Capital, Covid and Umno: The political-economic origins of the present crisis

The pandemic set off an economic and social crisis that intensified the contradictions in Umno

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Being in Malaysia on 9 July 2021 seemed really surreal.

The once-in-a-century global pandemic is being mishandled by an illegitimate government on a catastrophic scale. Its measures to curb the spread of the virus have dealt a fatal blow to the national economy and the livelihood of millions. A select group of factories are being allowed to operate while small businesses are required by the threat of law to remain shut. Meanwhile, episode after episode of political intrigue and manoeuvres play out in the media to entertain us as many of us are kept in our homes.

Answering the question of how we got here requires an explanation that combines the structures that were set before this three-headed crisis with the agency of the actors who operate within those structures. This essay will attempt to address this question by elaborating on the following: how Umno’s hegemonic rule tied the structures of the state to its clientelist capitalism; how economic crises within this capitalism then engenders crises within Umno; the state of the current crisis in all its manifestations; and lastly, the political and economic reasons events played out the way it did.

Capitalism and the state under Umno

Umno, through its control of all three branches of government, would go about constructing a political economy that ensured its hegemony. The power to disburse public funds was centralised at the federal level, giving Umno and its Barisan Nasional allies access to the finances of the state to build their political machinery and strengthen their base, notwithstanding their access to state security for repression of political opponents. These parties would amass companies of their own to sustain their operations but remained dependent on state structures for a regular flow of money.

It is then worth asking, where is most of the money coming from? It turns out that very little of it comes from ordinary taxpayers. In 2019, 15% of our 15 million person workforce contributed income taxes that made up only 15% of government revenue. Since then, the proportion of individual income tax has increased but not considerably. The rest consists of corporate taxes, indirect taxes, licences, permits and income from government investments.

This created an environment in which the ruling regime would be more reliant on domestic and foreign capital for funds to reproduce the system and not the ordinary Malaysians who voted for them. The political-economic set-up as it stands would be a source of a deep contradiction that persists in Malaysian society, a contradiction that is still playing out today.

In effect, the political class has no interest in advancing the welfare of ordinary Malaysians beyond any electoral calculus as that advancement is not economically tied to their reproduction or survival.

A short history of economic crises and Umno turmoil

Because state funds and projects, government-linked companies and party finances are so intimately tied up, any disruption to that flow of public money would produce discontent and in our case, infighting within the Malaysian political class. The short history of Umno shows that it is no accident that splits and political coups have taken place in conjunction or shortly after economic crises. The 1985 economic recession and ‘Team A vs Team B’ fight between Dr Mahathir Mohamad and Tengku Razaleigh Hamzah in 1987; the 1997-8 Asian Financial Crisis and the split of Anwar Ibrahim’s faction into Keadilan; the 2007-8 Global Financial Crisis and the removal of Abdullah Badawi.

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One case that does not fit the bill is the infighting and subsequent formation of Bersatu in 2015-6 led by Mahathir. It is possible to link it to a domestic crisis of sorts that was sparked by the 1MDB revelations, the implementation of the Goods and Services Tax and the economic plight of many Malaysians. Another would be the recent 2020 ‘Sheraton Move’, which precipitated during a time when Umno was not in power and was able to manoeuvre its way back into government.

One possible way to understand what has taken place here is to return to the nature of the party-state nexus. Because politically connected businessmen have their fortunes linked to the politicians that granted them access to funds and contracts, their economic fates are tied. This became the practice not just for Umno, but also for the MCA, the MIC and all the BN-affiliated parties that came to power.

When the country faces a financial crisis, the economic pie shrinks, and the state has to decide who to save and how to save them. This inevitably leads to conflicts between factions over the reduced state funds available to keep afloat their affiliated capitalists and by extension their financial and power base. Some of these conflicts, like in the case of Anwar’s faction, ended with businessmen and politicians affiliated with the losing side being ejected or left out to dry. The most recent political rumblings between Umno and Bersatu appear to bear out this political-economic logic.

The depths of the current crisis

Before tying the current economic, political and health/social crises we are facing to structures and actors, it is worth taking stock of what has transpired so far on all fronts. Right before the Covid-19 pandemic and lockdowns began, the ‘Sheraton Move’ brought to power Bersatu (with Mahathir and a small number removed), the Azmin Ali faction from PKR, Pas, Umno and its remaining BN allies.

The new Mahiaddin Yasin-led government then proceeded to form a relatively large cabinet of ministers, likely done to placate all the members of this fragile coalition. Since its formation, there has been a multitude of public statements, accusations and threats between Bersatu and Umno. The most recent of which is Umno president Zahid Hamidi declaring the withdrawal of the party’s support for the ruling government while members of his own party, including those who have cabinet posts, distanced themselves from this proclamation.

On the economic and health front, Malaysia was initially lauded by the international community for its handling of the pandemic despite its lack of financial aid to cushion the effects of its lockdowns. After the Sabah state elections – a move by Mahiaddin that solidified his political position within his coalition – and nationally, new daily Covid-19 cases would climb rapidly from September 2020 until lockdowns came into effect again after the new year. The Delta variant of the virus would send daily cases to record highs beginning in May 2021 and the government would reimpose ‘,movement control orders’ yet again. During each phase of lockdowns, the government would declare standard operating procedures and aid packages, and each time their implementation would fall short of the needs and pale in comparison to the aid given by other countries to their citizens.

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Whether you agree with the strategy of lockdowns, it was plainly clear to a vast majority of Malaysians that there were double standards in the implementations of lockdown standard operating procedures. Politicians and the well-connected were flouting these guidelines publicly and were often let off with a slap on the wrist.

But what was probably more galling was the exceptions given to industries to open or remain open. Many small businesses were ordered to shut, and those that remained open operated under reduced capacities while a long list of sectors made up of larger players and government-affiliated firms were allowed to continue operating, particularly construction and manufacturing. The recent announcement by the Ministry of International Trade and Industry of the opening of more sectors suggests a continued reliance of the current regime on big capital to keep the state going.

Aid packages, haphazardly announced after lockdown have come into effect, do little to soften the economic blow to workers and small businesses. The most recent aid package was roundly criticised for being thoroughly insufficient as people’s reserves had already been drained by the past two lockdowns. To add insult to injury, the government once again resorted to asking citizens to dip into their retirement funds to compensate for lost income.

The very existence of the current ‘white flag’ campaign – where those in need of aid publicly put up a white flag – further amplifies the economic failure of the current administration. As the state and political class struggle to contain the pandemic, unemployment, underemployment and the closing of businesses is set to continue rising, and with it greater hardship for the Malaysian people.

Speculating on why is the crisis is bad as it is

It would be difficult to deny that the political crisis between Umno and Bersatu did not exacerbate the health and subsequent economic crises. The mishandling of the pandemic response, the Sabah state election and the poor state of the country’s economy are inextricably linked to the coalition in power and the contradictions within it.

What drives the political turmoil is the nature of the party and political financing discussed earlier. UMNO’s, the other BN member parties’ and likely Bersatu’s clientelist structures, at the party and individual level, make them desperate for political office. Access to state funds appears to be the only way they can retain their machinery, provide ‘jobs for the boys’ and, to some extent, maintain the lifestyles they have become accustomed to.

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The possible exception to this might be Najib Razak and Zahid Hamidi who may be more motivated by not going to prison and would stand to lose much more as, if they are convicted, they cannot stand for elections ever again. With the stakes for Umno and Bersatu politicians so high, it is easy to understand why they seem so anxious to return or stay in government.

Malaysian capitalism takes a good portion of the blame for the poor state of affairs, a capitalist system expressly built by Umno alongside the MCA, the MIC and their BN partners. The reliance of the state and our political class on big capital, domestic and foreign, has been laid bare in the favouring of these corporations during the implementation of lockdown standard operating procedures.

The past liberalisation and privatisation of the public health system have also left it weakened as the pandemic rolled in. Over the decades, our national health system has been sapped of resources by private hospitals and clinics through their poaching of the best doctors and nurses.

At the same time, seeing a drop in demand for public healthcare, budgets are reduced, leading to a lack of resources and personnel. The recent threats by contract doctors to go on strike over exploitative employment terms epitomises this very lack. Adding to all this is the decades of corruption that has robbed a nation’s people of its social wealth, wealth that could have aided in fighting this pandemic.

The most baffling factor to compound these issues is the unwillingness by the ruling regime and the state apparatus to spend more during this pandemic. Even with ideological cover provided by foreign counterparts, local economists and even the World Bank, the government remains hesitant to roll out more aid.

And this is not for lack of alternatives. As Jomo has pointed out, there are various means to raise public debt through the domestic market or central bank without eroding investor confidence. It is anyone’s guess whether ideology or policy orthodoxy binds them to this course of action, but only time will tell if they made the right call.

Conclusion

The stage for this conflict between Bersatu and Umno had long been set since their uneasy alliance formed in early 2020. The pandemic added another factor to the political equation as it set off an economic and social crisis that intensified the contradictions in Umno. With Muhyiddin putting off a snap election under the auspices of the pandemic, the factions within Umno are growing more restless as their very political survival is on the line.

As state coffers continue to shrink due to the pandemic, conflict may spill out beyond Umno into Bersatu and the governing coalition partners. This is bound to have consequences for the handling of the present health crisis and the turbulent economic situation in the country. Even as the emergency ordinances are set to expire very soon, few expect the situation to improve, either politically, economically or socially. – Jeremy Lim/Jentayu/Malaysia Muda

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