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Thursday, September 13, 2007

Stiglitz: What We Can Learn from Malaysia

What are the keys to Malaysia's unexpected success?:

The Malaysian miracle, by Joseph Stiglitz, Commentary, Project Syndicate: August 31 marked the 50th anniversary of Malaysia's Merdeka: independence after more than 400 years of colonialism. Malaysia's peaceful, non-violent struggle may not have received the attention that Mahatma Gandhi's did in India, but what Malaysia has accomplished since then is impressive - and has much to teach the world, both about economics, and about how to construct a vibrant multiracial, multi-ethnic, multicultural society.

The numbers themselves say a lot. At independence, Malaysia was one of the poorest countries in the world. ... Today, ..[i]n the global growth league tables, Malaysia is in the top tier, along with China, Taiwan, South Korea, and Thailand.

Moreover, the benefits of the growth have been shared. Hard-core poverty is set to be eliminated by 2010... Malaysia has succeeded in markedly reducing the income divides that separated various ethnic groups, not by bringing the top down, but by bringing the bottom up...

There were many reasons not to have expected Malaysia to be a success. ... Malaysia is rich in natural resources. But, with few exceptions, such countries are afflicted with the so-called "natural resource curse": countries with an abundance of resources ... actually do worse than countries without such benefits. While natural resource wealth should make it easier to create a more equalitarian society, countries with more resources, on average, are marked by greater inequality.

Moreover, Malaysia's multiracial, multicultural society made it more vulnerable to civil strife, which has occurred in many other resource-rich countries, as one group tried to seize the wealth for itself. ...

At independence, Malaysia also faced a communist insurgency. The "hearts and minds" of those in the countryside had to be won, and that meant bringing economic benefits and minimising "collateral" damage to innocent civilians - an important lesson for the Bush administration in Iraq, if it would only listen to someone outside its closed circle.

And Malaysia had a third strike against it: ... the European powers did little to improve living standards in the countries they ruled. ... The colonial powers' divide-and-rule tactics enabled small populations in Europe to rule large numbers outside of Europe, pillaging natural resources while investing little in the physical, human capital, and social capital necessary for an economically successful, democratic self-governing society. It has taken many of the former colonies decades to overcome this legacy.

How, then, does an economist account for Malaysia's success? Economically, Malaysia learned from its neighbours. Too many of the ex-colonies, rejecting their colonial heritage, turned to Russia and communism. Malaysia wisely took an alternative course, looking instead to the highly successful countries of east Asia. It invested in education and technology, pushed a high savings rate, enacted a strong and effective affirmative action programme, and adopted sound macroeconomic policies.

Malaysia also recognised that success required an active role for government. It eschewed ideology, following or rejecting outsiders' advice on a pragmatic basis. Most tellingly, during the financial crisis of 1997, it did not adopt IMF policies - and as a result had the shortest and shallowest downturn of any of the afflicted countries. ...

This success was, of course, not only a matter of economics: had Malaysia followed the policies recommended by the IMF, it would have torn apart the social fabric created over the preceding four decades.

Malaysia's success thus should be studied both by those looking for economic prosperity and those seeking to understand how our world can live together, not just with toleration, but also with respect, sharing their common humanity and working together to achieve common goals.

    Posted by on Thursday, September 13, 2007 at 02:43 AM in Economics | Permalink  TrackBack (0)  Comments (25)


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