“An Asian marketplace will develop by itself”

May 2014

Tun Dr. Mahathir bin Mohamad, fourth prime minister of Malaysia, discusses regionalisation in Asia, inequality of free trade agreements, and China’s effect on the Asia Pacific region. If you do not see the video already displayed below, please select the alternative sites from the tabs here:

Here is the transcript of the video Regionalisation in Asia Emmanuel Daniel (ED): I’m having this conversation with you at a time when the region is changing dramatically. We had the Indian elections recently, with a very rightist and maybe a very conservative party coming into power. Then we have Japan which has also become very conservative. In the view of many people you are seen as a big proponent of regionalisation, and a very tireless driver of the creation of your very own brand of regionalisation in your own time. As countries become more fundamentalist and conservative, and as conservative leaders come into power in their respective large economies, how do you tie that in with the prospect of an Asia starting to work together and starting a real form of regionalisation? How do you marry regionalisation or internationalisation with the need to run a country? Mahathir bin Mohamad (MM): I think by and large the countries of Asia have been much more successful, East Asia in particular, in setting up governments and developing their countries. The ways they do it of course differ. They don’t follow the European model. In the case of China for example, they have devised their own modification of socialist ideology. This is so they can grow without forgetting in that system it will not be very democratic. They believe in being ruled by elites, but they do change leaders, so they are not establishing authority under one man. I think they have taken to a form of democracy much more successfully than you see in the Middle East or the Africas. We see confrontation in Thailand, but in other countries, Indonesia for example, conducted very good elections recently. There was no violence, nobody was killed. Slowly the governments are improving on their practice of governance and democratic principles. ED: In that regard Malaysia has an interesting situation where it needs to attract foreign investors and the foreign investment community is putting pressure on Malaysia on a number of fronts. At the same time there is a need to build a strong country. How does a country like Malaysia deal with these dual challenges? MM: I would like to claim that Malaysia invented foreign direct investment (FDI). Long before people started talking about FDI, we were inviting people to come to Malaysia to invest. We needed to create jobs for our people. Our interest was not so much from gaining money from foreign investors, as to creating jobs for our people. Very soon after independence we opened up the country. We created industrial areas, free trade areas and people came to invest in Malaysia, so much so that we ran short of workers. We had to allow foreign workers to come and work in Malaysia. We have always been business-friendly, particularly with foreign investors. ED: Your experience with foreign investors is very interesting because there is a class of them that are activist. In the old days they used to be the pension funds like CalPERS and so on, and today they’re more the hedge funds. They’re activist and very aggressive right down to the corporate level. It’s not just the country that they’ve put on notice but they also look at specific institutions and try to change them. What is your experience in dealing with activism in terms of FDI? MM: We favour investors who come in to set up production facilities. There are of course those who go into the stock market and the financial area. We’re not really comfortable with those activities. For example pension funds; as they do everywhere, they come in and buy, pushing up share prices. Then they dump and they leave, resulting in the locals being left to pay a heavy price because of the collapse of the market. We don’t’ mind that there are not too many of them who look at Malaysia as a place for them to invest. We would rather have retail investors and those who are really serious. Those who are wanting to see growth and are interested in not only stock appreciation, but also profitability of their investment. ED: The middle income country that you created hasn’t moved up since. They call it the middle income trap. China has moved way on ahead of Malaysia and created even more opportunities for its people. Is there a ceiling right now you think the country has to break through? MM: We want more local investors because they have acquired the skills, capital, and technology. We think our own people will fill in the gap if there is a shortage of foreign investors. We also notice that lately foreign investors have been coming in for property development and are not investing in productive capabilities. We think there should be a balance. While it is good for them to invest in property we would like to see more manufacturing done. Inequality of free trade agreements ED: You are a big proponent of your own model of East Asian economic conference. Do you see a difference in the model you were pursuing and what’s developing right now? For example, the Trans-Pacific Partnership Agreement (TPPA) which is being led more by the US and originally started as a bilateral arrangement for small countries like New Zealand, Singapore, and Brunei. MM: We find that when people propose a free trade agreement (FTA) normally they look that the advantage goes to them, not to their partners. The US sees TPP as an opportunity to open up the markets in countries like Malaysia. Yet we don’t have enough to invest in the US, and we are not able to compete. We may gain some market access for our palm oil and things like that, but we have grown without that market. I have a different view from the government. I don’t think FTAs are useful. Without them we grew very fast; we were the 17th biggest trading nation in the world. In many ways a FTA prevents free trade, because you have to conform to the conditions of the agreement. Conditions like those in the TPP are quite restrictive and you open yourself up to litigation and things like that. Let’s just open up the countries and trade, and respect the needs of the partners for some protection for themselves. Some of them are just in the beginnings, they are infants in terms of things like production. ED: Was that the tone of your negotiations? MM: When I was still prime minister I accepted the need of FTAs with ASEAN countries, but still found there was inequality between rich and poor countries. So I did not encourage it. But after I stepped down, there were more FTAs that the Malaysian government was persuaded to participate in. ED: The FTAs that were pushed after you stepped down, a lot of them were bilateral because the World Trade Organization (WTO) itself wasn’t working. How do you feel an East Asia caucus will come about if it is true that China is a huge market for Malaysia, Indonesia, and India? What do you think should be the next steps to create this Asian marketplace? MM: I think an Asian marketplace will develop by itself. There was no very restrictive agreement. We saw China as a growing country, getting very rich. Anyone getting very rich would provide a good market for our products. Of course we have to buy from them as well. We find that enriching people is the best way to improve ourselves. We have a saying “prosper thy neighbour, because when neighbours are prosperous, they give you less problems”. That was something normally done informally, bilaterally; Then came along the idea of regional organisation. Malaysia’s views about regionalisation came about simply because the trade negotiations failed and since they had started the WTO we had to protect ourselves. Individual small countries cannot protect themselves against the likes of Europe and the US. So we proposed to have an East Asia economic community to give us some collective strength when going for WTO negotiations. That was the objective, not an association which ties us up to doing trade with each other under certain conditions. We would like to discuss common problems before going for WTO negotiations. ED: Do you think the Asia Pacific Economic Community (APEC) provides that voice? MM: APEC is too big. When they called it APEC, we thought all Asia Pacific countries should be included. But the tendency has always been to exclude China and Russia. When we were in APEC we insisted they be included. That seemed to frustrate a lot of people, which is why they are now talking about the TPPA. There is also some political noise you hear because it seems to exclude China, and we are big trading partners of China. We don’t want to cut ourselves off. China’s affect on the Asia Pacific region ED: Given what’s happening with China’s claim on the coastline being somewhat aggressive, and the fact that the coastline now goes down all the way to Indonesia. What do you think is happening there, and how is it like to deal with a partner who is asserting itself in this way? MM: China is there, you can’t wish it away, you have to live with it. Sometimes China can be very aggressive, but whatever the problem is, we must settle it through peaceful means. Malaysia had overlapping claims with Indonesia, Singapore, and Thailand, and we settled all these problems with negotiation, or a court of law. We would like to discuss these overlapping claims with China, and we hope China will eventually understand that war is not productive. If they fight a war the cost will be so high that whatever they may gain in terms of land area will not compensate for the amount of money they will lose. ED: You recently visited China and the leadership, do you think they will take that negotiation route? MM: They are quite reluctant because they don’t trust the international courts, but we are still talking with them. Their claim overlaps our development in the South China Sea but we have basis for making that claim. They say some old maps they have show that this is their territory. ED: In your time you were hoping Japan would be the driver of regionalisation. Did Japan disappoint you in any way? MM: At that time people were writing about Japan as number one, and we wanted to copy number one, a successful country. Later on Korea and China developed, and Japan found itself having to compete. It was not helped by having the yen revalued upwards. Had that not happened and the yen remained at low levels, they would be able to compete with China and Korea. ED: On an uneven footing. That’s what a trading country would like for itself. If anything it gave the opportunity to China and Korea to become competitive. MM: If you look at it from the point of view of China, Korea, and maybe the West. For Japan it is grossly unfair that the yen was revalued by nearly 300%. We borrowed yen and suddenly we found that we needed a lot of Malaysian currency to pay up our yen loans. It didn’t pay off for us, but still we thought 300% revaluation of the yen was too high. Maybe a gradual revaluation would be tolerable. I think China and Korea would be able to compete with Japan because they have resources; they have good manpower, and are very skilful people. ED: How prepared is Malaysia for the future in terms of not just being a destination for investment, but in putting out a population that is educated and able to take on opportunities that come from an international marketplace? MM: When I became prime minister the population of this country was 13 million. I said we should have 17 million people because we need a big domestic market to test and absorb our products. Now we are 30 million and growing. An increasing population is alright provided the government ensures they have the skills and are all employed higher incomes. Therefore in a way the domestic market would replace much of the foreign market. I think Malaysia can grow and compete with most other countries. ED: And meet that vision 2020 goal that you set so many years ago. MM: Yes. If they keep to the target and fulfil all the requirements then I think so. ED: What are the chances of meeting the target? MM: I think they stress too much on per capita income. For developed countries it’s not so much about per capita income. If it were so then Saudi Arabia would be the best developed country. We need to have industries, better education, carry out research, and also look towards the arts. This will ensure our people are well balanced in terms of both money and culture.

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