Current popular understanding of violence has been influenced by the global political experience of an apparent rise in international terrorism, epitomized by the 9/11 attacks. This coincides with the “cultural turn” in the social sciences, which transformed understanding of violence given that it assumes that religion and ethnicity are self-explanatory categories for the motivation of violent acts, replacing the former “trendy” ideologies such as socialism or nationalism. Given these experiences, present-day terror is commonly believed to be undertaken in the name of God. These changes, coupled with the rise of the sociological concept of the network society, have given rise to paradigms such as “new wars” or “new terrorism”.

These paradigms not only alter our understanding of the goals and means of collective violence, but also of the organization of violence. In particular, the American way of framing terrorist threats as the “religionization of violence” goes hand in hand with the shift from a classical hierarchical organization of violence towards more ambiguous forms, such as loose networks, the “leaderless jihad”, or cellular organizations, whose rationality and sense of humanity are often questioned.

The “new terrorism” paradigm exerts a certain appeal when analysing violence in Southern Thailand, where terrorist attacks on civilians and state personnel are on the rise and the role of religious motivation is a hotly debated issue. Since 2004, terrorist groups have often neglected taking responsibility for violent attacks. Influenced by discussions about “new terrorism”, authors such as Pathan and Liow assume that separatist violence in Southern Thailand has adopted fundamentally new characteristics. Although both warn against exaggerating the concept of religious motivation (and international connections), stressing instead the role of local history as a motivating force for insurgents in Southern Thailand, they still propose that there is a rupture in the structural organization of the insurgency. In their analysis of the main insurgent organization in Southern Thailand, BRN-Coordinate, they argue that the key feature of this “new insurgency” is a low degree of organization.

In contrast, in this chapter I argue that although BRN-Coordinate has changed from BRN, its predecessor organization, largely in reaction to the successful counter-insurgency campaign of the Thai government, the group remains, at its core, a hierarchically organized group. In other words, the departure from the past is not as pronounced as some scholars argue.

When the Thai government and BRN-Coordinate, a Malay-Muslim separatist group active along Southern Thailand's border, signed an agreement to hold peace talks in Kuala Lumpur on 28 February 2013, it came as a surprise to most observers. The Yingluck Shinawatra government never seemed particularly interested in the Malay-Muslim insurgency that had been raging along its border with Malaysia since 2004 and had cost the lives of almost 6,000 people. The former minister of interior and deputy prime minister, Chaloem Yubamrung, responsible for the restive region, had hardly travelled there during his term of office and Yingluck herself only made very general remarks about the South. As was the case for most governments since 2004, the Yingluck government appeared content to leave the mandate for major political strategies as well as for the counter-insurgency campaign primarily with the Thai security forces. Many observers were of the impression that as long as the conflict remained outside of Bangkok or the valuable tourist areas in the South, the government would never place it high — if at all — on its agenda. The government's lackadaisical attitude changed abruptly in early 2013, when the Thai government suddenly seemed very determined to take some kind of action.

The announcement was equally surprising given that despite the fact that the insurgency in Southern Thailand remains one of the bloodiest in Southeast Asia, no group had ever taken credit for its outbreak in 2004. BRN-Coordinate was hardly well-known globally. Although the Malay population in the South were familiar with the name BRN-Coordinate,1 even scholars, journalists, and the majority of Thai government officials have very limited knowledge about the organization's structure and its overall role in the unrest.

Since violence broke out in Thailand's Malay-Muslim-dominated South in 2004, little information has been garnered about the perpetrators of these violent acts, as the description and the interpretation of data is impeded by a cloud of “nameless” violence that renders an understanding of the definition of actors, their organization, and their interests difficult. Furthermore, even though scientific observers, state agencies, and the local population are attempting to make sense of these violent acts, they all face the problem of uncertainty: Who are the perpetrators of violence on the “Malay side”? What are their motives? Are they simply the victims of harassment or the failed policies of the Thai nation state who respond with a bloodstained campaign of revenge?

Introduction

The economic development of Malaysia since 1957, by all accounts, has been a spectacular trajectory of restructuring and of rapid economic growth, punctuated only by the Asian Financial Crisis in 1997, and by the economic crisis in 2008. Malaysia has also been able to graduate from a predominantly agricultural base to that of a manufacturing and services base through prudent economic management, balancing economic efficiency considerations with that of the redistribution of the economic pie. In recent years, however, the government has come to realize that the traditional approach of restructuring and diversifying the economy may not be sufficient to propel Malaysia to the level of other high-income nations. Furthermore, the historical engines of agriculture and manufecturing that have been driving Malaysia's economic growth has been losing its momentum over the past decade. Part of the slowing momentum is largely due to the fall in private investments: from 25 per cent of GDP throughout the 1990s to about 10 per cent in the past decade.

The Tenth Malaysian Plan (2011–15) succinctly outlines what needs to be undertaken for Malaysia:

Can Malaysia transform its economy up to the level of other high income countries? How has Malaysia landed in its present dilemma of the middle income trap? What are some of the challenges that need to be overcome that will move the country to join the ranks of a high-income and developed country? What are some of the suggested policies that can bring Malaysia to the next stage of development?

A number of recent works have been undertaken on the Malaysian economy.

INTRODUCTION

In December 2008, I had breakfast with an elderly Bidayuh man and his daughter in their upland village — one of four due to be resettled to make way for a new dam and reservoir. With an official land compensation ceremony a few days away, the conversation meandered, as it often did, towards the project. My elderly interlocutor — a follower of the old rituals, adat gawai — had been reminiscing about life in the 1950s, “before [Sarawak became part of] Malaysia”. Back then, he said, the bus fare to Kuching was less than a dollar; food in the city came in generous portions for just ten cents, and trousers cost a few dollars. These days, however, everything was expensive because those Malays who ruled the country didn't know how to run the “economy” (English). But being Malay was difficult, added his Anglican daughter, since they were Muslim and had to live according to strict observances. Ruminating further, they began to contrast the lives of Muslims with those of Christians, who today form the bulk of the Bidayuh population.

Running through the different churches in the area, they concurred that the “strongest” of the lot was the Sidang Injil Borneo (SIB), or Borneo Evangelical Church — a non-denominational organization with a small but vocal local presence. Those people were rich, they declared, and their prayers really worked; indeed, the SIB leaders were so powerful that they were often able to tell the future. To illustrate their point, they mentioned “Pastor Henman” (pseudonym): a white preacher who visited the region regularly, and who had predicted 2004's Boxing Day tsunami. More recently, he had prophesied bad things for the dam being constructed downstream: perhaps it would collapse or just fail. But of course, this was hardly surprising, explained the old man, since the soil at the construction site was poor, prone to landslides and flooding. As I discovered later, it was also an area filled with capricious local place spirits, which might respond badly to the upheavals around them. All things considered, my interlocutors concluded that the dam would almost certainly run into problems.

INTRODUCTION

Attention to the link between Buddhism and politics has re-emerged with the shocking images of the persecution of the monks who led the Saffron Revolution in Myanmar. At the same time, terrorism, which has been associated with religion since the attacks of 9 November, has attracted intense academic research into the political roles played by various world religions. The study of political Buddhism is already a major focus in South and Southeast Asian studies. However, the study of political Buddhism has mostly centred on Buddhist majority states, such as Myanmar, Sri Lanka, Thailand, and Indochina. Undoubtedly, this broader context has created intense political activism and hence sparked vigorous theoretical conversations about Buddhism and politics. In Malaysia, the Buddhist minority faces the domination of another religious community — the Muslim majority. This chapter explores the Buddhist minority context in Malaysia to help fill the gap in political Buddhism studies of Buddhist minority states.

Islam is the most widely practised religion in Malaysia, and Malay Muslims are the dominant ethno-religious group in the country. In 2010, Muslims comprised 61.3 per cent of the total population. Buddhists, Christians, and Hindus comprised 19.8 per cent, 9.2 per cent, and 6.3 per cent of the total population, respectively. As of August 2007, there were 41,528 organizations registered with the Registry of Societies Malaysia. Amongst the thirteen categories of organizations, the category of religion has the highest number of organizations: 7,228. According to the Registry of Societies’ categorization system, the organizations in the religion category include Islam, Christianity, Buddhism, Hinduism, Sikhism, and Chinese Temple, among others. The registrar does not provide further breakdowns for these numbers by religion; however, according to estimations by the Malaysian Buddhist Association (MBA), the Buddhist group consists of 878 organizations, with 496 temples and 382 organizations.

In 2010, nearly 83.6 per cent of Malaysian Chinese were listed as Buddhists, who are the largest minority religious group in the country. Malaysian Buddhists reflect the diversity present at the beginning of community formation. Various immigrant communities of Chinese, Thais, Burmese, and Sinhalese brought different Buddhist traditions, doctrines, and practices to Malaysia, and the current organizations that have evolved since the early years reflect this diversity of the Buddhist community. Buddhist groups are less centralized than Christian groups but more organized than Hindu groups.

The Malaysian economy and society has changed significantly for the better over the last half-century. The current challenges that the economy is facing can be better understood and dealt with if seen against the background of its past. This chapter will therefore analyse Malaysia's economic development and transformation over a long term historical perspective, and look at what has happened to the Malaysian economy, as well as at how it has changed over time.

The transformation of Malaysian society has been noteworthy. Malaysian society has become increasingly urbanized over the decades, as indicated by Table 2.1. In 1957, over 90 per cent of Malaya's population lived in rural areas. By 2010, only about 37 per cent of the Malaysian population lived in the countryside.

In terms of structural change or sectoral transformation, manufacturing and services contributed more than 80 per cent of total output of the economy in 2009 (see Table 2.2); both sectors only contributed about half of total output in 1970. Malaysia has seen a dramatic transformation of its economy in terms of the rapid growth of manufacturing and services as agriculture continued to expand, as well as the shift of its population from rural to urban areas over the past half century.

This is, of course, very much reflected by employment patterns. Table 2.3 shows that the transformation has been very significant, especially in terms of the share of services (Khong with Jomo 2010).

The official poverty rate has also fallen, although there is some debate on its measurement. Nevertheless, these figures suggest significant improvements in general living standards in Malaysia, not only in urban areas, but also in the countryside, as indicated in Table 2.4 and Figure 2.1.

Unlike many other developing countries, official Malaysian data suggest not only a decline of poverty, but also a decline in inequality — of overall inequality, not just of inter-ethnic disparities. Most other countries in the West, the former Soviet Union, China and most developing countries have experienced rising inequality over the same period. Only Northern Europe and Northeast Asia (Korea and Japan) have maintained low inequality, while some countries in South America have seen recent declines in inequality in the last decade after decades of rising inequality.

The share of wage earning Malaysians among those working has significantly increased from slightly over half to over three-quarters of the labour force, as shown in Table 2.5.

Introduction

In general, increasing per capita income is associated with an increasing share of services in the Gross Domestic Product (GDP) of a country. Developed countries are therefore generally characterized with a relatively higher share of services in their GDP and total employment, compared with developing countries. There is, however, considerable debate on the contribution of services to growth in terms of both theory and empirical evidence. While part of the controversy is due to the ongoing debate on the growth of services and its impact on labour productivity (Maroto-Sanchez and Cuadrado- Roura 2011), part of the controversy is also due to the rapidly changing nature of services.

Traditionally, services are viewed as non-storable and non-tradable due to its proximity burden where they are used as mere inputs in the production of goods and for personal consumption within the confines of the domestic economy. These services are therefore associated with relatively low-skilled jobs and low productivity. In contrast, the twin revolutions in information and communication technology and what is commonly referred to as the 3Ts — technology, transportability, and tradability (Mishra et al. 2011), has transformed the nature of services in several significant ways such as increasing its storability, reducing its proximity burden and increasing its tradability across borders, including digital trading.

Services are therefore no longer used as a mere input for the production and trade in goods alone. Instead, services are exported as “final exports” for direct consumption as well. More importantly, services as in the case of goods, are also becoming fragmented in its production as a single service activity is increasingly unbundled and produced separately in different geographic locations.

Empirically, United Nations Conference on Trade and Development (UNCTAD 2004, p. 20) found services exports to be a significant factor in the growth performances of developed countries in the 1990s. But the services exports and GDP growth nexus is weaker in developing countries. There is also increasing evidence that some service activities have contributed to an increase in labour productivity which is comparable to, or even higher than those corresponding to manufacturing, in a sample of 16 European countries (Maroto-Sanchez and Cuadrado-Roura 2011).

In the case of Malaysia, there is increasing emphasis on the service sector as a new engine of growth as growth in the manufacturing sector has faltered since the Asian Financial Crisis (AFC). This is seen in the recent Plan documents of the country.

INTRODUCTION

Tan Mei Hwa, a popular female Chinese Muslim preacher, delivered this message to her audience of mostly Javanese Muslims during a halal-bihalal (a meeting for mutual forgiveness) in Surabaya in 2008. Dressed in stylish Islamic dress, she also claimed that some of the Walisongo (Muslim saints popularly credited with for bringing Islam to Java) were of Chinese descent.

Also in 2008, at a breaking of the fast function during Ramadan, another Chinese preacher, Syaukanie Ong, wearing red traditional Chinese dress, spoke in front of Muslims crowded into the compound of the Muhammad Cheng Hoo Mosque, a Chinese-style mosque in Surabaya. These two events combine Chinese cultural symbols and Islamic messages, as well as bring together Chinese preachers and Muslim audiences, to challenge the widely held perception by both non-Muslim Chinese and non-Chinese Muslim Indonesians that “Chineseness” and Islam are incompatible.

During the New Order (1966–98), Chinese Indonesians who converted to Islam had always been assumed to have lost their “Chineseness”, and assimilated themselves into various local ethnic majorities. Today, there are increasing numbers of Chinese Muslims who are publicly performing their Chinese ethnicity along with Islamic religiosity, exemplified by the popularity of Chinese preachers, the establishment of Chinese-style mosques, the celebrations of Chinese New Year in mosques, and the engagement of Chinese converts in various Islamic movements. Who and why promotes Chinese Muslim cultural identities? What does the emergence of Chinese Muslim culture tell us about Islamic pluralism in Indonesia? This chapter sketches answers to these questions.

CONTEXTUALIZING CHINESE MUSLIMS IN CONTEMPORARY INDONESIA

The emergence of Chinese Muslim cultures is an outcome of several interrelated processes that occurred in Indonesia and abroad from the 1990s onward. Such events include China's growing economic and diplomatic power; improving relations between China and Indonesia after the Cold war; the establishment of Indonesian democracy, the recognition of Chinese cultures after the fall of the New Order regime; the rise and diversification of Islamic consumer markets; the divergent pluralist and conservative tendencies of Indonesian Islam.

Introduction

The thrust of the argument in this chapter builds on the idea that Malaysian nation building has been occurring in an atmosphere of conservatism and compromise. Undoubtedly, there were many parties involved that were correctly called radical, but these were successfully neutralized in the run-up to independence. This was best noted in how the Alliance Model easily overshadowed the option embodied in Onn Ja'afar's Independence of Malaya Party or the communist path.

However, the Alliance Model, built around the three parties — United Malays National Organisation (UMNO), Malayan Chinese Association (MCA) and Malayan Indian Congress (MIC) — fossilized racial categories in a system of apparent inter-racial cooperation under Malay leadership. More importantly, the major controversial points of the Constitution were hammered out under its watch, leading to the myth of The Social Contract, where the Chinese and Indian parties purportedly accepted perpetual Malay dominance in exchange for citizenship in the new country.

Despite the relative lack of violence, Malaysian independence occurred in an atmosphere of severe crisis and strategic compromise. What need discussing are thus the origins of the discursive structure of Malaysian politics. Let's go back in time to the pre-Merdeka era, at least for a while, to determine the strong trends that have continued to form the country's self-image to this day.

Colonial Retreat vs Communist Ascendance

The British Malayan colonies changed colonial hands in 1942, along with most of East Asia. The Japanese Occupation saw the strong rise in relevance of the Malayan Communist Party, which received support from the British through Force 136, and which drew inspiration from the Chinese Communist Party in China. The Malayan Peoples’ Anti- Japanese Army (MPAJA) was formed in June or July 1942, and when demobilized after the War, it boasted 6,000 to 7,000 members (Cheah 1987, pp. 61–75).

In 1945, the Malayan colonies switched colonial hands again, back to the British. But things had changed. The population had been radicalized and parties other than the Malayan Communist Party (MCP) would soon make themselves felt, such as the pan-Indonesia Partai Kebangsaan Melayu Malaya (PKMM) and UMNO.

The toppling and execution of traditional leaders in western Sumatra in April 1946 in the “Sumatra Social Revolution” could not but have put a scare into the British as well as the Malay aristocrats on the peninsula (Kahin 2003, pp. 178–83; Reid 1971, p. 22).

Introduction

Sustained economic growth is commonly associated with higher living standards. It is for this reason that the preoccupation with economic growth is an ancient one which continues until today. Within the economics literature proper, theories of economic growth dates back to as far as Adam Smith's Wealth of Nations, published in 1776. More than two centuries later, growth theories continue to interest scholars and policy-makers albeit such theories have undergone significant changes, due partly to economic structure and development. The classical theories of Smith, Malthus and Ricardo, forged during the nascent stage of industrial revolution, were premised upon specialization, rapid population growth and diminishing returns. The post-World War II saw the formulation of growth theories by Harrod, Domar, Swan and Solow, which were primarily driven by capital accumulation within the Keynesian mode. The most recent vintages by Lucas and Romer in the 1980s broaden the scope of such theories to include human capital and technological innovation, factors that would imply increasing returns and the promise of sustained growth.

Today, the cumulative theoretical and empirical literature is vast and substantial. Its influence on academics, officials from aid agencies and policy-makers has been substantial. Malaysia is no exception in this regard. For example, in the Sixth Malaysia Plan (1986–90), there is explicit mention of achieving higher growth through improvements in total factor productivity (p. 19). Malaysia's growth record since the country's independence in 1957 is quite enviable. However, the country's growth rate in recent years, especially since the Asian Financial Crisis, has been relatively sluggish. This has led to concerns on whether Malaysia is currently facing the problem of the middle-income trap.

The objective of this chapter is to critically examine Malaysia's economic growth for the past two decades as well as discuss some of the policy options that might be useful for sustainable growth in the future. Section 2 of the chapter provides a brief summary of Malaysia's economic growth and economic structure during the period 1990–2010. Section 3 analyses the sources of growth of the Malaysian economy. Section 4 discusses some of the challenges and policy options for sustainable growth in the future. Section 5 concludes.

Introduction

The ASEAN Economic Community (AEC) was established in 2007 with the objective to create a single market and production base. The AEC is meant to allow the free movement of goods, services, skilled labour, and capital within the ten ASEAN economies by 2015. Malaysia has given its commitment to ASEAN's initiative to establish a single market, and has consistently been working towards enhancing regional and international linkages to mutually benefit from its trading partners and Asian neighbours. In fact, the AEC's vision and the goals of Malaysia's national economic development plans under the New Economic Model (NEM) are compatible. The vision of the AEC is “to create a highly competitive single market that promotes equitable economic development for member states, as well as facilitating their integration with global economy” (ASEAN Secretariat 2010). This is consistent with the key objective of NEM to develop Malaysia into a “high income nation with inclusiveness and sustainability by 2020” (NEAC 2009). In addition, the NEM highlighted the importance of integration especially with ASEAN countries and Asia through trade and investment in driving the long-term growth of the economy. Hence, it is understandable why Malaysia has been in the forefront in advancing ASEAN's initiative to strengthen regional economic cooperation and convergence.

This chapter intends to study the motivation and prospects for Malaysia in participating in ASEAN Economic Community. The chapter also discusses the progress of Malaysia's implementation of AEC Blueprint and how Malaysia's involvement in ASEAN's initiatives is in line with its economic development objectives. Discussion on the challenges faced by Malaysia in deepening economic integration concludes the chapter.

ASEAN Economic Community

In 1992, the ASEAN leaders announced to form a free trade area, which at that time was seen as a bold and ambitious decision. Throughout the 1970s until the mid-1980s, many ASEAN officials were sceptical over the benefits from economic cooperation and prospects of successful integration (Akrasanee and Stifel 1992). Lack of complementarity and competition for similar developed market were seen as main impediments in establishing economic cooperation. Economic crisis in the mid-1980s and its aftermath policy response triggered the concern among the ASEAN nations to deepen regional economic cooperation. It also made countries in the region to shift their policy emphasis towards more outward-oriented and liberal trade policies. This gave the right atmosphere in ASEAN to jumpstart its economic cooperation plans (Akrasanee and Stifel 1992).

Since its independence in 1957, Malaysia had evolved from an agrarian economy into an industrial one envied by many other developing nations. In 1991, former Prime Minister Dr Mahathir Mohammed launched Vision 2020 as a roadmap for the country to achieve developed nation status. This vision called for a self-sufficient, democratic, economically just, mature, united, liberal and tolerant society by 2020, with US$6,000 in per capita income in 1980 prices. However, the Asian Crisis of 1998 significantly set this back, as Malaysia had to spend a number of years recovering from the crisis and regaining foreign investor confidence. The Global Financial Crisis of 2008 also negatively impacted on Malaysia's economic development and slowed its progress towards the achievement of Vision 2020.

Today, Malaysia is perceived by many as being stuck in a middle-income trap, facing challenges on many fronts. A disconnect appears to have developed between policy-making and the national economic reality. In addition, the challenges of globalization have meant that Malaysia has to significantly increase its productivity, especially in the services sector in order to stay relevant. The shortage of skills necessary for a move towards a knowledge-based economy compounds the problem, the infrastructure has expanded significantly but only in certain parts of the country, with many other areas left with little development.

Since assuming office in April 2009, Prime Minister Najib Tun Razak has shown his determination to stay on course to achieve the goals of Vision 2020. In June 2010, he unveiled the 10th Malaysian Plan(2011–15) to chart Malaysia's development from a middle- to a high-income nation. In dollar terms, Malaysia will need to achieve an income level of US$15,000 per capita by 2020. More importantly, its economy will need to be restructured to one which is driven by productivity, innovation, and a focused specialization on selected economic sectors.

Malaysia is also working intensively on bilateral and regional trade agreements. In addition to the commitment to be a member of the ASEAN Economic Community, Malaysia has signed or is negotiating thirteen bilateral FTAs. It is a member of ASEAN+1 FTAs and is negotiating its way to be a part of the ASEAN-led Regional Comprehensive Economic Partnership (RCEP) and the US-led Tran-Pacific Partnership (TPP) Agreement. One important rationale for Malaysia to be part of these FTAs is its intention to undertake difficult domestic reforms, which currently face serious domestic opposition.

Introduction

Education, economy, and society interact in mutual relationship, but in recent decades increasing attention has been cast in the direction of academia's contribution to economic growth and social development. This is partly a natural outcome of Malaysia's climb up the development ladder, where policy focus broadens from providing universal basic schooling to generating mass higher education and addressing both the quantity and quality of learning. Policy rhetoric has acknowledged, in line with the need to shift away from low-wage and labour-intensive production, that Malaysia must transit toward more skill- and knowledge-intensive output and cultivate a more innovative economy. Visions of a more integrated society and a more mature democracy have also been projected, most notably in Vision 2020. Education institutions play a paramount role in these processes, both to transform themselves and to facilitate multifaceted transformation, particularly in light of aspirations to be a knowledge-based economy.

Malaysia has made considerable quantitative gains, attaining near universal primary schooling and high secondary enrolment rates and steadily expanding tertiary education. However, the quality of educational institutions has fallen short, even regressed, in terms of mass generation of a skilled and innovative workforce and a knowledge-oriented society. Growth in educational provision has facilitated the rise to an upper middle income economy, but mediocrity in educational outcomes constitutes a major barrier to Malaysia's goal of attaining a high income economy and broad socio-political development. The fundamental problem lies in a systemic decline in the teaching profession and the failure to attract capable entrants, exacerbated by a drift toward redressing the education malaise through marginal and mechanical solutions.

From the early 1990s, Malaysia embarked on a new phase of development, in which the balance between growth and equity tilted more toward the former. The main thrust of the New Economic Policy (NEP) from 1971 was to restructure the economy, predominantly through interracial redistribution and affirmative action programmes favouring the majority Bumiputera. Preferential programmes remained decidedly intact beyond the NEP's official closure in 1990, but education policy became increasingly framed in terms of human capital or human resource development. There was no shortage of rhetoric, targets, programmes, and institutional changes in line with lofty national ambitions.

Introduction

It was not long ago that the Malaysian development story was hailed as a model of foreign direct investment (FDI)-driven, export-led industrialization worthy of emulation by aspirants in the developing world. The transformation from a largely agrarian economy in the 1950s and 1960s to a manufacturing-based one was rapid and spectacular, with the share of agriculture in gross domestic product (GDP) falling from 30 per cent in 1970 to 8 per cent today, and that of industry increasing from 27 per cent to 55 per cent over the same period. Per capita income almost doubled each decade to reach more than US$8,000 per year in 2012. These economic achievements are reflected in dramatic improvements in social conditions. Extreme poverty has almost been eliminated, despite persistently high inequality, and access to all kinds of social services has improved dramatically. FDI played a critical role in this transformation. Domestic investment was also robust at around 40 per cent of GDP at the onset of the Asian Financial Crisis (AFC). Yet, although the slump in economic growth during the AFC was quickly reversed in the ensuing V-shaped recovery, private investment — both foreign and domestic — never really recovered.

These days, references to Malaysia in the development economics literature tend to highlight it as a classic case of the “middle income trap”. No longer able to compete in the labour-intensive manufacturing activities that drove its transformation, due to factor price adjustments, it also finds itself unable to move up the value chain to more sophisticated activities within manufacturing and services in order to graduate to developed country status. The revival of domestic and foreign private investment must play a key role in raising productivity levels in order to break out of the middle income trap.