COLOMBO, Dec 10, 2014 (EconomyNext) – Equitably sharing both wealth and political power is the best way to develop a country, former Malaysian premier Mahathir Mohamed has told Si Lanka.
And the purchasing power of people is a better measurement of a country’s wealth than per capita income, Mahathir, seen as the architect of Malaysia’s economic and social development, said.
Malaysia’s seemingly miraculous path to prosperity was no miracle, he noted, attributing it to good planning, hard work, close co-operation between government and private sector, including foreign investors, and social stability.
Malaysia went through political and economic changes similar to Sri Lanka’s, he told Tuesday’s Hambantota Conclave 2014, a forum to promote investment in the new southern port city which is being designed and built from scratch.
At independence from British colonial rule in 1957 it was feared there would be turmoil because Malaysia’s population was made up of three major races and the country divided not only by race but by religion, culture, language and economic classes.
Indigenous Malays were 60 percent of the population and the poorest race in Malaysia, and unemployment very high.
Sharing power and wealth
"So it was assumed, upon Independence the indigenous people would rise and seize the wealth of others. But that did not happen because of the wisdom of the founding fathers who decided that for people to benefit they must pull together the three races," Mahathir said.
"The best way to develop a country was to share both wealth and political power, so everybody was expected to win from economic growth.
"If they did not get their fair share of entitlement then there would be violence, turmoil and the country would not grow. So they felt they must share fairly among themselves, grow the cake and each one’s share would be better than the size of the original cake.
"Then they became stable and peaceful, a country which is much easier to develop than a country in turmoil."
Mahathir also noted Malaysia focused on strengthening people’s buying power by ensuring a stable currency instead of resorting to devaluation.
"It’s not about per capita income. Per capita income (PCI) does not determine the wealth of the people."
Wealth indicator
Taking as a model Saudi Arabia, which has one of the highest PCIs in the world, Mahathir said the Arab country is not seen as a developed country because they don’t have many things developed countries have.
"We go by other definitions like how industrialized the country is, and whether the people are very well educated and have capacity to do research and development just like a developed country.
"It is the purchasing power of people that’s important, not PCI. If you have a devalued currency, you can be a millionaire but that million will not buy you much. Malaysia’s strategy was to have low PCI but high purchasing power."
Today, one US dollar is worth over three Malaysian ringgit but living costs in Malaysia are so low that one Malaysian ringgit can buy in Malaysia what can be bought for one dollar in the United States, Mahathir said.
"So even though the US has a PCI of 46,000 dollars, their purchasing power is not that much. We have a PCI of 12,000 dollars but our purchasing power is more like 24,000 dollars because the cost of living in Malaysia is very low.
"So to ensure a country grows one has to look at every aspect of the economy and lives of the people. We want them to have a good life. To do so, they must work hard, be educated, competitive, and want to achieve something in life."
Malaysia also copied from successful models like Japan and South Korea.
"We noticed Japan which lost the war recovered faster than the victors," Mahathir said. "We decided to look east – at Japan, Korea, China and Taiwan who seemed to be doing better than the West.
"We sent students and workers to Japan to learn Japanese work ethics. We believe success depends on work ethics. If they have good work ethics, then they will succeed and the country will prosper."
He said it was the work ethic of countries like Japan and Korea that contributed much to their rapid recovery.
"We believe it is not a miracle but a very simple way of tackling problems. There’s nothing very unique about what we have done. We believe anybody can do what Malaysia has done."
Small holdings
Malaysia created employment by opening up land for settlement and agriculture, with settlements managed by professionals, and retaining big estates developed under the British
"We knew from the very beginning that small holdings cannot give good yield. If you’re to make money from agriculture it has to be in the form of big estates developed under the British."
Since the country did not have enough land for all the unemployed, it was decided to industrialise by inviting foreign investors since Malaysia lacked capital, knowhow, management skills and knowledge of export markets.
"We did not know what products to make," Mahathir said. "So we invited foreign investors to start special industries which were labour-intensive, our aim being not to make money from them but create jobs for our people.
"So they came in droves and created thousands of industries and so many jobs that in the end Malaysa had no more workers to work in these industries and we had to invite foreign workers. Now there’s no unemployment."
To avoid exports becoming uncompetitive if wages were forced up by strikes, Malaysia then went for making value-added products and hi-tech jobs.
"So we began to train our people," Mahathir said. "Today we 60 universities, half privately owned. We send people all over the world to get qualified so they can earn a better income. So when we upgraded our industries we could give better paying jobs to our people."