CHAPTER 1

INTRODUCTION, GEOGRAPHY AND HISTORY

Malaysia has a vision to become a fully developed nation by the year 2020, with a Gross Domestic Product (GDP) estimated to reach $920 billion in 1990 prices. This target will require a sustained economic growth of 7 percent for the next thirty years. Looking back at an average yearly growth rate of 6.9 percent for the last twenty years, this target is very likely attainable.

With a twenty year history of economic growth, Malaysia provides a good basis for the study of development. When looking at one country’s growth, comparisons are sure to be made with similar countries. It is easy to assume that other countries could experience the same level of growth if they followed the same path, but it is important to realize that every country is unique. The history, culture, location, government, religion and many other factors effect economic development. After a short look at the geography of Malaysia, I will discuss Malaysia’s history to establish a basis for economic development. Then, I will discuss their recent economic trends. Thirdly, I will discuss their plans for the future. Most of my information regarding these plans has come from the Malaysian government internet web site. This information may be biased. Finally, I will conclude with some lessons that can be learned from Malaysia’s development. This last section will be primarily my opinion and should be regarded as such.

The history of a country influences greatly the present day performances of the economy. When making economic policies, it is important to understand how the people will react toward them. Policies should be matched with the people.

By 1400, Islam had become a major influence to Malacca (which later became a part of Peninsular Malaysia) and with it came a systems of sultans. As European countries expanded their influence, they looked to Asia as a source of land, resources and opportunities. Malacca fell to the Portuguese in 1511. Portugal was the first of several European countries to control Malacca. The Dutch established their influence and presence in Java and took over Malacca by 1641. The native Malays were spread out and scarce in numbers, but they kept a system of Islamic sultans despite the European leadership. The British colonial presence in this region was established with the arrival of Francis Light on the island of Penang in 1786. As a result of their war with the French, the Dutch government sought exile in London. In 1795, they granted the British temporary administration of Dutch overseas territories, which included Malacca. In 1819, Stamford Raffles, working for the British East India Company, founded Singapore. As a result of the Anglo-Dutch treaty of 1824, the Dutch exchanged control of Malacca for the British island of Bencoolen in Sumatra. In 1826, the British placed the territories of Malacca, Penang, Perai, Dindings, and Singapore under a single administration, known as the Straits Settlements. Through treaties, relentless political pressure and diplomacy, the British slowly extended their control over all the states of the Malay Peninsula.

By 1909 the Malaysian peninsula had been divided into three districts. The Straits Settlements remained British colonies. The Federated Malay States allowed residents to exercise indirect rule. The Unfederated Malay States permitted the Malay rulers to retain a greater measure of autonomy but were still within the British sphere of influence. The indigenous population, including Malays, was small. Due to the great demand for labor, large numbers of Chinese and Indian immigrants came to the peninsula to work in the mines and on the plantations. As a consequence of Malay rulers being unwilling or unable to exploit new economic opportunities, these foreigners gained control of the modern sectors of the economy. Left out of the modern economy, the indigenous people remained uneducated and relatively poor. Segmented by different sultans, different ethnic groups and a national language of English, Malay nationalism was extremely limited before World War II. Rubber and tin had been the pillars of the colonial export economy and remained the two most important exports until the late 1970s. With colonial rule, the British brought a judicial system, infrastructure, capital, technology and safety. However, not all of the colonial legacy was beneficial. Capital accumulation took place exclusively in, or for the benefit of, the export sector, which depended on Britain for nearly all of its capital, technology, and management needs. The participation of Malays was negligible. The rural Malay economy was based on rice growing, smallholder rubber cultivation, fishing, and fruit cultivation. Although the rural economy was monetized, its techniques were poor, productivity was low, and investment was minimal.

Sarawak, on the island of Borneo and once part of the Sultan of Brunei’s empire, was ruled from 1841 by British adventurer James Brooke and his descendants. In 1888, Sarawak and North Borneo (Sabah) became British protectorates. By the 1920s, all the states that eventually comprised Malaysia were under British control.

The Japanese Occupation between 1942 and 1945 "disturbed the equilibrium of colonial society and shattered the illusion that the British would remain indefinitely to mediate between the different ethnic communities." The Japanese introduced nationalism to Malaysia to keep the diverse population segmented. The Japanese tried to make the Malays think of the British, the Chinese and the Indians as intruders to their society, hoping that this distrust would distract the Malaysians from a consolidated rebellion. This nationalistic thinking and mistrust continues to have a strong effect on Malaysian society even today.

After the surrender of Japan, the Malayan Union proposal made Sarawak and North Borneo crown colonies of Britain. With newly discovered Malay nationalism and a British desire to have fewer colonies, the Federation of Malaya became an independent state with its own constitution in 1957. In 1963, Malaya, Sarwak, Sabah and Singapore united to become the Federation of Malaysia. In response, Indonesia attacked Malaysia on the Peninsula and across the land frontiers of Sabah and Sarawak. Two years after Singapore united with Malaysia, it separated. Singapore’s population was made up mainly of Chinese and Indians, with only a small amount of Malays. According to nationalistic thinking, Singapore did not belong in the new Federation of Malaysia. Although legally Malaysian citizens, the people of Singapore did not have full citizenship rights unless they completed strict nationalization requirements. Confrontation with Indonesia was finally brought to an end by an agreement signed in Bangkok in 1966. This confrontation with Indonesia was costly and a setback to growth, as it diverted funds from economic development plans.

On May 13, 1969, interracial violence in the capital city Kuala Lumpur left several hundred Chinese dead as communal rioting struck without forewarning. The violence grew out of the socioeconomic frustration among poor Malays and their resentment of gains at the polls by Chinese opposition parties. Previous to 1969, the Malays always held a majority in the polls. Malay nationalism produced extreme prejudice. After this riot, parliamentary rule was suspended, an emergency was proclaimed, and the National Operations Council ruled by decree. Discussion of matters that might incite communal resentment was banned under amendments to the 1948 Sedition Act. "Any matter, right, status, position, privilege, sovereignty or prerogative established or protected by the constitutional provisions relating to citizenship, to the national language and the right of any person to use (except for official purposes), teach or learn any language, to the special position of Malays and natives of Borneo and the protection of the legitimate interests of other communities, and to the sovereignty and prerogatives of the Rulers - issues about which the different communities in the country are sensitive - are removed from the arena of public discussion, including in the legislature."

"Because no single racial group in Malaysia has a clear majority, on paper it would seem that a system of checks and balances could exist by which, if any single community attempted to dominate the rest, it could be checked by the superior strength of the other groups against it. In practice, it is not as simple. The Malays and the other indigenous people feel that they have a special claim to be prominent, if not dominant, in the government of the country."

With the return to parliamentary government in February 1971, Malaysia was prepared to lay the groundwork for implementation of the New Economic Policy (NEP). Programs were developed to promote manufacturing (especially for export), construction, and public services; to continue support for rural development; to create better paying jobs for Malays; and to reduce the incidence of poverty. In the early 1980s, however, the public expenditure program that enabled this progress encountered balance of payments difficulties, rising interest rates, and worldwide recession.

Performance of the economy during the first decade of NEP guidelines was highly satisfactory. Growth during the 1970s substantially exceeded that of the 1960s. Poverty was reduced by one-fifth, from 49 to 29 percent. The main objective of the NEP was national unity, which was to be attained through the dual means of eradicating poverty and restructuring society so that the identification of particular groups with economic function and geographical location would be eventually eliminated. One of the ways they attempted to create national unity was to make Malay the official language of Malaysian. However, today, the elite of all races speak English.

Malaysia became increasingly nationalistic. Foreign stock ownership declined from 62 percent of corporate equity in 1971 to 47.5 percent in 1980. Many foreign companies were required to submit plans to immediately reduce the foreign share of their equity to less than one-half of the total and to lower it further to 30 percent by 1990.

Though Malaysia has not been a nationalistic country throughout most of its history, the people today have developed a very strong nationalistic ideology. This nationalistic thinking must be considered when developing economic policies. European colonialism has left its mark with both good and bad results. Economic policies that require a strong government system can be effective thanks to the colonial legacy. Policies that require a high level of internal education and skills need to wait until the economy matures.

CHAPTER 2

RECENT TRENDS OF THE ECONOMY OF MALAYSIA

Today, 20 million Malaysians occupy an area of 329,000 square kilometers. 47% of the population live in urban centers. The population growth has been stable at around 2.4%. They have one doctor for every 2,410 people.

"In 1985 it was estimated that 36 percent of the labor force was engaged in agriculture and other primary industries, 15 percent in manufacturing, 7 percent in construction, 17 percent in commercial and financial activities, 15 percent in government, and 10 percent in miscellaneous occupations."

Malaysia experienced a strong Real Gross Domestic Product growth between 7.8% and 9.8%, from 114.6 billion ringgit (or Malaysian dollars) to 185.3 billion ringgit during the last five years. The consumer price inflation has held between 3.1 and 4.7 for the same five years. They have also seen an 196% increase in exports, from 28.9 billion to 56.7 billion, during this period. The USA is the number one destination, receiving 21.2% of Malaysian exports. Singapore is second, with 20.7%, and Japan is third, receiving 11.9%. Japanese imports make up 26.7% of Malaysian imports, with the USA supplying only 16.7% and Singapore 14.1%. The Malaysian currency exchange rate with the United States has also remained fairly stable, between 2.55 and 2.75 ringgit per dollar for the last five years.

Petroleum is an emerging industry with reserves estimated at more than 3 billion barrels. Production is almost entirely from off-shore rigs that lie to the east of peninsular Malaysia and to the north of Sarawak and Sabah. Production of petroleum reached nearly 450,000 barrels per day in 1984 but was reduced in response to declining prices. The petroleum fields also contain vast reserves of natural gas that have scarcely been exploited. "There are plans to make natural gas the basis of several new industrial complexes, including one for aluminum smelting at Miri in Sarawak."

Privatization of infrastructure projects in Malaysia seems to be increasing. In 1994, work started on Kuala Lumpur’s Light Rail Transit system as well as the country’s largest privatization award, the 16 billion ringgit Bakun Hydroelectric project, in the country’s eastern state of Sarawak. In addition, the national carrier, Malaysia Airlines, fell into private hands after Tajudin Ramli, the chief of Technology Resource Industries, bought a controlling stake for 1.79 billion ringgit.

"The federal budget is in surplus for the second successive year. Further differentiating it from countries such as Mexico that have seen their fast-growing economies crash, Malaysia has the fifth highest level of foreign reserves anywhere and is one of the least indebted nations in the developing world."

"A booming economy leads to a booming construction sector. This year, Bank Negara, the central bank, is predicting a 15.2 percent growth in construction, even higher than the projected 13 percent expansion in the manufacturing sector."

However, there are worries. The soaring current account deficit on the balance of payments could affect the interest rates and the value of the Malaysian currency. "GT Management, one of the region’s biggest fund managers, predicts a possible devaluation of the Malaysian ringgit, if the deficit is not cut." The government says the deficit is manageable because it is more than made up for by the inflow of foreign funds.

Two groups of people that have not benefited from the growth of the rest of the economy are the local university students and the plantation workers.

After the rioting in 1969, the Malaysian government decided to restructure society to reduce the disparity between the indigenous Malays and the other ethnic groups. One of the ways they sought to improve the economic situation of the Malay people was to set up a quota system in the local university. When admission to the University of Malaya was determined solely on the basis of examination results, only 20% of the students admitted were Malays, with most of the non-Malays being Chinese. The disproportion between the Chinese and the Malays was even greater in the technical fields.

Since the introduction of the quota system, the total number of Chinese Malaysians receiving higher degrees declined between 1970 and 1980, even though the total number of degree recipients more than doubled.

Clearly, the quota system had placed the non-Malays in a dilemma. They were opposed to it because it obviously discriminated against them. Due to the quota system, many (mostly non-Malays) students, though qualified, had to study abroad for failing to gain admission locally. In 1980, nearly 40,000 students from Malaysia were studying overseas, three-fifths of them Chinese. By 1985, there were approximately 60,000 students from Malaysia studying abroad - as many as were enrolled in degree programs in Malaysia itself.

Greater non-Malay student enrollment abroad caused massive loss of Malaysian capital. If, on the average, each student spent $20,000 per year for an overseas education and there were 60,000 students abroad, the capital loss would be $1.2 billion. Other losses, such as disaffection among more than 40% of the population who are not Malay, are harder to quantify or even estimate.

The quota system has encouraged migration among non-Malays who are disillusioned with the status quo, resulting in a brain drain as most of these individuals are highly skilled and from the upper echelons of society.

In addition to the quota system at home, some Malay students are granted government sponsorship to study abroad. This has resulted in less financing for local universities, causing declining student to faculty ratios and reducing public regard for domestic college education. The quality of their university education is so poorly perceived in Britain, for example, that a Malaysian medical degree is no longer recognized.

The needy have been largely overlooked by the university system. Rich and politically influential Malay households have effectively cornered an inordinately large share of government scholarships.

The various consequences of ethnic streaming and double standard in tertiary education have undermined and continue to undermine the Malay self-esteem and confidence as well as public perception of ethnic relations.

Much of the dissatisfaction among the non-Malays can be attributed to the belief that the quota system is a zero-sum game. For every Malay that is accepted under the quota system, an opportunity is lost for a non-Malay.

Many are fearful that this system will be in place indefinitely. They are also unhappy because, as law-abiding, industrious, tax-paying citizens, they don’t see why this form of "discrimination" should be institutionalized. This discrimination can also be seen in the business community. Even the Chambers of Commerce and Industry, which represents the interests of the business community, is organized along ethnic lines - one each for Malays, Indians, Chinese and foreigners.

"Malaysia’s Indian minority remains largely mired in poverty and both contributes to and suffers from social ills disproportionally. Experts say the chief cause in India’s caste system, which is entrenched among Indian-Malays, most of whom are descended from low-caste laborers. While Indians are only 8% of the population, they committed a third of the 377 murders in 1994 and suffer from alcoholism and other problems at high rates. Malaysian-Indians say the Malaysian-Indian Congress does little to help."

Despite the economic significance of agriculture, the welfare of the plantation workers has received scant attention in government planning, with basic needs and standard-of-living requirements largely neglected. A plantation comes under the rural sector in terms of its economic definition, but falls in neither the rural nor urban zone in geographic area classification for development planning purposes. It is instead in the category of private property. Employers are expected to provide housing and enhance quality of life for estate populations.

The Rump Labour Code, 1993, and the Workers (Minimum Standards of Housing) Act, 1966, require plantation owners to provide adequate food, shelter, and clothing as well as certain household equipment and furniture; and essential services such as safe drinking water, sanitation, transport, health and educational and cultural facilities. However, these laws have never actually been enforced. Almost 80% of plantation workers live in management-provided dwellings, which generally are substandard. Most houses, for example, have only one or two small rooms to be shared by an average of six household members. Furthermore, these houses are old and dilapidated, without proper kitchen and sanitary facilities. The amount and quality of water supplies are far from satisfactory. Only a few estates have a 24-hour water supply, and most restrict it to four to ten hours per day. For 184 estates the only source of water is one standpipe shared by as many as 15 households with limited daily access time. In addition, the poor quality of water has resulted in plantation communities suffering high rates of water-related diseases. Sanitation is another problem. Normally, the use of pits and buckets is on a communal basis, with eight to ten households typically sharing about four toilets. These fill up quickly, leaving people no choice but to use the surrounding bushes. The unhygienic conditions present such health hazards as fly infestation

and contamination of wells and other water sources. Electricity is poor and in many cases oil or gas lamps are used for lighting. The plantation Tamil schools are officially recognized as the poorest in the entire education system. The outdated practice of a single teacher for multiple classes still prevails in most of the schools.

The National Union of Plantation Workers has tried since 1982 to institute minimum monthly wages for rubber tappers. However, this has not had much success.

There are clear signs of economic growth in Malaysia. However, a possible deterent to future growth may exist in the soaring deficit on the balance of payments. In addition, this economic growth has not been experienced by everyone.

CHAPTER 3

PROSPECTS FOR THE FUTURE

"Economic analysts have predicted that East Asia would not be able to sustain its industrial growth since the sector was still restricted by borrowed technology."

These are lofty goals, but implementing them is difficult. It will be a long process. "To promote composites and to learn more about composite technology, we [Malaysia] actually bought an aircraft company [Eagle Aircraft International] in Australia that was producing a training aircraft called the Eagle." Now they have a company entirely belonging to them, but the company is still using foreign technology. They have begun to assemble these aircraft and have sold some to the Australian government.

As an outgrowth of their nationalistic thinking and their intent to pursue economic growth, Malaysia is trying to show the world that they are becoming an advanced nation. The Malaysian government boasts the world’s tallest flag pole in its capital, Kuala Lumpur. Two giant skyscrapers - which may or may not turn out to be the tallest buildings in the world - are going up in the center of Kuala Lumpur. Without spires, the Malaysian towers are 209 feet shorter than the roof of the Sears Tower, but with the spires are 33 feet taller. A new airport and sports complex will be completed near Kuala Lumpur by 1998. A giant new port is planned for nearby Malacca. In 1998, Kuala Lumpur will host the Commonwealth Games. By that time the Malaysian capital will have a new 18-mile, 24-station Light Rapid Transit System capable of handling 30,000 riders a day in each direction. It will be the world’s longest fully-automated, driverless Light Rapid System.

On August 29th, 1995, Dr. Mahathir, the Prime Minister, unveiled his most grandiose scheme yet - a plan to build Malaysia a new capital city to be completed by 2008. The city, called Putrajaya, will cost 20 billion ringgit.

Malaysia’s southernmost city and capital of booming Johore state, is a trip back in time. Like Singapore of yesteryear, Johore Baru is a jumble of shophouses and flaking municipal buildings. But, over the next 20 years, a part of Johore Baru will come to mirror Singapore’s ultramodern image. The project will include 10.8 million sq. ft. of commercial space - more than three times the area available in the existing city center. While Singapore razed many of its old neighborhoods to build its modern business core, Johore Baru plans to preserve as much of its heritage as it can. By building on platforms resting on stilts in the sea, the city will create a modern complement for its existing areas. The piled-platform construction has several advantages over more traditional land reclamation, such as allowing construction in phases and not having early tenants look out over large expanses of mud.

The direct cost to the government of all these mega-ventures has been cut by privatization. Private companies built the North-South Expressway and other private firms are behind the Bakun dam and the Kuala Lumpur City Center project. A consortium of six private companies will build Putrajaya.

Only public investment activities which do not provide direct competition to private investments will be undertaken by the government. In addition, the government will ensure that public projects are selected based on the performance and quality of the investment in order to ensure a good return on the capital, and to lessen the overall public sector deficit.

Malaysia has increasingly been using privatization to meet its economic goals of growth. They are using privatization to relieve the financial and administrative burden of the government, to improve efficiency and increase productivity and to reduce the size and presence of the public sector in the economy.

They have been using several methods to promote privatization. One has been the sale of assets or equity in the public sector. The government provides the initial capital and takes the risks of startup, but when the project is up and running the government sells it. Sometimes, only a share of the project is sold. Another unique method of promoting privatization is the lease of government assets. The Royal Malaysian Air Force Aircraft Maintenance Depot was leased to a private company who then runs the depot and makes a profit. The advantage to leasing is that the government provides the initial capital for building and receives payments back on this investment. The government doesn’t have to run the business and private ownership can ensure efficient management. The third method of privatization is a management contract. A private company enters a contract to manage a public project. The government still owns the project, but the private company can obtain a share of the profits by running the company. The Semenyih Water Treatment Plant and the Marketing of Advertising Time for Radio Malaysia are two examples where this has occurred. The fourth method of privatization is "build-own-transfer" (BOT) or "build-operate-own" (BOO). A BOT is where a private company provides for the capital and builds a project that they own and run for a set number of years. During these years, the company is allowed to make a profit on their investment. After the set number of years, the company turns the project over to the government. Two examples of BOT projects are the North-South Expressway and the Kuala Lumpur Roads and Interchanges Projects. The North-South Expressway was built by a private company who charge a toll for driving on it. In a few years, the road will be turned over to the government and will then be free to drive on. A BOO is the same as a BOT, but it is never turned over to the government. A company builds a project and gets to keep it indefinitely. The only catch is the government gets to control the prices of its goods. This is prevalent in the United States with public utilities. The last method of privatization is a management buy-out. Here, a private company manages a public project and is allowed to buy the project from the government. Sometimes, this is done all at once, and other times it is done share by share.

Malaysia allows foreign participation where expertise is needed to upgrade efficiency and such expertise is not available locally. It is also allowed where foreign participation in necessary to promote the export market. Thirdly, it is allowed where the supply of local capital is insufficient to absorb the shares offered. Lastly, it is allowed when the nature of business requires global linkages and international exposure.

Malaysians recognize the importance of public confidence in creating economic growth. To this end, they are investing in Research and Development and improving their world image. Realizing that some projects and services can be managed better by the private sector, the government is committed to downsizing the role of the public sector in the economy by privatizing.

CHAPTER 4

ANALYSIS AND CONCLUSION

The most important lesson to be learned from Malaysia is to be creative when using privatization of public projects.

In November of 1995, I visited the capital city, Kuala Lumpur. I was impressed with this modern city and the rampant construction. This was a sharp contrast to the Malaysia I had seen previously. I had visited Johore Baru a year earlier and noticed a very poor and run-down city. During my trip to Kuala Lumpur, I noticed that the major highway had many toll booths. I asked my taxi driver about this, and he explained that each section of the North-South Expressway was built by a separate company. Each company operated the section of road they built. I mentioned that it seemed inconvenient to have to stop and pay tolls for each section of the road. The driver told me that it would only be a toll road for ten years. It would then be turned over to the government and drivers would no longer pay tolls. This is the Build-Own-Transfer I mentioned earlier in this paper. The people in the country were willing to put up with paying tolls knowing it was only a short term inconvenience. The government was building infrastructure with private sector capital. The government would have had a difficult time finding a single company to build the entire road, so they separated the project into manageable parts. This is the creative use of privatization that encouraged me to research Malaysia.

Capital saved on one public project can be spent on other projects. These other projects use privatization also. By leasing, selling shares, or by contract management of public sectors the government remains small. These projects are run efficiently through privatization and the government doesn’t have to keep spending money on them.

These examples could provide lessons to other countries in building their infrastructure, if the projects can be done without corruption. Malaysia already had a strong judicial system set in place by the British. As a result of the proximity to Singapore and the strong Islam influence, Malaysia has very harsh sentences for criminal activities. This isn’t to say Malaysia doesn’t have corruption, but it is less prominent. In some other countries of the world, bribery and threats would be used to gain control of the more lucrative government projects. One would see monopoly pricing and limited efficiency if these projects were run by criminal syndicates. For example, I imagine the drug cartels of South America would run less-than-optimum public projects.

Another lesson to be taken from Malaysia is that quota systems in education are harmful. This form of discrimination creates mistrust and segments the country. With a segmented economy it is difficult to draw on the economies of scale created by a larger market.

Malaysia realized that the Malays were falling behind the Chinese and Indians in regard to higher education. They correctly connected education with position in society, but their response to this problem may have caused a worse problem. Malaysia was able to institute this questionable system following a national emergency and a period of rule by decree. At the same time, they also made it illegal for anyone to question the government. Even though the Malays were the ones who rioted and killed the Chinese, they were rewarded for their action. This was a tragic mistake. Malaysia determined that one of the ways to improve the Malay situation was to allow more Malays and less Chinese and Indians into the universities.

The lesson to be learned here is that you shouldn’t improve the education of one sector of your country at the expense of others. A better response would have been to increase the total number of educated people by building more universities and allowing more of the population to have access to it.

Instead, Malaysia’s education system has so lost respect that anyone desiring a valued education leaves the country. More people go to colleges outside of Malaysia than those who attend college within the country. That tells me that more Indians and Chinese are educated than the Malays who can now inexpensively attend the Malaysian Universities. Also, the Indians and Chinese are better educated. That means there is still a huge difference between races in the society. The cost of this mistake is far more than the 1.2 billion dollars spent outside of Malaysia. The cost also includes the loyalty and trust of 43 percent of Malaysia’s population; those who are non-Malay and have experienced this discrimination. Finally, we must take into consideration the loss of those who have left the country to study and never returned. The best and brightest are leaving.

The main objective of the New Economic Policy was national unity. This is the one objective where Malaysia has failed miserably. Imagine, trying to unify our diverse United States population by increasing segregation and encouraging discrimination. The effects would be catastrophic. This is exactly what Malaysia has done.

A final lesson to be learned from Malaysia is that private enterprise doesn’t always look out for their employees. As we looked at the plight of the unregulated plantation workers, we saw people who were underpaid and overworked. In addition, even their basic necessities were not supplied. The plantations were providing very little for their employees. In economics, we always make the assumption that we are at full employment of the economy’s resources. If people are not paid enough at one place, we believe they will go where the wages are higher. This free movement of people causes a firm to raise its wages to attract workers. In reality, we rarely see this happen. In the first place, the free movement of people is not free. There is a substantial cost to quit a job to look for another. It costs to move from one place to another. Housing may be limited where there is employment. Benefits from years worked at one location are lost by moving to a new one. Secondly, very few places in the world have full employment of resources. Labor is the most common resource squandered by the world through inefficient methods and unemployment. In the short run, profit maximization conflicts with employee benefits. Profit is equal to total revenue minus total costs. If costs are lower by paying your employees less, profit is higher. In jobs that require a higher degree of skill, it becomes costly to not pay your employees enough to keep them. It will cost more to train a new employee than to keep the skilled one you have. But in jobs which require very little skill, the cost of training a new employee may be minimal. It also depends on how the country views employment. In Japan, employers are expected to take care of their employees and it is seen as less than honorable not to treat them right. In Malaysia, the plantation workers are not in the highly visible parts of the country. Very few foreigners see how the workers live, so there is very little incentive to improve their condition. Malaysia wants to portray itself as a modern country and wants to downplay the traditional agricultural sector. By making the modern sectors more profitable they hope to move employment from rural to urban centers.

In conclusion, Malaysia has given us a rich example of economic development and growth. After twenty years of sustained growth, it appears as though they are not slowing down. Their nationalist views have both motivated and hindered them. The creative use of privatization has allowed them to take steps that otherwise would have been unavailable. Failure to ensure that all of the population benefited from economic growth and were protected from discrimination has segmented their economy. Although no two countries are the same, some of these lessons could be used successfully in other countries.

SELECTED BIBLIOGRAPHY

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