Malaysia’s solar boom hides an old political bargain

The Malaysian government has just announced the sixth phase of its large-scale solar programme, known as LSS6. At almost the same time, the Ministry of Finance rejected a proposed 2% wealth tax.

Together, the two decisions offer a stark glimpse into the country’s political economy.

LSS6 is projected to attract between RM13bn and RM15bn in private investment. It is being hailed as a milestone in the green transition.

But behind this vision of progress lies a familiar pattern: unequal exchanges that mostly benefit capital and global investors. This is linked to a rising property market in Johor – driven largely by data-centre operators – and to a growing concentration of wealth.

Together, these trends reflect elements of what the Italian thinker Antonio Gramsci called trasformismo. In Gramsci’s framework, trasformismo describes how a dominant class absorbs the leaders of rival groups into its own ranks. This neutralises their radical potential.

The status quo survives without open coercion. By making bumiputra business leaders stakeholders in solar power, the state turns potential critics of the green transition into beneficiaries.

The state is, in effect, doing three things at once.

It absorbs a slice of bumiputra capital into a green-transition growth coalition.

It grows the economic pie through foreign direct investment.

And it defers the question of redistributing wealth to the people indefinitely.

A semiperipheral balancing act

To understand why, it helps to place Malaysia within the world-systems framework as a semiperipheral state.

Semiperipheral economies sit as a buffer between the rich core of the Global North and the poorer periphery of the Global South. They show traits of both: advanced industrial and technological sectors alongside extractive, low-wage activity.

Malaysia’s industrial strategy since independence has amplified this in-between position. The state acts as a facilitator, balancing the demands of global capital against domestic political pressures – and in doing so, it leans towards appeasing bumiputra capital.

The LSS6 solar rollout illustrates this balancing act well. The programme has three packages. Package 1 is an open tender for all developers, covering 2,200MW of solar capacity and 1,100MW of battery storage. Packages 2 and 3 are reserved exclusively for bumiputra developers and companies, covering 450MW of solar capacity and 150MW of battery storage.

This twin procurement approach is not a minor administrative detail. It is a calculated political necessity. The legacy of the New Economic Policy (NEP) means no coalition can drop preferential procurement for bumiputra capital without paying a heavy electoral price.

With a general election approaching, the government needs to keep the bumiputra capitalist sector on side. By reserving a guaranteed slice of the renewable energy market for bumiputra companies – many linked to government-linked companies – the state secures their continued loyalty.

At the same time, the state must keep global capital happy too. That is clear in Johor, where prime industrial land prices have surged to RM150 per sq ft, up from RM70-80 in 2024. This surge is driven almost entirely by demand from data centre operators.

Data centres are capital intensive, energy-hungry assets. Global tech giants place many of them in semiperipheral states to serve richer core markets.

The state offers land, energy and regulatory concessions to these investors because the resulting foreign investment figures carry huge political value.

But this foreign investment-driven growth coalition is inherently extractive. The state receives billions in data centre investments, yet the local benefits appear marginal.

Data centres create few high-tech jobs for local people. Their main impact is to drain local energy and water supplies, and to push industrial land prices beyond the reach of domestic small and medium enterprises.

The ordinary people bear much of the energy, water and other supporting infrastructure costs while global capital takes the profits home.

Why the wealth tax was refused

This is the backdrop against which the Ministry of Finance’s rejection of a 2% wealth tax matters so much.

The ministry says the government has no plans to tax wealthy individuals to help fund public spending.

This is not simply a technical fiscal choice. It is a structural necessity of the current political economy, because a wealth tax on concentrated assets would hit both dominant wealth blocs at once.

A broad-based wealth tax would inevitably capture the vast holdings of bumiputra conglomerates linked to government-linked firms. It would also affect private property owners and industrial capital alike.

The belief appears to be that taxing them now could threaten the fragile political arrangements that keep the current coalition intact.

Successive governments have also long subscribed to the notion that capital flight is a persistent risk in semiperipheral states. They argue that taxing the wealthy – domestic elites, middlemen capitalists and foreign investors alike – risks driving away the very capital the state depends on to fund its spending and service its debts.

Malaysia’s total federal government operating expenditure stands at RM338bn, or roughly 15.9% of gross domestic product (GDP). That accounts for about 80.7% of total government spending.

Within this, debt service charges make up roughly 17% of total revenue, while overall government debt stands at around 65.3% of GDP. Operating expenditure remains the largest part of the national budget, funding civil service salaries, pensions and subsidies.

This is trasformismo in action: the ruling segment of society absorbs the leaders of rival segments into its own ranks, defusing their appetite for genuine reform.

Rather than confront the question of redistribution directly – by taxing the wealthy to fund public services, or by dismantling ethnic-based capital preferences in favour of broad-based welfare – the state instead folds a slice of bumiputra capital into its green-transition coalition. By making them stakeholders in LSS6, it turns potential critics into beneficiaries.

At the same time, by growing the overall economic pie through foreign investment-driven land and energy demand in Johor, the state creates an illusion of prosperity.

Systemic inequality persists, but the language shifts to ‘sustainability’ and ‘digital infrastructure’ – deferring the question of redistribution indefinitely.

The result is a semiperipheral state caught in a paradox: huge private wealth creation alongside tight public finances.

The government cites fiscal limits when it comes to public services, yet forgoes vast revenue streams to keep asset holders happy.

Ordinary people are told to be patient – to celebrate the RM15bn in solar investment and the digital boom in Johor – while a fairer share of the national wealth never quite arrives.

Land inflation, energy demand and tax exemptions all ensure that this wealth stays concentrated among bumiputra capital, domestic middlemen capitalists and global capital alike.

The LSS6 programme and the rejection of the wealth tax are not separate policy choices. They are two sides of the same trasformismo strategy, designed to preserve Malaysia’s semiperipheral status quo.

By buying off domestic capital with renewable energy quotas, and global capital with land and data concessions, the governing coalition secures its short-term survival at the ballot box.

But this comes at a steep long-term cost. By refusing to confront the concentration of wealth, the state ensures that the green and digital transitions become new frontiers for accumulation, not vehicles for fairer distribution.

There is little to celebrate for the people in an economy that grows its pie only to hand out bigger slices to a select few.

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