Harvard Don: Malaysia must move up the income chain

NEW STRAITS TIMES

MONDAY, 5 MARCH 2012

KUALA LUMPUR : A Harvard University Professor said Malaysians must decide whether they want to be a “star” or be stuck at where they are now.

He said failing to decide meant the country would continue to be ranked among the middle-income group for the next 10 to 20 years and could eventually slide further.

“Your Prime Minister Datuk Seri Najib Razak has come out with a clear strategy for Malaysia to move up the value chain.  The question now is whether it can be carried out,” said Professor Richard H.K Vietor of Harvard Business School.

Vietor, who is also an International Adviser and Distinguished Visiting Professor at Universiti Teknologi Malaysia’s International Business School, said Malaysia had most of the ingredients to move up but it continued to be stuck in the middle, below countries such as Singapore, Hong Kong, Taiwan and South Korea.

The problem for middle income country like Malaysia started in 2001 when China joined the World Trade Organisation (WTO), explained Vietor, the author of the 2007’s publication “How Countries Compete: Strategy, Structure and Government in the Global Economy”.

“After that, China absolutely dominated low-cost manufacturing and India dominated low-cost services, both of which Malaysia could not compete with.”

At the same time, Malaysia could also not compete with the high-end, high-value added countries such as the United States and Singapore.

Singapore, he said had the same problem in 1985 dan1986 when it realised it could not continue to be involved in low-cost manufacturing.

Then prime minister Lee Kuan Yew told the city state’s 5,000 manufacturers to move up the value added chain.

“He gave incentives and the manufacturers started producing high-value added goods,” said Vietor, who included a chapter on Singapore Ins in his book.

Vietor, who will be giving a public lecture this afternoon on “How Countries Compete” at UTM’S Jalan Semarak campus, here, said Malaysia could not hope to compete on cost with the likes of China, India, Vietnam and Indonesia.

“Even the US cannot compete with China in this respect.  What Malaysia needs it to be different and more focused, such as producing branded or high-quality goods,” he said,

Malaysia also needs to address one of its biggest problems, which is too much saving and too little investment.  With investment and savings rate at 22 per cent and 33 per cent, respectively, Malaysia has a macro-economic problem.

“How can you grow if you are not investing? Compare this with China and Singapore where their savings are high but their investments are high, too.

“I have asked Malaysian why they are not investing and many said they had nothing to invest in or there were not enough opportunities,” he told Business Times yesterday.

However, this is expected to change with the new approaches developed under the New Economic Model, which was introduced in 2009 to improve productivity and encourage creativity.

In fact, many of the initiatives announced by Najib could “unstuck” Malaysia form the middle-income trap.

Among these are moving investment and exports up the value chain, stimulating domestic innovation and research and development, continuing investment in infrastructure, reducing regulatory barriers to doing business and enhancing labour skills in needed categories.

“In the US, individuals and firms take more risk.  If they go bust, they will pick themselves up and start anew,” said Vietor, who wants to see more venture capital initiatives to help individuals start up and grow their businesses.


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