Labour Market Segmentation in Malaysian Services

1. Malaysia’s Post-Colonial Economic Transformation

Post-Colonial Economic Transformation 1 1 Malaysia’s Post-Colonial Economic Transformation (with Chang Yii Tan) This opening chapter offers an overview of the changing nature of the economy in Malaysia. It begins with a review of trends in economic growth, structural change, and government spending in the post-colonial period to the expansion of services, especially modern services, particularly in the public sector. The relationship between economic performance on the one hand and Malaysian development policy initiatives, as well as other legal, regulatory and institutional reforms will be explored throughout this book. In the post-Second World War period, Malaysia experienced relatively rapid growth, particularly during the Korean War boom, the oil boom of the seventies and the relocation of East Asian industry into Southeast Asia from the late 1980s. In 2004, the Malaysian economy had a real GDP of RM248,000 million (in constant 1987 prices) and a nominal GDP of RM447,548 million. The economic growth rate was 7.1 per cent, based on private investments of RM25,790 million and public sector investments of RM41,206 million. Total investments, private and public, as a proportion of GDP were estimated at 23 per cent. In comparison, in 1960, GDP in current prices was estimated at RM6 billion (RM12.2 billion in 1978 prices) while per capita GDP was about RM1,500 (in 1978 prices). Economic Growth Since Malayan independence in 1957, the Peninsular Malaysian economy has been growing rapidly, with real GDP posting average annual growth rates of 1 2 Labour Market Segmentation in Malaysian Services 4.0 per cent during 1956–60, rising to 5.2 per cent during 1961–70. With the oil and commodity price upward movements of the mid-1980s, growth rose dramatically to average almost eight per cent during 1971–80, before declining to 5.3 per cent during the global recession of 1981–85, and then surging again to average over eight per cent during 1987–97 before the catastrophic contraction by 6.1 per cent of 1998, followed by the more modest growth since then. Malaysia’s economy has grown rapidly by international standards, with GDP growth averaging about 7 per cent over 1971–2000 (Tables 1.1 and 1.2, Figure 1.1). Trends in private and public investment can be seen in Figure 1.2. Investments have been primarily financed by domestic, rather than foreign sources, though changes in gross domestic capital formation have been reflected by the changing contributions of foreign capital inflows. Annual foreign direct investment (FDI) ranged from RM90–300 million in the 1960s, rising to RM0.3–1.4 billion in the 1970s, and RM2–3 billion in the early 1980s. By the first half of the 1990s, annual FDI was between RM6–9 billion (Bank Negara Malaysia, Annual Report, 1994: 112), before declining with the 1997–98 crisis and recovering more modestly thereafter. The contribution of FDI to total Table 1.1 Malaysia: Long-term Economic Indicators, 1970–2005 1971–80 1981–90 1991–97 1998–2005 GDP growth (% p.a.) 7.5 6.0 9.2 5.3 CPI inflation (% p.a.) 5.9 3.8 3.6 1.9 1970 1980 1990 1997 2005 Per capita GNP (RM) 1,071 3,734 6,513 11,429 18,040 Per capita GNP (USD)* 348 1,683 2,414 2,939 4,772 Unemployment rate (%) 2.4 5.6 6.0 2.4 3.5 Inflation (%) 1.9 6.7 3.1 2.7 3.0 RM/USD 3.078 2.218 2.698 3.8883 3.7800 Notes: * Calculated by dividing per capita GNP (RM) by the exchange rate (RM/ USD). The Economic Report, 2000/2001 gives Malaysia’s per capita GNP in 1997 as US$4,376. Sources: Ministry of Finance, Malaysia; Economic Report, various issues. Post-Colonial Economic Transformation 3 Table 1.2 Malaysia: Growth by Sector, 1965–2005 (% p. a.) 1965–70* 1971–75 1976–80 1981–85 1986–90 1991–95 1996 1997 1998 1999 2000 2001–05 Agriculture, forestry & 6.3 4.8 3.9 3.4 4.6 2.0 4.5 0.7 –2.8 0.4 0.6 3.0 fishing Mining & quarrying 1.1 0.4 8.9 6.0 5.2 2.9 2.9 1.9 0.4 –2.6 3.1 2.6 Manufacturing 9.9 11.6 13.5 4.6 13.7 13.3 18.2 10.1 –13...