Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

Multinationals and the Malaysian Economy

Written by johnleemk on 1:17:51 pm Jun 7, 2007.

The Malaysian economy is heavily dependent on the state. A large number of companies, big and small, public and private, rely on the government's largesse, directly or indirectly.

However, there is another major player in the Malaysian economy — multinational companies which have outsourced their operations here. Some electronics companies have been operating in Penang since the 1970s.

The economic nationalists would immediately raise the hue and cry over these companies for harming the country's economy — after all, why can't it be Malaysian firms churning out microprocessors?

Those with an economic bent will point out that the profits from these companies go overseas, and that any short-term investment benefits from these companies setting up here is temporal.

Moreover, when these companies convert their profits from ringgit to whatever their home currency is, they weaken the ringgit, and thus the purchasing power of the Malaysian consumer; Malaysian companies which import materials from abroad will also be hit.

I do not agree with the position staked out by the economic nationalists — multinationals should be welcomed, because they compete with local businesses and thus raise the quality of everyone's game.

Provided the government does not intervene to protect the multinationals, there is no reason they will do significant damage to the economy. If anything, by training our workers, they raise the productivity of Malaysians.

Some of these workers will also end up starting their own firms, and carry over the best practices they have picked up from their former employers. Weighing the costs and benefits, I think allowing more multinationals in would be a fine idea.

These multinationals already play a significant role in the economy — some might say that the economy is not state-heavy because of them. However, this is something I would disagree with.

In the end, if the only major players in your economy are the state and foreigners, your economy is doomed. The point of inviting multinationals in is so we can learn from them, take the knowledge they pass to us, form our own companies, and compete with them.

Unfortunately, this is precisely what we seem to have not been doing. No Malaysian company can compete with multinational electronics manufacturers, while other countries like Taiwan have seen great success in this area.

The reason is simple — the state has distorted our economy and perverted the incentive to work and innovate. People gain more from sucking up to government officials and making easy money off government contracts than from innovating or from competing in good old market.

That is why it is important for our country to rectify this state of affairs, and get the state to reduce its role in the marketplace substantially. Only then can we prove to be a competitive country in the era of globalisation.

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Infernal Ramblings is a Malaysian website focusing on current events and sociopolitical issues. Its articles run the gamut from economics to society to education.

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