For more than a decade following its independence in 1957, Malaysia was dominated politically by a small multi-ethnic elite that employed economic development to maintain political stability and avoid ethnic strife. This elite controlled a state apparatus that, for historical reasons and in contrast to the cases of Indonesia, the Philippines, and Thailand, was both extensive and relatively competent.

State resources came from import tariffs and from domestic sources, such as corporate income taxes, which were borne most heavily by the non-indigenous, commercial sector – foreign companies and those owned by immigrant Chinese and Indian minorities. These resources were applied to developing the rural sector and improving agricultural productivity as means to improve living conditions for the indigenous, largely rural, Malay community, the largest but least advantaged ethnic group.

This resource allocation was politically consequential: it ensured majority Malay support for the United Malays National Organization (UMNO), the largest of the three ethnic parties in the ruling coalition government. It also succeeded in making it more difficult for groups opposed to the governing elite – including those on the left, whose armed efforts in the guerilla insurgency known as the Emergency were defeated in the early 1950s, and those advocating an Islamic state for the largely Muslim population – from mobilizing popular movements among the poor and rural populations to oppose the ruling elite.

Introduction

Malaysia

Malaysia is geographically divided into two distinct regions: Peninsular Malaysia (also known as West Malaysia), and East Malaysia, which consists of the states of Sabah and Sarawak. The plurality of its society is reflected in the diverse range of laws that make up its legal system.

Malaysia is a constitutional monarchy. The Yang di-Pertuan Agong (or King) is the Supreme Head of the Federation. As the head of state, he is in charge of the three branches of government: the legislature, the executive and the judiciary. However, the King's discretion is very limited. He is obliged to act on the advice of the Cabinet or a Minister authorised by the Cabinet (usually the Prime Minister, who is the head of government) except as otherwise provided by the Federal Constitution.

The Conference of Rulers elects a Ruler as the King for five years. Each Malay State has a Ruler and each of the four states which were formerly British colonies – Malacca, Penang, Sabah and Sarawak – have a Governor (Yang di-Pertua Negeri). Although the head of state of his or her territory, under the Federal Constitution, each Ruler and Governor is nevertheless obliged to act on the advice of the State Executive Council or a member thereof. The Conference of Rulers consists of all the nine Rulers and four Governors. It is a highly influential body that provides an intimate link between the federal and state governments at the highest level.

Malaysia and Singapore have shared relatively similar paths. Both former British colonies, at independence they formed parliamentary systems along the British model. In each case, a dominant political party gained ascendency at independence and managed to reproduce its power base until today. In Malaysia's case, the dominance of the United Malays National Organization (UMNO) was maintained within coalitions, first the Alliance and next the National Front (Barisan Nasional, BN). Singapore's People's Action Party (PAP) has been more strongly dominant as opposition parties have only recently managed to gain a few seats in parliament and remain very weak. At the same time, both states developed strong, professional bureaucracies and the judicial system has exercised some degree of autonomy and authority. Against the backdrop of this political stability, the middle class has grown remarkably since independence, as both countries have developed rapidly and the proceeds of economic growth have been widely shared. Theories of democratic transition would therefore predict that such high levels of economic development and the large middle class should have made both countries prime candidates for democratization, yet they have maintained soft authoritarian systems. How can we explain such persistence?

Malaysia's post-independence politics have been remarkably stable. Except for ethnic riots that shook the country in 1969, political life has been even, regularized and to some extent devoid of open conflict. No significant regime change occurred and the structure of the political system remained the same, with only few occasional reforms. The state has kept control over simmering ethnic tensions, resentment at persistent inequalities and other forms of discontent through a sophisticated institutional structure that has outlived moments of crisis. The United Malays National Organization (UMNO) remains dominant in a coalition that has ruled Malaysia since independence, although the results of the 2008 elections came close to challenging its position.

Malaysia's authoritarian regime survived the severe economic crisis that brought down Indonesia's New Order. Mahathir Mohamad retained firm control over Malaysia's political machine throughout Malaysia's crisis, even as contestation over Malaysia's political future rocked Malaysian society. In addition to implementing Malaysia's controversial capital controls and ringgit peg, Mahathir oversaw the arrest and conviction of his erstwhile deputy Anwar Ibrahim, as well as the regime's clampdown on a Malaysian reformasi movement. By December 1999 the BN had won its seventh election since 1969, easily retaining a two-thirds majority in the Dewan Rakyat (DR). Economic recovery through 1999 and 2000 reaffirmed UMNO's position at the top of Malaysia's political hierarchy. With the loyal and famously clean deputy prime minister Abdullah Ahmad Badawi prepared to succeed Mahathir on Mahathir's own terms, the stability of Malaysia's authoritarian regime was assured.

There are many existing explanations for the Malaysian regime's ability to withstand pressure for democratization. In this chapter, I argue that this political stability is the product of the regime's adjustment policies, which fulfilled the demands of each of its political supporters, poor Malays and the new Malay business class. Capital controls enabled expansionary policies, fulfilling the demands of fixed capital and the Malay masses. The effect of this radical adjustment measure for Malaysia's political opposition was striking. Having received their preferred adjustment policies, the regime's coalition of supporters had no incentive to withdraw support. So Malaysia's regime survived the crisis, despite the BN's most significant political challenge since the racial riots of 1969.