Political stability an advantage or a curse?

Defined as the propensity of a government collapse (Alesina, Ozler, Roubini, Swagel, 1992:2), either because of conflicts or rampant competition between various political parties, political stability is beneficial for much of the economic progress that a country may achieve. Investment and growth highly depend on it, recovery is faster under a stable political environment, and issues of employment, human capital development and business development can be dealt with much faster and effectively in an environment that does not suffer from risks of change, or even worse, risk of conflict, because of political instability. Even so, political stability may lead to oppression of democracy, and a government that is ageing, growing its roots further into the ground and showing no signs of letting in new blood. Such a picture of political stability may indeed be detrimental for some aspects of society perhaps not for the economy, but for aspects related to innovation, culture, democratic representation, and violation of human rights.

Political stability can be achieved through having an environment that is not prone to armed conflict or otherwise, or through having a political party in place that does not have to compete to be reelected. In this latter case, political stability is a double edged sword on one hand, many praise the peaceful environment that political stability may offer; on the other hand, cronyism is never seen in a positive light, leading many to think ill of a particular nation-state. Such is the dilemma that many countries around the world have to face. And indeed, in one way or another political stability poses a big challenge for many of the developing countries. In Asia, in particular, the so-called tiger economies either have political stability that is not as democratic as the ideal is, or, they are plagued by political instability leading to much volatility in the development of their country.

This brief article will look at the economic advantages of political stability, as well as review the shortcomings that it entails, such as the curtailment of democratic values, innovation, and human rights. Finally, the article will look specifically at the case of Malaysia, and attempt to evaluate the situation at hand here. Malaysia is considered to be a nation with political stability, something that allegedly works in its favour regarding its economic performance, at the very least.

Political stability and the blooming of the economy

A working paper published by the IMF concluded that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect (Aisen and Veiga, 2011: 1). The working paper further argues, that political instability is an issue that has interested and worried many economists throughout the years: Political instability usually leads to sub-optimal macroeconomic policies and a frequent switch between policies, creating volatility and thus high levels of uncertainty. The aforementioned working paper reaffirms the findings of an older similar attempt, reported by Alesina, Ozler, Roubini and Swagel, 1992. This latter paper also found that in countries where there are high levels of political instability, the economic growth is reported at very low levels. They added that, the two phenomena are in fact, interconnected and affect each other. High volatility in the government establishment may lead to lower growth, but also a poor indicator of growth may lead to higher political instability. Uncertainty in the governments stability and therefore the continuation of current or similar policies may affect investment. At the same time, low investment levels and low economic growth may see higher political instability, as the electorate loses faith in a standing government and might opt to elect some other party with the hope that economic growth will benefit from a change in government.

It is perhaps important to note, at this stage, that this second study did not find any significant differences between democratic and more authoritative regimes, and that the study reported that frequent government collapses have a higher probability of being followed by even more frequent such events (ibid, 1992). The growth of an economy, therefore, is not affected as much by whether a country is democratic or authoritative, but by how politically stable it is. This is an interesting point; however one should not be willing to trade higher levels of economic growth with a lack of democracy in a country. We are all well-aware that a democratic society is, in the long term, more beneficial for the economy, as it gives the opportunity to all members of the society to progress, rather than the few privileged.

Singh and Jun (1995) have found that political risk is a significant determinant for foreign direct investment for countries that have attracted historically high levels of FDI flows. For those that did not, however, a more significant determinant is sociopolitical instability (measured by a proxy index of work hours lost in industrial disputes). Government stability, absence of internal conflict and ethnic tensions, basic democratic rights and law and order are frequently found as significant determinants for FDI inflows (Busse and Hefeker, 2005). Busse and Hefeker argue that countries with a lower political risk and better institutions related to these indicators received ceteris paribus- more FDI per capita (ibid: 10). Thus, political stability not only allows for higher levels of growth, but also attracts more foreign direct investment. Political risk, whether in the form of conflict or a peaceful, election-based overthrow of a given government would not be seen as beneficial for attracting FDI.

But political stability is not only beneficial for the economy. If a country has a stable government and thus does not need to worry about conflicts and radical changes of regimes, the people can concentrate on achieving more in their lives, in terms of career, or otherwise. Political stability gives a peaceful, stable environment that is necessary for any progress in other areas of life science, economic, developmental and philanthropic progress, and in general, sees more progress than a period that a country is under an unstable political situation, for the simple reason that in a stable, peaceful environment, people have the time and luxury of being able to deal with issues other than basic survival needs. This of course, is a somewhat controversial opinion. Many would argue that only through change can one achieve progress in a country, thus political stability undermines progress.

The shortcomings of political stability

As mentioned above, some may see political stability as the ideal canvas for drawing the prospects of progress for a nation. However, many see it as the opposite. Many see political stability as a condition that, not only does not allow any form of change and thus undermines progress, but more importantly, as a condition that demoralises the public leaving all in a pessimistic state that does not encourage innovation and ingenuity. It suppresses people and all their creatitivity and optimism, and

blinds them with materialism, trapping them in a pursuit for material happiness rather than virtous living, morality and ideals. This second group of people is perhaps right in many ways.

Change, in any form that may come, is something that is imminent globally at the moment. In all sectors of life, whether politics, business, way of living, many seek change in order to have a better future and better opportunities. Of course change is risky no one can ever be certain of its results from the outset. However, change is something that is necessary. And this need for change is what calls for innovation and ingenuity, and what makes them so necessary in every country to find new ways of dealing with current issues, and to ensure that more advanced solutions are found on everyday problems.

Political stability, even if it is a peaceful state of the political situation but is a situation that does not pose any threat to the existing government and no signs of a change in the horizon, is a complacent, stagnant situation that does not allow for competition, and thus does not reinforce neither high standards of doing things, nor norms that will be well accepted and welcomed throughout the years. The principles of competition do not only apply to business. Competition can be applied in

everything political systems, education, business, innovation, even arts. Political stability in this case refers to the lack of real competition for the governing party. In a democratic setting, the ruling party can keep its course in office without the fear of being voted out in the next general election. In an authoritative setting, there are no choices of other parties, really. The ruling party/dictator is the only option, and the public cannot have a choice regarding who represents them and runs the country.

Freedom is another issue that is affected by political stability. For example, in Vietnam, a country that has a one-party political system and is controlled entirely by that ruling party, the political stability has proved to be detrimental for the country. The economy is one of the most volatile in Asia, and what once was thought of being a promising economy, is has recently proved to be in much distress and dangers. The country suffers from much inflation and is plagued by low wages, leaving workers unable to support themselves and their families. On top of that, the politically stable system enforces stringent barriers to personal freedoms, by not allowing workers to strike and penalising them dramatically (FIDH, 2008). These draconian measures curtail the personal freedoms of the citizens, leaving both citizens and observers in doubt about the democratic nature of the 4

countrys government. Similarly, other freedoms are also curtailed, such as freedom of press, freedom of religion, access to the internet, and political dissent.

Furthermore, such a state of governance is a breeding ground for power abuse and corruption. Indeed, countries like this are plagued by these two evils, and the public is very aware of the situation (ibid, 2008). In a system that is politically stable, in the sense that the ruling party cannot be changed, it is very hard to change this situation, and allow for a clean up. Unless of course the party itself decides to take a stance. However, without competition to really push for it, it is very hard to forecast and expect change.

So where is Malaysia?

In many respects, Malaysia is not doing so badly. Compared to Vietnam, since it was used as an example before, Malaysia is much better in terms of many things. For one, its economy is in a much better condition, and its democracy-status is not tainted as much as Vietnams. There exist opposition parties, and the people have the right to vote for them and express, in some ways at least, their thoughts. However, this is to a minimal level, as the ruling coalition has been in power ever since Malaysias independence and the opposition party does not seem to be able to concentrate many votes. Many argue that this is because the ruling party has managed so far, to keep the Malays, which make up the majority of the country, happy. However, there are others that blame this on the electoral system and processes, and on the high levels of corruption and the possibility of rigged election results. This distrust of the government and the electoral system, even if falsely framed, is not beneficial for the country or the government itself.

Political stability has been a norm in Malaysia all these years. And indeed it has served the country well. Its economy has seen massive progress over the years, and the country has managed to win the respect of many other nation-states in the international arena because of its economic achievements. However, change is something that many countries ask for a long time now, and change is what the Malaysian people wanted and still want as well, as shown in the last general election in 2008, and the July 2011 Bersih 2.0 rally. State legitimacy, the widespread public belief that the society's governing institutions and political authorities are worthy of support, is commonly held to be a precondition for political stability in advanced capitalist democracies. In fact, Lipset (a) 5

has argued that a regime's legitimacy may even be a more important determinant of political stability than how well the regime actually performs (Useem and Useem, 1979:840). It is thus more crucial for the government to gain the general publics trust and approval for ensuring political stability, rather than having the same ruling party over a long period of time.

Malaysia, constitutionally, is a democratic nation. This should mean that the electorate is free to vote in free and fair election processes whichever party they want to represent them. However, the international community does not see this to be representative of reality. The Washington post calls the ruling party here an authoritarian regime (Washington Post, Jan 2012), arguing that the US government should demonstrate its disapproval of the regime and the curtailment of democratic values and the rule of law, demonstrated, for one, by the opposition leaders, Anwar Ibrahims trial. Malaysias system is flawed in many ways there are no checks and balances in place, with the executive branch overshadowing and controlling the legislature and judiciary, and the democratic institutions and electoral systems are evidently weak (Heufers, 2002). The government argues that political stability is the advantage that Malaysia holds, and that foreign direct investment comes to the country precisely because of this stability. This is backed by many theories and empirical studies, as mentioned in the first section of this paper, as well as by companies stating explicitly that political stability is the main reason that attracted them to Malaysia (The Star/Asia News Network, 2010).

The dilemma is a big one: What does Malaysia need? Many are those that want to see a change in Malaysias politics. They want to see a new coalition forming government, even if the future with them is uncertain. However, many also argue that the current coalition, the Barisan Nasional, has managed to achieve great progress for Malaysia, realising high levels of growth and gaining much respect for its economy, at least, from Western, liberal societies. The opposition parties on the other hand, have no real experience of running the country and they are, therefore, a risky choice. However, it is not all about economics. Malaysia suffers from at least mild oppression of freedoms, whether freedom of speech, freedom of electing whoever you want, freedom of press, and with the recent passing of the freedom of assembly bill, freedom to assemble and express opinions in that way. Furthermore, the governments systems, as well as the society as a whole are plagued with corruption and a severe lack of transparency. Would a new coalition government manage to change all these? That, no one can predict for sure. However, frequent change deducts complacency from the equation, ensuring that all sides are much more willing to effect positive change. Political stability 6

in Malaysias case does not refer to having a peaceful or warring environment. Instead, it is a question of having a truly democratic system, as prescribed in the countrys constitution, even if not in its purest sense, or having a semi-authoritative regime as the international community perceives it, that has been in office, since 1955.

Perhaps a bit of political instability is precisely what is needed in order to make Malaysia move forward, in terms of its democratic values, but also closer to its Vision 2020. Perhaps that is the answer to escaping the middle income trap and moving towards higher levels of growth and standards of living for its citizens.

Conclusions

Political stability is a dilemma-posing situation that one should wish for, but not desire in the long run. Political stability, taken as a peaceful political situation in a country is indeed beneficial. However, when one speaks of political stability in terms of having one party or a coalition of parties in office for a long period of time, it is a type of political stability that may be detrimental for the country in the long run. The economy, in terms of attracting foreign direct investment may be doing well, as investors know exactly what policies to expect, based on the governments ideology and past performance. However, other aspects of the society might suffer because of complacency, lack of competition, and obsurity. And eventually, the economy suffers because of these as well.

Change comes to be a crucial means to implement an efficient system. Even though not guaranteed, change, political instability in a way, can lead to positive outcomes. Malaysia is doing well in many ways. However, it is viewed by the international community as a semi-authoritative country, and is facing many curtailments of personal freedoms, as well as corruption and lack of transparency. No one can guarantee that a new government in place can reverse the current trends. However, it is worth considering as an alternative, if not for anything else, for Malaysias reputation to be restored in the international arena. Many have concerns with the undemocratic nature of the rising Asia. Malaysia is one of the fitter Asian countries, in terms of democracy. However, it can go the extra mile and prove its potential to become great. But beware: democratic nations can easily fall into many traps, as the European countries and the US are evidently at the moment. It is up to the government in place and the people that elect them to ensure that they are producing a politically, as well as 7

economically stable country while at the same time having a more democratic system in place. With political stability, one should be careful of what they wish for.

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FIDH, 2008. Political Stability v. Democratic Freedom? Economic Crisis and Political Repression in Vietnam. Hearing on Cambodia, Laos and Vietnam. Sub-commission on Human Rights, European Parliament. Brussels, 25 August 2008.

HEUFERS R., 2002. The Politics of Democracy in Malaysia. ASIEN. Vol.85: 39-60

SINGH H., JUN K.W., 1995. Some New Evidence on Determnants of Foreign Direct Investment in Developing Countries. Policy Research Working Paper 1531. The World Bank.

THE STAR/ASIA NEWS NETWORK, 2010. French Investors See Malaysian Political Stability a Key Attraction. AsiaOne. 8th April, 2010. Available from: http://www.asiaone.com/Business/News/Story/A1Story20100408-209090.html, last accessed: 9/1/2012 USEEM B., USEEM M., 1979. Government Legitimacy and Political Stability Social Forces. Vol.57 (3): 840

WASHINGTON POST, 2012. A test of Democracy Malaysia Might Fail. Washington Post. January 8, 2012. Available from: http://www.washingtonpost.com/opinions/a-test-of-democracy-malaysiamight-fail/2012/01/06/gIQAL8aghP_story.html, last accessed: 9 January 2012. 8