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Monday, March 27, 2023

East Asian success models: Malaysia

After attaining independence from British colonizers in 1957, the Federation of Malaysia was formed in 1963 with Malaya, Sarawak, Sabah, and Singapore as its components. Political tensions caused Singapore to leave the federation in 1965, while the other three regions remain. Malaya is now called Peninsular Malaysia and Sarawak and Sabah located on Borneo island together form Eastern Malaysia. In 1969, the country faced race riots between sons of the soil (bhumiputra) and ethnic Chinese.

Ethnic groups, languages, and religion

The indigenous languages of Malaysia are from the Mon-Khmer and Malayo-Polynesian families. The official language is Malay. In the Peninsula, Chinese, Bharatiyas (Indians), and Malays form the major ethnic groups with Mandarin, Tamil, and Malay as their languages respectively. In East Malaysia, the languages spoken include Iban, Dusunic, and Kadazan. English too is a widely spoken language throughout the country.

The official religion is Islam. Per the 2010 Census, 61.3% of the population practices Islam; 19.8% Buddhism; 9.2% Christianity; 6.3% Hindu Dharma; and 3.4% traditional Chinese religions. The remainder is accounted for by other faiths, including Animism, Folk religion, Sikhism, Baháʼí faith and other belief systems

Form of Government

Along with a professed parliamentary democracy, Malaysia has a federal Constitutional monarchy with a paramount ruler Yang di-Pertuan Agong as the head of the state and also the leader of the Islamic faith in Malaysia. The monarch is selected for a five-year term by nine hereditary Sultans of Peninsular Malaysia.  Since 2019, the paramount ruler or King of Malaysia is Abdullah of Pahang.

The Parliament is bicameral with a senate and a People’s hall. The federal Parliament has legislative power and bills must be passed by both its houses but also need to be approved by the paramount ruler. There is a separation of powers between judiciary, executive, and legislature. But all judges, including the chief justice, are appointed by the King on the advice of the Prime Minister of Malaysia. This is in stark contrast to the system in Bharat where judges are appointed based on recommendation of a collegium of judges themselves!

Economic journey

After independence, Malaysia began with export of raw materials that were abundant in the country: rubber, tin, timber, palm oil, and oil and liquefied natural gas.

The country inherited a functioning civil service system which it decolonized and improved upon. Malaysia’s legal system is also considered high quality by corporates, although on social matters there is a pro-Muslim tilt with civil courts often deferring to Islamic courts. Most institutions are fairly independent of political control. Increases in world fuel prices were beneficial to the country which exports oil and natural gas. However, unlike Singapore, it has not managed to remain completely corruption free.

After the 1970s, it began developing its industrial sector and soon started to export textiles, electrical and electronic goods, and rubber products. In 1975, the government carried out policies for incentivising large-scale manufacturing. The government began funding its heavy industries mainly pig iron, aluminium die casting, steel, cement, motorcycle, and heavy engineering through agencies such as the Heavy Industries Corporation of Malaysia (HICOM).  Other industries similarly incentivized were pulp and paper. Export incentives were also started.

After a few years of state funding, the government sought to ease the economic and administrative burden on the government and reduce the role and size of the public sector in the economy. Thus, in 1983, the drive to privatize industries was initiated. Along with reduction of the government role, another aim of privatization was to boost economic growth and attain plan targets. One mechanism used for this was the use of the private public partnership (PPP) model. Another mechanism was through creating superior infrastructure in the form of roads, harbours, and telecommunication networks. These included the North-South Highway, the light rail transit, and the Kuala Lumpur International Airport. Capital investments were made in privatized government projects.

Another step taken was broad diversification of industries which was done between 1988 and 1997. These efforts yielded remarkable success and the country could achieve an average annual national GDP growth rate of 9% during this period.

Between the 1970s and 1999, the share of manufacturing grew steadily from around 14% of GDP to 30%, while the combined share of agriculture and mining declined from 43% to 17%.

The country also followed a policy of free trade and opened itself to foreign investment. There were hardly any trade barriers put up by the government. Another factor was the efficient management of macroeconomic variables such that inflation was kept low and there were no balance of payments deficits.

Following neo-liberal approaches like Singapore, it too developed strong financial markets. In 1994, the Kuala Lumpur Stock Exchange (KLSE) composite index began trading above 1300 largely due to inflow of foreign investment. At times, the trading volume at KLSE exceeded that of NYSE.

Unlike Singapore, Malaysia has been better endowed in natural resources which aided its economic success. It also chose the path of having a diversified economy and did not rely on one single natural resource alone.

It has been the world’s largest rubber producer and has now become the largest palm oil producer. It is also one of the world’s largest exporters of electrical goods and semiconductor devices. Export oriented manufacturing such as electronics has been sustained.

Its nominal per capita GDP reached $3238 in 1999. Foreign investment played a major part in this transformation and domestic investment was also continued at a steady proportion. In 2005, the stock market capitalization of listed companies was estimated by the World Bank to be above $181 billion. It is said to have the largest operational stock of industrial robots in the Muslim world. Its GDP has risen from below $2000 per capita at Independence to around $11,000 in 2017.

Affirmative action policies for majority

Poverty was very high and predominant among the bhumiputra vis-a-vis the Chinese migrants.  The bhumiputra  are ethnic Malays who are mandated by the state to follow Islam: ‘All the Malaysian Malay people are Muslim by law.’ To reduce poverty among the bhumiputra, the government introduced an ‘affirmative action’ initiative for redistributing wealth and eliminating dominance of any one ethnic group in specific economic sectors.

The target was for 30% of GDP to be in the hands of the bhumiputra to be achieved through giving a discount price on 30% of initial public offerings on the stock exchange which were reserved for the bhumiputra. This exercise was carried out through Malaysia’s largest fund management company, the Permodalan Nasional Berhad (PNB). This policy was a part of the National Economic Policy (NEP) and continued until 1990.

The National Development Policy (NDP) which was introduced in 1991 continued with ‘affirmative action’ in favour of the bhumiputras.  Under the NDP, the bhumiputra with potential and good track records were to be given assistance as opposed to the NEP which favoured all bhumiputras uniformly. Such actions favouring ethnic Malays continue in some form or the other through government policies.

The ‘affirmative action’ policy has been considered controversial as it favours one ethnic group blatantly.  Many consider such a policy as against the principle of fairness and inter-ethnic harmony. Apart from this, another lacuna has been that secondary industries are concentrated in the Peninsula region while Sabah and Sarawak are predominantly engaged in production of timber, oil, and liquid natural gas.

While Islamic Malaysia engages in excessive majoritarianism without any opprobrium from the international community and West, ‘secular’ Bharat doles out huge amounts for minority-only schemes yet gets vilified for ‘Hindu majoritarianism’! We also continue indefinitely with reservations for SCs and STs, which the prime architect of the Constitution, Dr. Ambedkar wanted to be phased out after a decade or so.  Worse, vote-bank politics has led to Hindus converted to Islam or Christianity availing of double benefits, those which are caste based as well as minority based. These policies in fact encourage conversion out of Hindu Dharma and deepen fault lines in society.


Like Taiwan and Singapore, Malaysia followed a policy of rapid industrialization and welcoming foreign investments. Similar to Singapore and Hong Kong, it also tried effective macroeconomic policies. Its attempts to develop strong financial markets many not have been as effective as Singapore or Hong Kong but it continues to strengthen its financial sector. Moreover, this Islamic country with a titular monarch and an anti-minority democracy is yet another example that a country does not have to follow idealized Western liberal democracy to achieve economic success.

Bharat will do well to draw lessons from Malaysia and enact similar laws for protection of its majority who are practitioners of threatened Dharmic faiths. At the very least, it needs to dismantle the discriminatory policies that favour minorities and work against Hindus. A laser focus on rapid industrialization and economic growth coupled with basic welfare for all, rather than endless social redistribution programs and electoral rhetoric, is also the need of the hour.





Featured Image Source: Avis.com

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