The Malaysian Insight

LESSONS must be learned from Malaysia’s failed industrial policies before the country rushes to implement new ones, said experts, as calls rise for Malaysia to restructure its economy during recovery from the Covid-19 crisis.

As the pandemic exposes structural flaws in the economy and wipes out businesses, calls have surfaced for Malaysia to take the opportunity to rebuild by investing in industries that can yield long-term growth.

For instance, one proposal called for Malaysia to invest more in developing its renewable energy industry and domestic food production, so it can wean itself off dependence on fossil fuel revenue and food imports.

However, economists argue that such re-orientation must be done carefully so as to not “kill off” established businesses that provide jobs and incomes for millions.

Japan, South Korea and Taiwan are among Asian countries whose prosperity has been driven by their industrial policies, but which have also had their share of failures, said economist Prof Woo Wing Thye.

“There are many examples of industrial policies having bankrupted countries, so we must review our past industrial policies to see why they did not succeed,” said Woo, head of the Jeffrey Cheah Institute of Southeast Asia at Sunway University.

Such policies include the Perwaja Steel and Hicom projects started in the 1990s aimed at creating a robust Malaysian steel and heavy industries sector.

However, Perwaja had to be bailed out to the tune of RM9 billion, while the man in charge of the initiative, Eric Chia, was acquitted of abuse of power.

“So, before we can determine what went wrong with our previous industrial policies, we should not simply start new ones,” Woo told a recent webinar organised by the Malaysia-China Chambers of Commerce.

“Is it because of insufficient training among our civil servants to implement these policies?

“Or, were they used as tools for political patronage? If this was the reason, then we know what to do. So, we must avoid the mistakes of the past and not make new ones in the future. This is the big issue; to figure out why we failed.”

What sets Japan, South Korea and Taiwan apart from its neighbours is how they were able to swiftly deal with policies or companies bleeding money, said Woo.

“An objective set of criteria has to be adopted when it comes to these policies. For example, if it loses money continuously, we have to say, ‘write it off and move on’.”

Another economist, Ravindran Navaratnam, said that what differentiated Malaysian efforts, such as Perwaja and Proton, from its South Korean counterparts is the lack of competition.

“If you look back and compare the South Korean car manufacturers and us, there was strong local competition in South Korea, whereas we only have one player. So, it’s (almost) a complete monopoly,” said Ravindran, who used to work for the Treasury in the 1990s.

Meanwhile, Abd Aziz Abu Bakar of the Malaysian Islamic Chamber of Commerce said any new industrial policy must also take into account the country’s current needs.

“In the past, we needed a (local) car, but now, we need more of our entrepreneurs to go digital and we need to revive the tourism sector. So, good industrial policy is also about timing,” said Aziz, who is also Malaysia Tax Accountants Association president.

Along with timing, Woo said that successful industrial policies also depended on local capability, competition and the empowerment of the private sector to be its engine of growth.

“You can’t keep private industry out of certain activities only for it to be monopolised by a state-owned firm. Industrial policy cannot kill the golden goose.” – June 7, 2020.