ABSTRACT
Introduction This chapter attempts to examine the influence of Western Economics in the evolution of the Malaysian economy. After this introduction, the rest of the chapter is organized as follows. The second section discusses government efforts to restructure the economy through infrastructure build-up, ethnic restructuring and liberal policies to attract foreign direct investment to promote export manufacturing. The next section focuses on heavy industrialization by the government to develop national firms. Next, the return to export-orientation is analysed. I then trace the causes and consequences of the Asian financial crisis and evaluate the introduction of capital controls. The next section examines the return to liberal economic policies but also taking into account national ethnic considerations. I then finish with the conclusions. From sedentary farming and petty commodity production largely for subsistence use, the Malaysian economy began to experience, over the years, commercial production of tin and rubber under British colonialism from the eighteenth century onwards in the age of Adam Smith (1723-1790), an author wellthumbed by Sir Stamford Raffles (1781-1826) the founder of Singapore. But International Trade had already begun well before, mainly to meet the growing demand for spices in India and Europe, particularly since the fifteenth century (see Reid, 1993). Malaysia’s integration as a raw material exporter into industrial capitalism had begun during British colonialism. As Malaysia grew as a major revenuegenerator for Britain through tin and rubber exports (Madan, 1953), the colonial government took measures to build the infrastructure and security to support primarily migrant-labour brought from China and India, who toiled in the tin mines and rubber estates respectively. British expenditure on both expanded sharply following the outburst of the Communist insurgency. Indeed, Malaysia became the jewel in the crown of Britain, from 1947 till its independence in 1957, as it was the largest generator of dollar-based revenue in the Sterling Area in the period following India’s independence (on the early Economic History of the nation, see Lee and Wie, 2015). Whilst no Western economists were directly involved in defining monetary or
fiscal policies in Malaya, the currency used in Malaya, British Borneo and Singapore since colonial rule until 1967 was the Malaya and British Borneo dollar with a fixed-exchange rate M$8.57 to a British pound. Peter T. Bauer (1946), a Hungarian-born UK-based development economist (1915-2002), had worked on the impact of the ‘Stevenson restriction-scheme’, which was introduced by the British to check a sharp slide in rubber prices. The fixed-exchange rate offered stability in the post-war world. In 1967, the independent government introduced the Malaysian dollar and the Ringgit in 1975. Whilst the pound was devalued by 14.3 per cent against the Malaysian dollar in 1967, exchange-rate fluctuations in Malaysia began in 1973 when Bank Negara Malaysia withdrew from the currency union with Brunei and Singapore. ‘Keynesian-style’ exchange-rate instruments were then largely abandoned, although fiscal and monetary policies were still used to reduce unemployment and poverty. One can say that such policies were applied eclectically until 1997, when the Asian financial crisis led the Malaysian government to impose capital controls between 1998 and 2004. The first Malaysian university, that is, University of Malaya, was originally created in the Island of Singapore, which was part of British Malaya in 1949. The early origins can be traced to the takeover of Raffles College to train medical doctors. It was not until 1959, however, that an Economics Faculty was set up in the Malaysian branch of the university, in Kuala Lumpur. Ungku Abdul Aziz became the founding Dean, when the country’s first Faculty of Economics and Administration was launched in 1966. The pioneer economists in the field, that is, Silcock and Ungku Aziz (1953) analysed the Malaysian economy from an interdisciplinary perspective, as they screened the significance of nationalism in addressing developmental problems. Ungku Aziz (1964) subsequently undertook primary research to examine the causes of poverty in the country, although the emphasis was on Malay poverty. Ungku Aziz (1964) was concerned with ‘middlemen’ exploitation and abject poverty faced by the poor. Following this tradition, Salih (1982) later discussed the dangers over the impact of overdependence on primary commodities and its consequences over urban poverty in South-East Asia. Drawing on Neo-Marxist Economics, Salih and Young (1989) were even concerned about the eventual ‘marginalization’ of the Malaysian economy as a consequence of multinationals (MNCs) seeking to relocate in Malaysia, only to extend the exploitation of labour. Another local economist, Jomo (1996), then extended this argument using a ‘class-analysis’ framework. Ungku Aziz (1964, 1965) examined the causes of poverty in Malaysia in a radical way but without deploying such resorting to ‘class’. Shari (1979) followed a similar methodology to examine poverty in Malaysia. Other Malaysian economists, such as Lim (1967) analysed the development of the Malaysian economy without any ‘ideological anchor’ until Lim (1973, 1983) took on a very Neoclassical approach to analyse production structure in the Malaysian manufacturing sector. Thorburn (1976) analysed the economic impact of primary commodity exports from Malaysia. Ariff and Hill (1985) and later Ariff (1991) presented a Neoclassical explication of
Malaysia’s integration into the Pacific economy, arguing that liberalization had been the basis of rapid economic growth. Unlike the early Malaysian economists, who demonstrated a keenness to tread a somewhat neutral line of ideological orientation, most Malaysian economists since the 1990s were trained in the standard ‘Neoclassical’ Western Economics framework, and hence, researched and published on several aspects of the Malaysian economy using such lenses (for example, Tham and Kam, 2014). The exceptions to the rule include the work of Rasiah (1995), Narayanan and Lai (2002) and Doraisami (1996) who let the economic evidence determine the analysis. Economic exponents at the Central Bank were a mix of professionals, with Lin and Chung (1995) driven by mainstream thinking and Sheng (2009) was to prefer to question Mainstream Economics using evidence typical of Heterodox Economists, in fact, he had worked with such economists, such as Joseph Stiglitz (1943-) and Ajit Singh (1940-2015), in the West.
