Oleh/By		:	DATO' SERI DR. MAHATHIR BIN MOHAMAD 
Tempat/Venue 	: 	NEW YORK, ON MONDAY 
Tarikh/Date 	: 	16/01/84 
Tajuk/Title  	: 	THE DILEMMA OF DEVELOPING COUNTRIES 
			WISHING TO INDUSTRIALISE, AT A 
			LUNCHEON JOINTLY HOSTED BY THE ASIA 
			SOCIETY, THE FAR EAST AMERICAN 
			BUSINESS COUNCIL AND THE 
			ASEAN-AMERICAN TRADE COUNCIL 




I am greatly honoured by this opportunity to address this distinguished
gathering of American businessmen and personalities in this great City of
New York. While I am sure that you all know where I am from, Malaysia is
not the best-known country in America. Everyone knows Thailand because of
the 'King and I'; Singapore because Bob Hope and Bing Crosby took the
'Road to Singapore', Indonesia because you had trouble with Sukarno and
the Philippines because you once ruled it. But Malaysia is a new country
and has not done those things so loved by the sensationalist western
press. Head hunting went out of fashion in the early part of this century
and the biggest tree is no longer reserved for the prime minister as his
house.

2. Not being known in America is actually a good thing -- it means that we
are peaceful and stable. So I am not unduly worried about Malaysia not
being famous although a lot of other Malaysians feel hurt when they are
asked whether Malaysia is in China or Africa. So long as the business
community knows Malaysia, that is all that really matters.

3. I am not here to publicise Malaysia but to talk about developing
countries and the dilemma they are in because they want to
industrialise. Malaysia is, of course, such a developing country, and so
the subject is relevant to Malaysia. Also whatever I say here is largely
based on the Malaysian experience.

4. In the good old days when the world was divided into a number of
Empires belonging to European countries and America there existed a
division of economic function, albeit forced. The colonies belonging to
the European and American powers were given the task of producing raw
materials which were then shipped to the metropolitan countries, processed
into manufactured goods and sold back to the closed markets that the
colonies provided. Of course the raw materials were extracted by
entrepreneurs from the colonial powers themselves and sold in the markets
in their great cities so as to ensure maximum profits to the
colonialists. The colonised people were given sufficient to survive and no
more. Having had a good experience in Boston, the colonial powers were
quite adept at ensuring that the kind of tea-party that the Bostonians
invented did not find addicts among the colonies.

5. Be that as it may the division of economic functions enabled the
economy of the world to function satisfactorily i.e. to the various
imperial powers. But then came World War II and the subsequent release of
most of the colonies from imperialism. New countries sprouted which did
not subscribe to the divisions in economic functions. Some rushed to
nationalise imperial enterprises, only to burn their fingers. Lacking
expertise and refused access to the markets, the nationalised industries
of the newly independent countries soon stopped functioning.

6. But some, and Malaysia is included among these, moved with greater
caution. Allowing the former colonial masters to own and operate the
industries, they tried to extract more revenue for themselves. If pressure
was applied it was mild. Indeed there was even encouragement for new
investments. It was realised that if a part of the profit from the old
enterprises was ploughed back into the country, there was much to be
gained.

7. Among the areas which received encouragement was manufacturing for
domestic consumption or import substitution manufacturing. Soon the locals
became involved in this kind of manufacturing. As more and more items
began to be manufactured locally, pure import substitution became less and
less economic. In the first place the domestic market is not big enough
for the kind of economies of scale needed. In the second place foreign
manufactured products were often dumped on the small local market,
knocking out the substitute products.

8. Cheap local raw materials and cheap labour could not overcome the high
cost of imported inputs and dumping practices of foreign
manufacturers. Protection was sought from the Government. This is a costly
burden, for not only will the Government lose revenue from duty on imports
but have to subsidise local manufacturing.

9. At this stage Malaysia decided to switch its strategy and go for
greater employment opportunities instead. Foreign companies were invited
to start labour intensive industries in special free trade zones. To
encourage investors tax holidays and other incentives were given. The nett
gain for the country's economy was minimal. Certainly the Government got
no revenue from the profits of these manufacturing enterprises. This is
especially so when the raw materials, machinery etc. were brought in
tax-free and the processed products also exported tax-free.

10. The import substitute industries and the labour intensive industries,
between them changed the landscape in the newly independent countries. It
seems as though they are industrialised countries. In a sense they
are. But the benefit to them is minimal. Certainly it is not the same as
the benefit obtained by the industrialised nations.

11. There emerged at about this time a new phenomenon. South Korea,
Taiwan, Hong Kong and Brazil took rather bold steps into
industrialisation. They disregarded the domestic market but concentrated
on exports. Starting with garments, which they frequently manufacture
under buyers labels, they were able to penetrate the huge markets in the
industrialised countries. Encouraged by their success they moved into
textiles, toys and other relatively simple consumer items. Soon they were
moving into heavy machinery, ships and even manufacturing plants.

12. Growth was rapid. Suddenly they and their products were
everywhere. They were successfully competing with similar goods from the
old industrialised countries not only in the world market but in the
domestic market of the industrialised countries themselves.

13. What was happening did not go unnoticed in the developed
countries. Having seen Japan's economic miracle, fear was expressed that
the developing countries would become little Japans, flooding the world
markets with competitive products and displacing the traditional suppliers
of manufactured goods. As the first move towards discrimination, the
successful industrialising countries were named Newly Industrialising
Countries or NICs -- and classified as dangerous threats. The Japanese had
long since ceased to be funny bespectacled pedallars of inferior
goods. Now the NICs have come and they cannot be laughed into oblivion.

14. Europe had already formed into a common market -- perhaps the most
uneconomic of economic schemes. In this economic community, butter sells
at 5 times the world price, beef at twice the average price and grains at
1.5 to 2 times the world price. Off and on mountains of butter and beef
piled up -- while millions starved in other parts of the globe.

15. America was at first quite sanguine. But it soon realised the
threat. America's answer was voluntary quotas -- principally against the
Japanese but without doubt if the NICs have the temerity to threaten the
American manufacturers, they too will be asked to volunteer cutbacks in
their exports to America. When recession came the clamour went up for
outright protectionism.

16. For the other developing countries the successful industrialisation of
the NICs was an inspiration. It would seem that competition with goods of
the established industrialised countries was possible. Provided they go in
a big way into manufacturing, their cheaper labour and raw materials might
give them sufficient comparative advantage. But then, to their dismay they
see the doors to the most lucrative markets being closed before they even
have a chance to knock and ask to be allowed in. This is their
dilemma. Obviously they can industrialise but if they do so they will be
ostracised.

17. Malaysia is facing this dilemma. We are convinced we can
industrialise. We have the raw materials, the energy and the
man-power. The domestic market cannot support an extensive manufacturing
programme. To manufacture we must have access to the world market. But we
see the access being denied even before we embark on the modest
industrialisation programme we have drawn up.

18. Many developing countries need aid but a substantial number, and
Malaysia is one of them, do not care for aid. They want trade, fair
trade. Producing primary commodities is fine. A subtantial amount of
foreign exchange can be earned that way. But a rapidly growing population
cannot possibly find employment in just the production of raw
materials. Manufacturing employs more peole and can grow more rapidly. The
amount of tin that can be mined is limited. The number of trees that can
be chopped down is also limited and so is the acreage that can be planted
with rubber or oil palm or cocoa. Manufactured goods on the other hand can
create their own market. Ten years ago there was no market for video-tape
players, today the market is worth billions of dollars.

19. Besides, the raw material market is a manipulated market. Betweeen the
managed commodity markets in the developed countries which are sometimes
not averse to selling stolen products and the threats posed by stockpiles,
it is all a raw material producer can do to survive. There is no choice
for the developing countries but to exploit their low labour cost and
available of raw materials and go into manufacturing.

20. If possible they would like to be like Korea or Taiwan or Brazil. But
if not, they would like to have a piece of the action. In the case of
Malaysia, we have decided to add value to our raw materials before
exports. This is not easily done. Only palm oil offers this kind of
opportunity. But immediately we run up against a road-block.

21. The EEC imposes a 4% tax on refined palm oil and none on crude. So if
we try to add value through refining we may be uncompetitive. In fact on
the average the import duty imposed by the industrialised countries on
unprocessed raw materials is 3%. This rises sharply to over 20% at the
next stage of processing. What this means to the developing countries is
clear from a World Bank estimate that a 15% across the board tariff
increase on raw materials could lead to a 3 to 3.5% decrease in the
national income of the developing countries. Of course the developed
countries too have to pay a price as they are forced to consume their own
high-cost produce.

22. Preventing the developing countries from industrialising is not doing
anyone any good. Everyone is forced to pay high prices when there is an
abundance of everything. It is ridiculous to force people to pay a high
price merely because you want to maintain a production facility that is no
longer economic. Perhaps there are strategic considerations in the
production of butter in Europe or rubber shoes in Sweden. But the
developing countries are not convinced. To them it looks like selfish
vested interests having their way.

23. The developing countries must industrialise -- each in his own way and
in his own area as determined by comparative advantage. They will not all
achieve what Korea, or Taiwan or Hong Kong or Singapore or Brazil have
achieved. But industrialise they will, limited though the exercise may be.

24. For Malaysia coping with this dilemma is something that we have
accepted. We have gone in rapid succession through the different phases
from manufacturing import substitutes to labour intensive industries and
on to processing of our raw materials. Now we want to go into heavy
industries and the production of small engines and motor cars. Some people
think we are being quixotic. That is left to be seen.

25. For the other developing countries the choice will be more
difficult. There are too many countries already ahead of them -- other
than the established manufacturing countries of Europe and America. While
the first few NICs had a more accessible market when they started, the
newcomers will be faced with protectionism, quotas and all-round hostility
when they venture forth. Yet what choice have they? A growing population,
better communication and knowledge of the developments going on elsewhere
in the world, better education and rising expectations demand that the
developing countries move away from being mere producers of raw
materials. On the other hand if they industrialise they are going to be
faced with horrendous problems. This is their dilemma.

26. I hope I have succeeded a little in explaining the dilemma of the
Newly Industrialising Countries. Their cry for a place in the sun should
not go unheeded. The developed world will not lose by understanding the
problem. The developed world will not lose if the developing countries
industrialise. No matter how much they try, these countries will be at
least 20 years behind the developed world in industry. In these days when
technology advances so rapidly, 20 years is a long time. The NICs are
never ever going to displace you. They may in a few unsophisticated areas
-- and this will be to the good. But on the whole they are going to remain
relatively backward.

27. The dilemma facing them is real. It is an economic dilemma. We should
not allow that dilemma to be solved politically, especially by people with
rather dubious credentials. The fate of Kampuchea, Afghanistan and the
Central American republics should not be allowed to fall on countries
which are sincerely struggling to remain a part of the free market system.

Thank You. 
 


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Sumber : Pejabat Perdana Menteri