Author: Francis E. Hutchinson
Born a Federation, can it remain one?
In August, a small, but significant event happened in Perlis. The state government handed over control of its water supply infrastructure to a company – Pengurusan Aset Air Berhad (PAAB) – owned by the Federal Ministry of Finance. In future, this enterprise will assume responsibility for management of the water sector infrastructure, while the state government – through a subsidiary – will focus on distribution.
Over the past several years, similar deals have been struck in Negeri Sembilan, Malacca and Johor, with oversight of water infrastructure passing to federal control via PAAB. Under the 10th Malaysia Plan, this is set to continue, as the goal is for all state governments to operate under this arrangement, and the sector as a whole to be regulated by the federal Water Services Commission.
A similar arrangement is planned for solid waste management. At present, local authorities are directly responsible for the collection, treatment and disposal of solid waste. However, the current structure is moving towards federal control. In 2007, the federal government established the National Department of Solid Waste Management to set standards and formulate policies for the sector, as well as an implementing agency to enforce laws. Under the 10th Malaysia Plan, the collection of solid waste for all local authorities will be privatised under a concessionaire arrangement.
From an efficiency point of view, these plans are rational, as some state governments and local authorities have incurred debts and service provision in these areas has been patchy. However, from a longer term perspective, this may not be optimal as Malaysia is in the process of smothering one of its assets – its federal system. In seeking to centralise more and more responsibilities in the hands of the federal government, Malaysia stands to lose a vital tool for capacity-building, fostering efficiency and encouraging policy innovation.
Malaysia has a multi-levelled system of government comprising: a federal government, 13 state governments and three federal territories, as well as some 150 local authorities. However, compared to other federal systems, the Malaysian system is centralised with relatively few responsibilities and revenue sources in the hands of state governments. That said, governments at this level are responsible for land management, forestry, religion and local government – which includes water supply as well as waste collection and disposal.
Over the past 20 years, a wave of decentralisation has swept the globe as national governments have handed responsibilities to lower levels of government. In part, this has been due to demand from citizens for a more direct say in the management of affairs that affect their daily lives. In other cases, people from different communities have pushed for a role in managing issues such as education, culture, and religion.
Decentralisation also has an efficiency rationale, as central governments have found it onerous to be involved in handling routine matters in far-off locations. And countries such as Thailand and South Korea have struggled to limit excessive concentration of industrial activity and government-funded infrastructure in their capital cities at the expense of surrounding areas.
While not a panacea, decentralisation does offer some advantages if carried out in a well considered manner. In theory, state and provincial governments should have a better knowledge of the local environment and the needs of citizens in their territories. In addition, due to their proximity to end users, the turn around time for policy decisions should be quicker.
In Malaysia, slow response times have often been attributed to the need to send requests to “headquarters in KL”, where faceless officials take decisions in contexts far-removed from state realities. In addition, if state and provincial governments are given correct incentives, decentralization can stimulate greater competition and efficiency. For example, China’s provinces have been allowed to keep a fixed portion of the taxes they raise, with the aim of encouraging the prioritisation of economic growth. In India, state governments have embraced the wider scope offered to them by the country’s 1991 liberalisation reforms. State leaders are acutely aware that they need to be at least as competitive as their neighbours if they want to attract and retain investment. Thus, state-level policy decisions are keenly followed and debated.
Another benefit to devolving responsibilities to lower levels of government is that it increases the chances of policy innovations that can then be rolled out to other parts of the country. To cite just two examples, the city of Curitiba in Brazil developed a revolutionary method of approaching public transport, and the Thai city of Phitsanulok has pioneered a very successful solid waste management programme. These experiences are now international benchmarks.
Malaysia can also cite examples of successful state and local government initiatives that warrant closer examination. For example, while other states have struggled with water provision, the Penang State Government, through its majority owned firm PBA Holdings Berhad, has managed to offer its citizens a quota of free water and its industries one of the lowest rates in the country – despite having to source water from a neighbouring state.
Thus, rather than seeking to homogenise policy responses, the federal government may be better served by allowing states to try different approaches, and then adopting the most promising ones. Particularly for key services such as water and solid waste collection, the pursuit of profit must be tempered by public interest. If privatisation must be introduced, then why not let both state governments and firms compete to obtain licenses and concessions?
In addition to public services, state governments are being by-passed in-so-far as economic policy is concerned. Since 2006, Malaysia has begun to address the need to foster economic growth in different parts of the country. To this end, it has set up a collection of “growth corridors” which are meant to catalyse economic activities outside of the Klang Valley. The idea is an excellent one. However, while useful for planning purposes, these entities still rely on existing federal, state and local government structures for implementation. In addition, because they do not map onto existing states, they require constructing a fourth layer of administration.
Given Malaysia’s mid-sized population, this seems unnecessarily complex and ignores existing capacity at the state level. In fact, most states in Malaysia had their own civil services before the creation of the Federation. Up until recently, state governments possessed clear authority in specific areas and through their economic development corporations have played important roles in diversifying their economies.
This established structure is not a blessing to be overlooked. Indonesia’s decentralization process in 1999 has been labelled by some as “building the ship while sailing it” – as local government structures had to be set up while responsibilities were being decentralized. Similarly, since 2003, South Korea has had to expend considerable resources at the provincial level in order to be able to disperse industrial activity to other parts of the country.
Given this, state and local levels of government should be allowed more autonomy to pursue economic diversification, encourage efficiency and stimulate creative thinking. While somewhat overlooked, Malaysia’s federal system is one of the country’s many blessings. What is lacking is the political will to entrust decision-making, resource allocation and ultimately responsibility to the institutions and people at lower levels of government.
Francis E. Hutchinson is a visiting research fellow at the Institute of Southeast Asian Studies, Singapore.
This article first appeared at ISEAS Viewpoints
