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(De)centralization and the missing middle in Indonesia and Malaysia.

Indonesia and Malaysia have been characterized by powerful, centralized state apparatuses and "soft authoritarianism". However, over the last two decades, Indonesia has implemented far-reaching political reforms and embarked on a process of decentralization, whereas Malaysia's political context has remained static, and it has in fact deepened processes of centralization. Notwithstanding this difference, in both cases, the rescaling of state power has occurred at the expense of the meso level--provinces in Indonesia and states in Malaysia. Prevailing conceptualizations of decentralization miss this commonality, as they focus uniquely on the flow of resources and responsibilities away from central governments. Beyond indicating a need for us to sharpen the conceptual tools used in the study of decentralization, this pattern may also tell us something about the nature of state power in post-colonial countries.

Keywords: decentralization, state power, Indonesia, Malaysia.

Until relatively recently, Malaysia and Indonesia were governed by means of "strong central state institutions", and they had "soft authoritarian" political systems. Scholars attributed the inability or unwillingness of their middle classes to push for political liberalization to the "performance legitimacy" of their states, which were consistently able to deliver high rates of growth and social and political stability (Stubbs 2001, pp. 37-39). This "performance" was, in turn, enabled by a favourable regional context and by a number of other underlying factors.

First, these countries acquired or developed relatively cohesive state structures. Malaysia inherited a large and well-articulated state apparatus from its British colonizers. Indonesia's deep and traumatic revolution led to the forging of a strong, centralized state structure. In both countries, the long tenures of national leaders reinforced these centralized state apparatuses (Esman 1972, p. 284; Stubbs 2001, pp. 40-41).

Second, in the immediate post-war period, the threat of communism constituted an existential threat to the viability of these states. Effective responses required not only considerable coercive capacity to defeat these challenges militarily, but also formidable administrative capabilities to provide services to their populations and thus to earn legitimacy. In the post-Cold War period, these states were able to construct other narratives to justify the centralization of power, such as the potential of communal violence or the need to continue to attract foreign capital through ensuring stability (Stubbs 2001, pp. 40, 46-47).

The Asian financial crisis of the late 1990s constituted a challenge to the legitimacy of both the Indonesian and Malaysian states, as that legitimacy had come to be premised on providing rising incomes and social and political stability (Acharya 1999, p. 421). Nevertheless, while the crisis was a critical juncture for both countries, its political outcomes in the two cases proved distinct.

Following the collapse of the New Order, the contours of Indonesia's political system changed in fundamental ways. Reforms curbed the power of the executive, revitalized the role of the legislature and rolled back controls on political life. An important rescaling of state power downwards to the local level accompanied these measures. Thus, financial resources and administrative authority in a wide range of areas were devolved to lower levels of government, particularly the city and regency level. Indonesia earned the label of "fast starter" in the World Bank's review of decentralization in Asia (World Bank 2005, p. 7).

At first glance, Malaysia stands in marked contrast. Relative to Indonesia, the country emerged from the Asian financial crisis with its political regime intact. Despite substantial economic contraction and political turmoil, the ruling coalition was able to retain power (Pepinsky 2009, p. 2). In line with its political continuity, trends relating to the centralization of administration continued unabated. Since the 1960s, Malaysia's central government has driven to relocate power upwards, from the state to the national level. An obvious exception to the trend towards decentralization across Asia, the country does not even merit mention in the World Bank's landmark review.

However, deeper examination suggests that the two countries share a common characteristic. Each has undergone rescaling processes at the expense of the meso level, namely provinces in Indonesia and states in Malaysia. In order to understand this phenomenon better, this article seeks to answer the following questions.

* Are there common patterns in the rescaling of state power in Indonesia and Malaysia and, in particular, similarities in levels at which power converges or from which it is dispersed?

* How helpful are the prevailing concepts used in the decentralization literature for identifying and understanding these trends?

* Are there specific characteristics of meso-level governments that make them problematic sites of state power?

The body of this article is divided into three parts. The first section critically examines the key concepts used in the decentralization literature, particularly those related to the rescaling of state power. The second section compares and contrasts the rescaling processes in Indonesia and Malaysia, paying particular attention to the levels of government that have received the various functions and powers of governance transferred. The third section analyses the meso-level governments in each country's system of governance to explore any commonalities between them.

Despite the different directions that the rescaling processes have taken in Indonesia and Malaysia, they have in both countries been at the expense of the meso level--of provinces in Indonesia and of states in Malaysia. But existing conceptual frameworks for analysing decentralization are ill-equipped to understand this commonality, as they focus on the transfer of revenue sources and responsibilities away from the centre rather than on the identity of the recipients of these functions. Further, in Indonesia and Malaysia, the experiences of state formation and decolonization have made the meso level loci for alternative political projects, projects perceived to threaten the power and legitimacy of central governments and the nation-building projects that they have espoused.

Defining Decentralization

The "Silent Revolution" of decentralization has influenced Southeast Asia, like other regions. With the stated aims of improving citizen participation, enhancing service delivery, increasing transparency and fostering competition for resources and thus greater efficiency, central governments have established revenue-sharing mechanisms with, and devolved or delegated a range of responsibilities to, subnational governments.

One of the most influential proponents of decentralization, Rondinelli, defines the concept as the
transfer of planning, decision-making or management functions from the
central government and its agencies to field organizations, subordinate
units of government, semi-autonomous public corporations, area-wide or
regional development organizations, specialized functional authorities
or non-governmental organizations. (1983, p. 188)

The World Bank's definition, while dating from two decades after Rondinelli's, is almost identical, but also mentions the private sector as a potential recipient of devolved or delegated responsibilities (World Bank 2001). (1)

The apparently straightforward nature of these definitions notwithstanding, decentralization is a complex concept. It has a range of meanings across different disciplines, and it is marked by a number of conceptual tensions. Fesler notes three tensions in particular. First, centralization and decentralization are antinomies, and neither term can individually capture the full spectrum of possible governance arrangements. In addition, neither term has a midpoint. Second, decentralization essentially refers to the division of power, making it difficult to quantify. Third, the concept glosses over real differences between the recipients of these transferred responsibilities, as terms such as "regions", "provinces" and "local governments" do fail to capture differences in income, political importance and size or the ensuing differential treatment that they will receive in practice (1965, p. 537).

Both the World Bank (2001) and Schneider (2003, p. 33) seek to increase the analytical power of the concept by "unpacking" decentralization into various component parts, or dimensions. There are three frequent distinctions drawn as part of this effort.

* Fiscal, referring to the proportion of resources and fiscal responsibility attributed to non-central-government entities.

* Administrative, referring to the degree of autonomy from central government control afforded to non-central-government entities.

* Political, referring to the extent to which non-central-government entities undertake political functions such as representation and decision-making.

In addition, the World Bank and organizations such as the Food and Agriculture Organization of the United Nations and the United States Agency for International Development (USA1D) often refer to a fourth category, the market. This dimension relates to the degree to which privatization or deregulation measures allow the private sector to receive decentralized functions and responsibilities (World Bank 2001; Cistulli 2002; Center for Democracy and Governance 2000, p. 7).

The specificity afforded by unpacking decentralization sharpens our focus on the aspects of governance that it affects. Transferring ear-marked public funds is very different from establishing elective offices at the subnational level, and delegating oversight duties is distinct from relinquishing a specific source of revenue. While shedding light on what is being devolved, these definitions do not specify who the recipients of devolved authorities or powers or resources are. The reason for this vagueness is that the underlying assumption of decentralization is that it entails "the transfer of power and resources away from the central government" (Schneider 2003, p. 33). Thus, the re-allocation of virtually any function of governance away from a central government is understood to be a form of decentralization, regardless of the identity of the recipient made responsible for that function. (2) The potential recipients of state power identified by the World Bank include state actors and parastatal and private sector entities. The differences among these classes of recipient are important; not all of them include entities able to take on all four of the aspects of governance listed above. While state actors such as provincial and local governments can take on political, fiscal and administrative responsibilities, the attribution of political functions such as representation to non-state actors such as non-governmental organizations and firms in the private sector is unlikely.


In addition, the distinction between meso- and local-level governments merits considerably more attention than it has received. It is one thing to devolve administrative, political and fiscal resources to a multitude of local governments. But it is quite another to devolve them to large states and provinces, many with endogenously developed political institutions--including government structures --and claims to cultural, social or linguistic particularity. In many countries, too, meso-level governments provide representational and coordination functions on behalf of the centre, and are themselves locations of considerable state power through the financial and human resources that they control. "Empowering" the meso- or local-level thus implies fundamentally different types of decentralization and, indeed, potential challenges to central state power. (3)

Recent work undertaken by the World Bank has recognized a distinction between meso- and local-level governments (Eaton et al. 2011, p. 20). It has not, however, drawn out their qualitatively different natures and the implications of that difference for decentralization processes. Rather, it encourages practitioners merely to be cognizant of the influence of "institutional incentive structures" that may privilege one or the other level of government on the choice of decentralizing to intermediate or local governments in a given country (ibid., p. 20). While useful in deepening our understanding of the dimensions of state power transferred to non-central-government entities, the prevailing decentralization framework does not therefore differentiate between transfers of power to meso-level and local-level governments.

(De)centralization in Indonesia and Malaysia

Using the World Bank's expanded decentralization framework, which unpacks decentralization into various dimensions of government, the discussion that follows compares and contrasts recent rescaling processes in Indonesia and Malaysia. It analyses structures of government and the allocation of revenue sources and responsibilities. This article's focus on the flow of power to different parts of the state means that the focus here is on administrative, fiscal and political decentralization and not on the market as means of devolution. (4)


Indonesia has a unitary state structure. Unlike a federal system, this structure has no overarching framework for the division of responsibilities, and subnational governments carry out functions delegated to them by the central government. Because of Indonesia's geographic characteristics and cultural diversity, the desirable structure of government and extent of regional autonomy have proven recurrent existential questions in the country's modern history. It has gone through different periods of centralization and decentralization (Jaya and Dick 2001, p. 218).

Soeharto's New Order, which spanned 1966-98, saw highly concentrated administrative, fiscal and political power. Case likens the country's governance structure during that period to a pyramid, with President Soeharto at the top; a small elite drawn from the military, the bureaucracy and business in the middle; and a "broad social base" at the bottom (2002, p. 31). In a political sense, the country was "authoritarian" (Pepinsky 2009, p. 2) or a "pseudo-democracy" (Case 2002, p. 29).

Soeharto's fall in the wake of the Asian financial crisis of 1997-98 ushered in a transition to a vibrant, if rather chaotic, democracy. The constitution was amended, and the offices of president and vice-president subject to popular election, rather than to indirect election by members of Indonesia's People's Consultative Assembly (Majelis Permusyawaratan Rakyat, MPR). (5) Measures to set term limits, curtail presidential power and bestow oversight powers to parliament were introduced. The country initially relaxed control over the establishment of political parties and then gradually tightened them, in a bid to encourage broadly representative parties (Crouch 2010, pp. 44-48).

An ambitious programme of decentralization accompanied these political reforms. Envisioning the reforms as a means of restoring political rights to citizens, disrupting the country's pervasive patronage networks and quelling calls for regional autonomy, Indonesia devolved extensive governmental responsibilities to the subnational level. In order to avoid bureaucratic delays and to ensure the legislative majority necessary to pass the measures, the government formulated the decentralization measures quickly, won their passage in the House of Representatives (Dewan Perwakilan Rakyat) in 1999, and put them into effect in 2001 (Crouch 2010, p. 92).

Administrative Dimension

The New Order had established a hierarchical and uniform structure of government across the country, with three principal levels of administration: central, provincial, and local. (6) The centre had paramount authority over the twenty-seven provincial (provinsi) and some three hundred local governments, which included urban municipalities (kotamadyd) and rural regencies (kabupaten) (ibid., p. 88). (7) In addition, the central government retained exclusive control over a set of core state functions, such as external relations, monetary and fiscal policy, the judiciary, land management and natural resources. It also retained primary responsibility in a range of other areas, such as mining and energy, telecommunications, and industry, as well as for crucial policymaking functions for virtually all remaining areas of government activity (Shah et al. 1994, pp. 17-20).

In certain areas, the centre shared functional responsibilities with government at the provincial and local levels. In particular, the provision of health, education and agriculture services entailed considerable involvement on the part of provincial and, to a lesser extent, local governments. In addition, provincial governments coordinated the efforts of the branches of central government agencies (Malley 2003, p. 108). However, these divisions of responsibility were fluid, and they varied across the country, with the three levels of governments assuming distinct roles in different locations (Shah et al. 1994, pp. 17-20).

This structure changed dramatically in 2001. Following the decentralization reforms, only foreign affairs, defence, security, religion, monetary and fiscal authority, and justice, along with several broad economic policymaking areas such as planning and high technology, remained the sole prerogatives of the centre (Seymour and Turner 2002, p. 38). Indonesia's provincial governments did not, however, receive a significant share of newly devolved responsibility. Instead, they were restricted to dealing with central government concerns in the regions, issues involving multiple local governments and functions that local governments were not ready to assume. The remaining responsibilities--in areas such as health, education, public works, agriculture, and labour, in many of which the provincial governments had previously had a role--were now devolved to local governments. This arrangement constituted an important change, as local governments had not previously been sites of significant power or responsibility. In addition, it removed the hierarchical relationship between provincial and local governments. Each level of administration now operated, in theory, in its own fields of activity (Schmit 2008, pp. 147, 160; Aspinall and Fealy 2003, p. 4).

A shift in human resources accompanied this reassignment of functions. In 1999, 88 per cent of civil servants worked for the central government and 12 per cent for subnational governments. By 2002, the proportions were 24 per cent and 76 per cent, respectively. As with the reassigned functional responsibilities, local governments were the largest recipients of personnel. Of the three million public servants working at the subnational level in 2002, some 84 per cent served in local governments, with only 16 per cent working at the provincial level (Rohdewohld 2003, pp. 260-61).

Following this initial reassignment of administrative responsibilities, a number of issues began to emerge. Not least among them was the complexity inherent in the centre's coordination of the work of the provinces and almost three hundred local governments. A new law passed in 2004 clarified and widened the scope of provincial government responsibilities. Nevertheless, a considerable degree of overlap between provincial and local governments persists, and the bulk of responsibilities remain with local governments (UNDP 2009, p. 8). In 2014, additional regulations specified the roles of each layer of government and increased the scope of central government ministries' oversight of subnational governments (Ostwald et al. 2016, p. 146).

The phenomenon of pemekaran, the establishment of new administrative territories, has raised the transaction costs inherent in the central government dealing with such a large number of subnational governments. From 27 provincial and 300 local governments in 1999, the number of subnational governments had increased to 34 provinces and more than 510 districts in 2014 (Hill and Vidyattama 2014, p. 70). In 2009, the central government declared a moratorium on the establishment of new provinces. Ultimately ineffective, this moratorium was repealed in 2012, but Law 23/2014, when implemented, will enable some degree of central control over pemekaran. It establishes stricter criteria for the establishment of new provinces and districts as well as a three-to-five-year probation period. Should newly created territories be deemed to have underperformed during that period, they face reincorporation into their "mother" provinces or districts (Simandjuntak 2015, p. 7). In addition, Law 23/2014 expands the role of provincial governors, by transferring responsibility for managing natural resources such as mining, forestry and fisheries from districts to the provinces. However, the law arguably strengthens the centre more than the provinces. It gives the central government the discretion to sanction subnational governments and district-level leaders, as well as the authority to remove district-level leaders who do not perform (Ostwald et al. 2016, p. 146).

Fiscal Dimension

During the New Order, Indonesia had one of the most centralized taxation systems in the world (Ma 1997, p. 31). The centre commanded the most important sources of state revenue, such as corporate and income taxes, value-added tax and income from oil and gas. It then shared some of these revenue streams, such as those from natural resources and property taxes, with subnational governments. Provinces and local governments were dependent on minor taxes. Prior to revenue distribution, the centre accounted for 96 per cent of all government revenue, with the provinces and local governments raising 2.8 per cent and 1.1 per cent of the total, respectively. Following revenue distribution, the proportions were 82.2 per cent, 9.9 per cent and 7.9 per cent, respectively (Shah et al. 1994, p. 50). Expenditures mirrored this same pattern, with 76 per cent of all government expenditure disbursed by the centre and a further 8 per cent disbursed by subnational governments, albeit subject to conditional transfers. Central planning mechanisms also influence the remaining 16 per cent spent by subnational governments. The mismatch between revenue and expenditures meant that subnational governments' revenue covered only about one third of their expenditures, with the rest coming from the centre (Shah et al. 1994, pp. xvii-xviii).

Following the reforms of 2001, Indonesia became one of the most decentralized countries in the world. The decentralization of disbursements and, to a lesser extent, revenues have followed suit. Thus, in 2011 the central government accounted for 91 per cent of government revenue and 64 per cent of expenditure, and subnational governments for 9 per cent of revenue and 36 per cent of expenditure. Provinces accounted for a quarter and localities for three quarters of subnational government expenditure (Shah et al. 2012, p. 1).

While subnational governments now receive more revenues, they do not have enhanced taxation powers. Stipulated percentages of government revenue collected at the central level are allocated to various levels of government, as is a set proportion of revenue derived from natural resources. At present, the national government shares the proceeds from property tax, income tax and forestry, oil and gas, and mining. Local governments receive allocations of the bulk of property tax and of mining and forestry revenue, 64 per cent, while provincial governments receive 16 per cent of the subnational allocation from each of these two revenue streams (Fadliya and McLeod 2010, pp. 6, 8). (8) For their part, provincial governments have access to a small set of minor revenue sources, such as taxes on vehicles, fuel and water--of which they pass a portion on to local governments (Jaya and Dick 2001, p. 226). The high proportion of revenue sources handled by the centre means that provincial and district governments still depend on central transfers for 54 per cent and 93 per cent of their revenue, respectively (Shah et al. 2012, p. 1).

Political Dimension

New Order Indonesia held elections for legislatures at the provincial and local levels, but the government subjected them to the same tight controls and constraints as national elections. Golkar monopolized the nomination of the most "suitable" candidates, the military and police had allocated seats, other political parties were rendered compliant through co-optation or surveillance, and the regime proscribed non-sanctioned political activity (Crouch 2010, pp. 88-89).

In theory, provincial and local-level assemblies elected governors and mayors (walikotd) for municipalities and regency heads (bupati) for rural districts. However, the strategic importance of those positions meant that the Department of Home Affairs (Departemen Dalam Negri) controlled elections to them tightly. For provincial assemblies, the department decided on a shortlist of candidates and instructed assembly members on Jakarta's preferences. The names of the two candidates who received the most votes in the assembly were then passed to the minister of home affairs, who made the ultimate selection. An analogous process operated at the local level, where the Department of Home Affairs chose the candidates, and provincial governments supervized the elections. Consequently, officers from the armed forces and then civil servants occupied the bulk of gubernatorial and local leadership positions in the 1970s and 1980s, respectively (Malley 2003, pp. 107-8; Muhammad Ryaas Rasyid 2003, p. 64).

Following the reforms, the respective assemblies elected governors and local government heads in a more transparent fashion. Initially, elections were indirect, and extensive vote-buying characterized assemblies' elections of their leaders. In 2004, subnational elections became direct, with stipulations requiring affiliation to established parties restricting the ability to contest them. As this change did not eliminate money politics, all restrictions on who could run were lifted in 2007. That said, candidates for office still come largely from elite circles in the civil service, the army or the business sector (Buehler 2010, p. 276). The proliferation of parties and low levels of party discipline mean that national-level party leaders have little influence over provincial and local office-holders (Tomsa 2014, p. 249).

In late 2014, Indonesia's political decentralization process was called into question. In September of that year, the House of Representatives voted to end the direct election of local government leaders in favour of indirect elections. The old political elite favoured this change, as it would lead to the direct election of local legislatures, as in the past, but to the selection of mayors and regency heads from among the elected representatives (Fionna and Hutchinson 2014, p. 160). The change would have shifted power back towards central party elites, who could mobilize factions to support leaders of their choice. In effect, outgoing President Susilo Bambang Yudhoyono overturned the decision to make this change, by means of a government decree (Ostwald et al. 2016, p. 143).

Decentralization reforms in Indonesia entailed a real and large-scale rescaling of state power downwards. The country's political liberalization reinvigorated elections at the provincial and local levels, and the substantial transfer of fiscal and administrative sources made these changes substantive. Upon closer inspection, however, it is clear that the local government level received the greater part of the reallocated resources and that, by and large, the process left the provinces bypassed. Indeed, many of the functions now carried out at the local level include those coordinated or provided by provincial administrations in the pre-reform period.


Malaysia attained independence as a federation. While it also reflects important historical legacies, explained below, the country's system of government aims to combine the centralized management of national issues with some element of self-rule among its constituent units. To this end, the country has a multi-level system of administration comprising a federal government and 3 federal territories, 13 state governments and approximately 150 local authorities. There are constitutionally stipulated responsibilities for the centre and the states, with separate lists of unique responsibilities and a concurrent list of shared responsibilities. The constitution also specifies sources of revenue enjoyed by the federal and state governments (Federal Constitution of Malaya 1957).

While the country reached independence with many of the features of a parliamentary democracy, a number of structural features favour incumbency. These include short campaign periods, a first-past-the-post electoral system, favourable delineation of constituency boundaries, and state ownership of print media (Funston 2001, pp. 181-82). In addition, the Malaysian state inherited a number of coercive legal instruments from the colonial era and has seen institutional checks on executive authority weaken over time (Mauzy 1993, pp. 117-22; Wain 2009, p. 198). Scholars have labelled Malaysia, like New Order Indonesia, "authoritarian" (Pepinsky 2009, p. 2) and a "semi-democracy" (Case 2002, p. 99). The characteristics of its political system have helped the ruling coalition retain an unbroken hold on power at the national level and in most of the states since independence, as well as a two-thirds majority in the lower house of parliament until 2008. (9) This unbroken hold on power has enabled the national leadership to pursue a relentless centralization drive, carried out through a variety of tactics and shaped by both changing national priorities and the specific responsibilities or revenue sources in question (Hutchinson 2014, p. 430).

A number of Malaysia's structural features have enabled this centralization drive. First, the ruling coalition's dominance in the lower house of parliament, the Dewan Rakyat, has permitted it to amend the constitution frequently. Second, while the upper house of parliament, the Dewan Negara, was initially intended to protect state governments' rights by means of a majority of members appointed by the states, over time the number of central government appointees outnumbered those state government appointees (Wu and Hickling 2003, pp. 26-27). Third, the career incentives of state government leaders that belong to the ruling coalition privilege central, rather than local, prerogatives (Hutchinson 2015, p. 118).

Unlike Indonesia, however, Malaysia did not experience deep-seated political change in the wake of the Asian financial crisis. Following an initial period of turmoil, the regime emerged intact (Pepinsky 2009, p. 2). (10) While a range of social movements have emerged and the opposition has been reinvigorated, the country's political context has remained remarkably stable (Weiss 2004, p. 284). The legacies of "Mahathirism", defined as an excessive reliance on the executive and underdeveloped political institutions, has bounded change (Welsh 2005, pp. 154-55). (11)

Administrative Dimension

Its nature as a federation means that the different levels of government in Malaysia operate according to a very clear division of responsibilities. The constitution lays out responsibilities for the federal and state governments. Relative to other federations, Malaysia is quite "top-heavy", with an extensive list of responsibilities attributed to the centre. Beyond external affairs and fiscal and monetary policy, the centre performs functions in areas such as education, healthcare and transport that state and provincial governments perform elsewhere. State governments, for their part, have a limited set of responsibilities, including land management, agriculture and forestry, local government and local services, and religion. (12) They share responsibility for housing, town and country planning, and public health with the federal government (Ninth Schedule, Federal Constitution of Malaya 1957).

Malaysia's centralization drive has taken a number of forms. One is appropriation, in which the central government absorbs tasks and responsibilities attributed to state governments. Appropriation has occurred in the cases of oversight of local governments and supervision of economic development corporations owned by state governments. In the first area, the constitution was amended in 1960 to permit federal government regulation or oversight (Rasyikah Md Khalid et al. 2014, p. 277). In the second, and despite those corporations' mission of catalysing their respective state economies, the central government entrusted the federal Ministry of Public Enterprises with wide-ranging supervisory powers--including those over strategic, operational, financial and personnel matters. The first measure was passed in 1974 and subsequently expanded in 1980 (Singh 2011, p. 608).

Privatization has been another component of the centralization drive. Concessionaires assumed responsibility for local government services such as water, solid waste management and sewerage that state governments or local authorities initially provided. Following this change, overall policy direction and regulatory oversight were attributed to the federal government. With regard to water, this process involved amending the constitution. In the cases of the other two services, acts of parliament sufficed. The federal Ministry of Finance owns the leading concessionaires in the areas of sewerage and water sector infrastructure (Hutchinson 2014, pp. 433-34).

Organizational duplication has also served as a means of centralizing responsibilities, as in the case of land management --another responsibility attributed to state governments in the constitution. The federal government has established five economic corridors to catalyse growth in targeted sectors in areas outside the national capital (Economic Planning Unit and Prime Minister's Department 2010, p. 70). Sharing a RM20 billion facilitation fund, these agencies under federal government oversight jointly manage more than 70 per cent of Malaysia's land area and are tasked with planning, promotion and facilitation (Khor 2011, p. 4). Their responsibilities cut across state boundaries and compete with state governments (Hutchinson 2014, p. 437).

In proportional terms, the federal government has grown more than other levels of government in Malaysia. During the 1985-2005 period, the number of central government employees increased from 424,000 to more than 1,040,000--an increase of more than 140 per cent. In contrast, the number of state government employees increased from 90,000 to 105,600, and of local government staff from 50,000 to 54,000. Already accounting for 75 per cent of all government employees in 1985, federal government employees amounted to 87 per cent of the total in 2005. For their part, state government employees fell from 16 per cent of the total to 9 per cent over the same time period, and local government employees from 9 to 4.5 per cent (Ismail Mohd Salleh and Osman-Rani 1991, p. 40; Siddiquee 2013, p. 38).

Fiscal Dimension

Malaysia's constitution establishes revenue sources for each level of government. It also provides for a series of minor grants and transfers from the federal to the state governments. As with the allocation of governmental responsibilities, the fiscal structure established in the constitution is top-heavy. The centre controls major sources of income, such as income taxes, corporate taxes, customs and excise revenues, and sales and service taxes. States are for their part dependent on income from smaller sources of income such as revenues relating to land, mining, forestry, and entertainment, as well as on the profits of their commercial subsidiaries (Tenth Schedule, Federal Constitution of Malaya 1957). Nevertheless, and in part because of their restricted remits and the limited number of services that they provide, state governments enjoy quite a degree of financial autonomy. Over the 2005-14 period, the state governments collectively generated between 77 and 80 per cent of their own revenues, and only depended on federal transfers for the remainder (Ministry of Finance 2014/15, Table 6.10, and 2010/11, Table 4.10). In addition, the federal government does not "capture" any revenue raised at the state level.

As in the case of responsibilities for the provision of services, the federal government has appropriated a number of important revenue sources previously attributed to the states. The most significant among these is income derived from oil and gas. Despite the specification of natural resources in the constitution as a source of state government revenue, the federal government secured control over oil and gas revenue through the Petroleum Development Act in 1974. This act established Petronas, the national petroleum corporation, and bestowed to it the rights to oil and gas found in Malaysia. States had to cede their claims over oil and gas resources found within their boundaries, while Petronas was bound to pay the federal government and the state on whose territory it exploited given resources five per cent of revenue accrued to each (Loh 2010, p. 133).

In tandem with increasing responsibilities and staff numbers, the centre accounts for an increasing overall proportion of government revenue and expenditure. The proportions of total revenue represented by federal and state government revenue for 1986-90 were 79 and 21 per cent, respectively. For 2006-10, the corresponding figures were 91 and 9 per cent, indicating a substantial decline in the relative size of state government budgets. In expenditure terms, the trend is similar, albeit less marked. In 1986-90, the proportions accounted for by federal and state governments were 84 and 16 per cent. For 2006-10, they were 89 and 11 per cent (Wee 2011, p. 569).

Political Dimension

Malaysia's design as a federal system contemplates periodic elections at both the national and state levels. In both cases, constituents elect their representatives, and the party with the majority in the House, at the national level, or Legislative Assemblies, at the state level, chooses the prime minister of the country or chief minister of the state from those elected (Abdul Rahim Anuar 2000, p. 86). (13) With one exception--the state of Sarawak--elections at the national and state level are held simultaneously. In theory, the separate remits of federal and state governments, along with their popular mandates, make them independent of one another. In practice, state leaders enjoy less autonomy than the theory suggests. At present, the same coalition that holds power in the centre governs in ten of the country's thirteen states and, of these states, nine are from the United Malays National Organisation (UMNO). The UMNO has tight internal discipline and its national leadership has selected candidates for both national and state-level office since 1960 (Azeem Fazwan 2011, p. 46). This is bolstered by the ability of the central party leadership to award licences and concessions to members of parliament and state assemblies (Crouch 1996, pp. 38-40). Furthermore, following their tenures as state government leaders, UMNO politicians often aspire to national-level positions. Such aspirations give them an incentive to retain favour with central party leaders during their chief ministerships. Likewise, the chief ministers of states depend on the support of legislative assembly-people, who are themselves subject to internal party disciplinary mechanisms. Assemblies can oust poorly performing state leaders through votes of no confidence (Crouch 1996, p. 102). Although they are outside the ruling coalition, the central government can also exercise influence over opposition-led state governments by reducing their development budgets or, in certain cases, withholding income proceeding from the exploitation of petroleum resources (Loh 2010, p. 133).

In the past five decades, Malaysia has undergone substantial administrative and fiscal centralization, with substantial responsibilities and revenue sources gravitating from the states to the centre. In the domain of political representation, elections have proceeded uninterrupted at the state level. Nevertheless, internal party mechanisms that bind the majority of state leaders to national leaders, along with the ability of the centre to penalize opposition-led states, has compromised real autonomy. In addition, the upwards gravitation of revenue from various sources and of responsibilities is "hollowing out" this level of government.

When applied to the two cases, the more expansive definition of decentralization is useful in enabling us to separate the various components of governance, trace their evolution over time, and to ascertain the end result of transfers of roles, resources and responsibilities. Use of the standard decentralization framework, with its focus solely on the relinquishing of resources, would lead to the conclusions that Indonesia has decentralized aggressively and that Malaysia has proceeded in the opposite direction.

However, in turning attention from the entities relinquishing resources and towards the recipients of those resources, we see that interesting commonalities between the two countries emerge. The most striking is that, despite the contrasting direction of the rescaling processes, the meso level has been weakened in both cases. In Indonesia, the "winners" in decentralization reforms have been local governments, which have received the bulk of revenue and service provision responsibilities, including many formerly located at the provincial level. And Malaysia, despite its federal system and explicit division of responsibilities, has moved revenue sources and responsibilities from the states to the centre. There are also more specific similarities between the two cases. State-level elections have been an enduring feature of Malaysia's electoral system. Indonesia's political liberalization has entailed the revitalization of provincial-level elections. But, while states and provinces continue to carry out important functions of political representation, the transfer of fiscal resources and administrative functions away from the meso level to other levels of government calls their significance into question.

Having now identified an important commonality in the rescaling processes in Indonesia and Malaysia, the article turns in the next section to explore the particular significance of meso-level governments in these countries, in an effort to understand why power has avoided this level of government.

Meso-Level Governments in Indonesia and Malaysia

Despite their proximity and intense ties during the pre-colonial period, Indonesia and Malaysia had very different state formation and de-colonization processes. Reid (2011, p. 210) contrasts Indonesia's "revolutionary" path to independence with Malaysia's "evolutionary/pragmatic" route, and contends that it is this difference that accounts for the former's unitary structure and the latter's federal model.

Like the territory that would become Malaysia, that which would become Indonesia hosted a variety of traditional monarchies when the European

colonizer arrived. In certain areas of strategic importance, the Dutch installed entirely new governing structures, and in more outlying areas they maintained these political entities. But, in contrast to the approach taken by imperial Britain in the territories that would become Malaysia, Dutch authorities integrated these traditional monarchies into the colonial apparatus. They were in many ways administratively indistinguishable from those areas under direct rule (Emerson 1937, p. 416). Furthermore, the struggle for independence saw these traditional monarchies, with the exception of the sultanate of Yogyakarta, swept away, and the result was a centralized, unitary state (Reid 2011, p. 212).

Malaysia also emerged from of a patchwork of diverse political entities. On the peninsula, these entities included areas under direct British control as well as sultanates administered directly and indirectly. Three protectorates on Borneo, each administered differently, complemented this mix (Reid 2011, p. 222). As will be seen below, in contrast to Dutch Indonesia, in the territories of the future Malaysia, distinctions between directly ruled areas and the sultanates were maintained, incorporated into the design of the country's constitution and, thanks to the negotiated nature of the decolonization process, preserved in the transition to independence.

Notwithstanding these differences, the meso level of government has been an alternate site of political power, albeit for different reasons, in each country. It has therefore been a threat to the hegemony of central state structures in both countries. In particular, the specific political identity that meso-level governments assumed during the colonial period and then the transition to independence profoundly influenced the rescaling process in both Indonesia and Malaysia.


The boundaries of today's Indonesia were a relatively late colonial construct. While the Dutch first began colonizing Ambon and Java in the early 1600s, it was only in the mid to late nineteenth century that they expanded their control over other parts of the archipelago --largely to forestall other colonial powers. Indeed, only in the first decade of the twentieth century did the outlying parts of Sulawesi and Aceh come under the control of authorities in Batavia (Kahin 1985, pp. 2-3). It was also at this time, when the contours of the territory were being finalized, that nationalism emerged as a coherent political force in opposition to the Dutch (Kahin 1985, p. 3).

Despite the colony's geographic characteristics and diversity, many Indonesian nationalists advocated the creation of a unitary republic. Following the surrender of the Japanese, the Constitution of 1945 established a unitary structure for the country (Reid 2011, p. 214). However, the nationalists' hold over the country was incomplete; substantial areas remained under Dutch control. In the subsequent struggle for independence, the form of government that the country was to have was also a topic of dispute.

In contrast to the nationalists' centralized structure, the Dutch attempted to gain popular appeal by offering a framework sensitive to the country's ethnic diversity and through a semblance of popular participation. Thus, in areas that they controlled, the Dutch began to advocate a federal system of government and local-level elections. The centralized nature of the colonial-era administrative structures meant that this attempt required the construction of new political units, or states. Initially, the Dutch tried to construct such entities along ethnic criteria. The country's high degree of diversity meant that this approach proved difficult to implement. The Dutch therefore created a collection of large states and revived pre-existing political entities--sultanates--previously absorbed into the colonial administrative regime. These structures failed to arouse much enthusiasm, particularly on Java (Cribb 1999a, pp. 10-11).

While Indonesian nationalists ultimately prevailed, the 1949 agreements granting independence contemplated the preservation of this federal framework. In the event, though, its limited legitimacy meant that the majority of the new states opted for absorption into the nationalists' unitary structure (Cribb 1999b, p. 176). That said, there was some resistance in outlying parts of the country--the Moluccas, for example--to dismantling the federal system that the Dutch had so belatedly tried to create (Mackie 1980, p. 672).

The government of newly independent Indonesia struggled to assert its control over the country's outlying territories and to find the optimal balance between regional autonomy and central control. Nevertheless, the association of federalism with and Dutch attempts to retain control during the struggle for independence prompted many nationalist leaders, even those privately inclined to a federal arrangement, to oppose any such framework (Feith 2007, p. 72). As a result, the government was unitary, with a collection of ten large provinces with no ethnic or religious character and the two special regions of Jakarta and Yogyakarta (Booth 2011, p. 34). (14)

During the 1950s and early 1960s, a number of factors led to a doubling in the number of Indonesia's provinces. These factors included requests from larger ethnic groups to have specific areas accorded provincial status and geographic and logistical issues requiring the establishment of new provincial capitals to enable the more effective administration of remote areas. The central government also used provincial boundaries as tools to deflate regional unrest by dividing unruly areas into different provinces (Booth 2011, p. 36). It created some provinces in which a single ethnic or religious group had a clear majority, such as Central Java, Bali and West Sumatra. But even those provinces were still home to other communities of significant size (Charras 1993, p. 174).

For much of the 1950s, Jakarta allowed provinces considerable autonomy in providing services and raising revenue. The outbreak of a number of regional revolts--in West Sumatra, South Sulawesi and West Java--checked this tendency. These revolts had a number of causes, including resentment over the redistribution of revenue from resource-rich and commodity-producing regions towards the centre, Javanese domination of top government positions, and unresponsive central government administration. However, it is important to note that the uprisings were not secessionist in nature. Rather, their focus was on forcing the centre to acknowledge regional and local issues (Cribb 1999b, p. 177).

The regional uprisings met with defeat, and the country moved in a more centralizing direction under Sukarno's Guided Democracy, a direction in which Soeharto would push further. A natural resources boom and foreign aid enabled the latter president's New Order regime to increase transfers from the centre to the provinces. In addition, a number of administrative measures tightened central control over the provinces and made provincial governors important agents of the central state. Of note were procedural checks that effectively made provincial governors the appointees of Soeharto. These officials then became a key coordinating element working for the centre in the provinces, exercising supervisory authority over national-level agencies working in their jurisdictions (Malley 1999, p. 146).

In contrast to earlier periods, when governors usually came from the provinces that they administered, governors under the New Order were often military men and overwhelmingly Javanese. While the 1970s and 1980s saw little overt opposition to this reality, by the 1990s the practice of overriding local preferences for representation provoked substantial resentment (Malley 2003, p. 108). Thus, under the New Order, provinces became important sites both of central state power and conflict between the centre and the regions.

While the New Order was very centralized, it is important to note that parts of the bureaucracy were aware of the limits of this approach to administration. They sought to enable some degree of delegation of power in order to see local needs met without significant devolution of authority (Lane 2014, p. 11). A fear of empowering local political forces constrained the options for reform, even though reform elements outside the government did not openly advocate decentralization. Rather, they centred their demands on clean government, bringing corruption under control, and reducing the power of the executive (Lane 2014, pp. 4-5).

Only following the end of the New Order did decentralization emerge as a topic of keen interest in Indonesia. While one political party openly advocated federalism, it was in fact the weakening of two centralizing forces in the polity--politically connected cronies and the armed forces--that enabled the bureaucracy to formulate, with the support of Soeharto's successor B.J. Habibie, decentralization legislation (Lane 2014, pp. 19-26).

Options for reform were bounded. First, the unpalatability of introducing the concept of federalism into the country's political discourse meant that a reformed administrative structure with strong, autonomous provinces would not be acceptable. The military, as well as most political parties, explicitly condemned any such arrangement (Sukma 2003, p. 67). Ryaas Rasyid, the architect of the country's decentralization reforms recognized the firmness of this resistance.
[A]ny attempt to shift power to the provinces would have been read by
the conservative Unitarians as promoting federalism, [and] by extension
placing at risk national coherence and integrity.... The Habibie
government maintained from its inception that the period of extreme
centralism was over, but that it did not want to be labelled as
federalist. The focus of regional authority was therefore on the
district and municipality rather than provincial level of government.
(Muhammad Ryaas Rasyid 2003, p. 63)

Second, the perceived threat of "balkanization", or of the dissolution of the country along ethnic lines, weighed heavily on policymakers (Sukma 2003, p. 67). (15) At the heart of this concern was the fear of secessionism in specific areas of the country, namely East Timor, Aceh and Papua. Facing the likely independence of the first and armed uprisings in the second and third, Jakarta elites feared that the country would dissolve (Charras 2005, pp. 98, 110).

However, beyond these three territories, it is difficult to see that provincial boundaries would have constituted the "seams" along which the country would disintegrate. Only a few provinces, such as Bali or West Sumatra, had relatively homogenous religious or linguistic identities. In addition, the largest ethnic communities, such as Javanese and Malays, spanned multiple provinces. The country's heterogeneity and its high rates of both state-sanctioned and informal migration meant that provinces showed considerable ethnic diversity. The construction of a mono-ethnic identity at the provincial level was problematic (Cribb 19996, pp. 174-75). In fact, provincial boundaries have proven effective means of defusing regional unrest in Indonesia, as in the case of the division of Papua --formerly Irian Jaya--into two provinces in 2003 (Nolan et al. 2014, p. 412).

Regardless of the likelihood, or not, of strong provinces constituting an existential threat to the territorial integrity of the country, governments at that level did not emerge as important players in the post-New Order era. Instead, local governments became the recipients of financial and human resources devolved from the centre. As they were significantly smaller, the jurisdictions of local governments were seen as less viable potentially independent states. They were, likewise, more likely to break any given ethnic group up among smaller entities (Aspinall and Fealy 2003, p. 4). Decentralization to this level would not crystallize ethnic or religious differences, but rather encourage greater participation by citizens in governance issues and promote competition for investment and resources (Sukma 2003, p. 69). That said, one might counter-argue that this arrangement could lead to tensions between provinces and local governments, as well as between local governments themselves (Jacobsen 2004, p. 65). In addition, the existence of too small and ethnically homogenous territorial units may actually heighten interethnic conflict (Horowitz 2007, p. 963).

While Indonesia's decentralization reforms did contemplate the devolution of considerable fiscal and administrative resources to the subnational level, the country's history, the association of provincial--or meso-level--governments with federalism and Dutch colonialism, and the perception of governments at that level constituting potential threats to the country's physical integrity bounded the decisions made about decentralization.


As in Indonesia, so in Malaysia, the identity of meso-level governments is entwined with the country's processes of state formation and decolonization. Unlike that of the Dutch, who sought to create a uniform system of government in all parts of Indonesia, the British process of colonization in what is today Malaysia preserved significant diversity among the various already extant political entities.

Colonization occurred in phases and thus gave rise to a variety of governance arrangements. We can understand them as falling into five groups. The British ruled the settlements of Penang and Malacca as crown colonies, termed the Straits Settlements. The Federated Malay States of Perak, Selangor, Negeri Sembilan and Pahang were protectorates ruled by sultans with paramount authority over matters of religion and custom. They were treaty-bound to accept British advice in all other matters. Their administration was centralized in Kuala Lumpur. The Unfederated States of Perlis, Kedah, Kelantan, Terengganu and Johor were also protectorates. But, while their treaty obligations were similar to those of Federated Malay States, their later incorporation into the British Empire meant that their administrations developed more endogenously. A private firm, the British North Borneo Company, administered what is today Sabah, and the Brooke dynasty, British subjects, ruled Sarawak as its rajahs (Andaya and Andaya 1982, pp. 188-89).

The coexistence of these distinct political entities gave what would become Malaysia a multicentred state structure, comprising "nine legally sovereign states and ten monarchies (nine Malay and one British), but also ten legislatures, seven judicial systems, seven police forces and seven civil services" in the colonial era (Sopiee 1974, p. 13). Further, while the various political entities that had existed before colonialism were preserved in greater or lesser measure, the British presence dramatically changed the ethnic composition of the various territories. Large numbers of Chinese and Indian labourers, who engaged in trading, mining or plantation work, joined the Malays of the peninsula (Crouch 1996, p. 18).

During the Second World War, the Japanese Occupation did away with this pattern of governance and sought to impose a uniform structure, with a strong central government and a collection of identical provincial governments, on the territory. The Japanese disbanded the Straits Settlements and the Federated Malay States and made their component units into provinces (Office of Strategic Services 1944, pp. 4-7). (16)

In part because of the sultans' perceived collaboration with the Japanese, and seeking to capitalize on an opportunity to install a uniform structure of government, the British created the Malayan Union in 1946. While the union retained the sultanates, it would see the country's sovereignty passed to the British crown. It left the sultans and the various state governments only nominal authority, as all resources and responsibilities would move to the national capital, Kuala Lumpur. Liberal citizenship laws, which incorporated the country's Chinese and Indians into the polity on equal terms with the Malays, accompanied these measures (Stockwell 1979, pp. 18, 36). The proposed Malayan Union led to the first visible manifestation of Malay ethno-nationalism. Their relative economic marginalization and fears over losing their status as the country's original inhabitants led Malays to oppose the plan stridently. This opposition appropriated the sultans "symbols of Malay political sovereignty and precedence" over other ethnic communities, and it channelled resistance through the newly established UMNO (Lim 1997, p. 18).

The British gave way, creating the Federation of Malaya in 1948. This latter framework preserved the sultans, kept the separate states and had stricter citizenship laws (Shafruddin 1988, p. 5). Its federal structure nevertheless entailed a significant degree of centralization, as a fair number of responsibilities and revenues were moved from the states to the central government (Kobkua 2011, p. 203). And, as a result of the negotiations between the British and UMNO, the size and reach of the federal government expanded significantly (Harper 1999, p. 197).

This structure, in turn, shaped the negotiations for independence in the early 1950s. Three main parties were involved in the discussions. They were the British, the Malay sultans, and the nationalist elite represented by the Alliance coalition. Comprised of the three main ethnic parties, this coalition had done very well in municipal, state, and then national elections held under the aegis of the British in the early 1950s (Harper 1999, p. 310). Albeit with important Chinese and Indian partners, the UMNO was the primus inter pares in the Alliance, given the predominantly Malay composition of the electorate (Fernando 2002, p. 94). While both the British and the Alliance wanted a strong centralized government to drive development and combat communist insurgency, the two had to contend with history and to incorporate the sultans and the political entities in which the latter reigned to a much greater extent than they wanted. The sultans had emerged reinvigorated as a political force in the wake of the uprising against the Malayan Union, and the agreement on the Federation of Malaya required their consent for any constitutional changes (Kobkua 2011, p. 299). In addition, a federal structure of government was important to the Malay community in a symbolic sense, as its retention of the Malay states and their sultans acknowledged the area's pre-existing form of government and enabled their assimilation into a form of government with which they were familiar (Means 1976, p. 10).

The Alliance's electoral victory had given it the legitimacy to negotiate on behalf of the country's main ethnic communities. But the traditional rulers were still politically important. Not least, they commanded widespread support among members of the Malay population. In addition, the UMNO and the sultans were locked in a struggle for leadership of the Malay community. While the party's leaders recognized the sultans as symbols of Malay culture, they sought to capitalize on the administrative experience that they acquired in colonial Malaya's various civil services and on their role as the "guardians" of sultans to assume the mantle of communal leadership (Amoroso 2014, p. 136).

In negotiations with the British, the nationalist elite sought the creation of a strong central government. They placed more importance on securing an independent judiciary than on preserving viable state governments (Fernando 2002, pp. 70-71). Disputes arose with the sultans, who were intent on preserving their prerogatives. The disagreements centred on two main issues. The first was the role for the Council of Rulers, the body which would bring the sultans together to discuss national-level issues. The Alliance wanted its role to be purely ceremonial, and the sultans sought the means to have an impact on policy. The second was financial provisions for the states. The Alliance sought to see the centre retain control of the bulk of revenue sources, while the rulers sought to maximize their own financial autonomy (Fernando 2002, pp. 169-74).

In the end, the Alliance had to make concessions regarding the sultans' powers and the scope and funding of state governments. The result was a structure that looked like a federation, but that had many features of a unitary system. The 1957 Constitution established a federal system of government, strongly oriented towards the centre. The government was a constitutional monarchy, headed by a king chosen on a rotating basis from among the nine sultans and governed through a federal parliamentary system. The sultans were the constitutional heads of their respective states, and the various state governments--led by elected chief ministers (mentri besar) and state assemblies--had responsibilities restricted to land and religious matters (Federal Constitution of Malaya 1957).

The top-heavy design of the Malaysian constitution was not the only characteristic of the country's system of government that favoured the national-level leadership. Relative to the federal systems of countries such as Australia, Germany or Switzerland, which require--in addition to parliamentary majorities--popular referenda to change the constitution, the Malaysian system makes it relatively easy to amend the constitution. Depending on the article, a simple or two-thirds majority is sufficient (Fong 2008, p. 198). (17) Ease of constitutional amendment dramatically favoured the country's elected leadership, not least in relation to the sultans. The head of the Alliance and founding prime minister of Malaysia, Tunku Abdul Rahman, famously said, "it was, of course, not a perfect constitution ... but we knew we were going to be in power with an overwhelming majority and if any changes appeared necessary we would amend the constitution" (Tunku Abdul Rahman 1981, p. 15).

Beyond its overwhelming mandate in the elections held in the run-up to independence and shortly after, the structural features favouring incumbency allowed the Alliance and, more recently, its successor the Barisan Nasional (National Front, BN) coalition to command large parliamentary majorities. These majorities have, in turn, made possible frequent amendments to the constitution. Indeed, by 2007 the Malaysian constitution had been amended in no fewer than fifty instances (Fong 2008, p. 211). In addition to increasing the power of the centre relative to the states, the BN has used its parliamentary majorities to reduce the prerogatives of the country's royalty. (18)

Furthermore, while Malaysia's federal structure is territorial and not communal in nature, its states and state-level identities have proven powerful challenges to the construction of a national identity. In the run-up to independence, Penang, Kelantan and Johor all had secessionist movements explicitly associated with their state-level identities. While each of these movements was ultimately unsuccessful, the national elite was afraid that they could encourage similar movements elsewhere (Sopiee 1974, p. 82). This issue resurfaced after 1963, when the Federation of Malaya expanded to include Singapore, Sarawak and Sabah, and the country became Malaysia. Rather than reformulating the constitution and merging four territories, this process took the form, in essence, of an extension or expansion of the existing federation. Thus, the constitution remained largely unchanged, but it incorporated the new states under an asymmetric arrangement which allowed them additional autonomy. This expansion was not frictionless, and it raised questions about the viability of the new federation. Singapore left shortly after merger, and both Sabah and Sarawak emerged as defenders of local autonomy and the rights of states (Leigh 1974, p. 92). (19) Fearing the potential of Sabah and Sarawak to nurture secessionist movements, the central government has proceeded to pare down many of the provisions for greater autonomy contemplated in 1963 (Case 2007, p. 129).

State governments in Malaysia were, to a large extent, not a desired feature of the government apparatus. The nationalist elite wanted a strong and centralized state to spearhead development. But the existence of the sultanates bounded the choice set for the Alliance, particularly with their reinvigoration in the struggle against the Malayan Union and their legal recognition in the 1948 Federation of Malaya Agreement. Beyond their formal power, the sultans also competed with the UMNO for the leadership of the Malay community. Thus, the result of the tripartite negotiations among the nationalist elite, the sultans and the British maintained the sultans and located more power at the meso level than the nationalists had desired.

While the Alliance and then the Barisan Nasional have been able to maintain an unbroken hold on power at the national level in Malaysia, achieving this same feat at the state level has proven harder. Thus, the state level has emerged as an important arena for political contestation. In addition, while the country's federal structure enabled the incorporation of Sabah and Sarawak half a decade after independence, these territories' distinct ethnic, cultural and religious composition has also made them, and the state boundaries that define them, potential "seams" along which the federation could dissolve.

As state governments and their elections are a permanent site of political contestation, Malaysia's national-level leadership has proceeded to "hollow out" this level of government by rescaling administrative and fiscal responsibilities upwards.

This section has reviewed the state formation and decolonization processes in Indonesia and Malaysia to understand the identity and political associations attached to provinces and states in the two countries. It has argued that, albeit for different reasons, provincial and state governments constitute a potential challenge to the hegemony of the central government. In Indonesia, meso-level governments have been explicitly linked with colonialism and separatism, and even the ultimate dissolution of the country. Local governments, in contrast, had none of these associations and were ultimately chosen as the recipients of devolved state power. In Malaysia, state governments were not a desired outcome of the nationalist elite. In addition, they were associated with the sultans, who at a certain level constituted a source of competition for leadership of the Malay community. Furthermore, secessionist movements did arise in a number of states in the run-up to independence and have been a consistent factor in relations between the central government and Sabah and Sarawak.


By comparing and contrasting the (de)centralizing processes in Indonesia and Malaysia, this article has attempted to answer three questions.

The first was whether--despite the different directions in which the rescaling of state power has proceeded in these two countries --there were commonalities in the loci at which power converges or from which it is dispersed. This article has argued that rescaling processes in the two cases have either bypassed or weakened the meso level of government. During the New Order in Indonesia, provinces were an important site of central state power, carrying out significant tasks of representation and coordination. The subsequent decentralization reforms saw power and resources transferred from the central and provincial levels to the local level. In Malaysia, state governments have grown progressively weaker as the central government has encroached into areas that had been the prerogative of states. In both cases, while the meso level continues to carry out functions of representation, the hollowing out of administrative and fiscal responsibilities has eroded its significance.

The second question related to the utility of prevailing concepts used in the decentralization literature. This article has argued that current frameworks are useful in ascertaining the overall flow of power and resources, particularly through the more detailed analysis made possible by attention to the transfer of administrative, fiscal and political aspects of governance. However, the framework has a number of conceptual shortcomings. It prioritizes the flow of power and resources away from the original source, rather than seeking to understand where they are flowing. In addition, it treats subnational governments--state or provincial and local--as interchangeable units of analysis, rather than explicitly recognizing their qualitatively different natures.

The third question was whether there were specific characteristics of meso-level governments that made them problematic sites for the concentration of state power. By comparing the state formation and decolonization processes in the two countries, this article has argued that--unlike local governments, which have been associated with basic service provision--meso-level governments have been important sites of expression for alternative political projects.

Its geography and diversity have meant that Indonesia has long struggled to attain a balance between regional autonomy and central control. Even beyond this struggle, Indonesians have associated federalism, understood as a government structure enabling a significant degree of autonomy for subnational regions, with colonialism. Furthermore, while not mapping exclusively on to provincial borders, long-running tensions in parts of the country have fuelled fears of the separatism that provincial boundaries and greater autonomy were thought to fuel.

Despite Malaysia's established federal structure, states have also posed an existential challenge to the hegemony of the central government. The decolonization process resulted in a governmental structure with a more significant role for states and the sultans than the nationalist elite had sought. This structure made state-level elections a permanent feature of the political arena, and it also enshrined a role for the sultans, who competed with the UMNO for the leadership of the Malay community. Further, state boundaries constituted potential faultlines in the emerging nation. The run-up to independence saw secessionist movements organized along state lines. And, following the incorporation of Sabah and Sarawak into the federation, the potential of secession along state lines only increased.

These arguments point to the need for the decentralization literature to develop a new conceptual vocabulary that assigns more importance to the identity of the recipients of state power, so that it may foster, in particular, an appreciation of the qualitative differences between reforms that privilege the meso- or the local level.


The author would like to thank Michael Montesano, Owen Podger and two anonymous referees for their comments on an earlier version of this article. The responsibility for any errors rests with the author.

Francis E. Hutchinson is Senior Fellow and Coordinator of the Malaysia and Regional Economic Studies Programmes, ISEAS--Yusof Ishak Institute, 30 Heng Mui Keng Terrace, Singapore 119614; email:


(1.) The Rondinelli-derived definition is arguably the most influential definition of decentralization, frequently referred to by the World Bank and by USAID's Center for Democracy and Governance. Other agencies such as the UNDP adopt a more open-ended definition, one that can then be adapted to local contexts (Altmann et al. 2000, p. 26).

(2.) This oversight is deeply rooted in political science and sociology, which tend to conceptualize the state as a group of organizations with functional (administrative, legal, coercive, and extractive) characteristics dominating a given territorial area and its people (Skocpol 1985, p. 7). However, such a conceptualization overlooks the fact that some of these organizations themselves may have specific territorial characteristics.

(3.) State power is taken here to encompass its "despotic" and "infrastructural" varieties, namely "power by the state elite itself over society" and "the power of the state to penetrate and centrally coordinate the activities of civil society through its own infrastructure" (Mann 1984, p. 114).

(4.) Given the involvement of non-state actors, privatization-as-decentralization is not dealt with in this article. However, there is no reason necessarily to associate privatization with decentralization. As the section on Malaysia in this article shows, privatization has been used as a mechanism to centralize federal control over assets formerly owned by state governments; also see Hutchinson (2014, p. 432).

(5.) The MPR is comprised of two chambers: the House of Representatives (Dewan Perwakilan Rakyat, or DPR) and the Regional Representative Council (Dewan Perwakilan Daerah, or DPD). At present, there are 560 members in the DPR and 136 in the DPD. The number of representatives in each chamber has varied over time. The DPD was established in 2004, and before that the MPR was comprised of the DPR as well as 200 appointed representatives--135 nominated by provincial assemblies and 65 nominated by the Election Commission to represent "functional groups" such as trade unions and religious organizations (Zeigenhain 2008, p. 4; Crouch 2010, p. 61). Constitutional reforms in 2004 replaced all of these appointees with the DPD.

(6.) There are two further levels of government: the sub-district and village. Unlike the first three levels, these are administrative and do not have elected assemblies. They lie outside the focus of the present article.

(7.) This level of government in Indonesia, comprising municipalities and regencies, is here referred to as "local" government, and provincial government as "subnational" government.

(8.) This is not the case for oil and gas, where the centre retains the bulk of revenue; see Fadliya and McLeod (2010).

(9.) A two-thirds majority in the lower house is necessary for most types of constitutional amendments to be approved (Fong 2008, p. 204).

(10.) For a persuasive account of Malaysia's emergence from the crisis, see Pepinsky (2009). He argues that a coalition of large-scale Malay entrepreneurs and organized labour that pushed for capital account closure and loose fiscal policy enabled the country's policy response. This response in turn enabled the regime to prevent further financial contraction and to survive. Indonesia was unable to provide a consistent policy response, because of conflict between entrepreneurs with "fixed" capital who wanted a closed capital account and those with "mobile" capital who did not.

(11.) Mahathir Mohamad was Malaysia's fourth and longest-serving prime minister, occupying the position from 1981 to 2003. His administration was characterized by a mixture of export promotion and economic nationalism combined with centralization of power, a weakening of the country's legal and political institutions and political repression (Wain 2009, pp. 340-42).

(12.) Under the constitution, local authorities are subordinate to state governments. They occupy a relatively minor role and have been charged with services such as waste collection and disposal, drainage, and maintenance of minor infrastructure.

(13.) With the exception of a period during the 1950s and early 1960s, Malaysia has not held local government elections. They were suspended in 1965, ostensibly because of the country's confrontation with Indonesia. State governments took over the responsibility for running local authorities, and the Local Government Act of 1976 made positions in those authorities appointive and appointments the prerogative of state governments (Goh 2005, pp. 56, 61). Influence over state-level leadership positions thus enables the central government to control decisions at the local-government level.

(14.) In 1950, the new nation's capital, Jakarta, was given the status of a province. Simultaneously, Yogyakarta was named a "special region" with provincial status in recognition of both its role as capital during the Indonesian Revolution (1945-49) and of its sultan's participation in the struggle for independence. The "special region" status refers to Yogyakarta's unique system of governance, under which its traditional rulers, the sultan and the paku alam, serve as governor and vice-governor, respectively (Booth 2011, p. 34; Quinn 2003, pp. 172-73).

(15.) According to Major-General Sudrajat, then the armed forces information chief, "the danger is that federalism will lead our nation to disintegrate along ethnic lines, so we are talking about something far more serious than the secession of a couple of provinces" (Bourchier and Hadiz 2003, p. 272).

(16.) For their part, four of the Unfederated Malay States--Perlis, Kedah, Kelantan and Terengganu--were ceded to Thailand in October 1943 (Office of Strategic Services 1944, p. 3).

(17.) Amendments to article 159, which relates to the requirements for amending the constitution itself, and to article 161, which refers to the special status of the East Malaysian states of Sabah and Sarawak in areas such as immigration, citizenship and religion, need additional approvals (Fong 2008, p. 198).

(18.) It is also important to note that the sultans' power has substantially diminished since independence. In 1993-94, constitutional amendments passed by the parliament removed much of their formal power (Wain 2009, pp. 203-13).

(19.) In the case of Sarawak, the chief minister was removed in 1966 through the declaration of a state of emergency by the prime minister; see Leigh (1974).


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