Presentation for 'Malaysian Capitalism in Comparative Perspective' : Day 2 Prof. Jomo Kwame Sundaram 8 November 2016

1. A Malaysian French International Conference
Malaysian Capitalism, in Comparative Perspective

2. Malaysian development
in numbers
Jomo Kwame Sundaram
Khazanah Research Institute
8 November 2016

3. Unlikely nation?
• Sunset on British empire after WW2
 Withdrawal East of Suez
• 1961: Ex-British territories in SE Asia
• No Maphilindo, alienating Indonesia,
Philippines
• Brunei withdrawal in mid-1963
• Singapore secession in August 1965
• May 1969
• BN ruling coalition survival

4. Development policy phases
• Tunku’s ‘laissez faire’, ISI, Felda
• Razak, Hussein: NEP, EOI, SOEs
• Mahathir 1: heavy industries, Look East
• M2: liberalization, privatization, EOI2
• M3: crisis management, recovery
• Abdullah: agriculture?, SOE reform
• Najib: NEM reforms  survival

5. 1957-1969
• ISI: tariffs, MIEL: industrial zones,
MIDF
• FDI guarantees
• Rural devt: Razak vs Aziz Ishak
• Malaysian common market
• Affirmative action: SEDCs; Bumi
econ congress, Bank Bumi, MTI

6. 1970-1980: The State Rises
• ISI  EOI: Industrial Incentives Act, L law
reform, FTZ Act  female
employment
• May 1969: rejection of Alliance  palace
coup  BN
• Increased unemployment + inequality 
ethnic perceptions  redistributive
• NEP  1975 ICA Oil  1974 PDA  fiscal
space  public investments

7. 1981-1985: Mahathir 1
• Heavy industrialization (ISI2)
• Look East: Labour policy
• Volcker  International
economic slowdown
• Isi penuh (full employment)
jimat cermat (austerity)

8. 1986-1997: Mahathir 2
• Privatization + contracting out
• partial educational + economic
liberalization
• 1986 Promotion of
Investments Act
• Financial crisis  Banking crisis
 1989 BAFIA
• EOI2 boom

9. 1998-2003: Mahathir 3
• 1997-98 crisis  public
investments; FDI down
• Neglect of technology
policy, other earlier
initiatives

10. 2003-2008: Abdullah
• Consolidation and reform of
public sector
• Renewed appreciation of
agriculture, but little change

11. Since 2009: Najib
• New Economic Model
• Renewed emphasis on private
sector
• Improving governance, personal
accountability
• Further expansion of role of JPM,
finance ministry
• 1MDB scandal paralysis

12. 12
Malaysia’s open economy
10
-5
0
5
10
15
1970 1975 1979 1984 1988 1993 1998 2002 2007 2012
GDP:
RM11b
Dawn
raid
Commodities
50% of exports
• Plaza accord
• Commodities
& property
crisis
"Mega projects"
Investment > Savings
Privatization
Manufacturing
export-led
recovery
Investment < Savings
W-recovery
from 1997-98 crisis
RM
peg
RM
de-peg
dot.com bust / 9-11
GDP: RM751.5bn
Commodities 20%
of exports
After 2005:
• Fiscal deficit > 4.5%
• Pubic debts more
than doubled (↑120%)

13. Output by sector, 1970-2016
1970 2016*
Agriculture 29.0% 8.6%
Mining 13.7% 9.0%
Manufacturing 13.9% 23.3%
Construction 3.8% 4.6%
Services 36.2% 54.5%

14. Employment by sector, 1970-
2014 (%)
1970 1990 2014
Agric, For., Mining 53.5 26.0 12.2
Mining & quarrying 2.6 0.5 0.3
Manufacturing 8.7 19.9 27.4
Construction 2.7 6.3 6.2
Services 32.5 47.3 60.3

15. Manufacturing ceiling?
0
20
40
60
80
100
1970 1975 1980 1985 1990 1995 2000 2005 2010 2012
Services
Construction
Manufacturing
Mining
Agro-based

16. Urbanization, 1957-2015(%)
1957 1970 1990 2010 2015
Rural 91.0 71.2 45.3 36.6 26.5
Urban 19.0 28.8 54.7 63.4 73.5

17. Poverty rates,1970-2014
1970* 1990 2009 2014
Total 49.3 16.5 3.8 0.6
Rural 58.6 21.1 8.4 1.6
Urban 24.6 7.1 1.7 0.3
Poorest - 3.9 0.7 -

18. Poverty rate, Gini ratio, 1970-2009
0
10
20
30
40
50
1970 1975 1980 1985 1990 1995 2000 2005 2010
Incidence of
Poverty (%)
0.0
0.1
0.2
0.3
0.4
0.5
0.6
Gini coefficient

19. Poverty rate, Gini ratio, 2009-2014

20. Employment status, 1957-2011(%)
1957 1980 2011
Employer
35.0
3.8 3.6
Self-employed
27.0 15.6
Employee 56.7 58.3 76.6
Unpaid family
worker
8.3 11.0 4.2

21. Inter-ethnic av. household
income ratios,1970-2009
1970 2009
Chinese/Malay 2.29 1.31
Chinese/Indian 1.30 1.25
Indian/Malay 1.78 1.04
Urban/Rural 2.14 1.85

22. Av. household incomes,
1970-2014
Year Top 20% Middle
40%
Bottom
40%
1970 3111 914 322
1989 5263 1831 750
2009 9987 3631 1440
2014 14,305 5,662 2,537

23. Av. HH incomes, 1970-2009

24. Av. HH incomes, 1980-2007

25. Occupations by Ethnicity, 1970-2005 (%)
1970 2005
Bumi Chin Ind Bumi Chin Ind
Managers 24.1 62.9 7.8 41.9 50.0 7.5
Professionals 47.0 39.5 10.8 58.6 31.8 9.0
Technicians - - - 64.7 26.1 8.5
Clerical 35.4 45.9 17.2 59.6 32.5 7.4
Services 44.3 39.6 14.6 59.6 33.6 5.7
Sales 26.7 61.7 11.1 - - -
Agriculture 72.0 17.3 9.7 84.4 11.3 2.7
Crafts & Trades - - - 52.6 40.5 5.9
Production 34.2 55.9 9.6 66.5 17.4 15.2
Elementary - - - 70.0 16.2 12.2
Total 51.8 36.6 10.6 62.6 28.2 8.2

26. Share ownership @ par by
ethnicity, 1970-2008 (%)
1970 1985 2008
Bumiputera 2.4 19.1 21.9
Chinese 27.2 33.4
36.7Indian 1.0 1.2
Foreign 63.4 26.0 41.4

27. Bumiputera ownership of
share capital, 1970-2006(%)
1970 1985 1990 2006
Total 2.4 19.1 19.3 19.4
Individuals 1.6 11.7 14.2 15.1
Institutions
0.8 7.4 5.1
2.6
Trust agencies 1.7

28. Post-Asian crisis growth slower
Average 6.0
Japan
UK
US
Philippines
India
Thailand
Indonesia
Taiwan
S. Korea
Vietnam
Singapore
Malaysia
China
Pre-crisis, 1990-97
10.0
7.5
7.0
5.5
5.4
5.2
5.0
4.9
4.8
3.8
2.5
2.4
1.5
Average 5.0
Japan
US
UK
Taiwan
Thailand
S. Korea
Philippines
Indonesia
Singapore
Malaysia
India
Vietnam
China
Malaysian
growth rate
now much
slower
Post-crisis, 2000-08

29. 29
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1990 1995 2000 2005 2010
Private investment Public investment
Valuesin
constant
1987 prices
Valuesin
constant
2000 prices
2012
RM million
Since 1997, private investment lower,
government investment still rising

30. Investment
down
14
76
3
9
7
Pre and post-Asian crisis
Private
consumption
Government
spending

31. Post-crisis investment collapse
Gross Domestic Investment & Net FDI as
% of GDP
-10
0
10
20
30
40
50
1987 1992 1997 2002 2007 2012
Domestic investment

32. Investment still down, govt
spending not really higher
32
Growth (% p.a.) of Demand Components
7.5
8.9
3.2 3.3
-0.6
15.4
-2
0
2
4
6
8
10
12
14
16
Pvt Consumption Gov spending Investment
1991-1997 1998-2012

33. 33
Consumption > investment
% shares of demand components to GDP growth

34. Education of new workforce, 1998-2011
7 5 5 5 4 2
27
24 24 23 21
14
23
22 21 21
20
30
34 34 34
35
4 4 4 3 4
56
9 11 11 14 16
28
0
20
40
60
80
00
1998 1999 2001 2004 2007 2011
80
100
60
20
40
0
Tertiary
PostSec
UpSec
LowSec
Primary
None
AllSec80%

35. Workforce skills inadequate
Education profile of workers + jobs cause for concern
Jobs : Only 25% of Malaysian jobs are in the higher skilled
bracket. Developed nations have higher proportion

36. Science infrastructure poor
Country science infrastructure ranking
Ranking out of 55 countries
Ranking 1997 2008
China 28 6
Indonesia 35 25
Malaysia 24 28
India 29 29

37. Low R&D investments
Expenditure on R+D (% of GDP)