23 July 2012

On Catch-up Strategies in the Far East


In recent issues (March 2012 and May 2012), László Árva and András Schlett have written about the economic development of Malaysia and South Korea from the mid-twentieth century to the present. Their suggestion that properly directed state intervention in the economy, either through direct investment or protectionist measures, can leverage rapid development of an emerging economy is well taken. Malaysia and Korea, along with Taiwan and Singapore, are good examples of rapid economic development assisted by active state engagement. There are many lessons in the experiences of these countries, and some of those lessons can be useful to governments in Central European countries that have been in transition from state planned and controlled economies to free market economies for the past two decades. However, one should be careful in assessing the relevance and utility of these examples.

Malaysia has a much more diverse population than does Hungary. About 60 per cent of the population are ethnic Malays (the indigenous people, except for some small tribes that antedate the presence of Malays in the area), and the Malays are Muslim. The great majority of private capital is controlled by those of Chinese ancestry who comprise about 28–30 per cent of the population. The ethnic Chinese, if religious, mostly identify as Buddhist, Taoist, or Christian. Persons of Indian ancestry comprise about 9–10 per cent of the population and most identify as Hindu or Christian. Eurasians, a few Caucasians, and tribal peoples make up the rest. The bumiputera (people of the land) policy favours ethnic Malays in a variety of ways intended to improve their relative economic and political power. To assuage more radical elements within the Muslim majority, the state’s various policies and practices effectively have made Islam a favoured religion. The bumiputerapolicies have done little to change the relative distribution of private capital, but it is fair to say that overall the standard of living of all Malaysians has improved dramatically in the last 40 years and that there has been a  reasonably balanced distribution of newly developed economic resources. However, the bumiputera policies have had some noticeable negative side effects. Corruption has become endemic, especially in connection with public works projects. The current government seems to be serious in its attempts to deal with corruption but it will take years of steady efforts to cleanse the system. The favouritism toward Islam exacerbates underlying tensions among the various religious communities. Overall economic growth and the generally open, accommodating nature of Malaysians from all ethnic and religious groups, have kept underlying tensions in check, but they erupt occasionally, most often in connection with a perceived ethnic or religious insult.

Petronas, the state controlled oil company, has provided substantial resources for Malaysia, but in the domestic economy it has been the beneficiary of protectionist policies. Likewise, the consumers of Malaysia have been protected from the ups and downs of worldwide petroleum markets by substantial state subsidies of gasoline and other products. The domestic automobile manufacturer has managed reasonably well within Malaysia because of heavy state subsidies and protections, but the Proton, an outdated compact car, is simply not competitive on international markets. The Malaysian experience with the Proton should be compared with the international success of the Korean automobile manufacturers, who have been forced to innovate and improve reliability in direct competition with Toyota, Honda, Nissan, and all the European and North American manufacturers.

Thailand, Malaysia’s next door neighbour, adopted a different policy in the automobile market. Instead of creating a domestic brand, Thailand became home to assembly plants of major established companies. A Thai consumer can buy a high quality Toyota made in Thailand by Thais. The same can be said of an American who can buy a domestically produced Toyota, Honda, Nissan, BMW, or Mercedes. One can question whether Malaysia is in a better position for having its own Proton.

Both Korea and Malaysia have invested substantial resources in education, and it is clear from their experiences as well as the experiences of other countries in the region that educational investments, properly done, are enormously important to economic development. Of the two examples, Korea is the more impressive. Korea, along with Japan, the United States, and Canada, is one of the few countries with private universities that are equal or superior to the best public universities. Korea has been willing to invest heavily in university based research at both private and public universities and has created successful partnerships which have supported innovation, entrepreneurship, and the commercialization of intellectual property. Malaysia has not been as heavily engaged with public support of research through universities, and its higher education sector is not nearly as strong as Korea’s, but Malaysia generally has done a good job with basic education for most of the population.

Malaysia made an understandable mistake soon after independence when it made Malay the official language for education and government in place of English. Malay is a lovely, Indo-European language with a rich heritage, but, like Hungarian, it is not commonly used or understood by others – except Indonesians who have a similar language. Singapore made a wiser choice in that it adopted four official languages (English, Mandarin, Malay, Tamil) and made English the common language for education, government and civil administration. The school system makes sure that every Singaporean is fluent in English and at least one of the other four languages. As a result, Singaporean scientists, businesspeople, and public officials integrate more easily into international discussions than their Malaysian colleagues.

Korea and Malaysia are lively, functioning democracies today, but each had a long period of heavily authoritarian rule. In Korea the most rapid economic growth has occurred since the government moved toward open democracy, but, in fairness, the earlier authoritarian rule maintained a stable social order during a period of great tension and uncertainty. For about a decade Malaysia has been moving toward greater and more transparent democracy as it has emerged from the long shadow of Prime Minister Mahathir’s government in which power was under the direct control of Dr Mahathir.

It is a pleasure to read essays in the Hungarian Review which look for ideas and examples from around the world for possible application in Hungary and similar European countries and which avoid the myopia that often characterizes discussions of national development, whether in Europe or elsewhere. But one should be careful not to accept examples uncritically. Malaysia has, in general, been an economic success, but it also is a nation that has favoured one ethnic group over others, has favoured one religion over others, has invested huge state resources in some questionable projects, has had a long period of authoritarian rule, and has a continuing problem with corruption. Korea’s success has been fueled, in part, by existential necessity and by a close alliance with a major partner (United States). Korea also draws strength from its homogeneity and strong cultural identity. Both countries demonstrate, however, that direct state involvement in the economy can be effective if properly directed. The phrase “properly directed” is critical. Myanmar, formerly Burma, was the richest post- colonial state in South East Asia, but military dictatorship and direct state involvement destroyed its developing economy as well as its political vitality. There are, however, hopeful signs of an emerging democracy and more open economy in Myanmar.

 

Howard Hunter

Professor of Law

Former President, Singapore Mangement University




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