Growth and Spatial Equity in West Malaysia 9789814376235

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I5EA5 Institute of Southeast Asian Studies The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the multi-faceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer. The ASEAN Economic Research Unit is an integral part of the Institute, coming under the overall supervision of the Director who is also the Chairman of its Management Committee. The Unit was formed in 1979 in response to the need to deepen understanding of economic change and political developments in ASEAN. The day-to-day operations of the Unit are the responsibility of the Co-ordinator. A Regional Advisory Committee, consisting of a senior economist from each of the ASEAN countries, guides the work of the Unit.

Growth and Spatial Equity in West Malaysia

edited by

Ludwig H. Schatzl translated by

Verna Freeman

Research Notes and Discussions Paper No. 63 ASEAN Economic Research Unit INSTITUTE OF SOUTHEAST ASIAN STUDIES

1988

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 0511 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies.

© 1988 Institute of Southeast Asian Studies

The responsibility for facts and opinions expressed in this publication rests exclusively with the author and his interpretations do not necessarily reflect the views or the policy of the Institute or its supporters. Cataloguing in Publication Data Growth and spatial equity in West Malaysia I edited by Ludwig Schatzl. (Research notes and discussions paper I Institute of Southeast Asian Studies; no. 63) 1. Malaysia --Economic conditions. 2. Malaysia-- Economic conditions-- Regional disparities. 3. Malaysia-- Economic policy. 4. Malaysia-- Industries. I. Schatzl, Ludwig. 11. Institute of Southeast Asian Studies. Ill. Series. DS501 I596 no. 63 1988 ISBN 9971-988-79-8 ISSN 0129-8828 Printed in Singapore by General Printing & Publishing Services Pte Ltd

CONTENTS

List of Tables List of Figures Foreword I II

IV Vll

1

Polarization Reversal in Developing Countries? Ludwig Schiitzl Economic Development and Economic Policy in Malaysia Ludwig Schatzl

3

27

Ill Spatial Disparities in West Malaysia Heidrun Frohloff-Kulke

53

IV Development of Industrial Systems in West Malaysia Knut Koschatzky

96

V

Limiting Factors in Industrialization: A Case Study of Kelantan Elmar Kulke

Ill

169

LIST OF TABLES

Il.1

Indicators of Socio-Economic Development in Malaysia (1960, 1982)

33

Il.2

Public Development Expenditure in Malaysia 1956-85 (in%)

37

11.3

Structural Differences between West and East Malaysia

50

III.1

Indicators used in the Study

58/59

111.2

Population, Rank, and Average Annual Growth Rate of the 50 Largest Settlements in West Malaysia

62/63

III.3

III.4

111.5

111.6

Factor Loadings for the First Factor (factor of socio-economic development) for 1970 and 1980 for the Federal States of West Malaysia

77

Factor Scores for the Federal States of West Malaysia in 1970 and 1980 ranked according to 1980 Scores

80

Factor Loadings for the First Factor (factor of socio-economic development) for 1970 and 1980 for the Districts of West Malaysia

81

Factor Scores for the Districts of West Malaysia 1970 and 1980 lV

83/84

List of Tables v Distribution of Industrial Employment in the Federal States, 1959-81

100/101

IV.2

Distribution of Industrial Value Added in the Federal States 1963-81

104

IV.3

Industrial Growth Rates in the Federal States, 1962-81

106

IV.4

Shift-Share Analysis between the Federal States, 1963-81

111

IV.5

Measures of Concentration, 1959-81

116

IV.6

Weighted Coefficient of Variation between the Districts, 1968-81

121

IV.1

IV. 7 IV.8

Industrial Growth Rates in the Districts of West Malaysia, 1973-81

130/131

Distribution of Industrial Employment in the Districts, 1973 and 1981

132/133

IV.9

Growth Rates according to Size of District, 1973-81

148

V.1

Data on Labour in West Malaysia

188

V.2

Evaluation of Location Factors: Labour

189

V.3

Evaluation of Location Factors: Enterpriserelated Infrastructure

191

V.4

Evaluation of Location Factors: Natural Resources and Suppliers

195

Evaluation of Location Factors: Contacts with Service Enterprises and Administrative Bodies

198

V.5

vi List of Tables V.6

Evaluation of Location Factors: Regional Demand Supraregional Contacts

200

V. 7

Evaluation of Location Factors: Regional Policy

200

V.8

Incentives Granted according to Type and Size of Enterprise

203

V.9

Evaluation of Location Factors: Other Factors

205

V.l 0

Locational Profile

208

LIST OF FIGURES

Balancing of Factor Prices by Factor Mobility according to Neoclassical Theory

8

1.2

Mechanism of Cumulative Causation according to Polarization Theory

9

I.3

Sequence of Stages in Spatial Organization

12

I.4

Relationship between Level of Development and Regional Economic Growth (cross-sectional analysis of 24 countries)

19

Relationship between Level of Development and City Size Distribution (cross-sectional analysis of 38 countries)

20

1.6

Model showing Demographic Transition, Natural Population Growth and Rural-Urban Migration

21

1.7

Relationship between Level of Development and Personal Income Distribution (cross-sectional analysis of 66 countries)

23

Spatial Economic Policy in West Malaysia (1982}

40

II.2 Spatial Economic Policy in East Malaysia ( 1982)

44

III.l Relationship between Rank and Population

57

1.1

1.5

II.1

Vll

vm List of Figures 111.2 Rank-Size Distribution of the 50 Largest Settlements in West Malaysia 1957, 1970, 1980

64

III.3 Spatial Distribution of Settlements in West Malaysia

67/68

III.4 Average Annual Growth Rate of Settlements in West Malaysia

69/70

III.5 Factor of Socio-Economic Development for West Malaysia according to States

78f79

III.6 Factor of Socio-Economic Development for West Malaysia according to Districts

85/86

Ill. 7 Factor of Socio-Economic Development in West Malaysia 1970/80. Changes in Factor Scores 1970/80

89

IV.1 Shift-Share Analysis 1973-81 (Employment)

109

IV.2 Weighted Coefficients of Variation 1959-81 (State Level)

117

IV.3 Gini-Coefficients 1959-81 (State Level)

118

IV.4 Weighted Coefficients of Variation, 1968-81 (District Level)

120

IV.5 Industrial Locations, 1968, 1973

124

IV.6 Industrial Locations, 1973, 1981

125

IV. 7 Level of Industrialization, 1973

128

IV.8 Regional Growth Pattern, 1973-81

134

IV.9 Level of Industrialization, 1981

139

List of Figures IV.lO Sectoral Growth Pattern 1973-81 (Employment, Value Added) IV.ll

Locations of Manufacturing Industries, 1981

IX

140 142

IV.12 Location-Oriented Industries

144

V.1

Mode of Spatial Development

174

V.2

Diagram of Regional Disparities in West Malaysia 1971,1980

178

V.3

Location and Spatial Elements

180

V.4

Agricultural Land and Population according to Location

183

V.5

Kelantan -- Industrial Structure 1981

185

V.6

Locational Profile

208

V.7

Model of Industrial Effects

213

V.8

Spatial Linkages: Input

216

V.9

Spatial Linkages: Output

217

V.10

Spatial Linkages: Services

220

V.ll

Spatial Linkages: Labour

224

V.12

Spatial Linkages: Income

225

V.13

Spatial Linkages: Locations of the Headquarters

228

V.14

Spatial Linkages: Means of Production

229

FOREWORD

The collection of papers in this volume present the initial findings of a research project undertaken by members of the Department of Economic Geography of the University of Hanover and financed by the Volkswagen Foundation. The research was supervised by Paul Chan (Kuala Lumpur) and Ludwig Schatzl (Hanover). The main objective of the project was the empirical testing of H.W. Richardson's polarization reversal hypothesis, using Malaysia as a case study. According to Richardson's hypothesis, a reversal in the process of spatial concentration, that is, intra- and interregional decentralization, also occurs in developing countries. Chapter I presents the concept of polarization reversal. The basic features of economic development and economic policy in Malaysia are examined in Chapter II. Chapters III and IV are devoted to the analysis of long-term changes in spatial disparities and of industrial location patterns. In the final chapter an attempt is made to identify the factors limiting industrialization in Kelantan, a federal state in Malaysia with a peripheral location. The main results of the investigations completed in November 1985 may be summarized as follows:

2 1.

Foreword Following independence, Malaysia has succeeded in reducing the deve 1opi ng gap between tries.

itself and the

industria 1i zed coun-

The country is progressively overcoming the economic

structure inherited from the colonial period. 2.

In West Malaysia it was possible to identify initial indications of a reversal in the process of spatial concentration. As far as manufacturing industry is concerned, however, intraand

interregional

decentralization

is confined to the west

coast of peninsular Malaysia. The results of the analysis of long-term spatial development in West Malaysia do not support the view frequently expressed in the 1 iterature, at least in this

general

form,

that

spatial

disparities

in developing

countries are increasing. 3.

These positive results, compared with other developing countries, were achieved by pursuing an economic policy geared to integration into the world market. By promoting dynamic economic

growth,

the

government

is

attempting

to

create

the

material preconditions necessary for the achievement of major goals of social and spatial policy, such as eradication of poverty, reduction of interethnic dichotomies, and removal of spatial disparities. L. Schatzl

I

POLARIZATION REVERSAL IN DEVELOPING COUNTRIES?

Ludwi g Sch'atzl

Research into developing countries raises the following controversial issues of debate: 1.

Does the integration of developing countries into the world economy intensify or reduce North-South disparities in socioeconomic development?

2.

Does integration into the world market result in the deformation and disintegration of economic and social structures within developing countries, or does international division of labour promote integration of the domestic economy by forcing efficient utilization of scarce resources?

3.

Within developing countries exposed to world market forces, is there a tendency for intra- and interregional disparities to increase and towards the emergence of a monocentric settlement system, or does, in the long term, the market mechanism, in association with spatial economic policy, lead to a turning point (polarization reversal) in the spatial concentration process?

3

4

Ludwig Schatzl

Issues of development theory and development policy can be discussed

at

various

spatial

scales,

for

example,

global

or

national. The following remarks relate to the national scale, that is,

they are concerned with the exp 1 ana t ion of i nterreg ion a l and

intraregional

differences in development within countries. An in-

troductory review of the possible impact of international economic relations on national spatial development is followed by a comparative assessment of the principles of neoclassical and polarization theories and a summary of the various theories of polarization reversal.

The final

section presents the results of empirical

re-

search wh i eh can be interpreted as providing confirmation of the polarization reversal hypothesis.

International Economic Relations and National Spatial Development There is general agreement in the literature that the structure and intensity of developing countries' involvement in the world economic system affects spatial development within the developing countries themselves. international

There

economic

is,

however,

relations

considerable debate whether

serve

to

intensify

or

reduce

intra- and interregional disparities. There are two basically different theoretical approaches to this question, from each of which conceptual strategies can be derived. According to the dissociation approach, based on dependencia theories, underdevelopment and North-South disparities derive from the

developing countries' enforced incorporation into an unequal

international neocolonial thereby

division pressures.

rendered

of

labour

as

The developing

a

result

of

countries

structurally dependent upon

the

colonial

and

(periphery)

are

industrialized

Polarization Reversal in Developing Countries?

5

countries' world centres. Whereas in the centres there evolved a production structure adapted to the needs of society, the periphery, as early as the colonial period, was forced to adopt a production structure oriented not to its own requirements, but to those of the centres. The domestic market was neglected in the interest of production of primary goods for export. This form of incorporation of the developing countries into a world economy based on division of labour causes a net outflow of resources,

as well

deformation

social

and

disintegration

of

their

economic,

as and

spatial system, creating, for example, sectoral disparities, imbalances in personal income distribution, metropolization, and intraand

interregional

firstly,

disparities.

Two

strategies

are

demanded:

dissociation of the developing countries from the world

market in order to overcome the North-South dichotomy, and secondly,

selective

national

core

spatial

closure of less

regions,

in

order

to

developed areas from the reduce

spatial

disparities

within developing countries. According to the integration approach, based on neoclassical theories, disparities in income levels between industrialized and developing countries are the result of

1.

uneven

availability

and

mobilization

of

internal

growth

determinants, for example, inventive and innovative potential, human capital, material resource endowment; 2.

the

inadequate participation of the developing countries in

the

i nterna ti on a l exchange of goods, capital

and technology

because of the monopolistic behaviour of multinational companies, protectionist measures (trade restrictions, subsidies) imposed by the governments of the industrialized countries, and misguided economic policies pursued by the governments of developing countries, insofar as

they

establish

inefficient

6 Ludwig Schatzl industries protected by high tariff barriers geared to import substitution; and 3.

deficiencies in the present organization of the world economy, for example, the absence of a law regulating international competition.

In terms of the above analysis of the causes of international imbalances in income levels, the strategy proposed is one of intensified integration of developing countries into the world economy. The aim of this strategy is the creation of a substitutive division of labour by the systematic application of comparative cost advantages in developing and industrialized countries, that is, the transformation of international economic relations from their present state of unilateral dependence into one of interdependence by means of a gradual process of adaptation of production structures. The key element of the integration strategy is the fact that the developing countries also have to establish an export industry able to compete on the world market. Integration into the world economy would thereby compel developing countries to use scarce resources more efficiently and not on 1y generate over a 11 economic growth but also accelerate essential structural change, leading in the long term to a polarization reversal in the process of spatial concentration.

Theories of National Spatial Development

Neoclassical versus Polarization Models The regional growth theories of the neoclassical school are based on a series of simplified assumptions, including, for example,

Polarization Reversal in Developing Countries?

7

polypolistic market structures, free interregional mobility of the factors of production and comparability between individual regions in

terms

of their available internal

growth determinants. Using

these assumptions, the basic hypothesis of the neoclassical theory states

that each disturbance

in a system of equilibrium in its

initial stage generates countervailing forces which operate in such a way as to create a new state of equilibrium in the system, that is,

the

market

differentials, differences balanced

mechanism

contributes

for example,

in

towards

per capita

erasing

income.

regional

Interregional

in factor remuneration (wages, profits) are counter-

by

factor

migration

and

also

trade

(Heckscher-Ohlin

Theorem). Figure !.1 shows a two-region model in which both regions possess

the

same capital assets, although in situation (a) wage

levels in Region 2 are lower than in Region 1, on account of the greater 1abour supp 1y in the former. The wage differentia 1 induces labour migration from Region 2 to Region 1 until

a situation of

equilibrium is attained in (b), in which both regions have the same wage levels. If more realistic assumptions are taken into account, however, the tendency for factor prices to be compensated for becomes weakened and complete adjustment in the prices of production factors is negated. The decisive weakness of neoclassical regional growth theories

rests

deserve

in

their

consideration

underlying restrictions. since,

compared

with

They nevertheless other

theories

of

regional growth and development, not only do they possess inherent unity, but also essential elements of these theories are applied in location and polarization theories, and the neoclassical doctrine has influenced, and continues to determine regional policy in many market economies. Polarization theories were formulated subsequently as a critical

reaction

to

the

deductive

theories

of

equilibrium

which

8

Ludwig Schatzl FIGURE I. l Balancing of Factor Prices by Factor MObility according to Neoclassical Theory

(a)

Region 1

Region 2

0 1 Labour

02

Labour

(b)

SOURCE: Siebert 1970, p. 64 ff.

include not only the neoclassical growth theories, but also location theories elaborated by von Thunen, Losch, and Christaller. In contrast to the restrictive assumptions embodied in the theories of equilibrium, they emphasize the existence, for example, of oligopolistic

and

monopolistic market structures,

partially immobile

factors of production and structural differences between regions as far

as

internal

growth

determinants

are

concerned.

The

basic

hypothesis of the polarization theories states that the emergence of

regional

imbalances

under market economy conditions

sets

in

motion a circular and cumulative causation process of growth or decline which heightens the imbalances. Cumulative growth processes are predicted for the region which takes the lead in development. Figure

I.2

shows

the

mechanism contributing

economic growth within a region.

to self-sustaining

In the backward region, a corres-

Polarization Reversal in Developing Countries?

9

FIGURE I. 2 Mechanism of Cumulative Causation according to Polarization Theory

p

y

y p

w p

w

p

Growth rate of output Growth rate of productivity Wage level Index of productivity Efficiency wages

SOURCE: Richardson 1973, P• 32,

ponding process of cumulative decline sets in. Fundamental structural

differences between regions in conjunction with asymmetric-

ally operating periphery

interregional

spatial

closed spatial

structures.

interactions gives rise Centre

to centre-

and periphery represent a

system and are linked together in a relationship

characterized by ties of authority and dependence.

10

Ludwig Schatzl

Polarization Reversal Models Theories of polarization reversal explain the nature of the spatial differentiation process (regional

development, spatial structure)

in the context of the level of development of a country. The basic hypothesis states that during the long-term development process of a national economy, phases of spatial equilibrium alternate with phases of imbalance. In order to illustrate changes and variations in the formulation of the theory, brief reference wi 11 be made to the work of A.O. Hirschman, E. v. Boventer and J. Friedmann as well as to a new contribution by H.W. Richardson. A.O.

Hirschman

(1958) explains long-term regional economic

growth liy means of a two-region model. Negative polarization effects and positive trickling down effects are transmitted from a progressive northern region to a depressed southern region. In an initial phase of development, centripetal polarization effects are stronger than the centrifuga 1 trick 1 i ng down effects, resulting in intensification

of

regional

imbalances.

The

concentration

of

economic activities in the northern region generates countervailing economic forces

(for example, negative effects of agglomeration)

and political countermeasures (for example, regional policy). In a second phase of development, the trickling down effects constantly gain momentum until they exceed the polarization effects and bring about regional balance. E.

v.

Boventer

(1962,

1964) examines long-term changes in

location structure. The dependence of the economy on the production factor land, on transport costs and on agglomeration factors are regarded as the major economic determinants of location structure. The dynamism of the spatial system is a product of the interactions between

these

factors

of

spatial

differentiation

and of their

changing significance during the long-term development of the econ-

Polarization Reversal in Developing Countries? omy.

In

the

pre-industrial

development

phase,characterized by

significance of agriculture, relatively high transport sence of agglomerations, v.

11

costs,

ab-

Bi:iventer expects a location structure

in which the primary sector corresponds with a von Thunen system, the secondary sector with a modified Li:isch system, and the tertiary sector with a Christaller system. With advancing industrialization there

is a shift of emphasis

differentiation.

The

in the factors

decentralizing factors,

governing spatial land and transport

costs, decline in significance in favour of agglomeration advantages which promote concentration. The concentration of economic activity in agglomerations offering locational advantages creates increasing imbalance in the spatial system. Once an optimal density value has been exceeded, decentralizing tendencies resulting from agglomeration disadvantages in the centres, in conjunction with regional policy, are expected to contribute to a reduction in spatial disparities. J. Friedmann (1966) in his stage theory attempts to combine elements of both the regional growth and location theories. As an economy develops,

changes

in

spatial organization are viewed in

terms of evolutionary development to higher levels. In each of the four

developmental

stages,

representing

degrees

industrialization in pre-industrial, transitional, industrial post-industrial

economies,

a

characteristic

spatial

of and

structure

emerges. Figure I.3 shows development from a situation of spatial equilibrium (independent local spatial librium

settlements) through two stages of

instability (centre-periphery structures) to a new equi(interdependent

spatial

system

of

a

high

hierarchical

order). H.W. Richardson (1977, 1980) formulated the hypothesis that in developing countries,

too,

the

long-term spatial development

process experiences a phase of increasing polarization and reaches

12

Ludwig Schatzl FIGURE 1.3 Sequence of Stages in Spatial Organization

Po~ c Q)

E

Q_

0

a; >

Q)

"0

Industrial

"'"' Q) (J

0

If_

Transitional

88888

Pre - industrial

SOURCE: Friedmann, 1966, p. 36.

a turning point, which he terms "polarization reversal", and that subsequently

there

is

a strengthening of forces

which

produces

intra- and interregional decentralization. The following phases

in

Polarization Reversal in Developing Countries?

13

the process of spatial differentiation are distinguished: The urban-industrial process of national development originates in one or two favourably located regions (for example, resource

endowment,

port,

market

scarcity of investment resources.

size) Here,

because

of

the

a cumulative cau-

sation process is set in motion by internal and external economies and by the in-migration of mobile factors of production (for example, skilled labour and capital) from other parts of the country. Agglomeration advantages in the centre, in conjunction with the polarization of production potential from the remainder of the space economy, result creation of a centre-periphery spatial structure.

in the

As development proceeds, a process of spatial transformation begins which originates within the core region (centre and its hinterland). The high rate of growth of economic activitY and inward migration of labour in excess of available employment opportunities cause agglomeration disadvantages in the centre (slums, temporary collapse of public infrastructure, rising land prices, etc.). In the economic sphere, they cause production costs to rise and render profitable the relocation of existing enterprises and the establishment of nev1 enterprises in satellite towns in the hinterland of the centre. The result is intraregional decentralization within the core region. At an advanced stage of development, Richardson expects intraregional decentralization to be accompanied by interregional dispersion, that is, the emergence of national subcentres. At a few selected locations in the periphery, for the most part in larger towns, conditions emerge which enable self-sustaining growth. The emergence of agglomeration ad-

14

Ludwig Schatzl vantages may be associated with

improvements

in material,

human and institutional infrastructure, exploitation of local natural

resources,

low input costs,

increases

in incomes,

population and market size induced by investment activity, diffusion of technical know-how and urban attitudes from the core region, and so forth. The agglomeration advantages in the subcentres associated with increasing agglomeration disadvantages in the core region cause investment to be diverted from

the

core

region

into

the

subcentres

(by means

of

enterprise relocation, establishment of new branches). This, in turn, stimulates labour migration out of the core region and the remaining periphery into the new subcentres. This interregional

dispersion of economic activity and associated

migratory movements constitutes

the fundamental

feature of

the polarization reversal hypothesis. At a later stage of development there occurs a renewed process of intraregional decentralization of economic activities from

the new subcentres

into their hinterland.

The whole

process of intraregional decentralization and interregional dispersion results in stable hierarchical settlement systems distributed throughout the space economy. Richardson's polarization reversal interest within the regional

hypothesis has attracted

sciences not least for two reasons.

Firstly,

it constitutes a praiseworthy attempt to incorporate es-

sential

elements of both the polarization theory and neoclassi-

cal

thought, as well as to combine regional growth with location

theories. Secondly, it appears to provide theoreti ea l arguments to support the view that the market mechanism is also able to lead to spatial equilibrium, at least in the long term, in developing countries.

Polarization Reversal in Developing Countries?

15

From the point of view of economic and social geography, however, the following questions still require adequate explanation. The model of a long-term spatial development process was originally formulated from empirical observations in some industrialized countries with a market economy,

and applied by Richard son

to

the

present-day situation in developing countries. This procedure is only acceptable if the laws used to explain the process of spatial concentration and decentralization have universal validity. There are, however,

fundamental

differences

between

industrialized and

developing countries, for example, in terms of the availability of internal growth determinants (such as population growth, social and economic structure) or of the resulting international interactions. In view of this, it would appear necessary to at least modify the theory in order to render it applicable to the specific problems of the

developing

countries

and

to

their

individual

stage

of

development. Furthermore, there exist considerable variations in dynamism and in the nature of the spatial development process even between countries

with

account for

a

comparable

level

these differences,

of development.

it is essential

In order

to

to identify the

basic conditions underlying the mechanisms of polarization and decentralization. What role is played by external factors (such as the intensity and structure of world market relations) or internal determinants (such as natural resource endowment, regional distribution of resources,

population dynamics,

sectoral

of

structure

know-how)?

the

economy,

For the developing countries

the level

settlement system, of

technological

it is particularly im-

portant to identify the specific conditions which favour a reversal of

the

polarization

process.

The

decentralization

mechanisms

formulated in the polarization reversal theory (agglomeration disadvantages in the centres, locational advantages in the periphery) cover

only a

few of the economic and political factors which

are

16

Ludwig Schatzl

regarded as essential for the removal of spatial imbalances. The question remaining basically unexplained is which regional policy strategies for developing countries can be inferred from the statements remarks

on

on

polarization

regional

reversal"

Richardson concentrates his

policy action in the phase of interregional

dispersion. In order to overcome the development problems resulting from

a

monocentric

spatial

structure,

Richardson

proposes

influencing the spatial process by active encouragement of agglomeration advantages in the larger subcentres,

in such a way as to

accelerate the attainment of the turning point. State intervention of this kind, however, is regarded as being likely to succeed only if it occurs when the po l ari za ti on forces have weakened, that is, if regional policy measures are implemented near the turning point. This argument raises questions regarding the timing of intervention and which subcentres should be selected. Richardson's arguments neglect the fact that in the polarization

phase

and

in

both phases of intraregional

decentralization

state intervention is required to promote regional development and spatial

structure on economic,

social

and political grounds, and

that strategies specific to these phases have to be developed.

In

the polarization phase, regional policy strategies should contribute towards tration

counteracting the process of extreme spatial

experienced

in

many

developing

countries.

concenPossible

measures, derived from polarization and dependencia theories, would be mobilization of the production potential available in peripheral regions, basic

temporary protection and adaptation of production to the

needs

necessary,

of

broad

sections

of the

population,

combined,

with the selective dissociation of peripheral

if

regions

from global and national metropolitan centres with the aim of overcoming existing authority-dependence relationships.

In the phases

of dispersion and decentralization, on the other hand, public pro-

Polarization Reversal in Developing Countries? motion

of

agglomeration

advantages

in

new

17

subcentres could be

coupled with a strategy aimed at intensifying intra- and interregional

interaction along neoclassical

in order to ac-

lines,

celerate the removal of spatial imbalances. By this are meant, for example, measures aimed at reducing existing obstacles to mobility involving

expansion

of

interregional

infrastructure

and

active

promotion of trade and transfer of capital and techn i ea l know- how into peripheral regions. A theory which claims to explain spatial development processes and which is to provide a basis

for

regional

and

spatial

policy

must be subjected to testing in the real world, that is, empirical investigation

by

means

of

cross-sectional

and

intertemporal

analyses.

Empirical Investigation of the Polarization Reversal Hypothesis Comprehensive empirical reversal

hypothesis

by

examination of Richardson's polarization means

of

international

cross-sectional

analysis is impossible, given the present state of research, since a precondition would be case studies of a sufficient number of countries with differing levels of development, using a unified theoret i ea l concept and a comparable methodo log i ea l approach. The research

results

presented

below

examine

long-term changes

in

regional development, city size distribution, sectoral structure, population growth and personal

income d is tri but ion. They are not

only of significance for the general evaluation of the polarization reversal hyothesis, but can also be utilized in the testing of individual elements of the theory. The relationship between stage of development and regional development was exan11ned ernp1ncally by J.G.

W1lllarn~un

1n 1965.

18

Ludwig Schatzl

From a cross-sectional

analysis

of

24 countries with differing

levels of development he concludes that, as an economy develops, interregional income

-

initially

development studies,

disparities - measured stage,

then

of

reach

decline

(cf.

a

peak

at

Figure

of

per

an

intermediate

1.4).

More

capita recent

such as by B. Renaud, reach similar conclusions. There is

considerable debate value

increase,

in terms

these

in the

findings,

literature concerning the predictive particularly

on

account

of

proven

methodological inadequacies. In 1970, B.J.L. Berry examined the relationship between level of development and city size distribution. From an analysis of 38 countries he predicted that in the course of long-term development there is a transition from primacy to lognormality in accordance with the rank-size rule (cf. Figure 1.5). As the study does not take into account the actual

location of towns within a country,

the question remains unanswered whether this spatial development process merely describes intraregional decentralization within the core region or a reversal of the polarization process, that is, interregional dispersion associated with the creation of hierarchical settlement systems distributed throughout the country. According to the sector theory (C. Clark, J. Fourastie) longterm economic growth of a country is accompanied by a shift of emphasis secondary

in to

economic the

activity

tertiary

from

sector.

the

primary

Structural

through

change

can

the be

explained in terms of changes in income elasticity of demand, and, on the supply side, in terms of differences in the sectoral growth rates of productivity. This long-term shift in production and employment structure has been empirically demonstrated for a series of

countries with differing

levels of development.

The spatial

development process is without doubt influenced by sectoral change. The polarization reversal hypothesis can be regarded as one attempt

Polarization Reversal in Developing Countries?

19

FIGURE 1.4 Relationship between Level of Devel~t and Regional Econo.ic Gro.th (cross-sectional analysis of 24 countries)

c Q)

E

c. 0

a;

..,> Q)

"'"' a: Q) ()

0

Regional disparities

SOURCE: Wi11iamson 1965, p. 10.

to clarify these interrelationships which have so far been the subject of little research. The long-term process of economic and social transformation is accompanied by a demographic transition from a state of equilibrium with high birth and mortality rates, through a stage of imbalance characterized by rapid natural population growth, to a new state of equ i 1 i bri urn with 1ow birth and mort a1 ity rates. From time-series and cross-sectional analyses it can be concluded that the model of demographic transition is applicable not only to industrial countries but also, in modified form, to developing countries. In 1982,

20

Ludwig

Sch~tzl

FIGURE I. 5 Relationship between level of Developaent and City Size Distribution (cross-sectional analysis of 38 countries)

c

"'c.

E 0

a; >

"'

1:l

"' "'"' ()

0

a:

City - size distribution

SOURCE: Berry and Horton 1970, p. 73.

J. Ledent formulated the hypothesis which he tested empirically by

means of time-series and cross-sectional analyses, according to which, during the transition from traditional to modern society, the rate of rural-urban migration at first increases, reaches a peak and then falls once more (cf. Figure 1.6). Finally, the Kuznets hypothesis (1955) deserves mention. It states that during the transition from an agrarian to an industrial and post-industrial society, increasing inequality of personal income distribution occurs in the early stages of industrialization, whereas during more advanced stages in development, compensatory

Polarization Reversal in Developing Countries? FIGURE I. 6 MOdel sho.ing Demographic Transition, Natural Population Growth and Rural-Urban Migration

Natural increase rate

Rural net outmigration rate

Process of development

SOURCE: Ledent 1982, p. 103.

21

22

Ludwig Schatzl

forces

lead to stabil ization and subsequently to a reduction in

income

differentials.

This

relationship

between

economic

development and secular change in income structure was derived from time-series section a 1

analyses ana 1yses

of Western industrialized countries. of

countries

with

differing

Cross-

1eve 1s

of

development have meanwhile become available, which can be interpreted as confirming this hypothesis. As Figure I.? shows, as per capita income increases, the share of income of the lowest 40 % of income earners initially undergoes a drastic fall before beginning a steady c 1 i mb as development progresses. On the other hand, the share of total income of the upper 20 % of income earners rises in the early phase of the development process and then dec 1 i nes once higher per capita values have been attained. Time-series

analyses

are

available for

some

industrialized

countries, which can be interpreted as confirming the polarization reversal hypothesis. These countries exhibit a pattern of development characterized by convergence of regional income differentials, followed by a phase of divergence, and, finally a new phase of convergence at a more advanced stage of development; similarly, they illustrate a transition in the city size distribution from primacy to lognormality. F. Lo, K. Salih, and M. Douglass, for example, who investigated period

the

1956-70,

spatial

development

utilized a variety of

process

in

indicators

Japan

for

the

(regional

and

personal income distribution, urban primacy) to demonstrate empirically that at the beginning of the sixties spatial polarization was

reversed and followed by decentralization.

After identifying

the conditions in Japan which effected the reversal in spatial development (full employment, facturing

in

the

core

complex organizational cluded

that

a

agglomeration disadvantages for manu-

region,

interregional

linkage

effects,

structure of the economy) the authors con-

spontaneous

polarization

reversal

process

unlikely in developing countries in the foreseeable future.

was

Polarization Reversal in Developing Countries?

23

FIGURE I. 7 Relationship between Level of Development and Personal Income Distribution {cross-sectional analysis of 66 countries)

% 60

----------------t~o~p~2~0~%~------50 (

Q)

~

"'

---

40

Q)

E

0

()

£

10

lowest 40% 200

1000

2000

3000

4000

GNP per capita, US- dollar

SOURCE: Ah1uwa1ia 1974, p. 15.

The process tries, described follows: small

of spatial in

differentiation

in

developing coun-

numerous case studies, can be summarized as

Modern economic

activity remains largely confined to a

number of centres

with favourable locations. This spatial

concentration of productive forces leads to imbalances in income between

the

largely

industrial

centres

and

the

predominantly

agrarian periphery (that is, interregional disparities). One of the consequences of this from the

periphery

type into

of development is increased migration the

industrial

centres.

The

1 imited

employment impact of predominantly capital-intensive industries and the

fact

that rural-urban migration

is generated by perceived,

rather than actual prospects of employment and income, results in deterioration in the material living conditions of a greater part

24

Ludwig Schatzl

of the population, even v1ithin the core regions (that is, intraregional disparities). For the decisive question of whether in developing

countries

industrial term,

the

growth

impulses

emanating

from the urban-

centres contribute towards reducing, and in the long

overcoming existing inter- and intraregional

disparities,

there is no clear empirical evidence in most country case studies. Research results are nevertheless available for some developing countries

(mainly newly industrializing countries) which can be

regarded as providing the first indications of a reversal in the spatial concentration process in terms of Richardson's hypothesis. K. Mera, for example, demonstrated for South Korea that regional disparities

in

incomes

declined as a result of rapid economic

growth and public subsidies for agriculture. Studies by B. Renaud and M.C.

Hwang also confirm the convergence of regional gr01vth

indicators. The following chapters examine Malaysia, a developing country where intra- and interregional decentralization, at least in their initial stages, can be empirically identified.

REFERENCES Ahluwalia, M.S. "Income Inequality: Some Dimensions of the Problem". In H. Chenery et al., Redistribution with Growth. Oxford, 1974. Berry, B.J.L., and F.E. Horton. Geographic Perspectives on Urban Systems. Englewood Cliffs (New Jersey), 1970. Boventer, E.v. "Die Struktur der Landschaft. Versuch einer Synthese und Weiterentwicklung der ~lodelle J.H. van Thi.inens, W. Christallers und A. Loschs". In QQ_timales Wachstum und optima le Standortverteilung, pp. 77-133. Schriften des Vereins fur Soc1al-pol1t1k 27. Berlin, 1962.

Polarisation Reversal in Developing Countries?

25

. Raumwirtschaftstheorie, pp. 704-28. Handworterbuch der So--zialwissenschaften 8. Stuttgart, Tubingen, Gottingen, 1964 . . Standortentscheidung und Raumstruktur. Veroffentlichung der --Akademie fur Raumforschung und Landespl anung. Bd. 76. Hannover, 1979. Friedmann, J. Regional Development Policy: A Case Study of Venezuela. Cambridge, London, 1966 . . "A Theory of Polarized Development". In J. Friedmann, Urbanization, Planning and National Development, pp. 41-64. Beverly Hi 11 s, London, 1973. Hirschman, A.O. The Strategy of Economic Development. New Haven, London, 1958. Hwang, M.C. "A Search for a Development Strategy for the Capital Region of Korea". In Metropolitan Planning: Issues and Politics, edited by Y.H. Rho and M.C. Hwang, pp. 3-32. Seoul, 1979. Krebs, G. "Regional Inequalities during the Process of National Economic Development: A Critical Approach". Geoforum 13 (1982): 1-81. Kuznets, S. "Economic Growth and Income Inequality". American Economic Review (1955): 1-28. Ledent, J. "The Factors of Urban Population Growth: Net Immigration Versus Natural Increase". International Regional Science Review 7, No. 2 (1982): 99-125. Lo, F., K. Salih, and M. Douglass. Uneven Development, Rural-Urban Transformation and Regional Development Alternatives in Asia. Nagoya, 1978. Lo,

F. and K. Salih. "Growth Poles, Agropolitan Development and Polarization Reversal: The Debate and Search for Alternatives". In Development from Above or Below? The Dialectics of Regional Planning in Developing Countries, edited by W.B. Stohr and D.R.F. Taylor, pp. 123-52. Chichester, 1981.

~1era,

K. "Population Concentration and Regional Income Disparities: A Comparative Analysis of Japan and Korea". In Human Settlement Systems, edited by N.M. Hansen, pp. 155-75. Cambridge, 1978.

Renaud, Ne1~

B. National Urbanization Policy in Developing Countries. York, 1981.

26

Ludwig Schatzl

Richardson, H.W. Regional Growth Theory. London, 1973. _ _ . City Size and National Spatial Strategies in Developing Countries. World Staff Working Paper No. 252. Washington, D. C. ,1977 .

. "Polarization Reversal in Developing. Countries". Papers of the Regional Science Association 45 (1980): 67-85. Schatzl, L. "Oberlegungen zum langfristigen regionalen Wirtschaftswachstum". Die Erde 109 (1978a): 445-55. Wi rtschaftsgeograph i e, 1978b.

1.

Theori e.

Paderborn:

UTB

782,

Wirtschaftsgeographie 2. Empirie. Paderborn: UTB 152, 1981. Wirtschaftsgeographie 3. Politik. Paderborn: UTB 1383, 1986. Siebert, H. Regionales Wirtschaftswachstum und interregionale Mobilitat. Tubingen, 1970. Williamson, J.G. "Regional Inequality and the Process of National Development. A Description of the Patterns". Economic Development and Cultural Change 13 (1965): 3-84.

11

ECONOMIC DEVELOPMENT AND ECONOMIC POLICY IN MALAYSIA

Ludwi g Sch.atzl

Colonial Development The colonial with

the

period in Malayan history may be said to have begun

British

occupation

of

the

following

territories:

the

island of Penang (1786), the trading post of Malacca (1795), which had been a Portuguese possession since 1571 and a Dutch possession since

1641,

and

the island of Singapore (1819). The aim of the

British in these Straits Settlements was initially to control the sea route from India to China. From the mid-nineteenth century onwards, economic exploitation of the Malay peninsula as a supplier of raw materials for Western i ndus trial i zed countries was undertaken from Penang, Malacca and Singapore. At the outset, the economy of the British colony of Malaya was characterized by rich deposits of tin-ore and vast untouched areas suitable for tropical lation

in

agriculture.

With an estimated total popu-

1833 of a quarter of a million Malays and indigenous

inhabitants,

the region lacked the manpower necessary for the ex-

ploitation of its natural resources (Newbold 1839).

27

28

Ludwig Schatzl From 1850 onwards tin mining on the west coast of the pen-

insula was actively pursued by Chinese and later also by British companies, with immigrant labour from China providing the main part of the work- force. The influx of Chinese was accompanied by the growth of urban settlements, notably Kuala Lumpur, Ipoh and Taiping in the tin-mining centres. After 1890 the British colonial administration established a railway network to link the tin mines with the exporting ports. Growing demand for natural rubber, reflecting the expansion of the automobile industry in Western Europe and North America, led to the introduction at the end of the nineteenth century of Hevea brasiliensis into the hinterland of the Straits Settlements. Natural rubber was produced on European plantations and, after 1911, to a limited extent on Malay smallholdings. The plantation workers were predominantly Tamils from southern India and Ceylon. Cultivation of natural rubber became concentrated on the west coast of the Mal ay peninsula

where

the

infrastructure

provided for the tin mining

operations was available. From the beginning of the twentieth century onwards,

the British colonial

administration established a

road network on the west coast, serving the needs of the export trade. By 1911 the population of Malaya had risen to 2.6 million, of which 35 % were Chinese, 10 % Indian and 55 % Malay and other ethnic groups. Economic

expansion

continued

throughout

the

following

two

decades. Development was characterized by the progressive expansion of tin production and of the rubber plantations in the tin and rubber belt on the west coast and by improvements in material infrastructure,

primarily along the west coast but also including

initial efforts to open up the east coast by constructing a railway line. There was also continued influx of Chinese and Indian labour. The world economic crisis (1929-32) and the associated fall in de-

Economic Development and Economic Policy in Malaysia

29

mand for industrial raw materials caused economic stagnation. The outbreak of World War II halted the flow of Chinese and Indian immigrants. In 1941 Malaya had a total population of 5.5 million, of which 44 % were Chinese, 14 % Indian and only 42 % Malay. From

the

end

of World War II

until

independence in 1957

economic development was mainly characterized by reconstruction of the economy, particularly recovery from the war damage caused by the Japanese occupation and communist guerilla activities, and by further expansion of the export-oriented sector of the economy. Major political events included the founding of the Federation of Malaya (excluding Singapore) in 1948, the establishment of ethnically-based parties and, in 1955, the holding of general elections. A constitution, which had been drawn up before the end of colonial rule, came into force on Independence Day. This constitution confers de facto political power on the Malay population and establishes Malay as the official language and Islam as the official state religion. The constitution also contains provisions aimed at safeguarding the rights of the Chinese and Indian minorities, for example, the right to ·practise religion freely and to engage in economic activity. In summary, the Malay peninsula successfully developed into a major world producer of tin and rubber during the colonial period. At the same time, however, there emerged fundamental imbalances in sectoral economic structure, in regional development and in personal

income

distribution.

After

one

and

a half

centuries of

British colonial rule the economic situation was as follows: 1.

The country's economy lacked diversification, being dominated exclusively by the exploitation of two raw materials for export.

The

nature

and

intensity

of

primary production was

dependent on de,nand for raw materials in Western Europe and NurLh Amer1cct.

30 2.

Ludwig Schatzl In socio-economic terms there were marked

disparitie~

between

the west coast of the Malay peninsula, where exploitation of raw

materia 1s

for

export

and

most

infrastructure were concentrated, underdeveloped east coast. 3.

and

of

the

the

deve 1oped

economically

Deve 1opment of the export trade had encouraged immigration of Chi ne se and Indian 1abour and created a multi raci a 1 society. During the colonial period considerable interethnic disparities in income emerged between the Chinese on the one hand, and the Malays and Indians on the other. The total population of the Federation of Malaya in 1957 was 6.3 million, of which 50 % were Ma 1ay, 37% Chi ne se, 12% Indian and 1% other ethnic groups. 1 The majority of the Chinese worked initially in the tin mines. Due in some measure to the British colonial administration imposing restrictions on the Chinese population's right to acquire land and to obtain employment in public administration, the Chinese soon began to concentrate on urban-commercial activities. Particularly in the towns along the west coast, they successfully established enterprises in craft trades, manufacturing and the service sector. In contrast the Malays, most of whom lived in rural areas, engaged in subsistence activities (rice cultivation, fishing) and, though less significantly, in rubber cultivation on small and medium-sized holdings.

Although

some

employment in public administration, workers with poor prospects.

of the Indians found most were

plantation

The legacy of a one-sided economy, regional disparities, separation of political and economic power and the British colonial administration's policy of division of labour among the ethnic groups, which the Federation of Malaya inherited at the end of the

Economic Development and Economic Policy in Malaysia

31

colonial era, constituted a situation of potential conflict. (Cf. Ooi 1976, KUhne 1980, KrUger 1985 on precolonial and colonial development).

Economic Development after Independence The Federation of Malaya became independent on 31 August 1957. The early post-independence years were dominated by the struggle to achieve national unity and territorial integration. By 1960 the activities of the communist guerilla movement had been successfully brought under control. In 1963 the Federation of Malaysia was established which united the Federation of Malaya (that is, West Malaysia or peninsular Malaysia), the thinly populated territories of Sarawak and Sabah in Borneo (that is, East Malaysia) and Singapore. Singapore left the Federation in 1965. Following independence, economic growth in Malaysia was satisfactory and there were marked improvements in living conditions. This is illustrated by changes in selected economic and social indicators (cf. Table II.1). 2 During the period 1960-82 real annual growth in gross national product (GNP) averaged 7 % and in per capita GNP 4.3 %. With a per capita income of US$ 1860 in 1982, Malaysia belongs to the upper category of the middle-income countries. Table II.2 presents social indicators which show positive trends in areas such as demography, nutrition, and education. Between 1960 and 1982 birth and death rates fell markedly. Although natural population increase is still high, it is gradually falling. There has been a consistent fall in infant and child mortality.

32

Ludwig Schatzl

There have also been improvements in life expectancy, daily per capita calory supply and in secondary-school enrolment. Malaysia has on the whole succeeded in reducing the socio-economic development gap between itself and the industrialized countries. Sectoral economic structure in Malaysia underwent far-reaching transformation after independence; the country experienced a process of dynamic industrialization. Between 1960 and 1982 the share of agriculture in gross domestic product (GDP) fell from 36% to 23 %. The share of the industrial sector (mining, manufacturing, construction, electricity, gas and water supplies) on the other hand rose from 18 % to 30 %, the contribution of manufacturing alone to GDP doubled from 9 % to 18 %. The service sector accounted for 46 and 47 % of GDP for 1960 and 1982, respectively (World Bank, World Development Report 1984). Data relating to long-term change in sectoral employment structure are available for peninsular Malaysia. The share of employment in agriculture fell from 58 % in 1957 to 50 % in 1970 and 37 % in 1980. Over the same period the percentage of the economically active population in the industrial sector rose from 3 % to 14 % and 22 %, respectively. A major driving force behind economic growth and sector a1 change in Ma1ays i a has been the export economy. In the years fo 11owing independence exports accounted for approximate 1y 50 % of GDP. The structure of foreign trade has, however, undergone fundamental change. Two development trends can be identified: 1.

Raw material exports maintained their leading position but their contribution to the total value of exports fell from 94 % in 1960 to 79 % in 1980. At the same time primary goods exports underwent diversification. The share of traditional

Economic Development and Economic Policy in Malaysia

33

TABLE II.l Indicators of Socio-Economic Development in Malaysia (1960, 1982)

Indicators

1960

GNP (real) in US$ (thousand m.)

ea.

GNP per capita in US $

ea. 740

Population (m.)

Average annual growth rate

1982 6

27

7.0

1,860

4.3

ea.

8.1

14.5

Birth rate (?o)

44

29

Death rate (%)

15

6

Natural population increase (%)

29

23

Infant mortality rate (?0 0

72

29

8

2

52

65

Child death rate (?o 0

,

,

under 1 yr.)

age 1-4)

2.7

Life expectancy in yrs. - male - female

56

Daily calorie supply per capita

69

ea. 2,200

2,662*

19

53*

Number enrolled in secondary schools as percentage of age group

1.0 1.0

0.9

* 1981 SOURCE: World Bank, World Development Report 1984.

export items, tin and rubber, which accounted for over 80 % of total

exports

at

the

end

of

the

col on i a l

period,

declined

steadily to 53 % in 1970, and 26 % in 1980. In 1980 the chief raw material exports were crude oil ( 25 % of exports in terms of value), followed by rubber (17 %), timber (13 %), palm oil (9 %),

and

tin

(9 %)

(cf.

Government

of

Malaysia

1981,

p. 18 ff.). 2.

Malaysia has been able to establish a competitive export industry. Manuf ac tu red goods accounted for 6 % of total exports

34

Ludwig Schatzl in 1960 and 21 % in 1980. The most successful export items were machinery and transport equipment, electronic components, textiles and clothing. At the beginning of the 1980s, roughly two

thirds

of manufactured goods exported went to Western

industrial countries and one third to developing countries. Disparities in personal

income distribution remain consider-

able and have shown some reduction only since 1970. According to estimates available for West Malaysia in the 1960s about half the households were living below a poverty line defined in terms of a basic needs concept (M$180 at 1970 prices); by 1980, the percentage of households below the poverty line had fallen to 30 %. There was also a decline, albeit small, in interethnic differences in income. In terms of average income,

the ratio between Malay, Indian, and

Chinese households was 1:1.8:2.3 in 1970 and 1:1.5:2.1 in 1980; in other words,

the average income of Chinese households was still

double that of Malay households (cf. Government of Malaysia 1981, p. 56).

Economic Policy after Independence

Basic Features of the Economic Policy The economic and social aims, strategies, and policy instruments of the

Malaysian

government

are

embodied

in

Five-Year Plans.

Six

development plans have been drawn up since independence. The first two

plans

(1956-65)

relate

to West Malaysia

(First and Second

Mal ay a Plans) and the four subsequent plans ( 1966-85) to West and East Malaysia (First to Fourth Malaysia Plans). In principle, all development plans are directed towards overcoming the inherited eo-

Economic Development and Economic Policy in Malaysia

35

lonial structure including the one-sided production structure, interethnic income differences and spatial disparities. They also seek to achieve maximum possible economic growth and integration into the world market. Conceptual differences are, however, identifiable in terms of economic policy pursued between the plan periods 1956-70 and after 1970. Between 1956 and 1970 economic policy reflected recommendations made by the World Bank. A market economy with laissez-faire liberal characteristics was introduced. The state was given the task of creating a favourable climate for private investment originating both from within the country and from abroad, and of making available in all parts of the country the material infrastructure essential for the growth of the private sector. Investment in infrastructure (transport, energy, communications) accounted for half of total public development expenditure in the First and Second Malaya Plans and for a third in the First Malaysia Plan (cf. Table II.2). Sectoral economic policy gave priority to agricultural development with the aim of diversifying agricultural exports. Secondary emphasis was placed on the development of manufacturing, protected by tariffs to substitute imports. Whereas the first three plan periods were successful in achieving global economic and sectoral aims, no progress was made in alleviating poverty among broad sections of the population, nor in reducing interethnic and spatial disparities in incomes. In May 1969, Malaysia suffered racial unrest, whereupon a state of emergency was imposed throughout the country until February 1971; during this period, governmental power was transferred to a "National Operations Council". Racial unrest also caused conceptual changes to be made in economic policy. The New Economic Policy proclaimed in 1971 pursued the following long-term development objectives which are contained in the Outline Perspective Plan 1971-90 (cf. Young et al. 1980, p. 60 ff.):

36 l.

Ludwig Schatzl Dynamic economic growth. In contrast to the preceding years, export-oriented manufacturing is regarded as the key growth sector. This kind of industrialization strategy reflects the view that, in the long term, because of the 1imited domestic market, industry based on import substitution cannot generate sufficient impetus for development.

High rates of economic

growth and intensified industrialization are to create the necessary preconditions for achieving the essential social objectives of the New Economic Policy. 2.

Eradication of poverty.

It is

intended to reduce the per-

centage of households below the poverty line from about 50 % (1970) to 34 % (1980) and to 17 % by 1990. As already stated above, the objective for 1980 had been achieved. 3.

Reorganization of society. The basic underlying principle here is that in the long term, participation of the ethnic groups in economic activity should correspond with their population share. In concrete terms this means, in the case of peninsular Malaysia, for example, increasing the proportion of Malays emr l oyed in the secondary sec tor from 31 % ( 1970) to 52 % (1990) or, during the same period, raising the percentage of Malays exercising senior administrative and management func-

tions from 22 % to 49 %. In addition to reorganizing sectoral employment structure and occupational structure, a fundamental change in ownership of the share capital of limited companies is planned. During the course of the perspective plan, it is intended to increase Malay ownership of the share capital of limited companies from 2.4% (1970) to 30% (1990) and the involvement of the remaining Malaysians (Chinese, Indians) from 34 % to 40 %.

The ownership of share capital of overseas investors is to be correspondingly reduced from 63 % to 30 %. As Malay private investment capital is not available on the

TABLE II.2 Public Development Expenditure in Malaysia 1956-85 (in \1:) fTl

First Malaya Plan l 1956-60 Agriculture - irrigation and drainage - new land development

Second Malaya Plan 1 1961-65

First Malaysia Plan 1 1966-70

Second Malaysia Plan 1 1971-75

Third Malaysia Plan 1 1976-80

Fourth Malaysia Plan 2 1981-85·

23 4 2

18 4 5

26 8 9

18 2

19 2

11

11

20 2 9

3

15

13

13

34

18

23

22

1

2

Material infrastructure (transport, communications, energy)

52

47

Social services

14

16

lA

22

18

0

Other expenditure (e.g., administration, internal security, defence, state funds)

10

17

19

27

27

25

Industry and commerce

-in M$ (thousand m.)

0

::::l

0

3

~.

n

Cl

ro ro

< 0

1-o 3

ro

::::l

r+

0> ::::l

0. fTl

n 0

::::l

0

3

~.

n -o 0

n

Total expenditure - in %

n

'


actual expenditure 2

planned

SOURCE: Rao 1980; Government of Malaysia 1976, 1981.

0>

'< (/) 0>

w

---J

38

Ludwig Schatzl scale required, prov1s1on is made for a transitional period during

whi eh government agencies

are to acquire

the share

capital. This explains the substantial public expenditure in the commerce and industry sectors in the Five-Year Plans since

1971 (cf. Table II.2). 4.

Reduction

of spatial

disparities.

In order to achieve

the

priority objective of the New Economic Po 1icy out 1i ned above, state control of spatial development is regarded as imperative in Malaysia. The reasons for this lie, firstly, in economic growth goals aimed at exploiting development potential in all regions of the country and, secondly, in social policy goals aimed at removing disparities in interethnic development by improving the living conditions of the Malay population. Since the Malays live predominantly in the less developed, agricultura 1 and peri phera 1 parts of the country, pub 1 i c subsidies and development efforts for such areas primarily benefit the Malay ethnic group. The strategies and instruments of spatial policy

pursued in Malaysia are discussed

in

the

following

chapter.

Spatial Economic Policy The concepts of spatial planning applied in Malaysia fall into two categories: a strategy of rural development (in-situ new

land

tralization.

development)

and

a

strategy

of

development,

industrial

decen-

Economic Development and Economic Policy in Malaysia

39

Rural Development Strategy In-situ Development. This involves state-supported structural improvement in traditional agricultural areas. The objective is to improve productivity and increase production in order to raise farmers' incomes and thereby contribute to the fight against poverty. Hitherto,

development efforts were concentrated in the densely populated areas of rice cultivation in the northwest (Muda Project) and the northeast (Kemubu Project) of the Malay peninsula (cf. Fig-

ure II.1}. The high priority accorded to rice cultivation particu1arly reflects the fact that in 1970 88 % of the farmers sti n lived below the poverty line and domestic production of rice, the basic foodstuff, met only part of national requirements. In-situ development is the responsibility of the Federal Ministry of Agriculture and regional public sector agencies, for example, the Muda Agricultural Development Authority (MADA) and the Kemubu Agri cu ltura 1 Deve 1opment Authority ( KADA) . Within an i ntegrated development framev10rk, they utilize a great number of instruments. Development measures range from irrigation and drainage, the introduction of higher yielding varieties, mechanization of agriculture, subsidized fertilizer prices,all of which are intended to enable double cropping, that is, two rice harvests annually, to an improved marketing system and diversification of production, for example, by introducing poultry raising. Between

1971 and 1980, over 100,000 rice farmers received state assistance within the framework of in-situ development. By 1980, Malaysia had succeeded in reducing the proportion of padi farmers living in poverty to 55% and in increasing national selfsufficiency in rice from below 60 % in 1967 to over 90 %. During the nineteen seventies, the development gap between the densely populated rice cultivation areas and the country in general at

40

Ludwig Schatzl FIGURE II.l

Spatial Economic Policy in West Malaysia (1982)

ala Trengganu

[

m

G

j

in-situ Development New Land Development Locational Incentive Area

•

Metropolitan Centres

0

Growth Centres

•

Free Trade Zones

o

Industrial Estates

0

100 km

t----=::F=-------+~

Economic Development and Economic Policy in Malaysia

41

least did not widen. Decisive factors in this success were not only the development measures implemented in selected regions, but also the nationwide price subsidies for rice through the Guaranteed Minimum Price Scheme introduced in 1971 (cf. Government of Malaysia 1981, pp. 38 f., 265 ff.). New Land Development: The large-scale development of new land for agricultural

purposes

is

intended

areas,

accelerate

reduce

regional disparities.

to create employment in rural

diversification

of

agricultural

exports

and

The largest development projects in

West Malaysia are shown in Figure II.1. The main

body responsible

for

new

land development is the

Federal Land Development Authority (FELDA), set up in 1956. In addition to land development (forest clearance, irrigation and drainage, soil improvement, planting) its tasks also extend to the construction

of

houses

and

villages,

selection

and

training

of

settlers, processing and marketing of agricultural produce, and so forth. By the end of 1981 FELDA had developed 0.6 million hectares of new land, of which 60 % was planted with oil palms and a third with rubber. As a result of these development measures Malaysia is today the world's leading producer of palm oil, as well as of tin and rubber. for

FELDA projects have provided settlement opportunities

70,000 families

Household

(about 360,000 people), predominantly Malay.

incomes of the

settlers

average incomes in the traditional

are markedly

higher than the

agricultural

areas (cf. Uhlig

1984, p. 54 ff.). In spite of this impressive record, new land development projects reveal several weaknesses: State development of new

land has proved rather expensive,

accounting for between 5% and 11% of Malaysian total public

42

Ludwig Schatzl development expenditure in the plan periods from 1961 onwards. The cost of settling one family averaged around M$60,000 in the past, part of which has to be repaid by the settler in the 1ong term.

Planning.errors (such as selection of unsuitable areas, imposition of rigid quotas relating to the regional origin of the settlers), resulted in the failure of some projects. In 1966, the Federa 1 Land Con so 1 i dation and Rehabi 1 i tati on Authority (FELCRA) was established in order to provide structural improvements for these projects. The new 1and deve 1opment po 1 icy, as it was ori gi na 11 y conceived, second

overlooked the need to pro vi de emp 1oyment for the generation

of

settlers.

The projects were oriented

solely towards agriculture, with small settlements dispersed throughout

the

countryside.

More

recent

projects,

in

accordance with the strategy of intermediate cities, provide for small, multifunctional towns offering a wider range of employment (agro-industry, services). Large-scale clearance of tropical rain forest has resulted in environmental problems (soil erosion and soil degradation).

Industrial Decentralization Strategy The main purpose of Malaysia's industrial policy was and is to accelerate the growth of, initially, import substituting industries and, later,

export-oriented industries. The earliest evidence of

a policy of industrial decentralization dates from the end of the sixties and became more apparent after the introduction of the New Economic

Policy.

The

sections

below briefly outline the grmvth

Economic Development and Economic Policy in Malaysia centre strategy attempted in Malaysia and examine the range of

43 in-

struments so far employed to encourage industrial development and dispersal. The growth centre strategy was conceived at the beginning of the

seventies.

It was envisaged at that time that towns with a

population of between 40,000 and 75,000 in 1970 should assume the role of growth centres.

In West Malaysia

such

towns were Kota

Bharu, Kuala Trengganu and Kuantan, all situated on the east coast, Alar Star in the northwest, and Taiping, Telok Anson, Muar and Batu Pahat on the west coast. Special priority in industrial development was

to

be given

north~vest,

to the locations on the east coast and in the

in the interests of achieving interregional decentrali-

zation. In East t4alaysia the capital cities of Sarawak and Sabah, Kuching and Kota Kinabalu were selected as growth centres (cf. Figures II.1 and II.2). Towns with a population of over 75,000 (Kuala Lumpur,

including

the

satellite

Georgetown/Butterworth, Johor Bahru,

towns

in

the

Klang

Valley,

I poh, Malacca and Seremban),

which in Malaysian Planning are termed 'Metropolitan Centres', were to receive no special assistance, as they were expected to generate their own economic growth dynamics. The

gro~1th

centre concept also

accorded low priority to assistance for towns with a population belovJ 40,000, which were considered to possess too little potential for industrial development. The extent to which the policy instruments used to promote industrial

growth in Malaysia contributed towards fulfilling de-

centralization goals is examined below. Several instruments can be used to influence the locational behaviour of private

enterprises.

They range from infrastructural measures, in this context in particular, zones,

the establishment of information

services,

industrial estates and free trade and

incentives,

to

compulsory

instruments (cf. Spinanger 1980, Kruger 1982, Kohler 1982).

44

Ludwig Schatzl FIGURE I 1.2

Spatial Economic Policy in East Malaysia (1982)

ommm

New Land Development

~ Industrial Incentive Area D

Growth Centres

o

Industrial Estates

lndones1a

0

200km

~----±---=--=t==----=l

The first industrial estate was established in Petaling Jaya near Kuala Lumpur in the mid-fifties. By 1970, a further nine industrial estates had been created on the west coast of peninsular Malaya at favourable locations, with the aim of initiating the process of industrialization in Malaysia. In subsequent years, however, the industrial estates were used as instruments of spatial economic policy. Their number i ne reased to 70 in 1980 and exceeded 100 by 1983. As Figures 11.1 and 11.2 show, today almost every town in West and East Malaysia possesses an area designated for industrial use and equipped 1vith the necessary infrastructure. There is

Economic Development and Economic Policy in Malaysia

45

no doubt that the provision of such industrial estates stimulates the industrialization process in developing countries. Where they are ubiquitous, as in Malaysia, industrial estates do, however, make only a minor contribution to decentralization. In the seventies,

ten industrial estates were accorded the

status of Free Trade Zones in order to stimulate the exportoriented industrialization called for in the New Economic Policy. Enterprises

in

these

zones whi eh produce goods for export are

all owed to import and export goods free of duty. So far, all the free trade zones in existence are located on the west eo as t of peninsular Malaysia close to the industrialized metropolitan centres ( Kua la Lumpur, Penang, Mal ace a and Johor Bahru) , whi eh possess international airports and ports. In addition, Malaysia offers export-oriented enterprises outside the free trade zones the opportunity to produce in so-ea ll ed Licensed Manufacturing Warehouses free of duty. Viewed as a whole, the provision of free trade zones has accelerated the development of export industries in the country and encouraged decentralization on the west coast of peninsular Malaysia. These planning instruments cannot, however, be expected to encourage industrial development in peripheral areas. The major institutions with responsibility for industrial decentralization policy, that is, at federal level, the Malaysian Industrial Development Authority (MIDA), and at state level, the State Economic Development Corporation (SEDC), provide potential investors with information relating to, for example, the services provided on the industrial estates or to the regionally differentiated incentives. These information services provide assistance in particular to small and medium-sized enterprises in locational decision-making. Development aid to industry by the provision of incentives

is

46

Ludwig Schatzl

regulated by legislation in Malaysia. The aim of this legislation and the essential instruments it provides are summarized below. Development assistance for the establishment of new manufacturing industries is provided by the Pioneer Industries Ordinance of 1958 and the Pioneer Industries Variation Act of 1965. Pioneer industries are those which produce goods not previously manufactured in Malaysia, which possess favourable future potential and which are in the public interest. They are exempt from tax for a period varying from two years in the case of initial fixed capital investments below M$ 250,000, to up to five years in the case of investments over one million Malaysian dollars. Under the Investment Incentives Act of 1968, tax exemption for pioneer industries can be extended for a further one to three years, if they produce priority goods, use a specified amount of local inputs, or if the enterprise is situated in a designated development area. The year 1968 saw, therefore, the first example of a direct link between development assistance and choice of location. The main objective of this legislation is, however, encouragement of the export activities of enterprises already in existence by means of special depreciation terms and tax concessions. The Investment Incentives (Amendment) Act of 1971 pursues objectives concerned primarily with labour market policy. Enterprises the establishment of which is in the interest of industrial development are exempt from tax for a period varying, according to the number of jobs created, from two years (51-100 employees) to five years (over 350 employees). The Investment Incentives (Amendment) Act of 1973 fully endorses the policy of industrial decentralization. Enterprises which locate in a "locational incentive area" are exempt from tax for a

Economic Development and Economic Policy in Malaysia

47

period of five to eight years. As the accompanying tabulation shows, the period of tax exemption depends on the amount invested and the number of jobs created:

Fixed capital investment in M$ 1,000

Number of new jobs created

or

below 750

Tax exemption (in years)

below lOO

5

Z50 - 500

lOO - ZOO

6

501-1,000

ZOl - 350

7

above 1,000

above 350

B

The period of tax exemption is extended by increments of a year to a maximum of ten years, if priority goods are produced or if enterprises derive more than half their inputs from within Malaysia. As measures designed to promote the decentralization of the manufacturing industry, these locational incentives were relatively ineffective for the following reasons: The locational incentive areas designated for industry were too large.

As Figures

II.l

and

II.2 show,

large parts of West

Malaysia and the whole of East Malaysia constitute incentive areas.

If development aid were concentrated into fewer growth

centres, this would foster the generation of localization economies.

A questionnaire

survey

of industrial

enterprises

in

Kelantan showed that public development aid measures had been influential in the decision to locate in this peripheral state in the case of only one quarter Chapter V. ) .

of the

enterprises

(cf.

48

Ludwig Schatzl There is

very

little

incentives

offered

development

areas

to and

difference industrial those

between

the

enterprises

incentives which

to

financial locate

apply

to

in all

parts of the country. In

terms of development policy,

the

preferential

treatment

extended to large enterprises is open to question. Empirical studies show that it is the small and medium-sized enterprises which are able to generate intensive linkages with the local economy. Apart from the prov1s1on of information and incentives, the locational behaviour of private enterprises in Malaysia can be influenced by compulsory measures. The legislative basis is provided by the Industrial Coordination Act of 1975, according to which the establishment of an industrial enterprise representing investments in excess of M$ 250,000 requires a manufacturing licence granted by the Ministry of Trade and Industry, in conjunction with MIDA. MIDA is attempting to make the granting of a licence dependent upon an enterprise locating in a development area. Initial results of this scheme have been disappointing. According to Chi Seck Choo (1981), fewer than one third of the licences granted for a development area actually resulted in the establishment of an industrial enterprise. There is unanimity of opinion in the literature that the policy of industrial decentralization as practised so far has yielded little success. Possible reasons for this are, on the one hand, the fact

that

regions

location

factors

operating within the industrial

core

of the west coast of peninsular Malaysia clearly remain

attractive

and,

on

the

other

hand,

conceptual

weaknesses

and

inadequacies inherent in the policy itself. There is, for example, inadequate coordination between the instruments used to implement the

policy

and

the

intended

aim of

creating

growth centres:

Economic Development and Economic Policy in Malaysia territorially-based

development

assistance

must

be

49

replaced

by

measures relating more closely to specific locations. Furthermore, industrial policy in general and the policy of decentralization in particular, are pursued by a large number of public institutions at both state and federal level. Lack of adequate coordinatiQn between these activities considerably reduces their effectiveness. Since

achieving

independence,

Malaysia

has

succeeded

in

reducing the development gap with the industrialized countries, and it

is

progressively

structure. economic

overcoming

the

inherited colonial

economic

Noteworthy success has been achieved in the fields of growth and sectoral

differences

are

still

change.

Although interethnic income

considerable,

success, which

bears

positive

countries, was

achieved

by

comparison

means

oriented to the world market.

they

of

a

are

decreasing.

with

other

liberal

This

developing

economic

policy

The common underlying principle of

policy which was directed ·initially towards economic growth and, after 1970, more strongly towards distribution, is the attainment of dynamic economic growth in order to create the material basis for fulfilling

fundamental

goals

of social

and

spatial

economic

policy. Chapters socio-economic oping

III

and

IV examine whether spatial

development

have

increased

disparities in

in Malaysia,

a devel-

country oriented towards the world market, or whether the

market mechanism in association with Malaysia's spatial economic policy has led to a trend reversal

in the spatial

concentration

process. The Federation of Malaysia comprises West Malaysia (peninsular Malaysia) and East Malaysia (Sarawak, Sabah). The polarization reversal

hypothesis will

study. The choice of study

be tested using West area can be

~1alaysia

as a case

justified not only

on ac-

50

Ludwig Schatzl

count of the substantial spatial separation of the two parts of the country, but also in view of the fact that, as Table II.3 shows, West Malaysia accounts for 83 % of the population, 85% of the GDP and 93 % of employment in the manufacturing industry. A quarter of the population of West Malaysia live

in eleven cities of over

100,000 inhabitants. East Malaysia, on the other hand, exhibits a low degree of urbanization and industrial development is still at an early stage. potential and

In

the

for industrial

Sabah,

based

on

long

term,

however,

and agricultural

their

rich

natural

there

is excellent

development in Sarawak resources

(crude oil,

natura 1 gas, hydra-e 1ectri c power) and extensive areas of as yet untouched land suitable for agriculture.

TABLE II.3 Structural Differences between West and East Kalaysia

Area - in 1000 km - in

2

~~

Population (1980) - in mill. - in

Population per km

~~

2

Population share in large cities (1980)' in % GDP (1980) - in M$ thousand mill. - in

~0

West Malaysia

East Malaysia

132

198

330

40

60

lOO

11.2

2.3

Malaysia as a whole

13.5

83

17

lOO

85

12

41

26

0

22

22.4

3.8

26.2

85

15

lOO

515

41

556

93

7

100

Employment in manufacturing industry (1981) - in 1,000 - in ?0

Economic Development and Economic Policy in Malaysia

51

NOTES 1

Singapore, which was not part of the Federation of Malaya, of about 1.2 million, mostly Chinese in origin.

had a

population

2

In the interests of international comparability, the data used for Table II.l are derived from the World Development Report (1984) of the World Bank. These data may differ slightly from the official statistics of the Government of Malaysia.

REFERENCES Chi Seck Choo. "The Industrial Estate Program and Industrial Development Strategies in Malaysia: An Appraisal". Malaysian Geographers 3 (1981): 12-20. Government of Malaysia. Lumpur, 1976 .

Third

Malaysia

Plan

1976-1980.

Kuala

. Fourth Malaysia Plan 1981-1985. Kuala Lumpur, 1981. Kohler, 0. Malaysia. Investitionsfuhrer. Deutsche Gesellschaft fur wirtschaftliche Zusammenarbeit; and Bundesstelle fur AuBenhandelsinformation, Koln, 1982. Kruger, K. "Regional ( 1982): 133-49.

Policy

in

Malaysia".

Geoforum 13,

No.

2

_ _ . Regionale Entwicklung in Malaysia. Ph.D. dissertation. Hannover, 1985. Kuhne, D. Ma 1ays i a. Tropen 1and i m Wi derspi e 1 von Mensch und Na tur. Stuttgart, 1980. Newbold, T.J. Political and Statistical Account of the British Settlements in the Straits of Malacca. 2 vols. Kuala Lumpur, 1839. (Reprint 1971). Ooi, J.-B. Peninsular Malaysia. London, 1976. Rao,

V.V.B. Malaysia. Singapore, 1980.

Development Pattern and Policy 1947-1971.

52

Ludwig Schatzl

Spinanger, D. Regional Industrialization Policies in a Small Developing Country. A Case Study of West Malaysia. Kiel: Institut fur Weltwirtschaft, 1980. Uhlig, H., ed. "Spontaneous and Planned Settlement in Southeast Asia". Giessener Geographische Schriften, Vol. 58. Hamburg:

Institute of Asian Affairs, 1984.

World Bank. World Development Report. Washington, D.C., 1984. Young, K., et al. Malaysia. Growth and Equity in a Multiracial Society. Baltimore, London, 1980.

Ill

SPATIAL DISPARITIES IN WEST MALAYSIA

Heidrun Frohloff-Kulke

Introduction The identification of regional disparities within a defined territorial unit and their interregional comparison are of great interest

in

regional

research

for

both

theoretical

and

practical

reasons. The success of regional policy essentially depends on the establishment of a system of regions using standardized criteria and on the selection of appropriate methods for the purposeful delimitation and subdivision of the regions. Regional differences within

disparities are defined here as social and economic in development between

West

Malaysia.

measured directly, In

regional

pressed

in

As

the

individual

socio-economic

statistical

spatial

development

units

cannot

be

indicators have to be substituted.

science literature socio-economic development is exthe form of single

indicators,

such as

GDP,

or of

groupings of indicators aggregated, using various statistical procedures.

Such procedures include, for example,

index compilation

(cf. UNRISD 1974, p. 244), scalogram analysis (cf. M.M. El-Kammash 1963), catalogues of indices, factor analysis (cf. Berry 1960) and cluster

analysis

(cf.

Bratzel

and

1982b, 1984) ·-

53

Muller

1979a,

1979b,

1982a,

54

Heidrun Frohloff-Kulke The aim of this study is to establish the extent of regional

disparities in West Malaysia and to demonstrate development trends in these disparities. Investigations were undertaken at three different spatial states,

in

levels, namely, urban units, districts and federal

order

both

to

determine

interurban

differences

in

development and to illustrate imbalances between the larger spatial units of West Malaysia. Spatial intensity of regional disparities varies with scale. The development process in the regions will be illustrated by comparative analysis of disparities at the census dates 1957, 1970, and 1980. Differences in spatial structure are analysed using two specific

statistical

methods.

1 The

Rank-Size

Rule

is

used

to

examine the city size distribution in West Malaysia. Time series analysis is used to indicate whether the population of West Malaysia is becoming concentrated into fewer settlements or whether a process

of dispersal

expressed by the values of the

is occurring. Socio-economic development is

patterns

indicators.

produced by· the

positive or negative

By means of factor analysis,

a large

number of indicators representing the regions of West Malaysia can be aggregated into a few complex groupings without loss of essential information. This procedure helps to clarify the complex interrelationships between the individual indicators, thereby facilitating interregional comparison. The following analysis of West cate whether

polarization

reversal

~1alaysia

is

is intended to indi-

taking

place,

that

is,

whether a phase of increasing concentration is followed first by intraregional dispersal and subsequently by interregional dispersal processes.

Spatial Disparities in West Malaysia

55

Methodological and Statistical Problems Lack of alternative data necessitated the almost exclusive use in the

following

study

of

statistics

published

by

the

Malaysian

Department of Stati sties which, on account of their availability and the delimitation of the spatial units, posed inherent problems. These problems are discussed below. The

Ran~-Size

Rule was applied using population data for the

50 larg~st urban units in West Malaysia from the Population Census 2 of Malaysia for the years 1957, 1970, and 1980. In the statistics, no differentiation is made between high density settlements occupying small areal units on the one hand, and, on the other, rel atively large settlement units - in terms of population numbers which are, however, areally extensive and low density and include dispersed settlements and isolated farmsteads (for example, Pangkal Kalong in Kelantan). Both types are classified administratively as town council

or

local

council

and as

such are included in the

study. The factor analysis uses data at district and federal state levels.

Each federal state includes a number of unsubdivided dis-

tricts. Between 1970 and 1980 there were territorial reforms in the federal states of Kedah, Kelantan, Negeri Sembilan, Pahang, Perak, and Selangor, as a result of which the boundaries of some districts were readjusted and a new federal state and, in some cases, new 3 districts were created. Consequently, comparability of the spatial units between 1970 and 1980 is limited and the conclusions which can

be

drawn

relating

inevitably limited. differentiation

to

regional

development

dynamics

are

It was necessary to either forego a study of

within

a

state

or

to

exclude

the

respective

districts from the investigation. Availability of data also imposed limitations. Factor analysis

56

Heidrun Frohloff-Kulke

could not be carried out for 1957, since for that year only population data were available.

Although the Census of Manufacturing

Industries and the Population and Housing Census were held in dif4 ferent years, the time inconsistencies were accepted, since industrial data were indispensable for the study. In the case of several significant economic and social indicators, for example, GDP, employment rate, productivity in economic sectors,

teachers

population,

per

patients

either completely

1,000

population,

per doctor,

lacking,

is

and

telephones

so forth,

based only upon

per

a data

1,000

base

is

or

is

estimates,

available only at federal state level. The incomplete nature of the spatial data meant that the following study could in part be undertaken only at the federal state level in

\~est

Malaysia.

The indicators included in the study are listed in Table III.1 which also shows the census date,

level

of territorial

unit for

which the data are available, and the statistical sources.

Rank-Size Rule

~let hod

Based on the observation that there are in a country (or region) a large number of sma 11 , fewer medi urn-si zed, and a sma 11 number of large settlements as well as only one metropolitan centre, Auerbach (1913)

formulated

his

"Law

of

Population

Concentration"

which

created the basis of the Rank-Size Rule. The latter was developed further by Zipf (1941).

Spatial Disparities in West Malaysia

57

The law formulated by Zipf states that, if the urban units in a region are ranked by their population in decreasing order of size (that

is,

so

that

the

largest urban unit is given rank 1, the

second largest is given rank 2, and so forth), the product of population

(Pr)

and rank (r)

remains constant and has a value very

close to the population size of the largest city (P ): 1

pr · r

= pl ·

This relationship can be alternatively expressed as a linear equation: log Pr = log P - log r. 1 When this expression is plotted on daub le logarithmic paper with the logarithm of population on the ordinate and logarithm of rank

on

the

abscissa,

the

points

should form

an approximately

straight line with a slope of -1. This is shown in Figure III.1.

FIGURE III.l

Relationship bet.een Rank and Population

Population (log. scale)

Population

0

L

rank

rank (log. scale)

TABLE III.l

I~

Indicators used in the Study

::J: (1)

~.

Indicator

Year

Level of ref.

Source

Population

1957, 1970, 1980

sll ,ozl

a, b, c, 1

Population density

1957, 1970, 1980

s,

0

a, b, c, d

Malays in population

1970' 1980

s,

0

b, c

~6

Chinese in population

1970, 1980

s,

0

b, c

~6

Indians in population

1970, 1980

s,

0

b, c

Number of motor vehicles per 1000 people

1970, 1980

s,

0

b, c, e, f

0

b, c, e, f

Number of motor cycles/scooters per 1000 people

1970, 1980

s,

% of living quarters with electricity

1970, 1980

s,

0

e, f

% of living quarters with piped water

1970, 1980

s,

0

e, f

% of living quarters without toilet facilities

1970, 1980

s,

0

e, f

% of living quarters without special cooking facilities

1970, 1980

s,

0

e, f

Average number of rooms per living quarter

1970' 1980

s,

0

e, f

Average number of persons per room

1970, 1980

s,

0

b, c, e, f

1973, 1981 3 1970 ) ,1980

s,

Gross domestic product per capita Infant mortality rate

1970' 1980

Persons per registered doctor

0 s

g, h b, c, i,

s

1970, 1980

s

population in towns 'llD. ODD people

1970, 1980

s

Manufacturing employees per 1000 people

1970, 1980

s

~6

,

~

~~

Salaries and wages paid per paid worker

c..

"'5

District

Factor

Factor

'"Factor

Factor

va I ue

value

value

value

1970

1980

1970

1980

District

Kuala Langat *

• 5282

.2716

Kota Bahru

. 7437

.6141

Kuala Muda

.1264

.2394

Yan

• 7952

• 7094

Kuala Selangor *

.0641

.1923

Kuala Trengganu

- 1.2223

.8249

Perak Hilir *

.1750

.1870

Perak Tengah *

la rut dan Matang, Se lama

.2685

.1599

Kuala Krai *

Kota Setar *

.1056

.1478

Baling

• 7472

- 1.0549

Kuala P1lah

.0447

.0672

Dun gun

.8674

- 1.0923

Pontian

.1495

.0477

Machang

- l. 3996

- 1.1709

Temerloh

.0712

.0210

Tanah Merah

- 1.1689

- l. 2805

Kat a Tinggi

.3141

Kuala Kangsar *

.0798

-

.8856 .9858

.0361

Tumpat

- l. 5809

- l. 3183

.0472

Ulu Trengganu

- l. 3287

- 1.3419

Perlis

.4810

.0524

Pendang *

Mersing

.2663

.1462

Ulu Kelantan

Jerantut

.6377

.2844

Sik

- l. 3838

*

• 7902

l. 3937

- 1.0996

- l. 4898

Ker ian

.3821

.3800

Pasir Puteh

- l. 3684

- l. 5299

Sabak Bernam *

.3000

.3805

Padang Terap

- l. 3540

- l. 5997

.9957

.3923

Besut

- 1.5573

- 1.6649

. 7004

.4540

Pas.1r Mas

- l. 2246

- l. 6693

Pekan

*

Kubang Pasu Perak Hulu

.1574

.5226

Pulau Langkaw.1

- 1.1097

- 1.6706

Lip is

.5386

.5466

Bachok

- l. 9395

- l. 8329

- l. 5420

- 2.0084

Bandar Bahru

.3364

.5521

Marang

Kemaman

. 7455

.5697

Kuala Lumpur

.6110

*

Rompin *

*

2.1696

Distr1cts under reform

I~ c

:=s

..., ~

0

:::>""

_.,

~

0

-+> I

""~

"' ro

Spatial Disparities in West Malaysia FIGURE I I I. 6

Factor of Socio-Economic Developaent for West Malaysia according to Districts

1970

Va

Pulau

THAI LAND

factor scores

2 1, 0

0,3 - < 1, 0 0,0 - < 0,3 0,3 - < 0,0 1,0 -

3. 71

48.25

1.64

3.86

68.66

1.56

r+

0.11

3.13

0.11

0.74

36.97

0.84

0.22

5.53

0.19

0.42

15.15 175.55

19.68

0.45

0 ....., ......

5.97 14.63 197.83

4.51

c:

r+

0.12

3.36

0.11

0.08

4.17

0.10

0.04

2.79

0.09

0.05

5.50

0.13

1.42

31.02

1.06

2.94

81.27

1.85

0.16

5.88

0.20

0.12

7.44

0.17

0. 25

8. 27

0. 28

0. 41

20.71

0. 47

:::>

0.. (/)

-s

~ (./)

'< (/)

r+

ro

3

(/)

0.18

9.17

0.31

0.17

14.50

0.33

Keranan

0.16

9.04

0. 31

0. 35

26.50

0.60

K. Trengganu

0.79

11.57

0.39

1.10

23.73

0.54

Marang

0.05

6.34

0.22

0.06

12.31

0.28

0.20

15.57

0.53

0.25

28.75

0.65

OJ

13.53

51.46

1.75 11.75

59.50

1.36

'< (/)

W. Malaysia 100.00

29.39

1.00 100.00

43.91

1.00

OJ

:::>

::E:

ro

(/)

r+ 3: OJ

~

>---'

~ Share of the district in total errplo}1Tent In

cc

!; :;> 300,000 West Malaysia

of size-class in total growth 1973 - 1981 in % annual growth rate

RF = regional factor

41.54

33.65

25.33

5.86

0.810

100.00

100.00

100.00

8.69

1.000

Development of Industrial Systems in West Malaysia

149

The complex growth patterns and relationships between the subcentre and the tertiary centres described above, arise from the fact that a high share of employment does not necessarily mean a high contribution to value added. In terms of employment, for example, Tengah (Melaka) and Ulu Langat are tertiary centres, whereas in terms of value added they fall into the category of subcentres. The main features can be summarized as follows: districts with 10,000-20,000 employees made the greatest relative contribution to growth, and districts in the category of M$ 100-300 million achieved both the highest relative and absolute contribution to growth. The core region suffered absolute decline in its share of value added, whereas it retained its leading position in terms of employment growth.

Summary The spatial patterns resulting from industrialization in West Malaysia were analysed in order to establish the presence or otherwise of decentralization processes in terms of a polarization reversal. The analysis which was carried out at district and federal state level yielded the following results in terms of the objectives of the study: 1

Up to 1968, industry became increasingly concentrated in the federal state of Selangor. At federal state and district levels, the period after 1968 saw the emergence of decentralization trends which were expressed in terms of below-average growth rates and falling shares of employment and value added in the industrial core regions (Selangor; Petaling and W.P.), with simultaneous disproportionate growth in other regions.

150

Knut Koschatzky indications

Further

this

of

were

process

the

widespread

reductions in the weighted coefficients of variation and the Gini coefficients after 1968. 2.

Although the industrial core regions declined in relative importance,

they remain the main locations of employment and

production potential by virtue of their absolute growth. 3.

From the spatial distribution of growth-intensive districts, it is possible to identify a pattern of intraregional decentralization Petaling/W.P.

the

in

preliminary

of

the

core

region

of

(towards Ulu Langat and Kuala Langat) and the (towards Kuala Muda and Kulim).

state of Penang intraregional

hinterland

decentralization interregional

does

not

decentralization:

Increasing

constitute both

a

processes

operate concurrently. 4.

Colonial and economic influences (the free ports of Penang and Singapore) had caused the spatial industrial structure of West Malaysia at the beginning of the period under investigation to be characterized by a polycentric system with subcentres possessing internal growth dynamics. Further inverstigation was necessary in order to establish whether growth processes in other

subcentres

and

tertiary

centres

had

influenced

the

spatial development process. Two phases were identified after 1968: a) 1968-73: above- average growth in Ti mor La ut and Utara and the growing economic power of Penang as an industrial counter-magnet to Se l angor ( Kua la Lumpur), accompanied by reduced rates of growth in Selangor. b) 1973-81: increasing industrial significance of Penang, due

Development of Industrial Systems in West Malaysia

151

to the shift of growth to Barat Daya and Tengah; further decentralization in Selangor (with Kelang and Ulu Langat) and more widespread spatial diversification within the west coast states, reflecting dynamic industrial growth in Seremban, Tengah (Melaka), Batu Pahat, and Kuala Muda; more intensive growth in Pahang (Pekan/Rompin), Trengganu (Kuala Trengganu, Kemaman) and in some of the smaller centres (for example, Kota Tinggi, Kuala Kerai, Kulim); and persistence of below-average growth rates in Petaling and, particularly, in W.P. In other words, growth impetus emanated not only from the subcentres present in 1968, but also from districts in the category of 10,000-20,000 employees which between 1973 and 1981 made a decisive contribution to a reduction in spatial polarization. 5.

Decisive influences on the interregional decentralization process among the districts on the west coast were exerted by the locational behaviour of foreign, world-market-oriented enterprises in the fields of electronics and textiles. After 1973, more enterprises belonging to these branches began to locate in the less industrialized regions of West Malaysia.

6.

The turning point in spatial development began to emerge between 1968 and 1973 and became more influential after 1973. The absolute loss of significance of the industrial core region expected by Richardson at a late stage in the process, was not observable.in Petaling and Kuala Lumpur up to 1981, although a decline in relative significance was demonstrable.

In conclusion, evaluation of the data for West Malaysia between 1968 and 1981 reveals tv10 significant features: reduced in-

152

Knut Koschatzky

dustrial

concentration

accompanied

by

intra-

and

interregional

decentralization, particularly between districts in the west coast states

and,

reduction

secondly,

in

the

polarization

relative

reversal

significance of

in

the

sense of

a

the major centres of

manufacturing industry, that is, Petaling and W.P.

Major Determinants of Spatial Differentiation This part of the study seeks to identify those factors which have encouraged reduced spatial concentration trends. Since industrial data classified according to branches is available only for 1981 at district level, shift analysis could not be used to establish the causes of growth (structural and locational influences).

In terms

of the polarization reversal hypothesis, the most important causes of spatial

differentiation are agglomeration disadvantages in the

central region, locational advantages in the subcentres and spatial policy measures implemented by the government. The significance of these determinants for spatial development in West Malaysia is discussed

belmv,

based

on

the

results

of

locational

surveys

of

manufacturing firms.

Agglomeration Factors Locational

Surveys of Enterprises in West Malaysia.

Bet1veen 1981

and 1982, the Socio-Economic Research Unit of the Prime

~linister's

Department carried out a survey of manufacturing enterprises in the 27 Klang Valley (KV) and other regions (OR) of West Malaysia. Within the KV,

140 enterprises 1vere surveyed,

accounting for 18.4% of

enterprises in the following locations: W.P., the towns of Petaling Jaya and Shah Alam (Petaling), Kelang, Port Kelang (Kelang), Rawang

153

Development of Industrial Systems in West Malaysia ( Gombak),

and Kaj ang/Bang i

( Ul u Langa t) . The survey also i ne l uded

districts defined in the present study as subcentres or tertiary centres, and which were not classified as part of the core region. Since the places

mentioned

are

located

within

the

vicinity

of

Petaling and W.P., this justified using the survey to shed light on location factors within the central region. The

OR

(Selangor),

regions

cover

locations

in

the

Outer Klang

Valley

in Pahang, Kelantan, Kedah, and Perlis, comprising 72

enterprises in the survey. The results of this survey were supplemented by the present author's ovm interviews held in March/April

1984 and 1985

in

the Johor

Bahru

area and in kua la ~1uda/Kul i m

(Kedah) comprising a total of 50 enterprises (cf. Koschatzky 1986).

Location Factors and Evaluation of Locations in the Central Region. A major West

feature of the spatial

~lalaysia

pattern of industrialization in

between 1973 and 1981 was the decline in relative

importance of the central region, that is, Petaling and W.P. On the other

hand,

occurred

in

fundamental tricts,

greatest

absolute

Petal ing,

which

growth

(employment,

raises

the

question

value

added)

of

whether

agglomerative disadvantages have emerged in these dis-

or vJhether

high

ab so 1 ute

growth

reflects

the

continued

presence of positive locational influences. The most important criteria determining the choice of location in the KV was the population and industrial potential of the region and the available infrastructure. Proximity to market \vas named as the decisive location factor by 47.1 % of the 140 enterprises, followed by access to Port Kelang (27.1 %),

(19.3 %), and ( 18.6 %) .

availability

of

availability of labour

fully-serviced

industrial

sites

154

Knut Koschatzky Once enterprises had begun production, the major locational

advantages quoted were the substantial marketing opportunities in the

KV

(78.4 %),

(64.7 %),

availability

proximity to the port

of

infrastructural

(58.3 %),

and

facilities

labour

supply

%).

(49.6

Apart from factors relating to agglomeration advantages, only 98 enterprises mentioned locational disadvantages of which the most important were lab our shortages ( 60.2 %),

inadequate i nfrastruc-

ture, especially disruption of electricity supplies (30.6 %), lack of space for expansion (28.6 %) , and telecommunications problems ( 13.3 %) . On balance, it appears that production facilities in the Klang Valley are still regarded as positive despite the small number of enterprises which were critical of their location. Problems were, nevertheless, apparent, particularly relating to the availability of labour. The long established industrial process and diversity of branches

in

this

region

have

demanding relatively high wages; labour 28

(particularly female

created

a

skilled

labour

force

the demand for cheap, unskilled

labour)

can no longer be adequately

met.

Although the agglomeration problems referred to by Richardson (lack of industrial space, inadequate infrastructure) are also observable,

they have

not yet resulted in relocations out of the

Klang Valley. Of the 140 enterprises, 30.7% would choose the same industrial estate and 45 % the same location for expansion, while 24.3 % of the enterprises were prepared to consider other federal states (4.3% Negeri Sembilan and Pahang and 3.6% Johor), an attitude which has grown in recent years and which is reflected in the 29 trend towards spatial decentralization already observed.

Development of Industrial Systems in West Malaysia

155

Two different determinants of spatial differentiation emerge from the perception of 1ocati on noted above. For enterprises producing mainly for the domestic market the importance of proximity to market renders the concentration of industry and population in the

KV

an

agglomerative

unskilled

labour

producing

for

could

export

advantage.

In

stimulate

to

relocate

contrast,

shortages

labour-intensive outside

the

of

enterprises

central

region,

particularly if the alternative locations were able to offer satisfactory infrastructure.

Location Factors outside the Central Region. The Socio-Economic Research Unit's survey was confined to the less developed parts of Selangor and the states of Pahang, Kelantan, Kedah, and Perlis. Of the 72 enterprises questioned in these regions (OR), 36.1% stated proximity to rav1 materials as the most important location factor, reflecting

the

influence

of

Pahang

and

Kelantan

(timber

processing). The second most important factor influencing location after 1975 was availability of labour (26.9 %). Proximity to the investor's home and to markets were also significant factors. Once production had begun, the most significant location factor named was availability of labour (72.5 %), followed by infrastructure facilities and access to raw materials (40.6

%). Whereas

in the KV there were no responses to the question relating to low wage costs, this factor ranked seventh (11.1 %) in the OR. The labour

highest number of negative responses availability,

together

with

again related to

inadequate

infrastructure

(38.7 % of 62 enterprises). Nevertheless, no less than 60.2% of the enterprises surveyed in the KV quoted inadequate labour supply as a locational disadvantage. Telecommunications problems and poor market

prospects

(22.6% and 17.7 %, respectively)

were also re-

156

Knut Koschatzky

garded as locational drawbacks. In contrast to the situation in the KV, labour problems in OR were mostly related to the inadequate supply of skilled workers, 30 However, not all less derather than lack of unskilled workers. veloped regions in West Malaysia possess an unlimited supply of unskilled labour. According to the author's own survey conducted in Kedah there were, for example, severe shortages of unskilled female workers in the electronics industry, especially in Kulim which is not far from Bayan Lepas Industrial

Estate and Free Trade Zone.

This is partly due to the more attractive wage levels in Penang and partly a reflection of the dominance of Islam which confines the available female labour force to the more "Westernized" families. These shortages are not, however, regarded as an insoluble problem, because there are still adequate labour reserves in the rural hi nterlands therefore,

of

the with

industrial supplies

locations. of

Less

unskilled

developed

labour

and

regions, low

wages

constitute attractive locations for enterprises seeking to minimize 31 wage costs. Infrastructural shortcomings, stated as a problem by only 40.6 % of the sample, do not appear to be very significant. Two

factors

influencing

spatial

patterns

in

West Malaysia

emerged from the locational surveys: proximity to market which encourages

concentration,

and

availability

levels which encourage decentralization.

of labour and low wage Since the survey by the

Socio-Economic Research Unit showed that fundamental agglomeration disadvantages have not yet emerged in the central region, the decentralization process observed cannot have been triggered by them. The distinctive locational advantages offered by other regions in the country must be regarded as causing the decentralization observed.

Development of Industrial Systems in West Malaysia

157

Spatial Economic Policy Since 1973, when the Mid-term Review of the Second Malaysia Plan 1971-1975 was published, and more particularly since 1976 (Third Malaysia Plan), industrialization policy has, through its emphasis on

regional

Malaysian

policy

objectives,

Government's

become

an

integral

regional

policy measures component of the New Economic Policy. 32

part of the

and,

thereby,

a

Starting in 1952, industrial estates were established to attract

industry,

pioneer status, estates

were

complementing locational

located

investment

incentives,

near

large

incentives,

etc.

cities

such

as

The first industrial on

the

west

coast,

reflecting the policy of encouraging import-substituting industries implemented up to 1968. When export diversification was attempted after 1968, corresponding facilities had to be provided. Free trade zones 1vere attractive

set up

from 1971

preferential

producing for export. Economic

Policy,

onwards which offered particularly

customs

regulations

to

enterprises

In the wake of the formulation of the Ne1v

provision of

industrial

estates and free trade

zones 1vas used increasingly as an instrument of spatial economic . 33 po l 1cy. In 1983 there were 101 industrial estates and free trade zones throughout the federal states of Malaysia. Of the industrial space already allocated, 25% is in Selangor and 1-J.P., 54.5% in Johor, Helaka, Negeri Sembilan, Perak and Penang, 6.7% in Kedah and Perlis, and 13.8% in Kelantan, Trengganu, and Pahang. With the exception of Perak, the greater part of this industrial space is located in the growth-intensive west coast states, although the east coast states

account

for

an

employment (Table IV.l).

above-average

proportion

in

terms

of

158

Knut Koschatzky The significance of the industrial estates and the free trade

zones in influencing spatial patterns is reflected in the following: 1.

Reference to "fully serviced sites" (18.6 % in the KV) as a location factor in the survey;

2.

the number of enterprises giving preference to an industrial estate

in

average

their choice of

of

51.8

% of

location.

In 1978 and 1982,

investment projects

an

approved by the

Malaysian Industrial Development Authority were to be located in an industrial estate (FIDA 1979, p. 36; MIDA 1983, p. 23); 3.

industrial oriented

development

to

date.

industrialization

and

In

the

against

course of exportthe

background

of

growth in a few districts with a high percentage of employment in the electronics industry (cf. sectoral change 1973-81) two trends are apparent. The spatial distribution of free trade zones has, on the one hand, further encouraged concentration in the Kl ang Valley ( S!.mga i Way /Subang FTZ, Ampang/Ul u Ke l ang FTZ) and, on the other hand, lent impetus to decentralization trends. For example, the high growth of employment and value added in Barat Daya (Penang) is almost entirely attributable to

the electronics 34 Free Trade Zone. The

free

enhance

trade the

industry established in the Bayan Lepas

zones

of

locational

Tanjong

Kling

attraction

of

and

Batu Berendam 35 Tengah (Melaka).

Although there is no free trade zone in Seremban, the early establishment of the Senawang Industrial Estate (1966) and the possession

of

some

vJarehouse

status

enterprises (with

of

preferential

Licensed customs

Manufacturing regulations 36

similar to those in the FTZ) provided attractive locations.

Development of Industrial Systems in West Malaysia

159

The quasi-FTZ in Senai (Johor) is to be extended (seven enterprises in spring 1984) and a free trade zone is to be deve loped in the port area of Pasir Gudang by 1985. In

addition

to

the

indirect

locational

guidance

outlined

above, the Industrial Coordination Act of 1975 also gives the Mal ays i an

Industrial Development Authority, an advisory body asso-

ciated with

the granting of manufacturing licences required for

investment in excess of M$ 250,000 (from December 1985 of M$ 1 million and over), the opportunity to actively influence individual location decisions, as the granting of licence may be tied to the cl oice of location (cf. Government of Malaysia 1983). Government spatial policy, through industrial estates and free trade zones, therefore, constitutes the third major determinant of spatial differentiation in Malaysia. Other

regionally

influential

factors

have

also

served

to

counteract the process of industrial concentration. These include the new land development policy (for example, Pahang Tenggara and industrial growth in Pekan/Rompin), integrated development projects (for

example,

Seremban

of

Kuala

Muda

in Kedah),

proximity

to

Singapore

(port)

proximity

to

intensive 37 Melaka.

branches

of

the

the positive influence on

Klang and

production

Valley,

efforts from

and

on

Johor

to transfer

Singapore

to

of

labour-

Johor

and

Conclusion For the period after 1968 it is possible to identify decentralization trends average

in the manufacturing industry in terms of above-

growth

in

selected

districts,

particularly

in

the

160

Knut Koschatzky

industrial subcentres (10,000-20,000 employees). This growth pattern corresponds with the spatial process described in the polarization reversal hypothesis. These developments were

stimulated

region.

by

locational

advantages

The most significant factors

in

outside

the

central

spatial differentiation

processes were the availability of low-wage labour and infrastructural investment on the part of the Malaysian Government in industrial

estates

and

free

trade

zones.

Contrary

to

Richardson's

hypothesis, major agglomeration disadvantages have not yet become apparent in the central region (Klang Valley). The final

point to consider is the extent to which general

conclusions can be derived from the regional development process as observed in West Malaysia. In

contrast

to

many

other

countries

in

the

Third

World

Malaysia had a polycentric settlement structure at a very early stage which subsequently prevented a process of extreme concentration. Johor Bahru/Singapore in the south, Ipoh and Penang in the northwest were both centres of population counterbalancing Kuala Lumpur and the industrial locations. In West Malaysia, therefore, the phase of interregional decentralization and associated development of subcentres, as described by Richardson, was able to be the decentra 1 i za t ion process was further encouraged by

bypassed;

the infrastructure already present in these regions. Strict limitations are therefore placed on the transferability of

the generalizations obtained from

the Malaysian case.

It is

evident that a balanced settlement structure is able to influence efforts

to

reduce

industrial

concentration.

Appropriate natural

conditions (ports, natural resources) and a policy of industrialization which explicitly emphasizes and actively pursues the goal of

Development of Industrial Systems in West Malaysia

161

regional balance are also basic requirements for a polarization reversal. Alongside this, however, there must also exist an appropriate investment climate, since the investors (state and private) are the driving force underlying industrial development and therefore influence the spatial dimension of the industrialization process.

In viev1 of its central

Southeast Asia, other

developing

location in the growth market of

Malaysia possesses indisputable advantages over countries

(cf.

Laumer 1984) and has used the

growth opportunities of the world market to create a more balanced regional industrial structure.

NOTES "Manufacturing is defined as the mechanical or chemical transformation of inorganic substances into new products whether the work is performed by power-driven machines or by hand, whether it is done in a factory or in the worker's home, and whether the products are sold at wholesale or retail" (Department of Statistics,Malaysie,l972, p. 20). 2

In spatial economic theory the most important factors of spatial di fferentiation are agglomeration factors (internal and external savings), transport costs and the economy's dependence on the factor land. Cf. summary in Schatzl (1978), p. 81 ff.

3

The polarization reversal hypothesis is discussed in chapter I. Cf. the study of Japan by Lo, Salih, and Douglass (1978). Although the authors find evidence of a process of decentralization, they conclude that the balancing mechanisms identified do not apply to developing countries on account of Japan's high level of advancement (ibid., pp. 65-70). A study by Linn of Colombia concluded that no decentralization trends were observable there (Linn 1978).

4

The manufacturing industry was selected for detailed analysis as it decisively influences the spatial development and its impact on job creation and incomes causatively affects the development of spatial disparities. The strategic rule of manufacturing industry in the rwtional development process is emph~si7Prl in M~l~ysian de11Plopment pl~nninq: "In line wHh the New lconumic Policy (NEP), the matlufacturinq c;ector ••• is expected to generate

162

Knut Koschatzky significant opportunities in employment and participation of the poorer section of the community, in particular the Bumiputera. In addition, the sector is viewed to have considerable potential for securing a balanced industrial growth among regions" (Government of Malaysia 1984, p. 249).

5

Department of Statistics, Malaysia (1968). The 1981 census was published as a survey. The complete data were kindly made available by the Department of Statistics, Manufacturing Division.

6

Value-added data were not published for 1959; only the largest enterprises were classified according to branch.

7

The 70 districts in West Malaysia which existed until about 1973 were gradually reorganized into 78 districts. In Johor, Melaka, Penang and Trengganu there were no changes; in Kedah, Kelantan, Negeri Sembilan, and Pahang district reform did not involve boundary changes; reforms in Perak and Selangor resulted in boundary changes. On 1 February 1974, Selangor lost Kuala Lumpur as an independent state and district, Wilayah Persekutuan. In the 1973 statistics, Padang Terap and Sik (Kedah), and Pekan and Rompin (Pahang) constituted two districts, respectively, and these combinations were also retained in the calculations for 1968 and 1981.

8

The problem of selecting methods is also stressed by Richardson who points out that there is still no standardized set of indicators available for measuring a polarization reversal in different countries (cross-section analysis). Cf. Richardson (1980), pp. 81 ff.

9

The indices are explained when they are used for the first time.

10

Employees in this study include both full-time and part-time paid workers.

ll

No source is given for the following tables and maps; they represent the results of the author's calculations based on the census data as indicated.

12

Cf. Cheong and Fong (1979); German Development Institute (1978); Lim (1976); Singh (1976); and Spinanger (1980).

13

A major reason is probably the establishment of labour-intensive industries. This is also suggested in the case of Penang by the varying shares of employment and value added (1973: 17.1 ~o and 13.1 ~o, resp. ). Cf. Werner (1982).

14

The growth registered by Pahang reflects essentially regional policy aid to the growth pole of Kuantan as well as the effects of new land development in the regions of Jengka Triangle and Pahang Tenggara.

15

For example, despite a lower average annual growth rate, absolute growth in employment between 1973 and 1981 was 59.1 ~o above that for the period 1968-73.

Development of Industrial Systems in West Malaysia

163 oc-

16

In terms of industrial employment ratio and LQ of employment,Penang has cupied first place since 1973.

17

Branch structure in 1981 is examined in more detail in chapter 3. locational advantages are discussed on pp. 138 ff., 153 ff.

18

The variables value added/employees, value added per capita and industrial employment per capita each received a weighting of 1.0; wages per employee and employment per enterprise a weighting of 0.25; and the shares of employment and value added 2.0 each. These weightings were obtained from comparisons with different weighted variables and produced the best approximation to a regionalization based on factor analysis for the period 1957-70 on 45 socio-economic indicators. Cf. Singh (1976), pp. 323 ff.

19

The growth process in Kuala Langat is not expressed in the RF of the index value because of the high level of value added per employee in 1973 in this district. Whereas all other indices have grown disproportionately, average value added/employees declined from M$ 25,484.6 to M$ 8,030.3 because of the strong growth in employment of 37.8 ~~ (per annum) and thereby resulted in an RF less than l.

20

The deviations in the case of Kuala Langat have been referred to above.

21

Detailed reference to the influence of Singapore lies beyond the scope of the present study. Cf. p. 159.

22

It can only be presumed that the reason for the decline in employment in Timur Laut lies in Barat Daya 's specialist function as a location for the electronics industry with corresponding loss of labour in this branch in Timur Laut. This cannot, however, be regarded as intraregional decentralization, since Bay an Lepas is, in fact, only the industrial estate of Georgetown which lies in a different district.

23

In 1983, Trengganu accounted for 44.2 % of Malaysia's crude oil production. Enterprises associated with the oil industry are to be established in this state as part of the creation of heavy industry in Malaysia. Cf. Government of Malaysia (1984), pp. 20, 169, 179. "The first signs are vast earthworks and coastal development in preparation for a new urban industrial complex in Kemaman district~ Far Eastern Economic Review, 28 August 1981, "Focus: Malaysia '81", p. 48.

24

Whereas in 1981/82 an average of 20.8 ~~ of industrial production was exported (industrial exports in relation to gross production), the export quota in the electronics industry reached 82 %; this industry's volume of exports (M$ 3.71 billion) accounted for 49.8 % of total industrial exports (calculated from Dept. of Statistics of Malaysia l983b, l983c).

25

Cf. the case study of Kelantan by E. Kulke in this volume.

Specific

164 26

Knut Koschatzky This

different

compilation of

weighting

of

the

indices classes,

variables produces, in contrast to the differences in the regional allocation to

the individual classes. 27

Socio-Economic Research Unit, Prime Minister's Department, 1982. We are indebted to the Socio-Economic Research Unit and the Klang Valley Secretariat for access to this study. Unless otherwise indicated, all following data are derived from this study.

28

This also applies to Penang and Johor. Cf. Asia Finance (198~, pp. 78 ff. In contrast to the KV and to Penang, emerging shortages in this section of the labour market in Johor are a result not only of rising wages but also of the demand for Malaysian labour in Singapore.

29

" ••• Data

from

the

study

investors have begun

to

have

indicated

that

over

time more

seriously consider alternatives in OR,

and more i.e.,

less

developed regions" (Socio-Economic Research Unit 1982, p. xxxv). 30

disadvantages faced by OR investors in the limited supply of skilled workers" (Socio-Economic Research Unit 1982, p. 174).

31

"K.V. had a relatively larger proportion of semi-skilled and skilled workers who were paid higher wages as compared to the unskilled pool of labour in OR where generally lower levels of wages were paid ••. Data have indicated that OR has a slight advantage over K.V. in terms of the availability of unskilled labour" (Socio-Economic Research Unit 1982, p. 173).

32

"Thus the (manufacturing) sector will provide large scope for redistributing economic activity away from the established manufacturing regions, especially the Klang Valley, towards the less developed states" (Government of Malaysia 1976, p. 211). For terminology relating to spatial economic policy, cf. Schatzl (1986), p. 13-29.

33

"The maJor objectives of the strategies included disperse industries away from the urban centres to through the development of industrial estates and facilities with the aim of achieving a balanced regions" (Government of Malaysia 1984, p. 250).

34

Cf. Penang Development Corporation (1979), p. ll. The free trade zones have, at the same time, influenced the government's aim of increasing the share of Malays (bumiputeras) in industrial employment. Bumiputeras account for over 50 % of employment in the free trade zones of Penang and in the Sungai Way FTZ; the majority are presumably women. Cf. Leinbach (1982).

35

Cf.

v.

viewed

Naerssen (1980).

In Melaka too,

the following: ••• b) to the less developed areas related infrastructural industrial growth among

the employment effects have to be

in

context: 11 In the Free TrndP Zones lorated in Malacca, it is reported that 99 % of the new jobs created are taken up by both local women

and migrant women from as far as Terengganu, whilst male labour from the

Development of Industrial Systems in West Malaysia

165

local areas remains unemployed~ Chi (1982), p. 14. 36

Cf. Leinbach (1982), p. 463; v. Naerssen (1980), p. 6; and Lim (1979).

37

The locational survey carried out by the author in the districts of Johor Bahru and Batu Pahat in Johor state comprising 20 industrial establishments showed that proximity to Singapore (port and infrastructure) is the most important locational factor (75 ?~ of the responses), followed by fully serviced industrial sites (60 %) and the low wage level (50 %)(cf. Koschatzky 1986). The Singapore Government's policy until 1984 of encouraging the establishment ~f capital-intensive and technologically oriented production by raising wage costs and of relocating labour-intensive sections of production could have stimulated further development, particularly in the form of job creation, in the southern part of West Malaysia which is within easy reach of Singapore. Cf. Star, 24 March 1984: "Singapore firm moves factory to Malacca" (Chen 1983, pp. 12 ff., 112).

REFERENCES Asia Finance. "Amidst the virgin forests, a ne11 awakening". file: Malaysia 7, No. 10 (1981): 60-87. Chen,

P.S.J., ed. Singapore, 1983.

~

Singapore. Development Policies and Trends.

Cheong Kee Cheok, and Fong Chan Onn. "Regional Development in Malaysia". In Regional Development in Southeast Asian Countries, edited by Regional Developoment Research Institute of Developing Economies, pp. 157-259. Tokyo, 1979. Chi Seck Choo. "Accelerated Industrialization and Employment Opportunities in Malaysia". Geoforum 13, No. 1 (1982): 11-18. Corvinus, F. Probleme der Energieversorgung eines tropischen Entwicklungslandes Das Beispiel Malaysia. Jahrbuch der Geographischen Gesellschaft zu Hannover. Hannover, 1984. Department of Statistics, Federation of Malaya. 1957 Population Census of the Federation of Malaya. Kuala Lumpur, 1960. Department of Statistics Malaysia. Census of Manufacturing Industries in theFede_!"at_i()_l1___()_fMalata__l_959. Kuala Lumpur, 1961.

166 Knut Koschatzky Census of Manufacturing Industries. --Malaya 1963. Kuala Lumpur, 1965 . . Malaysian --1972.

Industrial

III: The States of

Classification 1972. Kuala Lumpur,

Census of Manufacturing Industries, Peninsular Malaysia 1968, Vol. 1. Kuala Lumpur, undated. 1970 Population and Housing Census. Basic --Tables, Vol. 1. Kuala Lumpur, different years.

Population

Census of Manufacturing Industries. Peninsular Malaysia 1973, Vol. 1. Kuala Lumpur, undated . . Population and Housin Census of Malaysia 1980. Mukims: Population, Households and Living Quarters based on preliminary field count summaries). Kuala Lumpur, 1982. _ _ . Population and Housing Census of Malaysia 1980. General Report of the Population Census, Vol. 2. Kuala Lumpur, 1983a . . Industrial Surveys 1981, Malaysia. Kuala Lumpur, 1983b . . Malaysia: Annual Statistics of External Trade 1982. Vol. 1, Part 1. Kuala Lumpur, 1983c. Far Eastern Economic Review: Focus: Malaysia '81. 28 August 1981, pp. 38-70. Federal Industrial Development Authority 1978. Kuala Lumpur, 1979.

(FIDA). Annual Report

German Development Institute, ed. Industrial Location Behaviour of Malaysian and Foreign Investors- The Effectiveness of the Malaysian Decentralization Policy. Berlin, 1978. Government of Malaysia. Lumpur, 1971.

Second Malaysia Plan 1971-1975. Kuala

Third Malaysia Plan 1976-1980. Kuala Lumpur, 1976. Fourth Malaysia Plan 1981-1985. Kuala Lumpur, 1981. Laws of Malaysia. Act 156. Industrial Co-ordination Act. Reprint No. 2. Kuala Lumpur, 1983. Mid-term Review of the Kuala Lumpur, 1984.

Fourth____t-1~laysia_flan_19~1~1