Malaysia is a multiethnic,upper-middle-income country that has relied heavily onincome from its natural resources to engineer successfuldiversification into manufacturing and sharply increasedincomes for all ethnic groups. This paper examines the roleof the policy-making process and national leadership ineffecting this structural change and growth with equity. Itdiscusses the government's role in transformingcorporate ownership patterns while nurturing industrialenterprises into niche products within complex value-addedchains. At the same time, the paper underscores thedifficulties and costs of attempting to move into areaswhere an economy has no strong advantages, in this caseheavy industries. Privatization is seen to have been apowerful tool for expanding private enterprise despitelimited entrepreneurial skills, but it is questionable as asustainable strategy; the aggressive formation of new firmsseems to offer better long-term prospects. An appropriateregime of policy making and implementation is required,characterized by political determination, stability, highattention to growth with equity, experimentation, and anability to learn through implementation, both at home andfrom the experience of others. These are key factorsaccounting for the relative success of Malaysia. Nothing inthe Malaysian experience suggests that it is possible ordesirable to undertake reforms serially; in fact, theevidence suggests that the "reform cluster"approach to policy implementation is more effective becauseit addresses several coordination problems at the same time.
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