We need to dispense with a couple of popular myths about Malaysia and Singapore.
13 Apr, 2017MALAYSIAIMPACT.COM
People love to compare Malaysia with Singapore. We often hear these conversations at dinner tables, coffee shops, and living rooms around the country. Here’s how they invariably go: Malaysia is a failure. We have far more land and natural resources compared to Singapore, and yet it’s so far ahead of us. How lah?
This belief is one of the most annoyingly persistent tropes in our political discourse. It’s also wildly inaccurate and would embarrass any proper economist or historian. To understand why it’s wrong, we need to dispense with a couple of popular myths about Malaysia and Singapore.
Not true. Singapore was always substantially richer than Malaysia. By the mid-19th century, it was an important trade and administrative center, and the jewel of British territories in Southeast Asia. In 1965, when it split from the federation, it had a GDP per capita of US$516 – about two-thirds higher than Malaysia (US$309), and over 2.5 times more than the average East Asian and Pacific country at the time. (Figures from the World Bank)
For illustrative purposes, take a look at this chart:
So the idea that Singapore was this poor backwater back in the 50s and 60s is somewhat exaggerated. Sure, it was ‘poor’ relative to Western standards. But even then, its economy outmatched almost every other country in the region.
It’s hard to believe, but an abundance of natural resources tends to be more burden than boon. Economists talk of the paradoxical ‘resource curse’ or the ‘Dutch disease’: as a rule, resource-rich countries see slower and more erratic growth as well as higher poverty and inequality. The reasons for this is complex but can be boiled down to a matter of priorities.
The problem with Malaysia in the past is not that we didn’t develop and manage our natural resources properly. It’s that we overinvested in them, neglecting other sectors like services and manufacturing. This also exposed us to volatilities in the commodity markets. For example, a drought may shave off a good chunk of palm oil production. And we’ve already have seen how the drop in oil prices has wreaked havoc on the ringgit.
The Najib government has tried to address this by diversifying the economy, enhancing sectors like finance (both conventional and Islamic) and tourism. The initial results of such efforts are already apparent: As a percentage of government revenue, oil-related sources fell from 41 percent in 2009 to 14 percent in 2016. Economic growth is still robust even as oil prices remain low.
That’s good and the government needs to do more. But what’s clear is doubling-down on our natural resources isn’t going to get us into the First World. In fact, that would be incredibly reckless.
Yes, our accents and our cuisines are broadly similar (though I still insist Malaysian food is far superior). But Singapore differs from Malaysia in two very important aspects.
Firstly, Singapore is a small city-state. Its government doesn’t need to deal with the administrative headaches of running a large and diverse country with stark urban and rural divides. Kuala Lumpur and Selangor have vastly different needs than say, rural Kelantan and Sarawak.
Indeed, Singapore enjoys the same advantages of prosperous Monaco. No one argues that it’s crummy to live in neighboring France (or hell, Canada) because Monaco is far richer.
Secondly, and more importantly, Singapore is largely a homogeneous society. We like to think of Singapore as a multiracial country, but Malays make up just 13 percent of the population and Indians only 9 percent. The overwhelming majority is Chinese (74 percent).
Malaysia, on the other hand, has a significantly higher number of minorities – 23 percent Chinese and 7 percent Indians. This makes us highly vulnerable to ethnic polarization, which – as studies have shown – tends to depress economic development and make violent conflict more likely.
Think about it: the richest, most peaceful countries in the world tend to be the least ethnically diverse – Sweden, Denmark, Japan. Of course, there are exceptions like the United States, but the trend is unmistakable.
Furthermore and crucially, the Chinese have historically dominated the Malaysian economy, attracting no small amount of resentment. In response, our government has had to spend much more and implement affirmative action policies to tamp down on racial tensions. This likely hurt growth, but in retrospect, was highly necessary to prevent another May 13 incident.
The fact is, Malaysia never had an edge over Singapore – it was always the other way around. The big question isn’t why Singapore is so far ahead of us. It’s why we haven’t done worse – much worse – given all our disadvantages. And that may be due to a combination of good governance and sheer luck.