Sample Political Science Essay Paper on Malaysia Economic Development Strategies

Malaysia Economic Development Strategies


Malaysia is a highly heterogeneous country ranked among the fastest growing economies in the world both in terms of Gross Domestic Product as well as per capita income. The strides realized in the economic development have been exemplary since other countries with the same characteristic of heterogeneous and ethnically organized groups were considered poor especially in the early 1980s all through to 1990s. Up to late 1990s, Malaysia was considered among the poor countries which could not raise enough resources measured as per capita income with great under-representation among the fastest growing economies. However, such notions are no longer used to describe Malaysia since much has transpired especially in the economic front and it is considered among the fastest growing economies with a stable GDP and robust growth. There are four characteristics which may be used to describe Malaysia in the modern day in economic terms (Fujio 11).

First, Malaysia is considered as an essential success story in terms of development and economic prosperity. When considered from various perspectives, the success story of Malaysia is of a different kind especially when considered in the view point of other Northeast Asian Giants of South Korea, Singapore, Taiwan, Japan and Hong Kong. Than ever before with regard to the Southeast Asia countries, there is a resemblance of Malaysia development infrastructure in other countries in the world. The case of Malaysia economic development has a lot to offer whenever lessons can be drawn to other developing countries to emulate on the success and robust growth in the Malaysian economies (Malaysia: Vision 2020).

In consideration to the last two decades, the Malaysia economy has undergone a series of transformation from merely a low income source of raw materials with protect security. The economic activities driving growth has shifted the model from raw materials towards a middle income with emerging issues especially in the multisector economy which is necessarily driven by exports in manufacturing and electronics market. The electronic export market constitutes nearly 90 percent of all exports in Malaysia. There were strategies which were instituted by the government especially following the deadly 1969 riots which were targeted towards the economically dominant ethnic Chinese. This followed the utilization and implementation of the New Economic Policy (NEP) (Second Outline Perspective Plan 1991-2000). Among these policies which were notable in improving the economic activities as well as boosting growth resulted from the government’s commitment of a free market especially the bumiputurna (literally, “sons of the soil”). The main aim of these policies was to primarily protect the minority Islamic Malays from unhealthy economic competition from foreign investors and other ethnic groups especially in the domestic market. These were commonly referred as the constructive protection by the government which strived in promoting economic prosperity of the locals as well as tapping to the heterogeneous diversity in Malaysia (Malaysia: Vision 2020).

The economic situation in Malaysia was not spared by the Asian 1997 economic climate which swept across Asian economies and majority of companies were adversely affected. To ensure loss of employment and collapse of major corporations, the Malaysia government renationalized majority of companies which were earlier rationalized and privatized. Their decision was backed by the widespread collapse of corporations and companies which were now in the private control. Further, economic policies were instituted to ensure the domestic market is protected in the wake of such economic turmoil with an objective of maintain their rationality and liquidity in the market. The government was conscious of domestic protection and promotion of domestic industrial growth which was regarded as the main objective of boosting economic growth and achieving government economic targets. The renationalization of was targeting initially rationalized companies like the national car company, Proton, Renong engineering group, Malaysian Airline among others. The government wanted to inject capital and manpower to resuscitate the major companies to safeguard against mass unemployment and capital flight out of Malaysia (Fujio 13).

Economic Development Strategies

Following the Asian economic crisis, major economies in the world especially those in the region were adversely affected and companies collapsed while others were placed under receivership. Considering growth measures were instituted to ensure economic prosperity; rethinking of strategy was inevitable in the onset of the crisis. A robust recovery strategy was adopted by the Malaysian government which was aimed at restoring the economic growth of the Asian giants. However, the recovery program which was introduced in the late 1999 and early 2000 was however slowed when it hit a wall in 2001 especially due to the world economic slowdown. Since the Malaysian economy heavily relied on the export market especially after the robust economic recovery program, export market was greatly affected by the world economic slowdown. The government had to rethink on the best ways and means of achieving and going back on economic recovery track (Olivier and Stanley 67).

The 2001 resulted to a 50 percent reduction of foreign direct investment which was heavily relied upon by majority of companies to stimulate growth in various aspect. The year preceding such global downtown resulted to a drop of GDP by 0.7 percent. The government heavily relied on the railway network and other telecommunication networks which were used to drive growth. In addition, the government strive to ensure the situation is reversed and the economy was back on track. In ensuring this, the government gave their commitment to ensure the market remains free and fair to enterprises to operate without government interference at all times. Capitalism to an extent was promoted largely to ensure private investment was captured in the growth strategy. Any economy aspiring for growth ought by all means to ensure the economic contribution of the private sector was taken in consideration especially when the government was involved with renationalized of major corporation, the private sector therefore compliments the government efforts in injecting the necessary required capital to ensure liquidity is enhanced at all times. The free enterprise policy which the government promoted ensure free private participation although the government retained the control of major infrastructure projects like railway and communication systems with key manufacturing industries also under the government control (Olivier and Stanley 69).

The government enhanced the its controlled companies when it refurbished the Perbadanan Nasional (PERNAS) which was a government controlled holding company. It was tasked with ensuring Malays controlled businesses strive and get the necessary government support including tax rebates, capital injections and tax incentives. Through PERNAS, the government strengthened various sectors of the economy especially the tin-mining. The government’s efforts have also been notable in other important sectors of the economy like oil when the National oil corporation was established in 1974. This was aimed at establishing government control through acquisition of majority stake in the petroleum sector hence safeguarding other industries which greatly depended on oil in their operations. The global oil market is a major contributor to the growth and development of any economy, therefore, when the government seeks to control the economic growth trajectory, the oil sector is the initial stage in the operations of such a strategy (Malaysia: Vision 2020).

The government also introduced a law which intended to cap the foreign participation in various sectors like export of local materials, processing and domestic distribution. This was further aimed at encouraging Malays owned businesses to take a leading role in such industries which would in turn retain much of the profits in the country further generating internal revenue and growth for such companies. The government as well hoped to ensure the capital flight was drastically reduced and as much as possible retained in the local market to stimulate growth. In this line, the government ensured subsidies were available for the domestic owned companies especially those in the segregated sectors of the economy (Albert 23).

Since the government was committed in ensuring growth and prosperity of industries in the economy, it established the New Economic Policy (NEP) which was adopted in 1971 with the sole purpose of channeling majority of future growth projections to local owned industries. From the various initiatives the government established, majority was viewed towards inclination towards domestic protectionist and ensuring locally owned industries were promoted and strengthened. The realization that local economic growth and development as well as sustenance was majorly in the hands of Malays. In this policy, the government aspired to achieve 30 percent of corporate ownership at the hands of Malays by 1990 while significantly reducing corporate ownership of Chinese and Indians. In short term investment, the strategy sort to reduce the corporate ownership by 30 percent in short term investment. This was aimed at ensuring the Malaysians were in full control of the short term investments to drive the economy at all times. When short term investment is enhanced, the growth will in the long run will be attained and sustainable since growth will be gradual focused on various long term government strategies to drive the economy in a certain direction. Finally, on this front, the government heavily relied on domestic investment of industrial growth and major infrastructural projects which were delicate to be held by foreign investors (Second Outline Perspective Plan 1991-2000).

Various policies established by the government were aimed at increasing economic activity to boost the industrialization. According to government sources;

The Malaysian government also identified six “Game Changers”, innovative approaches that will change the trajectory for the country’s economic growth and enable it to reach its economic goals: Unlocking the potential of productivity; Uplifting the B40 households (bottom 40% household income group) towards a middle-class society; Enabling industry-led Technical and Vocational Education and Training (TVET); Embarking on green growth Translating innovation to wealth; Investing in competitive cities (Albert 25).

The government of Malaysia decided to establish a policy which was friendly and in line with other countries in the region for international cooperation. In this front, Malaysia adopted the “Look East” economic policy geared to stimulating the international trade and intra trade among regional trading partners. The Look East policy was emphasized by the Malaysian government in the attempt to emulate the success which was witnessed by South Koreans and Japan and hence worthy replicating it in Malaysia. This was emphasized as a result of the drop in oil prices as well as other exports in the international market. In line and focus of such harsh conditions which Malaysia relied on, the government reluctantly abandoned the heavy reliance on oil and invested heavily technological importation geared by the Look East policy. This shift of goals witnessed the country abandon the NEP goals and strived in promoting foreign investment especially in the export industries. Malaysia recognized the importance of foreign investment especially at the time domestic market was deteriorating and government capital investment was diminishing ad could no longer sustain the required growth to stimulate expenditure which in turn would increase demand (Malaysia: Vision 2020).

Malaysia recognized the importance of economic development plans as the greatest strategies to stimulate economic growth and development. The fifth Malaysian plan (FMP) 1986 – 1990 led to the conclusion of the development plans put in place to stimulate growth and enhance economic expansion. To catch up and live to world standards, Malaysia realized the over reliance of oil, exports and importation of technology will not achieve the purpose, therefore the fifth plan strongly advocated for the industrialization policy to drive the desired economic growth at all levels. To achieve this purpose, all ethnically grouping were involved in the industrialization process where distribution and ownership of industrial and commercial enterprises was designed to achieve the desired domestic growth and ownership. Domestic ownership was encouraged and the government provided financial support for the purchase of foreign owned shareholding on behalf of the local population especially the Bumiputra. By 1990, this process and objective by the government had increased the number of domestic shareholding and equity to over 30 percent. The new national development policy is that ensured these objectives were achieved and acted as the driving force for economic growth and development. In conclusion, development plans with specific timelines have been the greatest achievement in spurring economic growth have been successful. It is a strategy the country explored and currently it is considered as one of the best developed countries economically in the world (Olivier and Stanley 71).

The industrialization strategy was pursued and ensured Malaysia has developed its economic growth and development by 6 percent every year. The current economic blue print targets to grow the economy by 7.5 percent driven mostly by huge expenditures in infrastructure as well as other essential development geared at privatization of major corporations. Privatization as the current strategic involvement of the government is aimed at enhancing industrialization while increasing the manufacturing sector especially in the trade free zones. The government has also established a specialized financial institution to avail the required financing and capital to the industry to ensure available resources are availed for expansion. However, despite various strategies and efforts which have been in place and improved the economic status of the country, various challenges have been witnessed. First, Malaysia has crumbled with shortage of skilled workers especially those working in specialized industrial fields, low rises in productivity and gaping current account deficit. Despite these challenges, the master industrial plan for the country has greatly improved on the status and conditions of the industries and the prospect is better than anticipated with the offset of Asian financial crisis (United Nations Development Programme 3).

The harmonious interrelationship between the multi-racial society has enhanced economic growth in Malaysia. Every economy aspiring for growth and development ought to control various parameters which are essential in enhancing growth. In this line Malaysia instituted various measures to control population growth to manageable levels. An economy which does not have a strategy for population control is bound to fail in every attempt to improve its economic conditions. Little effects will be felt when other strategies are in place but nothing is done to control the population growth. An example is the China’s one child policy which has been in place for decades and the results have been enormous. The economic growth has been able to sustain the growth in population and resources are no longer constrained. Although the policy is no longer applicable, the period to which it was active achieved more than expected with strengthened economic growth (Olivier and Stanley 74).

Income distribution is one of the best strategies a country may adopt in enhancing economic growth and development. In this regard, the Malaysian government established a specialized financial institution to provide capital and finances to entrepreneurs in their quest to industrialize. When they supplement government efforts in this aspect, the government compliments their efforts in providing affordable capital for industrialization. In this line as well, the government has created various incentives like tax forfeits to encourage industrialization in all geographical locations and ensure equitable distribution of income. The income distribution concept is a famous economic dissemination strategy utilized by governments to achieve equitable resource distribution. Finally, any government aspiring to achieve economic growth and development that is sustainable in all aspects ought to institute strategies which put to inflationary pressures (Albert 28).

In this line, Malaysia ensures that inflation especially for basic commodities should always be put in check. Malaysia has always maintained the inflationary measures below the one-digit number that has stimulated economic growth and development in the country. According to Pemandu, “Malaysia is well on track with its economic plan to reach the objective of becoming a high-income country by 2020, says Idris Jala, minister in the Malaysian Prime Minister’s Department and CEO of Pemandu, in an interview with Rishaad Salamat of Bloomberg, together with details about how the Malaysian government projects to realize this goal (Malaysia: Vision 2020).” In conclusion, Malaysia as a country populated with educated personnel has improved on the human resource to ensure the workforce is equipped to handle the challenges. The education system in Malaysia have also been improved significantly to ensure the schools and institutions in the current bridges the gap required in the job market. When schools are in conformity to the skills and knowledge required in the industrial development, such an economy will definitely improve. Therefore, economic growth and development is a combination of various factors for growth. The government plays a significant role in enhancing the growth but all the stakeholders ought to be involved. When the government formulates policies, rules, regulations and strategies, all stakeholders should support them to achieve the desired results.

Works Cited

Albert, Hirschman. Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations 43 and States. Cambridge, Mass.: Harvard University Press, 2000. Print.

Fujio Hara. “Malaysia’s New Economic Policy and the Chinese Business Community,” The 33 Developing Economies 29, no. 4 (December 2001). Print.

Malaysia: The Way Forward (Vision 2020). Working Paper Presented by the Prime 48 Minister at the Inaugural Meeting of the Malaysian Business Council, 28 February 1991, Kuala Lumpur: National Printing Department, 1991. Print.

Olivier, Blanchard and Stanley, Fischer. NBER Macroeconomics Annual in Malaysia, Cambridge, Mass: MIT Press, 2002. Print.

Second Outline Perspective Plan 1991-2000. Kuala Lumpur: Government Press, 1991. Print.                      

United Nations Development Programme. Human Development Report 1992, New 37 York: Oxford University Press, 1992. Print.