The Failed State: Protectionism Vs Globalisation

National carmaker Proton needs a strategic partner to be competitive and penetrate global markets, the government's investment arm, Khazanah, said today.

The above statement will be the basis of my posting today.

So far we have discussed the “trade off” between growth and equity and also between free market and government intervention. Another policy issue is the trade off between protectionism and liberalization/globalisation (I have used liberalization and globalisation interchangeably for simplicity although they are technically different). Here again, I think the government’s approach is far from optimal.

Many industries and businesses in Malaysia are still very much protected from competition. The reasons are many. First it is claimed that competitive power is uneven. Second, Malaysia needs time to build up its competitive capacity. Third, we needs to protect jobs and indigenous industries and fourth, we shall globalize based on our own pace and mould.

If we understand the forces of globalisation correctly, the reasons mentioned above are probably not able to hold much longer. Globalisation has a force of its own. As I see it, it is governed less by the dictates of the governments and more by the forces of the market place. Consumers will be driven by their quest for cheaper and better products and services. Producers will be motivated by their quest for lower production cost. The interplay of these forces coupled by the never ending advancement of ICT are the main drivers of globalisation today.

Malaysia is a trading nation with total trade (total exports plus total imports) amounting to twice the size of its GDP. It is also a very foreign direct investment dependent nation. As a nation, we can’t turn our back against globalisation. On the contrary, we must embrace it as quickly as possible and with specific timeframe stated in advance for each industry to liberalise.

Our continued wavering of specific timeframe to open our industries for competition is causing our economy loosing its luster and growth potential. If you have not already noticed, for most export driven industries or services, we find that they can hold their own without much government assistance or intervention. On the other hand, industries or services geared for domestic market and sheltered from international competition are the ones saddled with inefficiency and uncompetitiveness. To me Proton is an epitome of this. If 25 years ago we gave Proton an unequivocal timeframe to build up the capacity to face global competition (say gave them 20 years to prepare for competition), I think Proton today will be a very different company. This is not to be. Instead, we continued to waver on the timeline to liberalize in numerous occasions to protect the vested interest groups at the expense of Malaysian consumers and the nation’s competitiveness in the global market place.

I can confidently say that because of our ill-conceived and dogmatic national car policy, Malaysia has lost her opportunity to become the automobile hub of South East Asia. In terms of infrastructure, human resource, and even market size (for passenger cars market), Thailand is nowhere near Malaysia. But today, Thailand is fast becoming the automobile hub simply because we screwed up big time on this policy. Imagine the amount of investment that would have come in, the number of supportive and related industries that would have been generated, and also the number of higher value-added jobs that would have been created for Malaysians.

The point to make here is by all means we should protect potential industries or services to help them to build up their capacity to compete. However such protection must have an unequivocal timeline for its removal. This is the only way to determine whether the industries or services that we have protected really possess the international competitiveness to stand on their own. Otherwise it is good money going down the drain at the expense of Malaysia’s consumer welfare and global competitiveness.