Lim treated the PDC as the ‘first among equals’ of the state government bureaucracy, always consulting with its senior staff before beginning new projects. The consistent political backing provided to the PDC, along with its highly qualified professional staff and organizational autonomy, meant that it had structural similarities with Chalmers Johnson’s ‘pilot agency’—the Ministry of International Trade and Industry (MITI)—which was credited with planning and overseeing Japan’s rapid industrial development in the post-war period (Johnson, 1982).
Shortly after Gerakan’s victory in Penang's state election, Malaysia was shaken by the 13th May 1969 racial riots. Despite its founding as an opposition non-communal party, Gerakan recognized the imperative of securing federal government support in post-1969 Malaysia, which would be guided by the pro-Malay affirmative action New Economic Policy (NEP) of 1971. As a Chinese-majority state Gerakan accepted that the NEP would be extremely challenging. Consequently, in 1972, it joined the newly reconfigured ruling coalition, Barisan Nasional. Despite this, Gerakan's technocratic composition, strong focus on Penang, astute political leadership, and decisions taken in the first days of its administration enabled it to maintain a considerable degree of autonomy for a considerable period thereafter (Leng, 1969; Khor and Khoo, 2008).
The PDC’s operational work was greatly facilitated by a far-sighted blueprint for the state’s economic rejuvenation—the Nathan Report of 1970 which was a multiyear economic plan for Penang prepared by a US-based international consultant and commissioned by the federal government to study the state’s rising unemployment problem. The Nathan Report recommended export-oriented industrialization for Penang, contrasting with the prevailing economic model of import substitution being implemented in Malaysia. It advised leveraging the state’s existing transport infrastructure and then initially focusing on labour-intensive manufacturing before seeking to upgrade to more value-added activities (Nathan Associates, 1970).
With this an overarching vision, the PDC then proceeded to generate funds to market the state and further develop its infrastructure. Constrained by its scarcity of Malaysia's constitutionally stipulated revenue sources for state governments, such as forestry and natural resources, the PDC proceeded to mobilize resources through judicious acquisition of land and its subsequent re-sale. This provided the financial means for the PDC to pursue its policies (Hutchinson, 2006).
Inspired by measures implemented in Singapore and Hong Kong, the PDC created a network of free trade zones (FTZs) for manufacturing activities. Within these zones imports and exports could enter and leave the zones free of customs duties. Through personally lobbying Malaysia's second Prime Minister Tun Abdul Razak, Penang became the first state in the country to establish such zones. Penang’s first FTZ, Bayan Lepas, was set up in 1972, a mere three years after Singapore’s first such facility. It was to become the most prominent centre of Penang's (and Malaysia's) global E&E industry. By 1980, Penang had a network for four FTZs and four industrial parks—areas designated for industrial development designed to bring together companies that provided complementary services. Unlike FTZs, industrial parks were not normally bestowed with any specific tax exemptions and privileges.
Leveraging these new resources as well as its available labour force, which included rising female participation rates, the PDC embarked on an international marketing drive. Ably reading the evolving internationalization of manufacturing that had begun in the 1960s, the PDC targeted E&E firms based in the United States as potential investors. Once their interest was established, the PDC leveraged personal connections with federal ministries to expedite the necessary approvals and licenses. Over the course of the 1970s, Penang came to house a core of electronics firms that would grow to become household names, such as Hewlett-Packard and Intel from the the US and Hitachi from Japan, and Siemens from Germany in the coming years (Rasiah, 2001, pp. 165–190).
For its part, the Penang state government sought to create linkages between MNCs and local firms. As Penang’s Chief Minister, Lim approached local small and medium-sized enterprises (SMEs). Working with a group of firms in the metal work and fabricated metal sectors, Lim brokered contact with leading E&E producers such as Intel and encouraged them to gradually outsource tasks to these firms, thus generating linkages with the local economy. This approach proved successful, and some of these smaller firms would grow and constitute a cohort of Penang-based firms that would in turn expand abroad.
In what was to be particularly prescient strategy, the Penang government and the PDC invested their own resources in supporting the state's economic development. As stated by the PDC:
The corporation does not believe in playing a passive role in the development of the State economy through making available the necessary infrastructural facilities and services and general support. It is a declared policy of the Corporation that its role should be an active one involving actual participation in industries, through equity participation in one form or another, and that it should grow and expand with the increased resilience of the economy (1974, p. 20).
To this end, the Corporation made investments in a diverse range of new sectors. By 1980, these included RM14.2 million in 17 locally incorporated companies in sectors such as ship-building, agribusiness, furniture-making, high-glass fabrication, and electronics. These sectors were all new to Penang. While many of the start-up firms failed, others succeeded and opened up new sectors. The first electronics firm established in Penang, Penelco, was not an MNC, but fully owned by the PDC—established in 1970 to manufacture radios and transistors until its closure in 1975 (PDC, 1977).
By 1980, 25 electronics assembly firms had established operations in the state and 25,000 jobs had been created. In the manufacturing sector, 200 firms employing 56,000 workers were operating in the state’s industrial parks. Penang’s economic fortunes were transformed. Penang's share of Malaysia's manufacturing output rose spectacularly over 1970 to 1980, from 7.7 per cent to 15.7 per cent (Table 1). In 1970, the state’s per capita GDP was just slightly below that of Malaysia and manufacturing accounted for only 12.7 per cent of the state’s GDP. By 1980, its per capita GDP was 13 per cent above the national average and manufacturing generated 40 per cent of its GDP (Tables 2 and 3).
Table 1 Penang’s share of Malaysia’s manufacturing output