This paper reviews Malaysia's privatization policy since its emergence in the 1980s and seeming partial reversal since the late 1990s. It examines the consequences of this policy, in particular the efficiency, welfare and likely distributional consequences. A review of the emergence of state-owned enterprises (SOEs) serves as background to the subsequent review of Malaysia's experience with privatization. Privatization is shown to be inadequate in addressing the range of problems faced by Malaysian SOEs. Seeming achievements have had more to do with certain accompanying reforms, which do not require privatization as a precondition. Privatization in Malaysia has not been accompanied by significantly increased competition, efficiency gains, reduced user costs or significantly enhanced quality of services.

The Malaysian experience suggests that uneven and modest efficiency gains associated with privatization have been misleadingly attributed to privatization, while there has been little increase of the overall Bumiputera share of corporate wealth since the privatization policy was first implemented. The seeming partial reversal from the late 1990s underscored the policy's failure and state efforts to help favoured business interests while financially saving key projects. The paper calls for a comprehensive critical review of the public sector and of the variety of modes of privatization, marketization and other reform measures as alternative, sometimes complementary options in dealing with the public sector.