How is Malaysia's economy in 2016
Economic development of Singapore
Even before 1959, Singapore was a transport hub for Southeast Asia because of its transshipment port. In 1959, Singapore gained internal self-government autonomy from the colonial power of England. The economy now faced some difficulties. Due to the high risk, companies did not want to make any investments, unemployment increased and there was a lack of infrastructure (Bürklin 1993, p.22 ff.).
Between 1959 and 1965 there was import-substituting industrialization in the form of the establishment of a manufacturing industry. In the long term, capacities in the secondary sector, such as shipbuilding, electrical goods and the chemical industry, should be built up. In addition, Singapore joined the Malaysian Federation and thus had access to the Malaysian internal market. Singapore founds the Economic Development Board, which supported the country with financial aid, tax cuts and import duties. Industrialization was slow in the first few years and there were ethnic conflicts, which is why Singapore left the Federation in 1965 and achieved full independence (Bürklin, 1993, p.26ff.).
Now Singapore has lost the possibility of import substitution and changes its strategy to an export-oriented industrialization between 1966 and 1973. This was promoted with tax incentives, and the transfer of capital abroad was legalized. This labor-intensive export industrialization was based on foreign direct investment. In 1971 the military bases in Singapore, on which many employees were dependent, were closed. Singapore responded by reforming its labor law, and building its own armed forces was a top priority. The state plays an important role in organizing the development of necessary goods. There is also a system of semi-public companies. The motor of the industrialization process is the increasing world trade, the increasing influx of foreign direct investments as well as investment incentives (Bürklin, 1993, pp. 30ff.).
Between 1974 and 1979, Singapore wanted to improve the quality of its economy, but this failed due to the oil crisis. At that time, the Singapore economy was heavily dependent on the foreign market, there are bottlenecks in the labor market, wage costs are rising and labor productivity is stagnating. The aim was a technological catch-up process through restructuring. Capital, technology and human capital intensive industries should be built.
The phase of economic restructuring finally began in 1979 and lasted until 1984. The "Second Industrial Revolution" in the manufacturing industry led to the introduction of a high wage policy, which weakened the competitiveness of labor-intensive industries. These should be replaced by higher quality technologies. Research, development and training were promoted through financial incentives. Average GDP growth in these years was 7.8%, the unemployment rate was very low at around 2.7% (Kiese, 2004).
An incipient economic crisis required another change of strategy. The GDP fell by 1.6% in 1985, which can be attributed to the high wage policy, falling demand and an appreciation of the Singapore dollar. Investments fell and the unemployment rate rose (Bürklin 1993, p. 26ff.). Between 1985 and 1997 there was diversification and regionalization. In the course of this, local companies in particular were promoted, regional service companies developed and cost reductions made. The result was a rapid stabilization of the economy and further growth. Overall, there was knowledge-intensive industrialization, of which the initiation of the Singapore-Johor-Riau Islands growth triangle was an important part. There was an increasing integration into the world market (Kiese, 2004)
The Asian crisis that lasted from 1997 to 1998 largely spared Singapore because Singapore had a healthy financial system and was able to demonstrate social and political stability (Bürklin, 1993, p.75 ff.).
From 1998 Singapore entered the phase of the knowledge-based economy. The main component was the generation of one's own knowledge as a supplement to the existing knowledge. Singapore retained the secondary and tertiary sectors, strengthened foreign trade and promoted innovation. Singapore wanted to become the leading competence center for knowledge-based activities, an example of which is the establishment of the “One North” project. Singapore was to become a global city, a goal that Singapore achieved a few years later (Kiese, 2004).
The growth continues to this day, but Singapore is facing some problems. This includes, for example, the limited space that is becoming increasingly scarce due to the government's growth plans (Kinder, 2017, p.34ff.).
Economic development of Malaysia
The economic development of Malaysia from a raw material producing developing country to an up-and-coming economic power in Southeast Asia began with independence in 1957. At the beginning, Malaysia's economy was predominantly agricultural and international trade was still in the hands of the British colonial power (Ufen, 2017). In the first decade of independence, the focus was on the political and social stabilization of the country and the economic colonial structures were initially retained. This resulted in an economic “laissez-faire” liberalism. "New Economic Policy" initiated in the 1970s, a long-term equalization of income and wealth distribution between the Chinese and Malaysian populations should be made possible and the Malays should be more involved in the economy (Rey, 2001). Likewise, the growth and development of a more labor-intensive and export-oriented industrialization should be promoted, whereupon the Malaysian Industrial Development Authority was founded and a free trade zone law was passed in 1971. Foreign direct investments were promoted, tax breaks made possible and export processing zones created (Kulke, 2003). Due to this, a holistic structural change and a diversification of the economic sectors took place until today.
In the 1980s a change between new economic policy and reform policy began. Due to the relocation of the manufacturing industry to cheaper production facilities abroad, the import-substituting heavy industry and production were promoted. For example, the national automobile industry was stimulated with the car "Proton", the production of steel, cement and chemicals was promoted and the production of microelectronics was supported. Another law was passed to encourage investment, giving foreign investors tax breaks and other benefits for settling in Malaysia. This enabled the number of medium-skilled workers to be increased and an economic upswing generated (Kulke, 2003).
A wave of industrial mega-projects began in the 1990s. These were part of an economic strategy to expand the infrastructure and high-level services. The administrative capital was relocated to Putrajaya in 1993 and in 1996 the more than 70 km long Multimedia Super Corridor between Kuala Lumpur and the new Kuala Lumpur International Airport was opened. Cyberjaja was also founded, the Formula 1 track was built in Sepang and the Petronas Towers were built. The latter stand as a symbol for Malaysia's mineral oil production, which accounts for around a third of state revenue (Kulke, 2003). The last major project to date followed in 2010, the Iskandar Development Region in Johor (Ufen, 2017).
In the mid-1990s, there was a change to a knowledge-based economy and the promotion of capital-intensive high-tech products, and further regional development corridors were set up (Ufen, 2017). In the course of the Asian crisis of 1997-1998, the economy shrank by 7.5%, whereby weaknesses in the previous economic expansion course were uncovered and punished (Rey, 2001). Tourism also increased after the Asian crisis and, with 26 million arrivals (2017), has developed into an important pillar of the Malaysian economy (Tourism Malaysia, 2017).
Based on the economic successes, and following the ambitious plans of Mahathir, Malaysia created the Vision 2020 with the aim of making Malaysia a fully developed, modern industrial state (Rey, 2001). If only the set goals are considered, an annual economic growth of 7% on average, the resolution of ethnic and social conflicts and the promotion of knowledge and productivity, it can be said that Malaysia is still far from achieving these goals 2020 was then expanded to 2030 and similar goals were formulated and pursued (Pennington 2017).
Nevertheless, Malaysia is now one of the most competitive economies in Southeast Asia and has a GDP of around USD 320 billion (2016) with a growth rate of 4.3% (Ufen, 2017). The economy is heavily trade-oriented and driven by high-tech and capital-intensive industries. In contrast to Singapore, Malaysia did not fully manage to raise the economically necessary capacities to go through the stage of an emerging country and to become an industrialized country in just a few decades.
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