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DIIS Seminar Series on State-Business Relations and Economic Development, Spring 2011. Development coalitions, foreign business and industrial policy in Malaysia. By Peter Wad, DICM/CBDS, CBS. Agenda. Long waves of economic development: Income-traps and trap-bypassing.

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Diis seminar series on state business relations and economic development spring 2011

DIIS Seminar Series on State-Business Relations and Economic Development, Spring 2011

Development coalitions, foreign business and industrial policy in Malaysia.

By Peter Wad, DICM/CBDS, CBS


Agenda
Agenda

  • Long waves of economic development:

    • Income-traps and trap-bypassing.

    • Industrial diversification, deepening and upgrading.

  • Long waves of political development:

    • Building state, nation, participation, welfare.

  • The politics of industrialisation:

    • Development coalitions, foreign capital and industrial policy.

  • New Economic Model 2010-2020:

    • A paradigme shift of economic strategy?

  • State-business relations, ’Varieties of Capitalism’ and ’Industrial Relations’:

    • The case of Malaysia.

  • Conclusion


Long waves of economic development source yusuf nabeshima 2009
Long waves of economic development(Source: Yusuf & Nabeshima (2009)


Long waves of economic development(Source: Yusuf & Nabeshima (2009) Tiger Economies under Threat. Washington:WB)


Long waves of economic development
Long waves of economic development

  • Income-traps: Malaysia’s GNI/capita and overall poverty.

    • Low-income trap: Malaysia 1960s-1970s?

      • Incidence of poverty 1970: 49%; 1980: 29%

    • Middle-income trap: Malaysia 2000s?

      • GNI USD/capita: 2000: 3,450; 2009:7,350

      • Incidence of poverty: 2004: 6%; 2009: 4%.

    • High-income trap: Not a trap, a ’Vision 2020’ in Malaysia. A trap of welfare state?


Long waves of economic development1
Long waves of economic development

  • Industrialisation:

    • conceived as industrial diversification, deepening and upgrading (Lauridsen 2008).

    • Strategic industrial policy aims for improving all aspects.

  • Industrial diversification in Malaysia:

    • Declining importance of agriculture, yet still important export items (e.g. palm oil).

    • Important oil industry.

    • Manufacturing dominates export.

    • Services increasingly important.


Long waves of economic development industrial diversification source yusuf nabeshima 2009
Long waves of economic development:Industrial diversification (Source: Yusuf & Nabeshima (2009)


Long waves of economic development industrial diversification source yusuf nabeshima 20091
Long waves of economic development:Industrial diversification (Source: Yusuf & Nabeshima (2009)


Long waves of economic development:Industrial deepening (Source:Furby (2005) Evaluating the Malaysian EPZs. Lund: LU)


Long waves of economic development industrial deepening source imp3
Long waves of economic development:Industrial deepening(Source: IMP3)

  • Industrial cluster development:

    • Penang: Electronics (semiconductors).

    • Shah Alam/Klang Valley: Automotive.

    • Kerteh, East of Peninsular Malaysia: Petrochemicals.

    • Muar, Johore: Furniture.

    • Batu Bahat, Johore: Textile & apperal.

    • Subang, Selangore: Airospace.


Long waves of economic development industrial deepening source rasiah 2002 2003
Long waves of economic development:Industrial deepening(Source: Rasiah 2002, 2003)

Industrial clusters require:

  • Human capital formation (education, training).

  • Enabling environment for entrepreneurship.

  • En integrated business network of TNCs, local firms, business associations, politicians, local community.

  • Success:

    • Penang semiconductor industry (foreign TNCs, local machine tool suppliers).

    • Penang Skill Development Centre (PSDC) is a model for regional networking.

  • Failure:

    • The Multimedia Super Corridor (MSC), KL, in IT – so far a failure.


Long waves of economic development industrial upgrading source yusuf nabeshima 2009
Long waves of economic development:Industrial upgrading (Source: Yusuf & Nabeshima (2009)


Long waves of economic development industrial upgrading source yusuf nabeshima 20091
Long waves of economic development:Industrial upgrading (Source: Yusuf & Nabeshima (2009)


Long waves of political development political development theory source burnell randall 2005
Long waves of political development:Political development theory (Source:Burnell & Randall 2005)

  • State building

    • Military and administrative structures established.

    • Malaysia: Independence 1957 under cross-ethnic elite coalition (’Alliance’); Confederation 1963. Singapore excluded 1965.

  • Nation building

    • Political culture of national identity & loyalty.

    • Malaysia: Crisis 1969: Ethnic violence after defeat of ’Alliance’ government loosing control of some local states.

  • Participatory institution building

    • Institutions of political democracy & corporatism.

    • Malaysia: Semi-democracy; 1980s King/sultans clipped; crisis 2008 election gave opposition control of several local states.

  • Distributional institution building

    • Redistribution of wealth, welfare.

    • Malaysia: Affirmative policy for Bumiputera population 1971-


Conflicting development coalitions source inspired by stallings 1978
Conflicting development coalitions(Source: Inspired by Stallings 1978)


Strategic Industrial Policy:The stage model of industrialisation:Classic International Division of Labour

Industrial Country: UK

I

II

III

Commodity

Consumer goods

Capital goods

Interm. goods

Developing Country: Malaysia 1950s-60s


Strategic Industrial Policy:The stage model of industrialisation of NIDL – Primary, Secondary &Tertiary ISI, EOI (DDE?)

Primary Secondary (Tertiary?)

Industrial Country: Global North

I

II

III

Commodity

Consumer goods

Capital goods

Interm. goods

Developing Country: Malaysia 1970s-2010


Industrial policies of specific industries
Industrial policies of specific industries

  • Ressource based industry: State acquisition in 1970s.

    • Capitalist nationalisation of plantations & institutional capitalism (GLCs), increasing use of immigrant labour from 1980s.

    • Export diversification & deepening.

    • Development of sector innovation system.

  • Electronics industry: TNCs 1971-

    • FDI-led EOI expansion in EPZs (& FTZ/warehouses).

    • Low-cost, labour intensive industry. Anti-union policy.

    • Local linkages in Penang state, limited innovation.

  • Automotive industry: State-TNC alliance 1983-2004.

    • State-driven national automotive industry (GLCs) with Jap. technology

    • Captured and lost domestic market; export failure (CBU & parts).

    • Foreign TNCs acquire control; Proton in dire straits.


Malaysia s industrialisation strategies main emphasis
Malaysia’s industrialisation strategiesMain emphasis

  • Industrial diversification (incl. IMP1 1986-95):

    • Protectionism & Primary ISI 1957-1971

    • NEP-strategy & FDI-Primary/Secondary EOI 1971-1981.

    • State-NEP (SOEs) & Secondary ISI: 1981-1986.

    • Privatising-NEP & FDI-Secondary EOI: 1986-1991

  • Industrial deepening (IMP2 1996-2005):

    • Vision 2020 of 1991, privatising, industrial deepening & upgrading aiming for tertiary ISI & EOI: 1991-1997.

    • Crisis and post-crisis governance: Re-nationalisation (GLCs) & re-regulation 1997-2003.

    • Consolidation, priority of balanced regional development, reduction of big development projects 2003-2009.

  • Industrial upgrading (IMP3 2006-2020):

    • Moving up the global value chain.

    • New Economic Model 2010-2020.


New economic model 2010 2020 source neac 2009
New Economic Model 2010-2020(Source: NEAC 2009)


New economic model 2010 2020 source epu pmd 2010
New Economic Model 2010-2020(Source: EPU/PMD 2010)


New economic model 2010 source neac 2010
New Economic Model 2010(Source: NEAC 2010)


New economic model 2010 source neac 20101
New Economic Model 2010(Source: NEAC 2010)



The new economic model 2010 20 source epu prd 2010
The New Economic Model 2010-20 (Source: EPU/PRD 2010).


Role of fdi in new economic model
Role of FDI in New Economic Model

  • Malaysia’s reliance on inward foreign direct investments was strong in the past. FDI’s share of gross fixed capital formation was 14.4 percent annual average 1995-2005, 21.2 percent in 2007, down to 16.8 percent in 2008 and then falling to 3.5 percent in 2009 (UNCTAD WIR 2010, country fact sheet Malaysia).

  • Inward FDI flows do seem to increase again in 2010 due to “government’s planned efforts in the 10th Malaysian Plan, the NEM, and GTP in attracting FDI flows (Rasiah & Govindaraju 2011, 6).

  • But Malaysia’s attractiveness as location for TNC operations relative to its regional competitors has also weakened in recent years.

  • Malaysia may have changed to a net FDI exporter following the shift from inward and outward FDI flows balancing in 2006 into a surplus of USD 8 billion in outward FDI flow in 2008 (double the amount of inward FDI flow).

  • A new and more balanced regime of accumulation will have to be installed enabling the government to reconsider the pro-FDI policy of low wages, low unionism and low labour participation in manufacturing and especially in electronics.


Wage trends in east asian developing countries source economist 2010 09 04
Wage trends in East Asian developing countries(Source: Economist 2010-09-04)


Average salary increases based on positions for executives and non-executives (1996-2005) (in %). Source: MHR 2008, 32 (after MEF salary surveys). Note: (¤) average own calculations.


Nem and labour market reforms neac 2010
NEM and labour market reforms and non-executives (1996-2005) (in %). (NEAC 2010)


New economic model 2010 source neac 20102
New Economic Model 2010 and non-executives (1996-2005) (in %). (Source: NEAC 2010)


State business relations evans transformation theory the korean case
State-business relations: and non-executives (1996-2005) (in %). Evans’ transformation theory: The Korean case

  • Transformation of state-business relationships:

    Phase 1 Phase 2 Phase 3 Phase 4

    Autonomy

    Embeddedness

Neo-dev.

state

State

Big state

Big state

SMEs

Labour

Global

business

Global

business

Big

business

Small

business


Transformation theory of state business relations the malaysian case inspired by bonn juego aau
Transformation theory of state-business relations: The Malaysian case (inspired by Bonn Juego, AAU)

  • Transformation of state-business relationships:

    Phase 1 Phase 2 Phase 3 Phase 4?

    (1957-69) (1990s-2000s)

Authoritarian

developmentalist

state

Small state

Authoritarian

Liberalism

Developmentalist state

Capital

Capital

GLCs,TNCs

& Bumi SMEs

TNCs

Social

group

Small

business &

foreign resource exporters

Small Chinese

business

Social

group

Small Chinese

business


Varieties of capitalism and ir lme cme hme and malaysia inspired by schneider various articles
Varieties of capitalism and IR: Malaysian case LME, CME, HME and Malaysia (inspired by Schneider, various articles)



Varieties of capitalism & labour markets: (D)ME (Malaysia 1971-2010)LME, CME, HME and MalaysiaSource: Schneider 2009, 562 (LME, CME, LA). Malaysia: Union density (own calculation); Job tenure: MHR 2008, 28; Labour market regulation index: Botero et al. 2004, 1663 (Malaysia 1997); Informal economy (percent of households surveyed 2006): DOS 2009.


Industrial relations from high control to high commitment system source todd lansbury davis 2004
Industrial relations: From ’high control’ to ’high commitment’ system (source: Todd, Lansbury, Davis 2004)



Conclusion malaysia success and failure

Advantages CME:

Sustained economic growth per capita.

Sustained industrialisation.

Poverty alleviation.

Political stability &semi-democratic political system.

Planning for technological transition.

Defending Third World interests internationally.

Drawbacks:

Dual economy

Low-tech industries

TNC & FDI dependence

Weak R&D

Weak policy implementation

Strong executive power and weak judiciary system.

Civil society exists, but it is controlled or suppressed.

Conclusion:Malaysia - success and failure


If malaysia stalls halfway why
If Malaysia stalls halfway, why? CME

  • Colonialism: established an export-sector for raw material & a multi-ethnic society. Resource abundance.

  • Post-colonialism: Mainstream to start ISI.

  • Potential civil war: prevented by authoritarianism and NEP (incl. FDI-driven EOI) /ethno-nationalism. Internal pressures contained.

  • Political-economic cycles: adaptation during recession and upgrading during boom. External economic, not security vulnerability.

  • Political structure: the hegemonic party prevails among the ethnic majority and includes other parties in a broad developmental, cross-ethnic coalition (Malaysia Inc., Vision 2020, NEM).

  • Co-optation or repression of civil society groups (religious communities, trade unions, NGOs).

  • Development model: ‘authoritatian-developmentalist’ with limited relative autonomy and embedded in ethno-nationalism. Soft repression of organised labour.


Appendix systemic vulnerability malaysia doner riche slater 2005
Appendix: Systemic vulnerability – Malaysia CME(Doner, Riche & Slater 2005)


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