Charting the Economy : Early 20th Century Malaya and Contemporary Malaysian Contrasts
Introductory Remarks by  Professor Dwight H. Perkins, Harvard University 
17 January 2017 | The St Regis Hotel 
Much work on economic development today starts with the analysis after the Second World War and often not until the 1960s. The exception was mainly the high income countries of Europe, North America and Japan that began their modern economic growth and industrialization in the 19th century, or, in Japan’s case around 1900.

The reasons why the economic growth story of most of the rest of the world before 1950 or 1960 was largely neglected has several components: 
  • Most of these countries were colonies of European powers, the United States or Japan and analysis of those economies largely focused on those parts of the economy involving citizens of the ruling colonial power, not what was happening to the economy as a whole.
  • The standard way of measuring overall economic performance of a national economy was not even invented until Simon Kuznets did so in 1937, so that it would be possible to test some of the theories put forth, particularly by macro-economists, and to do so with appropriate macro-economic data.   

  • Reconstructing the GDP and broad economic performance for the first half of the 20th century is a demanding and time consuming task and most economists don’t have the patience to carry it through to a conclusion. 
That neglect of the early performance of what are typically referred to today as developing economies began to change in the 1980s, but mainly for a few former Japanese colonies—notably Korea and Taiwan and in a more limited way for several other major countries (e.g. China and India). The Japanese colonial governments, whatever one might think about how they treated their subjects, were careful collectors of economic data for their colonies that included all sectors, not just those run by Japanese. This work was done by Korean and Taiwan scholars but also by scholars associated with Hitotsubashi University in Japan.

The work of HRH Sultan Nazrin Shah is thus pioneering work in this tradition. It is the first successful attempt to construct a complete GDP series for Malaya (now Malaysia) for the entire 20th century. 

--It is difficult to exaggerate how challenging the task is to reconstruct GDP for any country, but particularly for one such as Malaysia with its complex colonial political structure comprising the Straits Settlements, the Federated and Unfederated Malay States, all with somewhat different systems and with the data scattered among different repositories from Kuala Lumpur to London.  

--very few scholars have the commitment, the time, and the knowledge sufficient to stick with the task until it is complete. 

The economic development story that emerges from this reconstruction of Malaya’s GDP and is analyzed by HRH is an important one. It is a story that was common to a great many of today’s developing countries in the first half of the 20th century but is also relevant to understanding some even today. The main features of that story are: 
  • Fairly rapid growth in one part of the economy, notably rubber and tin, combined with growth in other sectors that supported the development of these natural resources, but not much growth elsewhere, notably in subsistence agriculture, fishing etc.

  • The benefits of this real economic growth of 2.9% a year for nearly four decades prior to 1941 mainly went back to the rubber and tin mine owners in the United Kingdom. The local population saw some gains in income but at a much lower rate (this was similar to Korea where even more rapid growth was combined with declining incomes for most Koreans). 

  • This development helped shape the structure of the population and the labor force that actually began changing before 1900. Malays were understandably reluctant to work in the mines because, among other reasons of, of the death rates from Malaria in the mining area. Chinese from the poorest counties of China immigrated and were willing to take the risk. The rubber tappers came from the poorest areas of southern India. 

  • The needs of mining, rubber and colonial administration, together with some of the revenue from mining and rubber, did one very positive thing. It began the process of creating the infrastructure needed for a modern economy—the paved roads, electric power, the railway, and when I visited Kuala Lumpur for the first time in 1962 on a trip through much of Southeast Asia, it was the only place in the region where one could drink the water out of the tap without boiling it. This infrastructure pales when compared with the first class infrastructure enjoyed by the entire country today, but this current infrastructure was built on the base created before 1941. 
This past performance and structure of the economy may not seem particularly relevant to Malaysia today, but it is.

--In a very basic sense the economic history of Malaysia since independence in 1957 is a story of using this resource-based economy to accomplish major improvements in the lives of the people of Malaysia, and at the same time convert the economy from one based on resources to one based on modern manufacturing and services that would eventually allow Malaysia to join the ranks of the high income countries. 

--Shifting resource income from UK investors to Malaysians was in a sense the easier part because one could both shift ownership and tax these resources, irrespective of ownership to benefit the citizens.   

--and the resource wealth created then helped expand the infrastructure that in turn attracted the foreign direct investment that made it possible for Malaysia to become a major exporter of manufactures.

This brief introduction is not the place to go into modern Malaysian growth in depth. Reading this book is a major start in understanding how the country’s economic past shapes its current trajectory. It will also be the starting point for all future analysis of the country’s economic history and structural transformation. 
Asia-Europe Institute
University of Malaya,
50603 Kuala Lumpur

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