The study will trace the external factors influencing the liberalization, deregulation and privatization of higher education in Malaysia from 1970 to the present and to analyze the effects of liberalization, deregulation and privatization on the modes of privatization and the internal restructuring of institutions of higher learning to increase efficiency, reduce costs and improve quality. In the 1970s, higher education was a small sector and was monopolized by the public sector and there was considerable public resistance to the establishment of private universities. The received knowledge was that returns to primary schooling were higher than returns to higher education and hence the shift of the public budget away from higher education to primary education. The impetus for the privatization of higher education came after the 1985-1986 economic crisis, which placed limits on the expansion of the public provision of higher education. The privatization of higher education was to facilitate educational reform to produce quality graduates that could transform Malaysia from an agrarian economy to an industrialized and knowledge based economy by 2020 for the primary purpose of enhancing the competitiveness of the Malaysian economy. The 1996 Private Higher Educational Institutions Act, 1996 and 1997 East Asian economic crisis further opened the country to elite foreign universities to increase the supply of quality graduates to increase Malaysia's competitiveness. The liberalization of education therefore facilitated the process of globalization and Malaysia's deeper integration with the world economy as a regional center of academic excellence and as an exporter of educational services. At the same time the received wisdom was that increases in graduate education did not necessarily result in graduate unemployment and graduate unemployment did not reduce the social demand for higher education. The effect of the reforms in institutions of higher learning are improved corporate governance, new programs and more autonomy in finance.
Higher education in Malaysia has since independence in 1957 been treated as a global public good because of the positive externalities associated with its provision. As a consequence the state has had monopoly over the provision of higher education in Malaysia until the middle of the 1990s when there was a policy shift to privatize higher education and encourage the growth of private institutions of higher education in Malaysia to meet the growing demand for higher education among the growing number in the population age cohort eligible for university education. Between 1957 and 1990 the growth of the institutions of higher education was slow because of budgetary constraints and the received wisdom then was that the returns to higher education were much lower than the returns to primary schooling. As a consequence a disproportionately large part of the public budget was spent on primary schooling (World Bank, 2000). The consequent excess demand for higher education was supplied by overseas institutions of higher learning especially in the United States of America, Great Britain and Australia. The high cost of overseas higher education was financed by government scholarships and private sources. Overseas education was preferred to the setting up of private universities in Malaysia. However, several factors created the conditions for a change of policy especially the ascendancy of the Reagan-Thatcher doctrine in the early 1980s; the external shock to the Malaysian economy in 1985-1986; the growth of multinational enterprises that created a demand for university graduates; the new Vision 2020 Policy; and the liberalizing effects of the World Trade Organization agreements on the Malaysian economy after 1995. It was, therefore, external forces that necessitated the introduction of the Private Higher Educational Institutions Act in 1996, which provided the legal and regulatory framework for the privatization of higher education in Malaysia and the establishment of branches of foreign universities and the formation of local private universities and university colleges. …