MALAYSIA'S MODEL OF DEVELOPMENT

Introduction 

Bismillah hirRahman nirRahim 
Assalamulaikum wrb and a very good afternoon
 
I wish to thank the Board of LARIBA My Dear Brother Dr. Yahyia Abdul Rahman for this prestigious award. I accept this award with humility and dedicate it to my beloved mother, Allahyarham Raihan Bibi Binti Sayed, who returned to Allah swt in April 2000. She sacrificed her life for me and without her I would not be standing here today. Alhamdullilah - all praise be to Allah - that He has allowed us to be able to gather and think and collaborate and exchange views and may He accept these small deeds of ours as an ibadah and may He guide us along the straight path. 

I wish to speak today about the concept of Development and, in particular, the Malaysian development experience over the last 5 decades and the challenges going forward. I consider that the Malaysian experience has important lessons for all developing countries in general, and Muslim nations in particular. 

Malaysian Development 
In 1957, when we become an independent nation, our national economy and structure of resources and industry was not dissimilar to many less developed countries, and many had predicted that, given our racial mix and the lack of expertise in the vacuum left by the British administration, this young nation would fail in the task of nation building. Thanks to the pragmatism of the leadership and the countless sacrifices and tolerance and cooperation of Malaysians of all races, we built and rebuilt the nation from ground up; picking up from the best practices that the world could offer and where we could not find something that suited our circumstances, we invented it ourselves. Sometimes we succeeded, sometimes we failed, but always we believed in learning and changing when it was obvious that there is a better way to move forward. 

Looking back, Alhamdullilah, we believe we have managed to overcome and shape our initial conditions and numerous challenges in between to mould Malaysia on our own terms to shape modern day Malaysia, a nation with a strong, robust, well diversified economy underpinned by a harmonious multi-racial social fabric. We have, Alhamdullilah, achieved growth while not neglecting equity and distribution. After several decades of combating poverty, we have now reduced it from above 50% in 1957 to below 5% today. 

Along the way, we have faced many challenges from the communist insurgencies of the 1960s and 1970s, the race riots of 1969, and the severe economic contraction of the mid-1980s to the economic crisis of 1997-1998 and on every occasion, we have been able to confront adversity in the face and clutch victory from the jaws of defeat. We have learned to take stock, study and reinvent ourselves. This same pragmatism, flexibility, openness to learning and the capacity of the country's leadership to reinvent itself is still very much alive today, as we continue to move as a progressive and determined nation that is able to compete and prevail on our own terms in today's uncertain global order. 

To step back a little, the Malaysian development path has gone through three broad phases, with many sub phases in between. The first phase of 1957 - 1970 was a period where we were an agrarian, resource based economy. During this period, emphasis was on the development of the rural and agricultural sector and satisfying and upgrading the basic needs of the people. Heavy investments were made into education, health care, basic infrastructure such as roads, electricity, water, sewerage and communications. The state and the private sector shared the burden of development in what can be seen as an early form and precursor to Malaysia Inc. The private sector, often as remnants and extensions of the post colonial economic complex, ran industry and commerce, while the state was heavily involved in provision of services and infrastructure that was deemed less attractive to the market. 

Based on the foundation of the first phase, we moved on to the second phase, namely 1970 - 2003. During this period, we undertook and ambitious program of social and economic change. The advent of the New Economic Policy in 1970 was intended to balance the economic participation of the various economic groups and promoted growth with equity. This was a period of rapid economic growth with distribution and eradication of poverty being strong accompanying themes. The period also saw a massive building and deepening of physical infrastructure, increase in home ownership and increasing sophistication in human capital and technical capacity in managing the economy. The period was largely characterised as an investment-driven phase, where a symbiotic relationship was developed between the Government as an enabler, providing a stable, conducive pro-business environment, and the private sector as engines of growth and entrepreneurship. When there were shocks such as the recession of 1985 and the financial crisis of 1997-1998, we swiftly took stock, made the necessary adjustments and reinvented ourselves. At the end of this period, Malaysia was well on the way to Vision 2020, a target that Malaysians have set for themselves to achieved the status of a developed nation. 

The third phase began in 2004, with a new administration in place and with the backing of the strongest electoral mandate in our history. Our Prime Minister Dato' Seri Abdullah Ahmad Badawi has identified several key strategic areas for improvement. The cornerstone of this strategy is the building and rebuilding of the capacity of public institutions in providing the enabling environment and foundation for economic competitiveness. These are potentially powerful initiatives that are designed with long-run competitiveness in mind. 

In anticipation of the challenges ahead, various initiatives have been introduced: 
• A focus on reducing bureaucracy and streamlining delivery systems,
• A rejuvenated approach to combating corruption,
• Greater economic competition through improved tendering processes,
• Emphasis on the rule of law, enhanced through reforms in the police force,
• Smarter fiscal discipline and reduction of wastage in public spending,
• Greater focus and renewed emphasis on education at both the primary, secondary and tertiary as well as lifelong learning levels,
• Unlocking the potential capacity of our youth through a national service program,
• Even greater ongoing political accountability, 

The process by which nations move through the different stages of development, competing on a global stage and progressing sequentially on a strategic path from a factor-driven economy, to being investment-driven and finally, to become innovation-driven, is well established, if not always fully tested or achieved. The drivers of this competitive capacity are also well documented in the taxonomy of standard references of global competitiveness, to include a stable macro-economic and political environment; the quality of public, government and market institutions and the economic playing field; the ability to diffuse and ultimately produce technology; and the quality, cost effectiveness and ready supply of factor inputs including human resource, financial capital, hard and soft infrastructure and natural resources. 

These are indeed key success factors required to climb the competitiveness ladder that we continue to give focus and great emphasis on. Indeed, Malaysia has been able to successfully shift from an agrarian, resource-based, factor-driven economy to a well-diversified, investment-driven and manufacturing-based economy through prudent and gradual upgrading of these factors of competition through the collaboration of the private sector – both local and foreign – and the public sector to what has come to be known as Malaysia Inc. We will continue on this path of mutually beneficial collaboration between the private and public sectors in full recognition that there are inherent strengths of the market and there are inherent strengths of the state and together we are stronger and more complete. As mentioned, this underlying collaboration and our historical capacity for reinvention through the assimilation of ideas, technology, people and capital, we are confident, will be the basis by which we undertake this challenge of gradually transforming into an innovation-driven economy. 

In addition to the blessing of political stability and continuity, Malaysia has also been blessed by strong leadership that was able to respond with sets of policies and thrusts that were appropriate and in the end successful for the state of development. Thus, our four previous prime ministers from Tunku Abdul Rahman Putra, Tun Abdul Razak Hussein, Tun Hussein Onn to Tun Dr. Mahathir Mohammad in turn grew and consolidated and grew again the country by emphasizing policies and investments appropriate for its time in education, healthcare, poverty eradication, natural resource utilization, export-driven industrialization, physical infrastructure building and so on. Today, these foundations serve us well as we enter the challenge of transforming and shifting the economic structure yet again towards a more innovation-driven economy, led by our current Prime Minister Dato' Seri Abdullah Ahmad Badawi. 

The Human Development Experience 
Development in the Western tradition has belatedly broadened to encompass a more holistic view beyond mere economic and materialistic advancement. As Muslims, we treat this as almost a matter of course. Al-Falah, or success in its truest sense would be to venture through this world holding our heads high among fellow humans and simultaneously low and modest in the presence of Allah swt in pursuit of success in the ultimate abode in the next world. Our Islamic tradition and ideal is crystal clear that the rightly guided and blessed nation is one that prospers according to the divine balance, harmony and fitrah that the Quranul Karim prescribes. Indeed, Muslim thinkers from Ibn-Khaldun to Shah Wali Allah have always emphasized on the holistic and interdependent nature of development. 

For mankind as a whole, we have witnessed in the last 100 years, and the last 50 years in particular, the most incredible period of economic take-off in history. Economists have estimated that more has been achieved by way of upliftment of standards of living in the last 50 years than over the last 2000 combined. Advances in agriculture, medicine, science, technology and finance, among others, have ensured this. We have indeed been privileged to have live in such exalted times. However, from a more holistic sense, this world does not appear to be such an exalted place. Indeed, we are plagued by a world that is increasingly more volatile, more unsafe and in many cases more unfair. The paradox is that, while mankind is much richer today with a fantastic array of technology at our disposal, we are also more divided and in many ways much less in control. It is also a fact that at no time in human history has the gulf been wider between the rich and the poor between nations and within nations. For Muslims in particular, we need to ponder the riddle that Allah swt has willed for us in that a list of the richest and poorest nations are littered with Muslim countries at both ends of the income and wealth spectrum. And Muslim states have generally lagged, in spite, or perhaps, in some cases, because of the discovery of large riches in natural resources. 

At the same time, the last 50 years in the so-called Golden Age of Development from around 1950 onwards has given us a wealth of lessons as to what works and what does not in development. In particular, the star performer over this period has been by far, the East Asian region. We need to ask how is it that in the early 1950s, Koreans would routinely visit Pakistan and India to learn from the engineers of the Sub-Continent and how, within such a short period of time, they can then master engineering and manufacturing to the extent that they have become the most efficient producers in the world in many industries such as steel. The period also saw the economic take-off of the so-called Asian tigers, an unprecedented event in economic history, something that is now being repeated in the rise of China as an economic superpower. In the East Asian experience, one Muslim nation – Malaysia successfully posted high economic growth rates over long decades. Growth was achieved with equity, with record millions being alleviated out of poverty and misery, and with heavy investments in education and the provision of other basic needs, the alleviation out of the darkness of ignorance. 

There are many lessons from the East Asian experience but perhaps there are three simple ones to be highlighted. 

First, it is clear that economics is only one dimension, we need to get the social and political framework right as well, and optimize on the interdependent nature of these dimensions. This is obvious, but which comes first? In our experience, it is necessary to get a strong state first, especially where market and other institutions are new or non-existent in a young nation. By a strong state we mean a state that is autonomous enough to withstand undue internal and external pressures in order to carry out policies without fear or favor that have the best long run interests of the people. This of course requires that the nation and the population that is blessed to have an enlightened leadership. This strong rule is sometimes confused by critics as being undemocratic, but to be sure, this cannot be the case as the strength of the state can only be sustained in the long run if the state has the interests of the people at heart. It needs to be remembered that in the entire history of mankind, there has been zero exception to this rule. 

Second, social harmony needs to be achieved as an additional bedrock for sustained development to take place. East Asia's growth was achieved with good income distribution, unprecedented poverty alleviation and heavy investments in education, healthcare, housing and other basic needs. In particular, opportunity and upward mobility through education especially in science and technology lubricated this social cohesion. In multiracial countries such as Malaysia, representation of each community in government provided a platform to balance the needs of even the smallest legitimate minority groups. A policy of inclusion versus isolation led to consultation and collaboration and not confrontation, as a means to solve differences. 

Third, in the economic sphere, East Asia worked extremely hard and undertook policies that were both conservative – including high savings rate, prudent financial management of fiscal and monetary policy and so on – and aggressive – in attracting foreign investments and in promoting exports of our goods and resources. We developed our economies and our national champions in an environment that is ever mindful that the international economic and financial order is less than fair, that underneath the jargon of liberalization and freedom the rules are written by those that want to perpetuate their economic dominance. Thus, while it is important that we benchmark our industries and products with the world market at large, we must also find the way to do so at our own time and pace, in liberalizing and opening up to trade and, in particular, to portfolio investments. Recall that at the turn of the 1900s, as the United States was busy building up its industrial base in the so-called Second Industrial Revolution, American protectionism against the more advanced Europeans was the highest in the world. 

It is clear that the three simple principles adopted by the East Economies are not alien to Islamic principles of managing economies: 
(i) A stable government that remains strong by acting justly and by being responsive to the needs of its people. (The concept of 'adl)
(ii) An environment of social harmony, nurtured through collaboration and consultation amongst communities. (The concept of shura')
(iii) Proper work ethics involving hard work, financial prudence, and openness to innovation, which are all values propounded by Islam 

Conclusion 
The great Muslim thinker, historian and social scientist, Ibn Khaldun (732 – 808H/1332 – 1406 A.D.) theorised that there was a natural life cycle to a nation's economy. Ibn Khaldun travelled widely in the Islamic world of his time, inspecting every kind of settlement from hamlet to metropolis. He brought back voluminous notes on the impressive cities he visited – Tunis, Cairo, Damascus, Baghdad, Cordova, Seville. He made the pilgrimage to Mecca and paused along the way to gather on-the-spot information about life in the desert villages. 

In the Muqaddhnah, or preface to his Universal History, he relates that the life of a nation runs a course somewhat analogous to the life of a man. Based on Ibn Khaldun's theories, reason and tradition show that at the age of forty a human being's physical and metabolic growth begins to plateau. If he achieved wealth, then, complacency also sets in. He may have a tendency to cease in his personal development and if not challenged, begins his slow journey of deterioration. 

Ibn Khaldun theorised that the similar holds true with civilized culture, since natural human milestones are inevitably reflected on society as a whole. As a nation achieves its prime, it begins its decline, unless there is a new generation of fresh ideas, rejuvenated efforts, and most importantly, a realignment to Islamic ethical practices. 

In the West, sociologists speak of Creative Destruction. As Muslims, we perhaps prefer Creative Construction, as it has never been the Islamic tradition to destroy a previous civilization but indeed to build upon it with holistic Islamic perspective. Indeed many of Islam's scientists build upon ancient Greek and Persian knowledge, bringing science to greater heights. 

The technological and material gains of the West over the last fifty years have indeed been a brilliant achievement. If we follow the footsteps of the early Muslims, today's advancements provide today's Muslims the opportunity and base to borrow and improve on, and to develop our own future, based on our core Islamic values. 

Our Muslim forebears have given us the valuable advice: to reinvent ourselves, particularly at our peak; to build upon the success of others, but based always on Islamic values. Continued growth is possible only through this iterative process of reinvention, and constant realignment to our Islamic roots. This is our collective challenge; the ingredients, tools and materials have been graciously been made available through Divine Providence. All it needs now is for us to rise to the challenge. 

May Allah SWT accept our humble efforts as deeds in His honor and may He guide us on the straight path always. 
Thank you. 

Wabillahi taufik wal hidayah, wassalamualaikum. 

(Nor Mohamed Yakcop) 
May 1st 2004. 

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