Global Trends by Martin Khor
Monday 1 September 2014
Independence has been achieved, yet has to be constantly defended, continuously renewed and expanded as the process of de-colonisation is on-going and new threats arise.
This week marks the beginning of our 58th year of Independence.
Much has been done to entrench sovereignty and independence on our land. But much more needs to be done.
Colonialism did a comprehensive uprooting of traditional systems and replanted them with new ways, methods and systems to produce a chaotic and confusing amalgam of people, social patterns and economic modes.
We are still shaking off the vestiges of that colonialism, whose shadows still fall large. We are still in the process of building independent policies, structures and systems.
This is so in post-colonial developing countries in general. As the leaders of the Group of 77 and China stated in their Summit held in Bolivia recently, the process of de-colonisation is incomplete and on-going, even decades after the winning of Independence.
That is a good reminder. In particular, the structures and levers of the global economy are still under the domination of the rich developed countries.
The former colonial masters may have let go of formal political and military control of the colonies but they made sure to set up a system in which they could continue to control the important components of world finance, trade and economy.
For so many decades, even until now, the major economic and social trends and policies were set by the combination of the International Monetary Fund, the World Bank, and the Group of 7 rich countries.
These policies, made by institutions based in Washington, became widely known as the “Washington Consensus.” Countries that were indebted especially had to abide by the rules and policies, which were often against their own interests.
Some countries, including Malaysia, were fortunate enough not to have been caught into the debt trap and thus escaped the Washington Consensus. We had a close shave during the Asian financial crisis in 1997-99, but unlike other Asian countries, we did not have to borrow from the IMF, and could devise our own policies out from the crisis.
Many other developing countries (almost a hundred) that fell under the IMF-World Bank spell could not chart their own policies, had their economies shaped the wrong way and their development postponed. Independence was much constrained, often present only in name.
Malaysia has been able to shape and re-shape its own policies. If mistakes were made, they could and can be corrected.
Years after Merdeka, the economy was still under British domination. The plantations, tin mines, banks, wholesale trade, industry, were mainly in foreign hands. In 1970, 70% of the corporate assets were owned by foreigners.
A strategic policy was designed to reduce the foreign share while boosting the local share, and to restructure the participation of the various local communities in the economy. Society is still debating the effects and implications of that policy and its implementation.
However, there is appreciation that a successful part of the policies was the wresting back of control over the natural resource based sectors and obtaining national benefits.
Malaysia has been one of the richest exporters of commodities. It helped make Britain rich during colonial times and its companies still dominated the sector long after Merdeka.
Through a series of policies over decades, Malaysia took back ownership of the biggest plantation and mining companies (through the famous “dawn raid” at the London stock market). It signed production and revenue sharing agreements with the international oil companies.
These policies opened the road for more of the revenues from our important commodities to be retained locally. They also became major sources of government revenue that financed development projects.
Value was then added to the raw materials through processing, refining and manufacturing. Rubber exported as gloves and tyres, palm oil exported as cooking oil and wood exported as furniture bring more revenue and jobs to the country than if they were exported in raw forms as latex, crude palm oil and timber.
Research and development as well as marketing institutions were created to find more efficient ways to produce, new uses for the processed materials, and more markets. In contrast, those developing countries that fell under IMF-World bank policies were not able to provide state support for their agriculture.
When foreign manufacturing and services firms entered, they were told to set up as joint ventures with local companies, with limits on equity. This could facilitate benefit sharing and participation in the economy for locals. Yet Malaysia still became a favourite location for global investors.
In the years leading to the mid-1990s, external debt built up, the current account of the balance of payments went into high deficit, and the financial sector was liberalised, which made the country vulnerable to external shocks.
The 1997-99 crisis taught the lesson that excessive debt, a wide current account deficit and too much financial liberalisation can lead to a major crisis.
In the 2008-2010 global crisis, Malaysia had built up enough defences (especially foreign reserves and balance of payments surpluses) to be resilient.
Economic growth has recovered, but care has to be taken to address the significant budget deficit and increase in foreign debt.
On the global front, developing countries that were fed up with dependence on the IMF and World Bank and their lack of reforms have created their own institutions, such as the Chiangmai Initiative and the BRICS Bank.
The objectives are laudable. Developing countries that need finance either to avoid a debt crisis or to fund development programmes should have alternative sources that hopefully will have less conditions or more appropriate conditions attached to their loans. It is another big step in de-colonisation.
Needless to say there is much more to be done to safeguard Independence and to move forward on independent development pathways.
Major developed countries, fearing the erosion of their economic dominance, have devised new policies to maintain their superiority.
These include technological dominance and revenue earnings through new intellectual property regimes; rules to ensure free flow of finance and financial instruments so that global financial institutions and funds can reap profit through short-term speculation-based activities; banning the conditions placed on foreign firms that enable sharing of benefits with locals; prying open for foreign companies the business of government procurement; and curbing the role of the state and state owned enterprises.
If only the state could be prevented from taking policies that place controls and conditions on foreign firms, investors and speculators, the world would be a free and big hunting ground for those global corporate and financial giants to maximise their profits and yields.
But if global binding rules are established to create such a world, then big corporations would again rule the world, backed up by their governments. Then the governments of the developing countries would be unable to protect their own citizens, and a new battle for independence would have to be waged again.
Better to preserve the independence we have, and expand it, than to whittle away the gains and then having to fight old battles anew.
A lesson is that Merdeka has been achieved, but should not be taken for granted. It has to be constantly defended, renewed continuously and expanded. To Malaysia and Malaysians –
Happy 58th year of Merdeka!