Entities and the interacting dynamics in telecommunications industry. Source: Adapted from Gao and Rafiq (2009, Figure 2, p. 312). 

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... productivity in Australia. Nevertheless, the proponents of telecommunication liberalization appeared to have adopted a static narrative frame. Their stylized framework may have over- looked the dimensions of evolutionary targeting (Avnimelech & Teubal, 2008) in policy processes and its impacts on technology diffusion. Malaysia is considered particularly relevant to this study, given the prominent transformational changes that have occurred in its telecommunications services industry (Salazar, 2007). Thus, this paper attempts to provide a systematic examination on the evolution of telecommunications in Malaysia drawing from anecdotal as well as empirical evidence, and reveal and understand the institutional dynamics that lead to progress in the existing diffusion of telecommunications technology. In order to achieve this objective, the following two main research questions were addressed: (a) What are the diffusion trends for telecommunications technology development in Malaysian telecommunications systems? (b) How do rent-management processes contribute to the transformation of Malaysian telecommunications systems from an underdeveloped to a more developed system? This section discusses the theoretical framework that broadens the scope of our analysis beyond the limited aspect of political and institutional environments covered by previous studies in their examination of the telecommunications industry’s systemic progress. We present a unitary industrial development dynamics which is used as a narrative to articulate the evolutionary paths of telecommunications industry of Malaysia in making their systemic changes endogenous. Empirically, we attempt to capture the telecommunications services’ industrial strategies in shaping the diffusion trajectory based on three distinct stages, in which each stage witnessed the significant changes in telecommunications policy. The literature on management of rents (Khan & Jomo, 2000) and diffusion promotion policy framework is used to help our study rationalize the interaction between the private sector and the state government within the sub- sector of telecommunications services. As a whole, the governance structure of the industry, through the lens of rent-seeking behavior and the role of the state, provides a valuable guide in assessing the development of the telecommunications industry. The aim of this study is to capture the historical evolution of the telecommunications industry within the context of institutions, provider and user framework and three stages of technology industrial development that shape the diffusion of technology. In what follows, we referred to the literature to rationalize the dynamic interactions in telecommunications industry as shown in Figure 1. The next sub-section deliberates the ...

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... Institutions According to Nelson and Nelson (2002, p. 266), “institutions” is generally defined as “the set of factors that mold and define human interaction, both within organizations and between them.” The definition fits Williamson’s (1985) notion of modes of governance. Institutions, in Williamson’s perspective, have the ability to influence any economic activities (both behaviors of providers and users) and shape market structure of an industry. For Perez (2002), the processes of institutional change of an economy often lead to new interdependencies among actors in an innovation system. The new form of interdependence is vital in enabling an emergence of new governance structure (or new configuration of actors) in response to a new production system in an economy (Figure 1). However, the literatures discussed above do not capture the complicated interactions among social identities and informal norms that are involved in creating value- enhancing or value-reducing rents for industrial development. Khan and Jomo (2000, p. 5) describe the term “rent” as “incomes that are above normal in a competitive market.” “Rent- seeking” denotes “activities that seek to create, maintain or change rights and institutions on which rents are based” (Khan & Jomo, 2000, p. 5). Some rents, for example, monopoly rent and corruption, may lead to lost welfare and counterproductive in a process of configuring a productive structure useful for socioeconomic development. However, we acknowledge that productive rents such as subsidies for infant industries, Schumpeterian rent and learning rent would imply exploitation of growth and development opportunities. Khan and Jomo (2000) elucidated the process of how institutions and economic phenomena and conditions shape rent-seeking activities and whether these activities create value-enhancing or value-reducing outcomes for society. Indeed, the government of an economy can create and manage rent to enable the national innovation system to create new industries and produce and deliver new products or services. Productive rents such as the government incentives to encourage private organizations to institute research and development (R&D) routine or the government financial scheme for high potential young start-up companies may be useful as policy tools to address market failure problem. The term “market failure” denotes to the incomplete signaling system resulted from the absence of future markets and “externalities of which information spillovers are the principle exemplars” (see Dodgson, Hughes, Foster, & Metcalfe, 2011). According to Chang (2003), the process of structural change of an economy will witness deterioration of certain groups’ absolute and relative powers and positions in the market as a result of asset specificity and other sources of factor immobility. The vested-interest groups will likely resist the change and others who might benefit from the new economic paradigm may take countermeasures. The economic development dynamism suffers if the government fails to manage the conflict between these interest groups. This conflicting problem also leads to potential investors not committing their resources in specific investments such as investments in specific knowledge or new equipment that embodies the latest technology (see Amsden, 2001). Similarly, studies also proposed Weberian bureaucracies (or catalytic state as some term it) in state governance to ensure embeddedness and avoid clientelism that hinders development. Weberian features include meritocratic recruitment, good salaries, sanctions against vio- lations of organizational norms and rewards for career-long performance (see Evans, 1996; Evans & Rauch, 1999). They have administrative capacities and resources to stay autonomous in decision-making and decisions may inherit a pro-development agenda (see Singh, 1999). Meanwhile, Evans’ (1995, 1996) notion on “embedded autonomy” is useful to understand the interaction between the private sector and the state government in industrial development. He argued that a government not only needs to have roots in the society (embeddedness) but also the will and authority (autonomy) to implement development policies in order to be effective in its intervention (see Chang, 2006; Evans, 1995, ...