The Asian manufacturing success story is well documented, including how states have moved out of low-tech to higher value-addition, rising wages and raising living standards. So why, when we know what Asia has done and how they have done it, does Africa not follow the same path? Meanwhile Malaysia, for all its political idiosyncrasies, has certainly followed a pragmatic path – sometimes at the expense of leaders’ popularity. But it’s paid off. There are lessons to learn here. By GREG MILLS.
Penang’s Protestant Cemetery is an unlikely place to find a man who shaped Southeast Asia’s manufacturing boom.
There, off Jalan Sultan Ahmad Shah in George Town, behind the mouldy low yellow and white wall, its red-brick walkway shaded by giant, twisted Frangipani trees, is the white tomb of Captain Francis Light. He had sailed from Salang on 2 May 1786 and landed just up the road from his final resting place, on the spot where he erected Fort Cornwallis in the name of the Governor-General of the British East India Company, Charles Cornwallis.
The British flag was raised on Penang on 11 August 1786. Light died eight years later from malaria aged just 54, what seems to be a young age by today’s standards. But this was an era, reminds Victoria Glendinning in her magisterial Raffles and the Golden Opportunity, of “long everything – long journeys, long speeches, long dinners, long sermons, long poems, long scholarly papers, long book reviews, long personal letters, long reports – and long attention spans. Only death moved swiftly.” Throw in a harsh climate and relentless working conditions, and things could unimaginably speed up, Penang soon earning the epithet ‘the white man’s grave’ to accompany its other moniker ‘The Pearl of the Orient’. Many of the 500 tombs in the Cemetery are those of young children.
Photo: Francis Light’s tomb, left, that of Philip Dundas to the right, Penang Protestant Cemetery (Greg Mills)
So wretchedly oppressive and perilous were the conditions, especially for Europeans, that the only cure was apparently to escape on a vessel to recuperate, not that this helped its lieutenant-governor Philip Dundas, whose tomb and those of his infant children sit just yards from Light’s. Scotsman and former parliamentarian Dundas died onboard HMS Belliqueux in the Bay of Bengal on 8 April 1807, just two days after leaving Penang in an attempt to shake his persistent ill-health.
Trade as the opium of the masses
For all of its excesses, it’s too easy to dismiss that colonial era as one of unabashed racism and imperial ambition. Light and others, including Thomas Stamford Raffles, once Dundas’ deputy and today regarded as the founder of modern Singapore, left an indelible mark which their political successors have chosen not to discard; rather to build on. Their feats and legacy are almost enough to give imperialism a good name.
Modern Penang has its origins when the island, linked with a giant 24-km ‘second bridge’ to the Malaysian mainland, was leased in 1786 by the local Sultan to Light, who was working for the East India Company, in exchange for military protection against expansionist Burmese and Siamese interests. This treaty was formalised in 1800, extending over an area on the mainland denoted Province Wellesley, the future Duke of Wellington, Arthur Wellesley, having spent time on Penang co-ordinating local defences.
Photo: Colonial Penang
Not only was Penang perfectly situated for trade, offering a halfway point between Madras and Canton, a place for its ships to load up with spices, tin and birds-nests demanded by the Chinese market, and to protect its Chinese monopoly, too, in tea and opium, but it provided a British bulwark to threatening Dutch expansion. Appointed superintendent of the island, Light created a free port to encourage trade, which grew to over $30 million within three years of his arrival. Immigrants flocked to make their mark and fortune. From just 60 inhabitants that first year, by 1810 the population had grown to 22,000, and rapidly to 190,000 by 1890, including among them an influential Armenian community who consecrated the appropriately named church of St Gregory the Illuminator. The four Armenian Sarkies’ brothers Martin, Tigran, Aviet and Arshak established the legendary Eastern and Oriental hotel – the ‘E&O’ – on the George Town Esplanade, still there in all its grandeur today.
Photo: Penang’s tourism, too, is thriving. (Greg Mills)
With the shift from sail to steam travel and the rise of its Straits Settlements’ trade rival Singapore, Penang’s importance declined. But it received a second wind from the 1970s when, under prescient local leadership, it responded to become one of Asia’s largest electronics manufacturing bases.
The Lexus and the Frangipani Tree
Next to the Protestant Cemetery is a Lexus dealership, a metaphor for Penang’s contemporary rise. Manufacturing today employs around one-third of the island’s labour force, more than 130,000 people, generating an annual export income of over $6 billion. Despite being the smallest of Malaysia’s 13 states, Penang contributes more than 20 percent of the country’s GDP.
This is no sweatshop economy.
Near the toll on the mainland for the ‘second bridge’ to the island is a spanking new Bose facility, which has rapidly ramped up its operations opened in 2013 to employ ten percent of the $2.5 billion speaker giant’s 10,000-strong global workforce, its first big venture in Asia. On the island, clustered in four industrial parks, is a plethora of high-tech giants from Plexus to Bosch, Motorola to Intel. The latter led the way in opening operations establishing a $1.6 million plant ‘in a paddyfield’ in 1972, the year after its IPO, its first offshore operation and second-ever factory. Then Intel president Gordon Moore, the author of ‘Moore’s Law’ positing the doubling of computer power every two years with dramatic development implications, laid the cornerstone of the next Penang facility in 1978.
Photo: The world’s largest chipmaker is there too. (Greg Mills)
The same exponential growth has applied, it seems, to its Malaysian investments, regarded as ‘one of the largest Assembly Test Manufacturing facilities for Intel world-wide’. With an investment totalling more than $4 billion, today the world’s biggest chipmaker employs more than 8,000 Malaysians across its 12 plants in Penang and on the mainland in Kulim, many of them the sons and daughters of the original 100-strong, batik-clad workforce. The same reasons for Intel going to Malaysia 42 years ago are still evidently true: location, workforce and local government support.
The Penang Development Corporation (PDC) was established in 1969 specifically to drive economic growth, urban renewal and development of new townships, centring its activities around the establishment of a free trade zone, the first being created in 1972 on the southern side of Penang. The PDC can provide subsidised land or, in the case of start-ups, factory space for SMEs, and works with investPenang and the Malaysian Investment Development Authority, the latter offering tax and training incentives “especially for high-tech, strategic industries”. Fiscal incentives include tax holidays for up to 15 years, and deferments of “up to 60-70 percent of tax losses against future profits”.
Photo: Four phases of industrial parks, and still growing. (Greg Mills)
Much of the high-tech investment is from the United States, with a total stock of over $2 billion. America was Malaysia’s fourth largest trading partner in 2012, exporting $12.8 billion in goods and importing $25.9 billion from the Muslim nation.
Monthly salaries have risen in Penang as skills have risen and global demands changed, now averaging $500-$800. Despite competition from lower-wage regional rivals in Vietnam, Cambodia and China, the reasons for businesses being in Penang remain: widespread proficiency in English, the free industrial zones (which have superseded the FTZ), good international logistics (the one side of the airport, opposite the passenger terminal, is dominated by operations for TNT, UPS, Fedex and DHL, dedicated to moving out high-value electronics), and possessing unions which are present but generally on-side. Industry security specialists cannot recall the last time there was a strike.
As wages have increased, business has moved up the technological rung. It is no longer an assembly operation relying solely on cheap and bountiful labour. The upper-end of the electronics industry is increasingly dominant across Penang. For example, Penang houses Intel’s Design Centre, for the company ‘a crucial design and development facility’. This shift has drawn a workforce from other states, some travelling two hours each day on company buses to work on the island.
Electronics today makes up two-thirds of Penang’s manufacturing output, ahead of equally high-tech medical devices, pharmaceuticals and food processing. There are unusual spin-offs. More than 70,000 medical tourists visit Penang hospitals annually for complex procedures, including open-heart surgery, at prices around ten percent of similar operations in the US. All this reflects an impressive national achievement: With revenue of over $60 billion annually, digital electronics comprise a third of Malaysia’s total exports.
Just as Light acted without the explicit approval of the East India Company when he promised military protection to the Sultan in 1786, Raffles founded Singapore in 1819 without authority from London, establishing a free port and the basis of one of the world’s greatest transformative development stories. After a long and dreary clerical apprenticeship from the age of 14 at the ‘pompous’ India House, the London HQ of the East India Company, Raffles had arrived in Penang as a 24-year-old deputy secretary to Dundas in 1805, his first overseas posting, ostensibly to pursue the naked self-interests of a great monopoly but, in so doing, to make his mark. “He had Enlightenment values and liberal principles,” notes Glendinning. “He also liked to move in the great world and Establishment circles. He liked honours. He was not greedy for money. He wanted fame, and he wanted to do good.”
Over 274 years the East India Company, popularly known as “John Company”, became a multinational prototype “par excellence”. Established under a Royal Charter by Queen Elizabeth I in 1600, the EIC granted a group of 125 London merchants – the “proprietors” or “nabobs” – a monopoly on trade and market for English goods, especially Lancashire cotton, east of the Cape of Good Hope. In its pomp the EIC became a parallel government with its own bureaucracy and a 250,000-strong army dressed in blue and gold tunics, attracting a particular brand of entrepreneur-adventurer.
Photo: All in the name of the Company. (Greg Mills)
After surviving internecine company machinations in Penang, Raffles came to prominence with the occupation of Java. And then it was onto Singapore. “Our object is not territory,” he wrote of his designs on the island of Singapore, “but trade, a great commercial Emporium, and a fulcrum when we may extend our influence politically – and what Malta is to the West that may Singapore be in the East.” At the outset, no port duties were to be levied on visiting vessels to avoid inhibiting trade.
Fast forward nearly 150 years and independent Singapore was formed in 1965 out of the failure of the Malayan Federation, the dissolution a reflection of the mistrust between indigenous Malays and the Chinese who dominated Singapore in population numbers and the peninsula’s economy.
Backs to the Wall
It was a tough time, reflects SR Nathan, the sixth president of Singapore, serving nearly a dozen years before retiring from his post in 2011. “We had our backs to the wall.”
Photo: Former President SR Nathan (centre) and the Brenthurst-RSIS Africa Delegation, September 2014.
Like many Singaporean officials he has worn a variety of other hats during his long career: medical social worker, intelligence chief, Permanent Secretary of the Ministries of Home Affairs, several stints in the Ministry of Foreign Affairs, and various directorships including that of Mitsubishi Heavy Industries Singapore, an industrial and ship-building concern. He was involved in many of the early Non-Aligned Movement conferences where he made friends among the African group.
“We had no money, no skills and no resources. But we had a group of leaders with a common purpose and a common vision.” Singaporeans soon learnt that even then they had skills which could be used more productively, such as “those who welded or those who fixed bicycles. Our challenge was creating the environment to make use of these skills.”
“We got steel from ship-breaking, and that formed the basis of the National Iron and Steel Mills,” recalls Nathan. “Then we went to Japan to get help in building up our ship-repair industry. From Australia we acquired the know-how to make ammunition, and from this developed ST Engineering.” Singapore encouraged investors to improve skills by setting up bespoke training academies.
One of the critical first steps was, he emphasises, to get the unions to play their part. “The unions made demands meant for another world. Organised labour is a vote block,” he says, “in a democratic society, this creates a certain dependence. But your problem is beyond this small group; it’s instead to provide for the multitudes.”
He had a special interest and role. Now 90, Nathan cut his teeth in government as a medical social worker in the mid-1950s before being seconded to the Labour Movement ultimately as Director of the Labour Research Unit during the 1965 divorce. “We were faced with an international labour movement, which had laudable aims but an ulterior [political] motive.” But the government was faced with little choice. “If you ask for European wages, they will employ Europeans, not Asians. There would be no point in employing Asians.”
Making choices for tomorrow, not yesterday
Countries get rich by making or doing things and selling them. Their ability to do so depends on a combination of leadership, policy and productivity.
This is not news. The Asian manufacturing success story is well documented, including how states have moved out of low-tech to higher value-addition, rising wages and raising living standards. So why, when we know what Asia has done and how they have done it, asked a group of visiting African opinion-formers to Singapore this past week, does our continent not follow the same path?
One of the answers is politics, of course, that leadership is unwilling to use their mandate to make tough decisions in the countries overall best interest. Rather they govern by dividing, by favouring elite interest groups, where identity triumphs over issues. “Politicians have to balance loyalties between interests and groups,” reminds Nathan. “You also need a strong personality to stand up to counter the contradiction between the need to create jobs and the rights of workers [since] democracy implies a strong sense of responsibility and a strong sense of obligation.”
Another reason seems to be a lack of urgency, permitted by Africa’s relatively bountiful natural resources and the willingness of the outside world to supply aid as a last resort.
On a building site near Singapore’s Marina Bay Grand Prix track is a sign “Goodbye Yesterday, Hello Tomorrow”.
Photo by Tim Harris
It’s a metaphor for Singapore’s success. President Nathan put it this way: “Our first generation of leaders, who set us on our path, were educated in Britain. Whatever their failings, we benefitted from the British. There is no point,” he adds, “in harping on the evils of colonialism – no point at all. It’s over, you’re in charge now. By talking about it, injustices will not become justices. This is in our hands. Instead, get on and go ahead with the job you have to do, and put money in the pocket of your people.” He adds: “Until you solve your problems yourself, they will not be solved.” Malaysia, for all its political idiosyncrasies and occasional outbursts, has followed a similar pragmatic past – hence Penang’s retention of Butterworth, The Light, and George Town among other colonial names.
For all of that, Nathan cautions, “[t]he central point is whether leaders have the will to realise their vision – at the expense of being popular.” DM
Dr Mills, currently a visiting fellow at the Rajaratnam School of International Studies, is the author most recently of Why States Recover (Picador) and led the joint RSIS-Brenthurst Foundation Africa study-tour to Singapore.
Main photo: Penang’s old and new. (Greg Mills)