The bright side of the black market

Menno writes*

The black market is not as bad as many policymakers believe. It provides a lot of otherwise unemployed individuals with labor and income. Formalization of the economy is vital since it allows for more development through taxation, which is especially the case in countries with a huge informal market such as Bangladesh. However, this does not mean the informal economy is only bad news.

Informal businesses collectively employ fully half the world’s workers. Often, the black market is considered to be harmful to a country’s development. However, small, illegal, off-the-books businesses collectively account for trillions of dollars in commerce. These enterprises are essential for entrepreneurialism, innovation, and self-reliance. Furthermore, black markets have grown during the international recession, adding jobs, increasing sales, and improving the lives of hundreds of millions. Thus, black markets offer more than meets the eye.

The reason the informal market troubles a lot of policymakers is because it is associated with low productivity and poverty. It is generally believed that the primary solution to a large informal economy is economic growth. More formal employment leads to more taxation, which can then lead to better education, which can help people transfer from informal to formal labor. The figure below shows that an increase in GDP is associated with a lower share of informal employment. However, this trend does not occur in all countries.

In Bangladesh, specifically, the informal economy has grown to a vast size. It currently accounts for 89% of the total labor force, constituting 64% of the country’s GDP. The informal market has grown despite a steady rate of economic growth for the last three decades. The increase of the informal market is driven by the large population, the dominance of young age groups, and an increase in female participation in the labor market. Furthermore, Bangladesh’s economy is witnessing a significant growth of service sector jobs ahead of manufacturing jobs, forcing a lot of people to work in the black market.

Institutional restrictions, harassment, illegal extractions by local touts, and general hostility in society significantly limit the full potential of the black market in Bangladesh. Furthermore, informal businesses enjoy less institutional support than their formal competition. Often, informal employees work under challenging conditions, with more harassment and less job security.

Since economic growth decreased the size of the informal economy, Bangladesh requires a different approach. First of all, I believe, since the informal economy plays such a significant role, Bangladesh should focus on improving productivity within the sector instead of threatening it. Policymakers should remember that, even though the formal economy is more efficient, the informal economy still provides a large number of jobs and contributes to economic growth. Thus, instead of attempting to lower the size of the informal market through institutional restrictions, I believe it should be incorporated into the formal economy by providing job security and benefits.

Second, policymakers need to shift from promoting service sector jobs to providing industrial employment and investing in education. Often people are informally employed, not because they want to but because they have to. By providing these individuals with jobs and education, they could transfer into the formal market, where there can work under better conditions for a better wage.

Bottom Line: Productive work is helpful, formal or not.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Not-so-special economic zones

Sam writes*

Ever wondered where that iPhone of yours came from? Who put it together? And how are so many can be made each year? For years we have used a neat trick in order to keep up with this type of demand, most particularly in electronic devices.

Special Economic Zones (SEZs) are that neat trick. They offer “tax efficiency” and loose regulations to attract industry that will export to the world. China loves them — establishing over 60 SEZs since the 80s — and that’s how you get the iPhones you know and love.

So that answers the “where” question, but what about the “who” and the “how”? As it turns out, Apple workers in Chinese SEZs have some of the worst working conditions imaginable. Minimum wages are barely higher than the living wage [pdf], working shifts can exceed 16 hours (oh and there’s no overtime pay), and conditions require workers to meet quotas as they attach tiny wires and chips all day. The stress has led to alcohol abuse, divorce rates are 3 times the national average, and suicides so regular that factories have have councilors on site.

How are companies allowed to do this? Article 22 of the National Chinese Labor Act states that workers have the right to fair pay and healthy working conditions but not in SEZs (remember those loose regulations). Since trade unions are not permitted in China, workers are not likely to see improvements in their conditions.

Photo Courtesy of Steve Jurvetson, CC-BY-2.0 [pdf]
Apple’s relationship with China was worth over $43 billion in 2019, with 217 million iPhones produced (and some sold) in the country. SEZs allow rich companies to profit from cheap labor in exchange some technology transfer. SEZs are popular everywhere, but especially in rapidly developing countries such as China and India that have abundant labor. In places without a labor glut, like in the United Arab Emirates, labor is imported [pdf] to work in their “Free Economic Zones”.

Bottom line: Global competitiveness means firms need fast, efficient, accessible places to produce their products. Countries with SEZs benefit from growing industries, FDI, and new technologies, but is this the best route to development? Worried that workers are losing? Don’t. Your nice new iPhone created jobs, even if they are poorly paid.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Corruption and EU Cohesion Policy

Pieter writes*

Roughly a third of the European Union’s budget is spent on Cohesion Policy. Through this, the EU invests in sub-national regions with the aim of “converging” their quality of life upwards, to EU averages. This is done by fostering economic growth, business competitiveness, sustainable development, and supporting job creation in the poorer regions of Europe. Three different types of funds are used: First, the Cohesion Fund is used to ameliorate the economic and social situations of the regions of Member States with a GNI per capita that falls below the threshold of 90% of the EU’s average. Second, the European Regional Development Fund (ERDF) aims to induce competitiveness and create regional jobs. Third, the EU invests in educational opportunities and combats unemployment using the European Social Fund (ESF).

Over the past decades, many studies have analysed how effective Cohesion Policy has been in converging the regional economies of the EU. Numerous studies have found that transfers from the different Cohesion Policy funds effectively stimulated economic growth in underperforming regions (Becker et al., 2012; Becker et al., 2018; Medeiros, 2013). However, most of the studies analysing this subject mention a variety of drawbacks. First, studies found that the EU was not effective in all goals that it claims to pursue with Cohesion Policy. To exemplify, research has suggested that it has not been very successful in reducing unemployment (Becker et al., 2010). Second, although immediate results are promising, progress often stops or reverses when funding stops (Becker et al., 2018). Third, Cohesion Policy effectiveness depends on institutional quality, which is largely outside the EU’s sphere of influence (Marzinotto, 2012 [pdf]).

Although institutional quality can be approached from several perspectives, a crucial component is the level of corruption within the institutional structures of Member States receiving transfers. Corruption reduces Cohesion Policy effectiveness through two (interacting) mechanisms. First, in a corrupt administration much of the resources made available will be allocated to ‘rent-seeking’ activities, as opposed to ‘productive’ activities; this will thus inhibit the extent to which the goals of Cohesion Policy can effectively be pursued (Ederveen, 2003). Second, once the European Commission establishes that funds are used in a corrupt manner, it can decide to withhold further funds. To exemplify, Bulgaria was entitled to roughly a billion euros from the European Regional Development Fund in the period from 2007 to 2009. However, because the Commission was unsatisfied with responses to fraud and corruption cases, so Bulgarian regions received only 30% of the initially allocated funds (Pop, 2009).

Analysing the relationship from a different perspective, it can be theorised that there is also a causal mechanism between Cohesion Policy and corruption, originating from Cohesion Policy itself. In other words, Cohesion Policy can induce corruption in the regions that it aims to support. Fazekas (2013 [pdf]) analysed Central and Eastern Europe and showed that although the EU provides extra resources, often it fails to balance this out by putting sufficient controls for corruption in place, leading to increased rent-extracting behaviour.

Bottom line: Although the European Union’s Cohesion Policy has helped helped sub-national regions grow, it may not work if corruption diverts funds and may exacerbate corruption if implemented without controls.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Indonesia’s fossil fuel subsidies

Natalie writes*

Until recently, subsidised energy in Indonesia was a public service obligation, provided to all citizens. Ever since becoming independent in 1949, the fossil fuel subsidies are a prominent aspect of Indonesia’s economy, and are intertwined with the oil industry. Initially, they were created as a means to redistribute wealth earned from oil revenues, by subsidising on the consumer end to reduce poverty. Yet, poor targeting of the policy has brought along issues, and no poverty alleviation [pdf].

The budgets for subsidies have increased throughout the past decades, pressuring the fiscal capacity of the Indonesian government. Between 2008-2014, subsidised petroleum products, 3-kg LPG, and electricity accounted for 20% of the country’s central government budget [pdf]. This led to underinvestment in essential public services, including infrastructure and education. Additionally, the characteristic of being a ‘blanket’ subsidy for all citizens made that mostly higher income Indonesians who owned private vehicles would enjoy the subsidy.

A worker at a state-owned Pertamina petrol station holds money as a motorcycle is filled with subsidised fuel in Jakarta October 31, 2014.

Moreover, apart from climate change as a negative externality, another associated with the subsidy is the black market in fuel – cheap, subsidised oil is sold to ineligible consumers or businesses at below market prices. Another issue is the ‘oil and gas mafia’, referring to the corrupt elites running the fossil fuel industry. They have allegedly cost the country over $4.2 billion in revenues every year through embezzlement of Ministry of Energy funds, extortion, smuggling, and tax fraud.

Nevertheless, pursuits of reforms throughout the past decades have faced pushback from consumers and stakeholders. Citizens considered subsidies their right, and perceived price adjustments as a high risk for inflation, consequently causing protests and disorder. Simultaneously, there have been vested interests from the ones benefitting from subsidised fuel; the Indonesian oil-trading lobby, state-owned oil company Pertamina, and vehicle manufacturers and distributors, intensely lobbied against attempts at reformation.

Despite the political favourability of the policy, there have been two successful reforms to phase out the subsidies: between 2005 and 2007, and between 2013 and 2015. These were to curtail negative externalities, and eventually shift fossil fuel consumption to renewable energy. The success was driven by macro-economic fluctuations, primarily the external shocks posed by the 2008 Global Financial Crisis and depreciation of the Indonesian rupiah in 2014, creating both urgency and societal leverage. As a result, less than 1% of GDP was spent on fossil fuel subsidies in 2016, as opposed to about 3% of GDP in 2014. Although the fossil fuel subsidy apparatus has not been abandoned entirely, Indonesia is on the right path to cost-reflective fuel prices.

Bottom line: Indonesia’s fossil fuel subsidies were meant to aid the country’s development, but induced inter alia fiscal deficits, corruption, and black markets. After several failed attempts of reform, external shocks opened up opportunities for successful policy change.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Is corona lighting a fire?

Fay writes*

Currently, 17 percent of the Dutch workforce suffers from a burnout. Symptoms vary from irritability and disrupted sleep patterns to emotional lability. However, the central characteristic of a burnout is the experience of physical, emotional and mental exhaustion [pdf].

High work pressure with little autonomy and support from colleagues is found to increase the risk of burnouts, whereas being socially connected with family, friends and colleagues decreases these chances [pdf].

Burnouts are a relatively big problem in the Netherlands in comparison to other European countries. This is caused by our social structure. Under pressure from the neo-liberal market, we have traded social cohesion for flexibility, the productivity that results from it, and illusive freedom. Where long-term contracts and labor unions were the norm, we now all compete independently for the next better job. We are trapped in a system in which we tell ourselves to work harder and to be perpetually available because if we won’t, the next freelancer will.

Initially, the current corona crisis, forcing us to work from home, was thought to be the necessary brake society had been reluctant to pull. At first, when the lockdown was just announced, professionals mainly warned of increasing cases of burnout caused by the stirring global pandemic. Juggling changing work patterns with childcare was expected to lead to increased pressure, and hence, burnout symptoms. Yet currently, the “break given by the brake” seems to positively affect our work-related burnout symptoms. Even though many workers risk losing jobs or have to work harder than ever before, the lucky ones who still receive a pay check, start to express the relief accompanying empty calendars and the simplicity of the current working days. Because of the crisis, we are learning how easy it is to cancel commitments. People suffering from burnouts often struggle to say no, as everything is perceived to be important. The current crisis teaches us that, yes, we can cancel appointments. Additionally, the newly freed up time in our calendars allows us to think about what is important, and why we work in the first place. We long believed that if we worked even harder we could conquer the world, but does that belief still hold true today? “By changing how we work, we change how we relate to each other and ourselves”.

Moreover, since we are all in this together, the pandemic increases a perception of social cohesion. Naturally, a global pandemic introduces stress sources other than work, the seriousness of which should not be tempered. However, if we maintain higher levels of rest and social cohesion once normal work resumes, then some cases of burnout could decrease. Perhaps our hopeful future will have more people burning brightly instead of burning out.

Bottom Line: Dutch social structure had focused on productivity, which led to more burnouts than seen in other European countries. The current corona crisis, although catastrophic in many aspects, decreased work-related stress for salaried employees  working from home. Simplicity, empty agendas, increased social cohesion and a new look at careerism is expected to decrease burnout rates. Perhaps corona gave Dutch society the break it needed.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

The cottage cheese rebellion

Lihi writes*

In the summer of 2011, three months after a Facebook page called “cottage protest” was created, nearly 500,000 people walked the streets of Israel screaming “the people want social justice”. It was the largest protest in the history of Israel, nothing as such has happen since. It was accompanied by three months of social havoc. Nearly 100 00 people built tents in their city’s parks and streets living there for two months, and doctors went on a strike. For three months the entire Israeli population, across cleavages and age groups, asked for more affordable-housing, lower commodities prices, and better wages. Why did it happen? Did it work? I am studying this riddle of the Israeli-economy and will explain one angle of it here.

Liberalizing cottage cheese
Let’s look at the context of the the cottage rebellion. Israel was founded on heavily social-democrat principles (1948), and in 2003 it underwent a critical juncture. In the midst of the second intifada, the government was drowning in debt and a new minister of treasury took the reins reign: Benjamin Netanyahu. An Ivy-League economics graduate and believer in neo-classical theory, he privatized major government corporations such as Zim, refineries, Bezeq (communication), Discount Bank, and ELAL (national airline).

Furthermore, he cut state subsidies for children, people with disabilities, unemployed, and public employees by at least 4%. Finally, he changed the taxing regime, lowered market regulation, and privatized the employment bureau to placement companies. In two years, unemployment went from 13.3% to 7% and continued to decline until stabilizing at 4%. Government debt fell, real GDP doubled by 2017, and in 2010 Israel officially joined the OECD as one of its youngest members. Significantly, the hi-tech industry grew world famous, with Beer Sheva hosting the largest cyber security centre in the world. Jordan has a similar population but its GDP of $42 billion is far smaller than Israel’s $370 billion. With this kind of success, why fight over cottage cheese?

Cottage cheese and solidarity
Cottage cheese is an Israeli symbol, even when the country was young and poor, people had a coupon for cottage cheese – it’s in every family’s refrigerator, rich or poor. Netanyahu’s free-market reforms left many below the (relative) poverty line. With less government regulation on employment, many people became contractors without rights, and their income didn’t increase nearly as fast as living costs [pdf]. Worse, the number of employed people in poverty line is still growing.

With reforms aimed at minimizing market intervention, monopolies emerged; in 2011 Tnuva (dairy products) controlled over 53% of the dairy market, prices increased accordingly [pdf]. The OECD report for 2011 and 2013 stressed the lack of competition in the economy, and declining education scores. Further, it discussed the fact the housing market demands more supervision and increased supply. Due to political incentives and the specific characteristics of minorities, only 50% of the Israeli population pays taxes, and the orthodox community doesn’t participate in mandatory service. Finally, Israel is in the bottom 10 OECD countries in terms of investment in healthcare.

Bottom Line: Eight years after the reforms of 2003, adults realized that their respected jobs, national service, tax paying, education did not give them enough money left over to buy cottage cheese. One person opened a Facebook page, and so started the cottage spring. The protest ended with a special governmental inquisitor committee, it published recommendations; policies were created, but never really applied. The momentum was lost, but struggle continues.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Corona’s opportunity for basic income

Iris writes*

Advocates of Universal Basic Income (UBI) argue it will reduce financial stress, increase employment, and reduce poverty. Opponents of providing people with unconditional funds argue UBI is too expensive, unproductive and does not fit into the capitalist market economy [pdf]. Although experiments have been done and roundtables held, so far none have led to the full, long-term implementation of a UBI. With the current global crisis looming, however, now would be the perfect time to implement UBI, and reap its benefits in the future.

With many people becoming unemployed due to the crisis, as well as many at risk of becoming so, governments have invested huge amounts of money into businesses and individuals. In order to limit the effects of the corona crisis on the finances of individuals and businesses, governments have made available relief funds, used for subsidizing the move to online platforms, giving companies relief money to limit the number of employees that are fired, or even transferring money directly to individuals.

Although these investments could be manageable for governments now, they are not sustainable in the long run, and with the crisis sticking around at least until a vaccine has been made, other solutions should be considered. Even if a vaccine has been developed, in the shadow of the pandemic, the economic crisis will have large effects. However, keeping up with the expensive spending patterns currently sustaining businesses and individuals is not feasible for governments. Thus, in the long-run, a UBI could well be a solution to alleviate the wounds that will be left after corona itself is long gone. Although the specifics of a policy would have to be determined, the premise is a monthly fixed payment that would be different from a social safety net, in the sense that it is unconditional rather than depending on employment or other conditions. UBI would function more like an unconditional floor to stand on, as opposed to a social safety net to get stuck in [pdf]. UBI would have positive effects: reducing individual financial stress, allowing people to volunteer or take lower-wage jobs in needy sectors, and reducing poverty. These outcomes would reduce government spending on poverty reduction policies, monitoring of the specified conditions for regular social pensions, as well as spending aimed at the limitation of negative effects of poverty.

Furthermore, there are projections that due to the corona crisis inequality will rise even more. Due to the difference in types of jobs, with low-paid jobs usually being harder to continue from home than high-paid jobs, people working in low-paid jobs are more likely to lose their job due to the crisis, or to fall ill due to the need to physically go somewhere to continue working. In this way, inequality may be exacerbated due to the crisis, making the current situation even more fitting for the introduction of the basic income.

Bottom line: Basic income, a solution to economic problems of the past,  could reduce the harm of the crisis we face today.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Working shorter for the climate?

Soem writes*

As our economy grows, emissions of heat-trapping greenhouse gases also grow. Countries with larger economies are typically larger polluters than countries with smaller economies. In fact, the only time before the COVID-19 pandemic the world’s carbon pollution went down rather than up was during the 2008 financial crisis.

‘Decoupling’ economic growth from environmental deterioration is often presented as a sustainable way to have ‘green growth’. For pollution to go down, the carbon emissions per unit of GDP would need to fall faster than combined economic and population growth. In my opinion, this is very challenging if not impossible.

Enter degrowth: the movement that strives for a happier live with a smaller economy and therefore lower emissions. One of the showpieces of the degrowth movement is the four-day work week. The idea is that people working fewer hours will spend more time with family, friends, and their hobbies. While employees will take a lower pay, they will live richer lives taking value from hobbies and social interactions rather than financial transactions. And as people have a lower salary, they will buy less, less is produced, and emissions are lower.

Photo by Esther Tuttle on Unsplash

A longer weekend that helps the environment sounds attractive, but test runs show that shorter working weeks do not necessarily mean degrowth. Dutch marketing firm Loyals was able to introduce an extra day off for all personnel without reducing salaries or productivity. The New Zealand trust Perpetual Guardian cut working hours from 40 to 32 hours per week, while still paying for a full work week. According to J. Haar, a professor who studied New Zealand, “actual job performance didn’t change when doing it over four days instead of five.” A trial at Microsoft Japan even found that a four day work-week boosted productivity by 40%, measured in sales per employee.

Bottom Line: An extra day can be nice for employees as it allows them to spend more time on the household and hobbies or with friends and family. However, the productivity of the firms mentioned above did not go down and therefore employees did not get a lower pay. This means that production and consumption, and therefore GDP, did not de-grow. While a shorter work week is promising, it will not in all cases contribute to a environmentally stable degrowth economy.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Invisibly decoupling the economy?

Gabi writes*

We all know our polluting and resource-depleting economies are leading us to an ugly future. And while many swear by the intricate relationship between economic growth and the development of societies, how can we realistically decouple economic growth from resource use? Can we really enjoy perpetual growth, increased prosperity and the flourishing of human wellbeing globally while reducing carbon emissions and natural resource consumption? Could something like the knowledge economy, a system where consumption and production is based on intellectual capital, or so-called intangible assets, be part of the solution?

While we cannot run away from the fact that we need functioning primary and secondary sectors to maintain a functioning world, but intangible capital is increasingly and rapidly becoming the backbone of our economy. Intangible capital includes anything from research, design, development, creativity, education, science, brand equity and human capital, and this intangible economy largely relies on intellectual capabilities as opposed to natural resources or physical contributions (Brinkley 2008). In the knowledge economy, human capital is transformed into a productive asset or business product that can be sold to yield profits for an individual, an enterprise and the economy. And this is actually a universal process that operates across all sectors of the economy, manufacturing and services, high tech, low tech, domestic and international trade, public and private investments, large and small enterprises. The scale at which our economy is becoming more “invisible” is underestimated. Knowledge-based industries are coming close to accounting for half of national income, half of employment and a quarter of exports (Brinkley 2008).

Companies are investing more and more in intangible assets, and modern companies like Microsoft are generating triple the sales with half the assets of businesses dependent on tangible assets. In terms of value, for every £1 of tangible investments there are about £1.10 of intangible investments. Ever since the mid-2000s, companies have been investing more in intangible assets such as branding, design and technology than they have in machinery, hardware or property. “This is capitalism without capital.” says Haskel, a professor at Imperial College (Haskel 2017).

The portion of the world’s economy that doesn’t fit the old model of traditional capital investment keeps growing larger. This trend can imply many good things, but has major implications in tax law, economic policy and other aspects of society that are not getting sufficient attention. (Gates 2018). There is also a downside to growth in this invisible economy where the nature of investments is so significantly different to conventional ones. The scalability of intangible assets implies we would see the rise of an increasingly unequal economy with large firms serving many customers with few employees. Growing inequality would likely be one of the undesirable outcomes of an intangible economy (Haskel 2017).

Bottom Line: Growth in the invisible economy and knowledge-based capital could decouple economic growth from resource consumption and support sustainable societies driven by education and innovation.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Malaysian politics after 1997

Romée writes*

In 1997, the Asian financial crisis crippled most East Asian economies. The Malaysian ringgit lost about a third of its value, and GDP shrank by about 8%. The economic damage from the crisis is clear. However, poor crisis management or internal conflicts can also have severe political consequences for the ruling elite. This blogpost will delve into the Malaysian Reformasi movement in 1998, as a consequence of the Asian financial crisis.

The first question that should be answered is how the Malaysian government responded to the crisis. Prime Minister Mahathir refused “overly stringent” IMF assistance and implemented fixed exchange rates and capital controls (Lee 2004). The crisis also showed how political patronage and wealth creation among the elite would not help the middle class, especially because Barison Nasional (BN), the ruling coalition, seemed more focused on supporting the economic elite (Subramaniam 2001). Thus, the crisis exposed actual priorities and weaknesses in the ruling coalition.

The response to the crisis became particularly problematic when there were obvious internal disagreements. In the middle of creating responses to the financial crisis, Deputy Prime Minister Anwar Ibrahim wanted to limit social spending and open the economy up for market forces (Lee 2004). These goals, in line with IMF recommendations, directly conflicted with government policy. But besides questioning the specific policy responses, Anwar pushed the government where they were weakest: corruption, cronyism and nepotism (Subramaniam 2001). The response was the Reformasi movement, explicitly supported by Anwar. He was fired and charged with sexual misconduct in an attempt to destroy his character (Subramaniam 2001). The Reformasi movement did not stop, and Anwar’s imprisonment reminded citizens of entrenched corruption.

However, this movement was faced with a big challenge: BN governed with a race-based strategy, meaning that indigenous Malaysian people (Bumiputra) consistently benefitted from this New Economic Policy (NEP). The Reformasi movement and associated political parties challenged this with multiracial political discourse. However, for a majority of the people, the BN provided them with significant economic benefits, which made corruption an insufficient concern to change votes (Subramaniam 2001).

The Reformasi movement translated into other social movements and political parties. In 2018, an opposition coalition won the general election for the first time in Malaysian history. Even though this was seen as a victory and proof of the persistence of the Reformasi movement, Mahathir returned as Prime Minister. The movement has in this sense not lost its platform, but rather co-opted its initial opponent. Mahathir had split-off from his party, because he no longer wanted to be part of a corrupt party. So he joined the coalition of the People’s Justice Party, which was a product of the Reformasi movement (BBC 2018). Regardless of who was the Prime Minister, the fact that this opposition coalition was able to enter government shows the size of platform they have gathered.

Bottom line: The 1997 Asian financial crisis created an influential opposition movement in Malaysia, through poor crisis management and internal disagreements on patronage. This led to a protest movement, and subsequent political parties that oppose corruption and choose a multiracial approach.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).