Malaysian Industrial Policy

Malaysian Industrial Policy argues that selective government promotion efforts have been successful and crucial for Malaysia’s industrialisation despite some disastrous consequences associated with the Mahathir government’s heavy industrialisation programme. The authors in this book present evidence to show that direct and indirect government interventions have induced and supported investments, accelerating the structural transformation of the Malaysian economy. The analysis indicates that investment incentives with conditions attached rather than trade or investment liberalisation have been crucial to Malaysian manufacturing growth since independence. However, industrial development in Malaysia has been modest compared with that in northeast Asia because of weaknesses in industrial policy and excessive reliance on foreign investments.

This volume seeks to make the cases for the continued relevance of and the need for improvement of industrial policy in Malaysia. The first chapter serves as an extended introduction to the role of industrial policy in Malaysia’s post-colonial industrialization. It outlines four different phases of the expansion of manufacturing production in Malaysia against the backdrop of the colonial inheritance, namely import substitution in the 1960s, export orientation in the 1970s, heavy industrialization in the early and mid-1980s, and renewed higher value-added export orientation from the late 1980s.

It is clear that the Malaysian government’s role in encouraging manufacturing investments has changed very significantly over time. It has been reasonably pragmatic and has often insulated industrial policy from other exigencies of the state, though with uneven success at different times.

Although the selective promotion of desired economic activities need not necessarily only involve manufacturing, this book is primarily concerned with the promotion of industrialization. Unfortunately, past abuses and failures of industrial policy in Malaysia, especially during the Mahathir era, have given the selective promotion of manufacturing a poor reputation. There is a strong likelihood that popular disgust with such abuses and failures will lead to popular support for the rejection of industrial policy in favour of a more neo-liberal market approach, instead, Malaysian Industrial Policy urges a careful, but nonetheless critical examination of Malaysia’s chequered industrial policy record.

Such a critical, but a balanced appreciation of this policy heritage can help inform thé formulation of better public policy, especially for the selective promotion desired economic activities, particularly to sustain Malaysia’s industrialization.