Malaysia’s Historical Significance

LEADERONOMICS

Malaysia’s Historical Significance

22 December 2017

Charting The Future Of Nationhood By Understanding Our Past

History is boring. That’s how I felt growing up. The way it was taught in school made it seem a pointless field of study, as least relative to mathematics and science. I suspect for many others, it was only later on in life that we grew to better appreciate the significance of history.

More importantly, the need to understand the past to prepare for the future. Hence, it was timely to reflect on our history, as we formulated Transformasi Nasional 2050 (TN50) to chart our path post-2020.

History in perspective

We often meet people who dwell in the past with regret. “If only I had made different choices,” they would reflect. This is a pointless exercise, as who we are today, is a result of our past choices and experiences. We cannot pick and choose to change one part and retain everything else.

On the value of history, others would quote “Those who do not learn from history are doomed to repeat it.” This too has limited application as situations and context may differ – what proved wrong for the past may be good in the future.

Instead, the perspective best applied to history is to understand how the past influenced how we got here today and how it continues to influence our trajectory going forward. As aptly sung by the late King of Pop, Michael Jackson, in the song HIStory: “Every day create your history, every path you take you’re leaving your legacy”.

If we use the analogy of a sailing ship to represent our country on its nationhood journey, history is like the wind that has helped bring us to our current position and continues to blow us in a certain direction. The key to successful sailing is to harness the wind to guide the ship to its intended direction. Similarly, we cannot deny our past.

We must understand the three elements of our history:

that which we must retain for our future. This is the easiest given that it continues on momentum.
that which we must leverage in new ways going forward. This is easier as it builds on what we have.
that which we must seek to change. This is arduous as it is fighting against what comes naturally.

In economics, the influence of history is seen as a form of ‘hysteresis’ or ‘path dependency’. Path dependencies can have negative economic effects – particularly where past choices and investments lock in decisions to suboptimal options.

One classic example being the narrow gauge for railways. If we started from a greenfield, we would obviously build standard gauge railway lines and buy the most efficient trains.

However, with our history of having established a railway network and trains on narrow gauge, if presented with the investment choice to just build one new railway line, we would choose the narrow gauge, even though it’s suboptimal given the need for connectivity.

There are also positive hysteresis effects. One example is seen in our electronics and engineering sector in Penang. It started in the 1970s with semiconductor companies like Intel and AMD. Over the decades, Malaysians built up strong engineering expertise in semiconductors working with silicon wafers.

Subsequently, Malaysians were able to leverage this expertise to capitalise on the new opportunities of manufacturing solar panels and LEDs, given similarities in competencies required. In steering our nation forward, our best chance for future success is to build on our comparative advantages.

Past success elements to retain

Over our 60 years of nationhood, Malaysia has been an economic success. Malaysia transformed from a poor low-income nation with an economy dependent on two commodities – tin and rubber; into an upper middle-income nation with a diversified industrial economic base.

World Bank in the Malaysia Economic Monitor November 2017 projected that Malaysia should achieve high income status between 2020 and 2024.

The Growth Report (2008) by the Commission of Growth and Development recognised Malaysia as one of only 13 countries that successfully sustained high growth over a long period post-1950. The report highlights that while the 13 countries have diverse features, their success stories had five common characteristics:

Openness to the global economy.
Macroeconomic stability: maintaining modest inflation and prudent public finances.
Future orientation, exemplified by high investments.
Market orientation for resource allocation.
Leadership committed to growth and inclusion.

Over Malaysia’s history, the Government has repeatedly demonstrated pragmatism. While orthodox economics championed a laissez-faire approach on the premise that a rising tide would lift all boats, Malaysia responded to May 13, 1969 with the New Economic Policy (NEP) that focused on national unity through growth with equity.

During the 1997 Asian Financial Crisis, Malaysia took the pragmatic but unorthodox approach of fixing the exchange rate and introducing capital controls. While widely criticised then, today the consensus vindicates Malaysia.

“Malaysia’s progress over the last 20 years owes much to the sound policies adopted during and since the Asian Financial Crisis,” said Ulrich Zachau, World Bank director for Regional Partnerships, Malaysia, and Thailand, East Asia and Pacific.

Our long history of inclusiveness continues to be relevant today, given its alignment with the United Nations 2030 Sustainable Development Goals, which among others, emphasises the principle of ‘no one left behind’.

Values and sound principles

While good economic policies certainly were important, what seems more important is the courage and conviction to values demonstrated in our nation’s history. Pragmatism (being the opposite of radical ideology which we see increasingly emerging) and inclusiveness ensure everyone prospers together.

Another core value from our history is progressiveness. This is encapsulated within our Rukunegara and Vision 2020 to build a progressive society. The spirit of progressiveness is captured in TN50 to ensure we work towards a better nation for the next generation. In advancing the country, being progressive includes a willingness for experimentation.

Malaysia was among the early adopters of privatisation. While it’s easy to pinpoint its shortcomings, certain privatisations such as the PLUS highway and transforming our utilities from Government departments into private corporations fuelled our rapid development in the 1980s and 1990s.

Past success ingredients to drop

Malaysia’s past success is largely the collective efforts of Malaysians, its entrepreneurs, workforce and Government to drive the dynamism of the economy. However, a student of history needs to understand the historical context and circumstances.

In this respect, Malaysia was fortunate in being able to take advantage of both global and domestic developments:

Malaysia’s industrialisation post-1970s coincided with a period of manufacturing moving out of developed nations in search of lower cost locations.
Malaysia was able to offer good infrastructure and low cost labour and utilities.
Strong growth and abundance of labour force and power to fuel economic growth.

Malaysia’s transformation from a low-income commodity-based economy into a middle income industrialised nation was premised on a low cost, low value-add model. In a study by Monash University Malaysia for the Economic Planning Unit (EPU), it was concluded that even Malaysia’s industry leaders or pacesetters were largely ‘imitators’, i.e. reliant on imported know-how and technology.

Malaysia’s industrial and manufacturing base continues to be dominated either by factories owned by multinationals or Malaysian-owned factories which are OEM producers for international brands. Case in point is even when we have the largest manufacturers in the world of rubber gloves and prophylactics, they are OEM in nature capturing thin margins as opposed to the overseas brands they serve.

To succeed going forward, our past successful low cost model is not likely to succeed given the change in circumstances:

As an upper middle income nation, there are many other countries that can offer lower cost for low value-added activities.
Megatrends of Industry 4.0 are rapidly requiring adoption of automation and high technology to remain competitive.
Our population growth is slowing. Hence, we cannot sustain an ‘input-led’ growth model but increasingly need to drive for productivity.
Our natural resources are increasingly finite resources and cannot sustain economic activities reliant on subsidised fuel and power.

These changes should be evident for all to see but change is slow. As the world speaks of Industry 4.0, the Federation of Malaysian Manufacturers assessed that the majority of their largely SME members were probably still at Industry 2.5.

This is where the long history of past success becomes an impediment to change. This is evident from the resistance by private sector industry to the efforts to remove fuel subsidies for industry and moves to limit the entry of cheap unskilled foreign labour.

An outdated business model is a challenge but more so are fixated mindsets. One of the key propositions of the McKinsey Global Institute’s No Ordinary Disruption is that with the current speed and scale of change, business leaders can no longer rely on intuition built over past business knowledge.

The megatrends of the emerging markets, disruptive new technology, changing demographics and increased global connectivity has fundamentally changed the rules of the game.

In the book Machine, Platform, Crowd: Harnessing Our Digital Future by Andrew McAfee and Erik Brynjolfsson of Massachusetts Institute of Technology, the authors highlight how the digital future is characterised by the increasing emergence of platforms such as Uber, Airbnb and Facebook – which lead to ‘winner takes all’ industries.

For example, how many of you would use a search engine other than Google? In such a future, competition is brutal and economic wealth is concentrated to the owners of innovation.

Despite Malaysia’s natural diversity, TalentCorp’s Diversity in the Workplace Survey 2017 analysis of the top 100 listed companies found that about a quarter of these companies had only a single race making up top management. This might make sense if one is working based on an ‘imitator’ business model of just executing on a given imported technology. This is clearly part of the recipe of past success to be dropped.

Malaysia’s future success relies on transitioning to an innovation-led economy. The first step would be to leverage on our natural diversity for creativity and innovative new ideas.

Building on strengths for future opportunities

While parts of our existing business model need to be dropped, Malaysia has gotten to its current position by establishing various strengths and capabilities along the way. The key is to build up and reposition our assets to take advantage of future opportunities.

Looking ahead to megatrends, we see emerging opportunities arising from:

Disruptive technologies such as internet of things (IoT).
The rise of Asia as the centre of future economic growth.
The increased demands for sustainable economies.
The shift towards demographic changes particularly urbanisation and ageing populations.

Our history has blessed us with a diverse cultural mix. With the rise of Asia and growing trade within Asia, we must leverage our multi-culturalism as a natural source of competitive advantage.

In this respect, the pursuit of national unity and celebrating our diversity is not only the right thing to do but also the smart thing to do for our nation’s economy.

Collaborations need to be undertaken not just between different communities but also between different sectors and segments. For example, we should explore building on our historical strength in palm oil, and oil and gas to capitalise on emerging opportunities in chemicals.

To best serve ageing Asians, we should ideally provide a comprehensive eco-system of integrated services through coordinated offerings from our leading property developers offering homes, private hospitals offering healthcare and financial institutions linking property and healthcare together with management of post-retirement savings.

Bringing all into perspective

Malaysia is blessed with many pockets of excellence developed over our history. The key is whether we (people, industry and Government) are all able to work together as a nation to harness our strengths to continue being successful going forward.

Malaysia has sailed through 60 years of nationhood. Certainly many past policies and values – pragmatism, inclusiveness and progressiveness – continue to be relevant for the future.

At the same time, as we look ahead, some of our past business models have become outdated and a change in mindset is required to embrace innovation and our diversity.

While we may be products of our history, we mustn’t become prisoners and be bound by it, as the saying “insanity is doing something over and over again and expecting a different result.”

Be it life or our nation’s journey, it is never completely deterministic or path dependent – there are choices we can make, build, leverage and improve on our past, to bring about even greater success by 2050.