets and pro-investment, too. When you look at the core of what Najib is promising voters -- less corruption and higher living standards -- it's not wildly different from the opposition's message. The trouble is, Najib is navigating a 13-party coalition whose interests are as entrenched as any in the world. His partners are pushing back quite assertively, afraid of losing the Malay vote they could once take for granted.

Money Politics

The opposition has gained traction with its claims that Malay-run companies, from power producers to toll-road operators, unfairly benefit from their ties to the government. Najib's pledges to clamp down on crony capitalism and to instill greater transparency have been undercut by measures such as the ban on street protests that passed on his watch.

Now, many voters hope to wipe the slate clean. When he's not trying to frighten voters, Najib is touting Malaysia's 6.4 percent growth as proof he is a radical-change agent. In fact, much of Southeast Asia also is booming, and the government is helping to artificially fuel growth with populist handouts. Even more than the $444 billion of private sector-led projects ranging from oil storage to a mass-transit railway that Najib has championed, the country needs reforms that will revitalize the system as a whole.

The government should be encouraging more startup companies, widening the tax base and hacking away at subsidies that institutionalize complacency. All too often, rapid gross-domestic-product growth is used as a smoke screen to hide underlying cracks in an economy's long-run potential. In Malaysia's case, the numbers mask a government too focused on staying in power to do its job. If anything should be scaring Malaysian voters, it's that.

(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)

TEH