We analyze the politics of corruption in Malaysia from the late 1970s to 2009 in this chapter, which constitutes our second case study. Malaysia has had a directly elected legislature with genuine opposition parties since its independence in 1957. However, unlike in Jordan, the level of geographic concentration of domestic private SMEs in Malaysia drastically changed from a low to a high level, and this led to the formation of a national SME business association in the country. Malaysia therefore provides us with the appropriate theoretical variation to test whether high geographic concentration of private SMEs and the subsequent formation of a national SME business organization help reduce corruption in the context of an elected multiparty legislature in an autocracy.

This chapter begins with a concise background of Malaysia's political and economic history. The remainder of the chapter is organized into four sections. The first section discusses the main features of domestic private SMEs in Malaysia, the changing level of geographic concentration of these SMEs over time, the attitude of SMEs toward corruption, and the tactics they optimally prefer in order to address the corruption problems that they face. We show that Malaysian SMEs in the private-sector prefer developing and using a national SME-specific association to raise their voice against corruption. The historical evidence also shows that these firms succeeded in forming a national SME association in 1995 only after the geographic concentration of private SMEs in the country increased sharply. The second section describes the main characteristics, role, and the growing legislative capability of de facto opposition parties in Malaysia's legislature. The third section discusses in depth the politics of corruption in Malaysia prior to and after the formation of a national private SME association in the country in 1995. This section shows that even though an elected multiparty legislature (in which de facto opposition parties controlled some legislative seats) has existed in Malaysia since 1957, the country's leaders implemented serious anti-corruption measures only after a national SME association was established. The fourth section examines whether alternative hypotheses can account for the decline in corruption in Malaysia.

Political and Economic Overview of Malaysia

Malaysia was formed out of a British protectorate in 1957. Malaysia has eleven states and two federal territories including the capital of Kuala Lumpur and Malaysian Borneo; the states in Malaysia are commonly classified as “provinces.”