British control of the Straits of Malacca began with the British East India Company pursuing a purely mercantilist approach. Around 1830, the Company united the key commercial ports of Penang (with Province Wellesley), Singapore, and Malacca, into a single administrative entity, which in 1867 became known as the British Crown Colony of the Straits Settlements.
3 This arrangement constituted a ‘solid chain of port settlements on the great Calcutta–Canton axis (later to include Hong Kong)’ (De Koninck, 2005, p. 59). In 1874, after the Pangkor Treaty was signed, the Perak district of the Dinding was formally added as part of the Straits Settlements, and the British authorities began colonizing the Malay peninsula’s inland sultanates to exploit their natural resources, launching 'colonisation by capital' rather than through settlements (Furnivall, 1948, p. 1).
In 1896, four of the Malay peninsula's states—Perak, Selangor, Negeri Sembilan, and Pahang—were combined as the Federated Malay States and were administered by a senior British civil servant, the Resident-General, based in Kuala Lumpur, with each of the four states having a British resident. By 1909, the four northern and eastern peninsular states had come under British rule and, with Johor in the south, formed the Unfederated Malay States. The primary aim of the British administration was to create the enabling conditions, including maintaining law and order, for exploiting the Malay peninsula’s natural resources with the use of low-paid workers, whether local or imported.
The British administration shaped the local division of labour, demographics, and social hierarchies, laying down key structures that the present-day Malaysian economic system inherited. While the Straits Settlements came under ‘
direct rule’, the peninsular states were governed by ‘
indirect rule’, which according to Frank Swettenham, the first Resident-General of the Federated Malay States, as quoted in Barlow (1995), aimed to:
‘preserve the acceptable customs and traditions of the country, attract people’s sympathies for and interests in our aid, and teach them the benefits of good government and enlightened policy’.
British government officials considered that indirect rule would be successful if the support of an initially hostile Malay ruling class could be achieved (Andaya and Andaya, 1982). Between 1887 and 1904, the administration replaced traditional customary rules for assigning land with a European-style leasehold system to encourage British planters to raze forests and develop the country. Other key institutional changes included organizing a tax administration; setting up a legal structure based on common law, along with a criminal justice system; introducing a monetary system anchored on the pound sterling; enabling mass immigration of labourers to work in tin mines and on plantations; and building infrastructure to support economic development.
Per ‘regulation theory’ (Boyer, 2022), Malaya’s accumulation regime was characterized by an
extensive accumulation of capital: more capital invested from Europe, linked to more labour hired, mostly from southern India and southern China, on plots of cheaply acquired land (Gordon, 2004, pp. 523–546), with a limited local domestic demand component (as most profits came from exports). Wages were kept very low by a seemingly unlimited supply of migrant workers (see last paragraph of ‘The state–economy relationship’ below). This specific mode of regulating capitalism proved to be stable and lucrative between 1850 and 1913 in Europe: it is illustrated by Malaysia for the UK, and continued after World War I.