My Say: Slippery successes

This article first appeared in Forum, The Edge Malaysia Weekly, on September 3, 2018 - September 09, 2018.
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One question that bothers me about Malaysia’s economic history and development is, “What have we done with what we have done well in the past?” For example, we know that we were once the largest producer of tin in the world. The tin industry collapsed in the late 1980s, but what is its legacy? What happened to the profits accumulated, the competencies developed and the people and places involved in it?

Tin mining was British Malaya’s first industry, predating the signing of the Pangkor Treaty (1874), which led to the formation of the Federated Malay States and eventual British control of Malaya. While Penang and Singapore were colonised for their strategic locations, the allure of tin must have played a big part in Britain taking control of the four mining states of Perak, Selangor, Negeri Sembilan and Pahang. The other states were unfederated because they did not have much economic value to Britain — they did not have tin.

Before tin, the peninsula was a subsistence economy — growing padi, fishing along the coasts and harvesting resources from the forest. The tin industry changed not just the economic landscape but also shaped the demographics and, thus, the social landscape of the whole of Malaya.

By the beginning of the 20th century, Malaya produced more than half of the world’s tin. Tin mining spawned auxiliary industries such as metal fabrication and mechanical engineering as well as downstream activities such as smelting and canning and the logistical and financial services around it. British and local interests both made money from the industry. Today, Malaysia’s production of tin is negligible, and it has to import the metal for its own use. The old town of Ipoh — neglected following the collapse of the industry — is undergoing a rejuvenation of sorts as a heritage destination, mainly for people from the other tin valley — the Klang Valley, which has had a more successful life after tin compared with the Kinta Valley. KTM’s two-hour electric train service between KL and Ipoh has turned the latter into a popular weekend destination built around food, culture and boutique hotels.

Towns around Ipoh, such as Gopeng and Menglembu, have not fared as well. These towns provided auxiliary services — metal fabrication and engineering — which never quite made the leap to an adjacent industry when their support for dredging machines was no longer needed. The Gopeng museum is a valiant attempt at displaying how life was in a mining town and tin mining in general. Menglembu is today associated more with groundnuts than tin.

The legacy of the industry are tin mining pools and both tin valleys are dotted with them. A glance at Google Maps shows mining pools like watery pockmarks on the terrain. Great wealth was created by the industry but it is not found where tin was mined — the wealth went elsewhere, and it is still elsewhere. After tin, enterprising folk tried making use of the mining pools and sandy mining areas for new economic activities such as planting guava, rearing ornamental fish and ducks and even vegetable farming, none of which is related to tin mining.

It showed me that the capital employed and profits generated from the tin industry just left the area, leaving those formerly employed in it looking for new things to do. One and a half centuries of tin mining did not create any concentration or agglomeration of competencies and experiences that were hived off into other industries. They simply became unutilised, although the competencies were clearly not obsolete.

When the North-South Expressway was built, it bypassed the towns that tin created, towns that had lost their raison d’etre with the death of tin mining. The double-tracking railway project brought life back to some of these towns for the alignment was originally constructed in line with tin industry logistics. New life was injected into towns like Ipoh, Kampar and Taiping. Direct and faster connectivity changed the geography of these towns and their historical allure attracted visitors.

Kampar found a new lease of life as the home of Universiti Tunku Abdul Rahman, or Utar. The university has a beautiful campus built on the edge of what used to be the Kinta Valley’s tin-mining area, which stretched from Menglembu to Kampar. The many lakes on the campus are former mining pools. I was impressed not just by the campus’ physical beauty but also by its development as an academic institution when I visited it for the first time.

Alas, the story of tin is a painful one. Tin contained the genesis of what eventually became Malaysia but it had a fleeting history. It brought about a whirlwind of change and then it was gone — and everything went with it. What was left were the places and people who suddenly found themselves living in a reality disconnected from their past. Some turned out okay, some did not.

The profits that tin generated seem to have just left and did not shape what came afterwards. We went from being the largest producer of tin in the world to being an importer. Apart from the mining pools dotting the landscape, there is nothing that reminds us of tin, except perhaps the pewter company Royal Selangor.

The lesson of tin is not that prices collapsed and it became obsolete as a metal. The money was easy while prices were good and there was no incentive to innovate in any part of the supply chain. It also did not make sense to invest the gains in new and riskier businesses as the risk-adjusted returns were high. It was a classic case of extracting economic rent from extractive industries. These never last and never lead an economy to a better place.

What about rubber? Not only were we once the largest natural rubber producer in the world but we also had the edge in the biology and chemistry of the rubber plant and treatment of latex. The Rubber Research Institute was the world’s premier rubber research institute. On the production side, the hectarage of rubber shrank as the oil palm plantations expanded through conversion and opening up of new areas from the mid-1970s. Malaysia’s rubber production is today a fraction of the output of major producers Thailand and Indonesia, and behind countries such as India and Vietnam.

Again, what is the economic legacy of rubber? The plantation companies have gone on to plant oil palm and continue to make profits, but what about the downstream industries? Why wasn’t our market power upstream reflected in downstream industries? Some Malaysian plantation companies have ventured overseas, and while there are companies such as Top Glove and Kossan, the footprint of Malaysian-based consumer and industrial rubber products is small compared with the country’s upstream presence in the past.

The electrical and electronics cluster in Malaysia — the backbone and success story of the country’s manufacturing sector — was and still is a sizeable one. While we have been able to attract significant foreign investments, there are serious concerns about manufacturing’s ability to upgrade itself within its own value chain — from mere assembly to more sophisticated processes — and moving into other industries that share the same technology platforms.

Manufacturers that see Malaysia as an assembly location will move to cheaper locations, and some have already done so. To what extent have local firms been able to leverage the presence of multinationals to enter the global supply chain?

If we do not — or are not able to — build on what we have done well, then we have not learnt. While the industries in which we were once successful generated profits and created employment, they did not develop into adjacent industries significantly enough to deepen and broaden the industrial clusters.

It takes knowledge of market adjacencies, complimentary technical skills and entrepreneurship for this to happen. Why have we not been able to do that on a greater scale and to have sticky successes — successes that create more success in related areas? It is something to think about over the weekend as we celebrate our 61st Merdeka Day.

Dr Nungsari A Radhi is an economist and the views expressed here are not related to any of his organisational affiliations

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