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Learning form Malaysia's tumultuous past
An interview with Dato J Jegathesan a former Malaysian bureaucrat who had a front row seat to the countrys remarkable economic transformation
LBR,Saturday 24 July 2010

Malaysia's economic success was triggered after tumultuous race riots that happened in the late 1960's, that galvanized public opinion and the boosted the political will to address the deep rooted poverty and income inequality.

There are many parallels in Malaysia's history to that of today's Sri Lamka. Recently Dato J Jegathesan a director at MIDA, the Malaysian government's investment promotion agency in the 1970s' joined LBR's Shamindra Kulamannage to discuss some of these parallels and the lessons that can be learnt from Malaysia.

Excerpt form the interview...

Q: Do you see parallels between what Malaysia had in the 1970s', just coming out of race riots when poverty and income inequality were issues, and Sri Lanka's situation now?

Jegathesan: In a scary way, yes. In 1969 we had an election. Some of the opposition political parties brought in race as an issue and used it as a bait. They invoked racial sentiments to get votes and therfore the opposition won some extra seats at the time. Then in Kuala Lumpur city the opposition had victory processtion and someone threw a stone or something and before anyone knew it, within hours the whole city was wrecked a incredible racial riot. Basically it was between the Chinese and the Malays.

When they investigated the reason for this sudden outburst, the fundamental underlying thing found was massive unemployment in the urban areas. You see, urban unemployment is the most dangerous type of unemployment anywhere in the world.

Because in a rural area the unemployed guy can somehow live with his aunty and uncle and get some food and eat and sleep somehow. But when it comes urban areas where is he going to eat? Where is he going to stay? Emotions can be easily aroused by some fiery speaker.

So, the government realized there is massive unemployment at the time and it was compounded by the uneven distribution of wealth and the uneven opportunities between the races and the religious groups.

Q: Unemployment and income equality are not issues that can be addressed overnight. But I suppose considering the race riots that you had already seen, government may have had to seek quick sollutions. How was it approached?

Jegathesan: In addition to this unemployment and inequality, there was also this component factor; there was identification of race with occupation. Rubber tappers are Indians. all brought in during colonial times, railway workers were basically Sri Lankans, 90 percent of railways are controlled by Sri Lankans or Indians. Shopkeepers are Chinese. Paddy planters are Malays.

So the government had to get that reballanced. So what did the government so? It was the wisdom of the leaders; they launched what is called a 'twenty years perspective plan', 1970 to 1990. They found that they've got to now start and they were giving utmost opportunities to the have nots.

They said that we need to give more opportunities to the havenots, more wealth for the havenots, but the wisdom was that it should be done in the context of a rapidly expanding economy. Basically in the cotext of a rapidly expanding economy, give more opportunities for the have nots.

Q: In the 1970 s when you were trying to pull more investments into Malaysia, the country may not have been a very attractive destination for foreign or local investment. What was the strategy you used during that time?

Jegathesan: One mantra that we learned in Malaysia, and every developing country better listen to this; 'the government has no business to be in business'. That's one slogan. Second slogan that we learned in Malaysia after these May 13th riots (1969) - is the fact that 'poverty anywhere is a threat to prosperity everywhere.' I mean,don't think that you're having a nice house and poverty is not your problem. The guy whop robs you is a poor fellow from a slum.

On investment my message to Sri Lanka is that you cant use one broom for every sector. The rubber product for example needs a different kind of environment compared to electronics. Some requirements are similar, for example; the rule of law must be similar, like ability to repatriate profits.

So we went ahead to clean the environment to attract the industries. That is the Malaysian miracle, everyone talks about. The Malaysian miracle was from 1970 to 1980. After May 13th riots we were on ground zero. From then in ten years, Malaysia became the world's largest exporter of electronics. That one sector alone accounted for 130,000 jobs. That was the big break. It broke the back of poverty. Now Malaysia is the third largest exporter of air conditioners.

So the message that I would like to share with you is that; every developing country talks about comparative advantage. Just because you have natural resources doesn't mean you guys are going to come out of poverty.

The thing to develop is 'competitive advantage'.

Q: In Sri Lanka, if you look at it, the private sector is large. It's the largest investor in the economy. It is also the largest employer. But if you take a broad crosssection of Sri Lanka's population there is this notion that profit is not necessarily a good motivator. Do you see a similar sort of attitude toward the private sector and the profit motive in Malaysia?

Jegathesan: One of the great lessons that Malaysians have to give the world is, 'profits' should never be a bad word. The primeminister of Malaysia has gone to many forums and said, profit is not a bad word. When i was working for MIDA , some investors sometimes come and tell me, "oh Mr. Jegathesan, we're not like these other companies we don't make much profit,". So i say, "is that so? Then you can do me a favour and go to Sri Lanka and fail there". When it comes to Malaysia we want you to make profit. Because only if you're profitable can you expand and create employment, then we can tax you. If you don't want to make profit go to neighbouring country.

Q: That's again an interesting point. If you ask a crosssection of the Sri Lankan population what they think about foreign direct investment, they would probably say that the country can perhaps do without it because foreigners take wealth out of the country. You promoted FDI in to Malaysia. Did you experience similar attitudes?

Jegathesan: This is what I call 'emotional nationalism'. Faced with this the Malaysian government asked the people a very simple question, "hey, What do you want? You want economic power? You want to own 100 percent of a 100? Or 40 percent of 1000, that's 400. People will naturally pick the 400. But for that to happen the government PR machinery has to explain the choice.

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