Federalism without Decentralization: Power Consolidation in Malaysia

By Ostwald, Kai | Journal of Southeast Asian Economies, December 2017 | Go to article overview

Federalism without Decentralization: Power Consolidation in Malaysia


Ostwald, Kai, Journal of Southeast Asian Economies


1. Introduction

Decentralization in Malaysia presents a puzzle. On the one hand, the country's institutional features suggest a highly decentralized structure--the subnational state level has numerous legally codified responsibilities, while elements of service delivery are deconcentrated to a local government tier. Indeed, the Regional Authority Index, which captures the formal authority of subnational governments on ten distinct dimensions, ranks Malaysia as the most decentralized country in Southeast Asia (Shair-Rosenfield, Marks and Hooghe 2014), higher than the region's decentralization "fast starters" Indonesia (Ostwald, Tajima and Samphantharak 2016) and the Philippines (Shair-Rosenfield 2016). On the other hand, numerous studies characterize Malaysia as a centralized state in which power is disproportionately wielded by the federal level (Wong and Chin 2011; Loh 2009; Anderson 2008). At the heart of this paradox is the long-standing tension between the legacy institutions of Malaysia's formal federal structure and a strongly centripetal political dynamic that has increasingly concentrated power in the country's centre (Hutchinson 2014).

The theoretical benefits of decentralization are substantial, including improved governance (Bardhan 2002; Kahkonen and Lanyi 2001), decreased corruption (Bardhan and Mookherjee 2008), more rapid economic growth (Breuss and Eller 2004), and a more engaged citizenry (Fung 2004). These anticipated gains catalysed a wave of decentralization initiatives around Southeast Asia beginning in the 1990s (Malesky and Hutchinson 2016). Malaysia is an outlier to this trend, as a decentralized structure has been an intrinsic part of the peninsula's historical legacy--prior to British colonization, the area that now comprises peninsular Malaysia was divided into distinct territories, each ruled by a Malay sultan. The British maintained this structure through legal recognition of states during the colonial era. The creation of the Federation of Malaya, which paved the way to independence for peninsular Malaya in 1957, cemented the legacy of distinct tiers of government.

A preoccupation with economic development and containing a leftist insurgency at the time of independence, however, served to skew the balance of power towards the federal level. As a result, the 1957 Federal Constitution allocates the bulk of legislative and fiscal powers to the centre (Malaysia 2010). The strong centralization dynamic in the following years has systematically hollowed out the remaining fiscal and administrative autonomy of the subnational tiers, leaving Malaysia a "centralized unitary system with federal features" (Loh 2009, p. 195). This tendency has deepened as the dominant United Malays National Organization (UMNO) and its ruling Barisan Nasional (BN) coalition have centralized additional power after losing control of several economically important states in the watershed 2008 general election (Loh 2010). In practice, meagre subnational budgets and administrative interference from the federal level render "decentralization... a non-issue in the Malaysian Federalism context" (Abdul Rahim 2000, p. 85).

The practical constraints on administrative and fiscal autonomy in subnational tiers of government have kept the theoretically anticipated gains in governance quality, economic growth, and service delivery from materializing in a widespread manner. In this respect, the outcome of decentralization in Malaysia bears similarities to those of its Southeast Asian neighbours, where decentralization has also failed to widely deliver on its promises (Malesky and Hutchinson 2016). There are, however, some discernible effects. Political decentralization at the state level, for example, has given opposition parties a chance to build experience and a record of performance. It has also allowed for a greater degree of political pluralism than would otherwise be anticipated in a dominant party system like Malaysia's, which in turn has exerted pressure on BN states to demonstrate equivalents of popular opposition initiatives. …

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