The Malaysia Divide

An institutional overhaul is long overdue in Kuala Lumpur

"The Leopard," Giuseppe di Lampedusa's celebrated novel about the crumbling feudal order in 19th century Sicily, made famous the line, "If we want things to stay as they are, things will have to change." That pretty much sums up the predicament of Malaysia's ruling elite today.

BY ALICE LLOYD GEORGE, Wall Street Journal

The sodomy trial of Anwar Ibrahim drags on in Kuala Lumpur, with the opposition leader's freedom and political career hanging in the balance. But the true significance of this anachronistic case does not depend on the outcome in the courtroom. The political assassination of Mr. Anwar aside, Malaysia is witnessing the death throes of a political machine that has run the country for over five decades. Mr. Anwar is a skilled politician who holds together an unlikely alliance of opposition parties—his conviction would certainly be a blow for the prospect of real political pluralism in Malaysia. But he also serves as a vessel for wider social forces and a disenchantment with the country's leadership. Another figure would surely take his place at the head of the reform movement.

The ruling coalition was founded on the principle that the three main races—Malays, Chinese and Indians—participate in politics through their own parties. Coupled with an elaborate system of affirmative action, this has allowed the United Malays National Organization to maintain a lock on power by protecting Malays from the winds of competition. After the opposition made unprecedented gains in the March 2008 elections, desperate tactics were called for, hence a rather tired repeat of the homosexuality charge first brought against Mr. Anwar a decade ago, now dubbed "Sodomy II" by a skeptical public. The government has denied that the trial is politically motivated.

That the political system and patronage network are under increasing stress is clear, but the prognosis is not yet apparent to all. Some in UMNO, like Prime Minister Najib Razak, think they can maintain the old system by merely tinkering around the edges. Mr. Najib has gestured toward loosening long-standing affirmative-action policies, but any good intentions are obstructed by entrenched interests in UMNO's conservative wing—to date the repeals have been cosmetic at best. Others are coming to a different realization—Malaysian society has matured and even Malays now recognize that outdated and discriminatory policies must give way to a more transparent and accountable system.

One such leader is Tengku Razaleigh Hamzah, a former finance minister of royal blood. Mr. Razaleigh has re-emerged as an outspoken critic of the government in recent weeks, though he strongly denies any intention of switching to the opposition. The 73-year-old party veteran has a history of challenging the leadership; in 1988 he left UMNO and formed a rival Malay party before returning to the fold in 1996.

Sitting in his Kuala Lumpur home—a remarkably exact replica of the White House's Oval Office—Mr. Razaleigh argues that UMNO politicians have not been responsive to calls for reform. "The young want to see a really multiracial organization, fighting on egalitarian issues, without having to fall back on race," he explains. "Unless the party system and the political system are reformed exhaustively, I think we are going to be pulled back into the same boat we have been in for the last 50 years."

Mr. Razaleigh believes that Malaysians want to move beyond identity politics, but UMNO is unable to break away from its Malay nationalist roots. Most recently, the government appealed a court ruling that allowed the use of the word "Allah" by non-Muslims. Though UMNO called for calm, the prime minister's statement that he couldn't stop protestors from expressing their opinions only served to fan the flames. The ruling was followed by a spate of desecration and arson attacks on churches and mosques. Mr. Najib further undermined the government's response to the crisis when he flew across the world for a 10-day tour of Saudi Arabia, the UAE and India, taking key cabinet ministers and senior officials with him.

By contrast, in a milestone decision, the opposition Islamic party PAS—which only 10 years ago campaigned to create a theocratic state with Sharia law—took a more moderate stance, urging Malaysians to respect the court ruling. The irony is that while UMNO continues to play race politics to out-Islam its opponents, PAS is appealing to a more progressive voter base.

Part of the reason for the electorate's change of heart is the realization that Malaysia risks being left behind economically if it doesn't climb out of its middle-income trap and eliminate the inefficiencies inherent in racial policies. These policies were formulated in the 1970s, when Malaysia was a tiger economy. Now its growth lags behind Southeast Asian neighbors like Indonesia—the new "i" in BRIC—and China and India increasingly pose competitive challenges.

The country has suffered from an acute brain drain over the last decade, as individuals seek education and employment in countries where talent is better rewarded. Now it faces capital flight, too, with foreign direct investment dropping to $2.7 billion in 2009 from $8.1 billion the previous year, according to United Nations Conference on Trade and Development estimates. One reason is the fear that UMNO will continue to play the race card and stir up tensions to keep itself in power. Another is the government's failure to undertake much-needed institutional reforms and address issues such as corruption, civil liberties and judicial independence. Malaysia's risk index, as calculated by Hong Kong-based Political and Economic Risk Consultancy, rose to 5.4 in January from 5.24 in December on a 10-point scale.

If there is a silver lining here, it is that even as UMNO has stoked tensions, by and large Malaysians have refused to be provoked—a stark contrast to the May 13 Incident in 1969, when rumors of ethnic slights quickly snowballed into massive riots and emergency rule. And that is one more indication that leaders like Mr. Anwar and Mr. Razaleigh are right that Malaysian society is ripe for change. If the current UMNO elite is to stand any chance of remaining in power, it needs to focus on remedying the very real challenges on its doorstep, rather than felling the opposition. Societal reform based on equality of opportunity is a change that is long overdue.

Ms. Lloyd George is a Princeton in Asia fellow at The Wall Street Journal Asia.