Sex, lies and capital controls – how Mahathir painted himself into a corner August 5, 2008
Posted by Sverre in : Malaysia, Political economy , comments closedMalaysia was the odd ball out in handling the great Asian financial crisis of 1997-98. Rather than follow the stream and adapt to the measures enforced by the International Monetary Fund, Malaysia’s prime minister Dr. Mahathir Mohamad chose to go in a different direction by imposing capital controls that effectively closed off the Malaysian economy.
A huge amount of work has been produced by scholars worldwide on the crisis. As among others Kishore C. Dash and Rudiger Dornbusch point out, economic factors can explain why the crisis broke out, but the subsequent management on it must also take the domestic political situation into account. Much more accomplished scholars than myself have examined to great length the reasons for the crisis and the results of the choices taken.
What this analysis focuses on is to fill in the picture of why the crisis was handled the way it was, going beyond the macroeconomic arguments. The economy and the currency can be important tools for control and important totems of nationalism. In the attached paper, I show that regardless of macroeconomic concerns, Prime Minister Mahathir Mohammad had based his power on these tools and had all but painted himself into a corner, having no option but to choose the policy he did if he wanted to avoid the risk of serious damage to his regime.
Three steps form a process of elimination by which closing off the Malaysian economy becomes the only viable solution for Prime Minister Mahathir:
Firstly, the possible policy choices were constrained by the Mundell-Fleming conditions, also dubbed the “unholy trinity.” They state that it is impossible to maintain both a fixed exchange rate, monetary autonomy and a free flow of capital simultaneously. Malaysia had still been fairly close to achieving this, but the face of a massive macroeconomic shock made it impossible to keep doing so. A choice about which goals to pursue had to be made
Secondly, Mahathir’s power was strongly dependent on the economic network centered around the UMNO party that constituted the major part of his power base. Abandoning monetary autonomy, with the possibilities of high interest rates sure to hit sub-prime loan markets hard, posed a serious threat to the UMNO business conglomerate. Relinquishing monetary policy control thus seemed difficult.
Thirdly, Mahathir had through his Wawasan 2020 plan emerged on a path to bring Malaysia to become an industrialized nation through a new state-centered nationalism. The currency was a vital national symbol and currency stability was thus also prioritized.
Making the two first options go from difficult to impossible was the the concurrence of a macroeconomic shock and a political crisis in the form of Anwar’s challenge to Mahathir’s rule. With attacks against his power in the elections of 1993 and 1996, Mahathir’s apparatus for autocratic rule was being threatened. Anwar’s advocacy of austerity measures threatened to shake the UMNO patronage system even more strongly.
Constrained by the Mundell-Fleming conditions, the last remaining option was to abandon free flow of capital, which had played a major role in the prosperity of the Malaysian economy to over the last decades. With a considerable distrust towards international markets, this option seemed less unthinkable to Mahathir than to most mainstream economists. Additionally, the policy facilitated both the discrediting of Anwar’s supporters and the possibility to blame domestic economic problems on foreign actors. This explains why Mahathir was willing to go to great lengths to enforce these policies, regardless of the risks (or even predictions of impending doom) stressed by a unitary corps of international economists.
The complete paper, fully referenced, can be found here: sex-lies-and-capital-controls (PDF)
Socrates on North Korea – the play. July 29, 2008
Posted by Sverre in : Political Theory , comments closedThe first proper blog post is a piece that was written for a graduate class in democracy theory. The class was divided into two teams that were asked to defend or oppose a given statement. In the debate in question, my team’s assignment was to defend the North Korean state calling itself the “Democratic People’s Republic of Korea”. As points were awarded by our professor for creativity, I decided to be a bit original and write an opening argument as a play based on Plato’s The Republic.
Defending North Korea as a democracy is of course ludicrous for any informed westerner. In fact I want to make it expressly clear to anyone that doesn’t see the irony that I do in no way whatsoever endorse what I consider the dictatorial and inhumane state of North Korea.
With this in mind we had to resort to rhetorical tricks and clouding the subject for any chance to win the debate on more technical terms. My tactic was therefore to start attacking the arguments I presumed the opposition would be making in an unexpected way, trying to discredit their sources.
The paper is loosely based on Plato’s style of writing, with the introduction slightly altered from the introduction of Plato’s The Republic. In this piece, Socrates – usually the main character in Plato’s dialogues – debates with a number of opponents on the subject of North Korea – among them John Stuart Mill, Montesquieu, Alexander Hamilton and Condoleezza Rice. (more…)
Introduction July 24, 2008
Posted by Sverre in : Uncategorized , comments closedWelcome to the brand new blog on political science, “Nachspiel at Polemarchus'”. Here I intend to write on topics of politics and political science based on my academic work as well as personal thoughts and opinions. Some of the stuff will certainly be academically oriented, but I intend to try and present things in form that will be readable to anyone without a master’s degree in political science. If I need to go into more academic detail I prefer to do that in attached files.
So who am I?
My name is Sverre Midthjell, im 27 years old and a master (graduate) student of political science at the Norwegian University of Science and Technology (NTNU). I’m an active human being with diverse interests, usually juggling more balls than I can keep track of all the time. This is the latest ball – I hope it won’t go crashing to the ground too fast. If it does, I hope I’ll remember to pick it up again.
So why am I doing this?
I have two main reasons. Firstly, as a graduate student I continually produce a lot of written material. Each semester I put hundreds and hundreds of hours of work into something that usually only gets red by a couple of graders. And that’s on top of all the other thoughts I have throughout the year that never get put down on paper. What a waste! Well, that ends now.
Secondly, I think the feedback I get through my studies is rather limited. An ‘A’ or a ‘B’ on a sheet of paper helps me very little towards further developing whatever thought I’ve been writing about. If I manage to write somethign interesting, I hope this might make someone inclined to comment. And hopefully some of those comments will be comments that help me improve on arguments or otherwise help me learn something. Basically I want to become a better political scientist than I am today, and the more input I can get on what I do, the better.
So that’s it, really. I’m gonna share some of what I think with the world in the hope that the world can benefit from it. Hopefully the world will return the favour by giving me some useful feedback that I’ll benefit from.
So what’s with the weird title?
The well-read (or ‘nerdy’ if you prefer) reader might have caught the reference right away. It refers to Plato’s work The Republic, one of the most fundamental works of western political philosophy. If you haven’t read it, you can read it online for free here. The Republic is written like a story of fiction, a discussion between Socrates and a number of other character. And this all plays out at something akin to a nachspiel at the house of a man called Polemarchus. In my dreams, the discussion created here will be as fruitful….
Well, so much for an introduction. The next post will cover a piece inspired by The Republic, about the Democratic Republic of (North) Korea, something I wrote for a class in democracy theory. Stay tuned!