Striving for Inclusive Development: From Pangkor to a Modern Malaysian State traces the evolution of what is now Malaysia from a far-flung colonial trading outpost at the time of the Pangkor Engagement in 1874 to a modern, diversified economy, is divided into five parts, in 10 chapters, which chronicle the events and the transformations—as well as the people—that marked this journey.
This publication, Striving for Inclusive Development: From Pangkor to a Modern Malaysian State, presents the results of the author’s continuing research. It is based on the comprehensive analysis of primary economic and social data, extensive study of archival documents, and an in-depth review of the extant colonial and contemporary economic literature. The analysis reveals the impressive progress Malaysia has made, while also illuminating the challenges that remain. Faced with the possibility of the country falling into the ‘middle-income trap’, a new approach is now needed to realize the goal of transforming Malaysia into a more prosperous, resilient and cohesive nation.
In Part 1, Forming a Nation and a Mosaic Population, comprises two introductory chapters that focus on how Malaysia and its institutions were formed, and how its population grew. It outlines the historical evolution of the separate geographical entities of the Malay peninsula over the past 150 years, their changing governance, and how they eventually came together to form Malaysia. It describes the institutions that the British progressively established during their lengthy rule, primarily if not exclusively in order to consolidate their economic and strategic interests. These include political and administrative structures, a legal and security system, and economic policies intended to facilitate investment, trade, and fiscal stability. The author also gives an overview of the history of Malayan population census-taking, and of how colonial administrators introduced an ethnicity-based classification that served to separate different communities. It assesses how colonial immigration policy responded to meeting the labour-force needs of the peninsula’s growing extractive economy, and the huge impact that migration had on population growth and ethnic composition.
In Part 2, Enhancing Human Well-being, traces the development of the country’s segmented education and health systems, and the steps taken by colonial and Malaysian governments to build human capital and advance well-being. The author reviews the nature of Malaya’s highly segmented education system, where few children—almost all of them from privileged families—had opportunities beyond the basic primary level. Then, the author examines how Malaya’s health policy evolved to support colonial economic development. As infectious diseases took a heavy toll on migrant workers and threatened to decimate the labour force, improved sanitation and health services became imperative.
In Part 3, Expanding and Diversifying the Economy, presents the book’s core economic analysis. It starts with a discussion of the establishment of institutions, and the expansion of the trade-in tin and rubber in the colonial period, and proceeds to an evaluation of economic performance since independence. The analysis begins in the late 19th century when most of the world’s tin was mined in the Federated Malay States. The first two decades of the 20th century then saw Malaya become the world’s leading producer of rubber, as demand soared, largely as a result of the advent of the mass production of automobiles in the United States. Malaya’s economy was ravaged, however, by the Great Depression of the 1930s, when rubber and tin prices collapsed. In the absence of social safety nets, many people suffered great hardship during these years. Dissecting the factors underlying post-independence economic growth, the analysis focuses on the increase in productivity and considers the effects that structural change and the demographic transition have had on Malaysia’s economy.
Part 4, Achieving Growth with Equity, turns to the processes by which the transition from a predominantly agricultural economy to a modern one led to a huge reduction in poverty, and to more equitable income distribution. The author analyzes, at the commodity and state level, the role of agriculture in the country’s structural transformation and in the enormous reduction in absolute poverty. Later, the author begins an analysis of consumption inequality in colonial Malaya, where Europeans—and a tiny minority of other communities who were living a high-status European lifestyle—were vastly better off than the masses. Indeed, differentials in private consumption expenditure widened during the first four decades of the 20th century.
Part 5, Creating an Inclusive and Sustainable Future, concludes this book-length inquiry with a forward-looking assessment of some of the central challenges facing Malaysia today. It underlines the fact that the country has made impressive development progress since the end of colonial rule, and that all communities have played an important role. But the time is now ripe for Malaysians to evaluate their circumstances afresh and make key choices about future directions.
Boxes
Figures
Tables
Maps
Abbreviations
Preface
Introduction
PART 1 FORMING A NATION AND A MOSAIC POPULATION
Chapter 1 From British Intervention to Independence
The Straits Settlements of Penang, Melaka, and Singapore
Penang
Melaka
Singapore
Governance of the Straits Settlements
The Pangkor Engagement, 1874
The Federated Malay States and Their Governance
The Unfederated Malay States and Their Governance
Kelantan and Terengganu
Kedah and Perlis
Johor
Administration of the Unfederated Malay States
Administration of British Malaya, 1900-1945
Malayan Civil Service
District Offices
Administration during the Japanese Occupation, 1941-1945
Administration of North Borneo and Sarawak
From Fragmentation to the Federation of Malaysia, 1945-1963
Decolonization to Merdeka, 1945-1957
Malaya to Malaysia, 1957-1963
Maintaining Law and Order
The Military
The Police
The Justice System
The Tax System
The Financial System
New Straits Settlements Dollar
Conclusions
Chapter 2 Population and Migration
Counting and Classifying the People
How Population Classification Has Evolved
Major Categories of Ethnic Classification
Changing Classifications of Ethnic Subcategories
A Century of Migration to 1957
Chinese Migration
Indian Migration
Javanese Migration
Population Growth, 1871-1957
Impact of Migration on the Population of the Straits Settlements and Federated Malay States, 1871-1911
Impact of Migration on the Peninsula’s Growth and Ethnic Composition, 1901-1957
Impact of Migration on the Sex Ratio of the Peninsula’s Population
Population Policy After 1957
Ethnic Balance and the 1969 Riots
A 70 Million Policy
Lower-skilled and Higher-skilled Emigration, 1957-2017
Population Growth and Changing Ethnic Composition, 1957-2017
Sabah and Sarawak, 1963-2017
A Century of Spatial Redistribution, 1901-2017
Urbanization
Distribution by States
Conclusions
Annex Table 2.1 History of ethnic sub-classifications used in Malayan/Malaysian population censuses
PART 2 ENHANCING HUMAN WELL-BEING
Chapter 3 Building Human Capital
Ethnically Segmented Education in Colonial Malaya
Malay Vernacular Schools
Chinese Vernacular Schools
Indian Vernacular Schools
English-medium Schools
Islamic Schools
North Borneo and Sarawak
Higher Education in Colonial Malaya
Modernization of Education Policy
Education Policy After the Japanese Occupation
Education Policy towards Merdeka
Post-independence Education Policy Reforms
Planning and Human Capital Development
Emergence of the Private Sector and Liberalization of Higher Education
Educational Inputs, Impacts, and Outcomes
Education Expenditure
Universal Literacy
Increasing Enrolment at All Education Levels
Improving Pupil-Teacher Ratios
Rising Educational Attainment
Supply of and Demand for Human Capital
Challenges in Human Capital Development
Performance in International Assessments
Why did Malaysia’s Performance Decline in International Assessments?
Improving the Quality of Education
The Challenge of Innovation
The Brain Drain
Conclusions
Chapter 4 Increasing Well-Being
Health and Development in Colonial Malaya
Sanitary Boards
The Medical Department and the Expansion of Public Health
Hospitals, Research, and Training
Health Care from World War II to Independence
Impact of Colonial Health Measures
Post-independence Health Policies and Their Impact on Well-Being
Health Policy
Health Outcomes
The Demographic Transition
The Fertility Transition and Its Impact on Well-Being
The Fertility Transition
Changing Family Size and Female Labour Force Participation
Changing Family Size and Women’s Well-Being
Changing Family Size and Impact on the Population’s Age Structure
The Demographic Dividend
Conclusions
PART 3 EXPANDING AND DIVERSIFYING THE ECONOMY
Chapter 5 Economic Growth and Change, 1874-1969
GDP Growth and GDP Gaps, 1900-1969
Data and Data Sources
Growth of Per Capita GDP
Convergence and Gaps in Per Capita GDP
Post-Pangkor Engagement, 1874-1899
Growth, Volatility, and Reversals, 1900-1941
The Rubber Boom, 1900-1929
Volatility in Tin Output and Prices
The Great Depression and Its Aftermath, 1930-1941
A Segmented Economy and People
Japanese Occupation, 1941-1945
Recovery, 1946-1949
Commodity Dependence and Institutional Transformation, 1950-1959
Post-independence Economic Priorities, 1960-1969
Conclusions
Chapter 6 Growth, Productivity, and Wealth Since Independence
The Record on GDP Growth
Income Convergence and Catch-up
Total Factor Productivity Growth and Input Growth
Factor Productivity Benchmarks
Components of Labour Productivity Growth
Structural Change, the Structural Bonus, and Sector Productivity
Structural Change
Structural Bonus
Sector Productivity
Demographic Dividend
Genuine Wealth
Conclusions
Chapter 7 Advances, Reversals, and Changes, 1970-2017
Outline Perspective Plan 1, 1971-1990
New Economic Policy: Rationale and Scope
Targets and Policies in OPP1
Outcomes, 1971-1980
Outcomes, 1981-1990
OPP1 Summary
Outline Perspective Plan 2, 1991-2000
The National Development Policy: Rationale and Scope
Targets and Policies in OPP2
Outcomes for OPP2
Outline Perspective Plan 3, 2001-2010
The National Vision Policy: Rationale and Scope
Targets and Policies in OPP3
The Global Financial Crisis and Great Recession, 2008-2009
Impact and Responses
Outcomes for OPP3
The Tenth Malaysia Plan, 2011-2015
Targets and Policies in MP10
Outcomes for MP10
Productivity
Export Diversification
Innovation-led Growth
MP11 and the New Directions Set in Its Mid-Term Review
Conclusions
PART 4 ACHIEVING GROWTH WITH EQUITY
Chapter 8 Agricultural Development and Poverty Reduction
Historical Context: The Horns of a Dilemma
Structural Transformation
State-level Agricultural Development and Poverty Reduction, 1970-2015
Poverty and Economic Data
Measures of Structural Transformation at State Level
Agricultural Commodities
Structural Transformation at State Level
Linkages between Agricultural Growth and Poverty Reduction
Commodity Production and Poverty Reduction
Results
Conclusions
Annex Table 8.1 Steady progress in poverty reduction halted during the Asian financial crisis but resumed in year 2000
Annex Table 8.2 Controlling for time-related structural changes in the economy, 95 per cent of variation in poverty is explained
Annex Table 8.3 An increase in real GDP per capita lowers poverty rates
Annex Table 8.4 Rice production has different impacts on poverty at state level
Annex Table 8.5 Palm oil production has different impacts on poverty at state level
Chapter 9 Inequality: A Century of Change
Inequality and Consumption in Malaya, 1900-1939
Piece-wise Linear Lorenz Curves
Lower-bound Gini
Intra-standard Consumption Variance
Intra-standard Dispersion
Simulated Indicators of Inequality
Summary of Inequality in the Colonial Era
Measuring Income Inequality in Malaysia, 1970-2016
Limitations of Income Survey Data
Income Surveys and the National Accounts
Malaysian Household Income Surveys
Type of Income
National Trends in Inequality
Mean and Median Incomes
Lorenz Curves
Gini
Percentile Ratios and Shares
Impact of Financial Crises on Income Inequality
International Experience
The Macroeconomic Impact on Malaysia
Malaysian Inequality in Crisis Years
Differentials in Income Inequality
Ethnicity, Strata, and Household Size
Education
State
Determinants of Income Inequality
Modelling Determinants
Model Results
Conclusions
Annex Table 9.1 Residents of Kuala Lumpur are more likely to be in the top quintile-logistic regressions: Top-quintile
Annex Table 9.2 Tertiary education raises the likelihood of high income- logistic regressions: Top 5%
PART 5 CREATING AN INCLUSIVE AND SUSTAINABLE FUTURE
Chapter 10 Working Towards an Inclusive and Sustainable Future
One: Affirmative Action
Two: Diversified Development
Three: Immigration and Labour Market Regulations
Four: Environmental Management for Sustainability
Five: Implementation
Administrative Alignment and Configuration
Human Resources
Data for Evidence-based Policy
References
Index
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