If you or I were to misplace a decimal point on a customs declaration or neglect to remit a few thousand dollars in local property taxes, the administrative state would pursue us to the ends of the earth. Leviathan possesses an infinite supply of bureaucratic zeal for the petty infractions of commoners. Bank accounts are frozen, liens are slapped onto front doors, and the unwashed masses are treated to the cold hospitality of a holding cell. The rules, we are constantly reminded by solemn men in cheap suits, are the very bedrock of civilization.
Enter Najib Razak, the former prime minister of Malaysia. Mr. Najib was the chief architect and presiding genius behind 1Malaysia Development Berhad, affectionately known to forensic accountants and international prosecutors as 1MDB. Through this state-owned investment vehicle, billions of dollars vanished into a vortex of Beverly Hills real estate, impressionist masterpieces, superyachts, and the financing for a Hollywood picture aptly titled The Wolf of Wall Street. It was perhaps the most audacious kleptocratic joyride in modern history, bankrolled entirely by Malaysian taxpayers and sovereign debt. For his central role in looting his own country, Najib was initially handed a twelve-year prison sentence.
Then the state remembered that Najib was one of its own. Earlier this year, a pardons board chaired by the outgoing king generously sliced his sentence in half and slashed his fines by three-quarters. Now, the disgraced former premier has secured permission to serve the remainder of his term in the soothing comfort of house arrest. It is the political equivalent of sending a petulant teenager to his room, except the room has marble floors, silk drapery, and high-speed internet.
The entire saga ought to be studied by anyone who still suffers from the tragic delusion that governments can act as responsible venture capitalists. Sovereign wealth funds are always sold to the public on the premise of benevolent technocracy. We are told that wise, public-spirited bureaucrats will pool the nation’s wealth, deploy it into strategic long-term investments, and generate boundless prosperity for future generations. It is a fairy tale for children and central planners.
Friedrich Hayek diagnosed the pathology decades ago in The Road to Serfdom. When you concentrate vast discretionary economic power within the apparatus of the state, it is sheer utopianism to imagine that this power will be wielded with monastic virtue. As Hayek warned in his famous chapter on why the worst get on top, the centralization of economic decision-making inevitably attracts and rewards those who are least troubled by scruples. If you hand a political leader a multi-billion-dollar checkbook backed by the sovereign credit of the public, he will not transform into Adam Smith. He will use it precisely as Najib did: to reward cronies, consolidate factional power, and buy off potential rivals, with a generous skimming off the top for personal luxury.
The subsequent punishment of these political grifters follows a depressingly predictable script. The state behaves like an aristocratic family attempting to hush up the scandalous behavior of an errant uncle who pawned the heirloom silver. There can be no genuine accountability, because genuine accountability would mean admitting that the entire apparatus was complicit. The political class cannot bear the precedent of treating one of its high priests like an ordinary felon. To do so would break the sacred omertà that separates the governing elite from the taxpayers they fleece.
Naturally, the international chorus of good-governance advocates will respond to this latest insult with their usual remedy: more regulation. We will hear earnest lectures about the need for independent oversight boards, enhanced compliance protocols, and stronger parliamentary committees. This is the classic administrative response to state failure, proposing more bureaucracy to cure the diseases caused by bureaucracy. You cannot regulate away the temptation inherent in a pot of sovereign gold; the temptation exists because the pot exists.
The only durable protection against the next 1MDB is to dismantle the machinery that made it possible. Governments should not run hedge funds, they should not pick winners in the private sector, and they should not be permitted to pledge the labor of future generations to fund vanity investment schemes. Until that simple lesson is absorbed, the public will continue to foot the bill for the plunder, and disgraced premiers will continue to suffer the agonizing torment of being confined to their private estates.