Getting back its mojo

Malaysia’s Penang state
Getting back its mojo
After a slump, an early engine of globalisation is thriving again
Aug 13th 2011 | The Economist

IF YOU are going to have a heart attack, have it in Penang. So one might think, to the see the hospitals in George Town, the capital of this north-western Malaysian state. Patients are flocking in. Ted Mohr, the head of the venerable Penang Adventist Hospital says that he will admit 70,000 medical tourists this year. The hospital specialises in heart procedures and it will perform roughly 23,000 of them this year, including 550 open-heart operations. Such is the demand that the hospital is doubling its number of beds.

Mr Mohr gives two main reasons for Penang’s success with the coronary crowd. First, it is relatively cheap. Open-heart surgery that would set you back $100,000 in America costs only about $10,000 in Penang. Second, Penang’s hospitals are as well-equipped as many in the West.

The combination of low cost and high technology is the main reason why industries across the state of Penang, made up of the original island and a larger bit of the mainland, are prospering again after more than a decade of decline. Their revival is important to Malaysia’s economy—Penang and the surrounding region account for 21% of the country’s GDP. But the renaissance could also have important political consequences for the country. Since 2008 Penang has been one of only four states (out of 13) run by an opposition party. If its politicians can claim the credit for the recent success, that should greatly help the opposition in the next general election, expected within the year.

Penang was founded as a free port by the British in 1786. Occupying a position between India and East Asia, the island drew merchants and middlemen keen to make their fortunes. Chinese, Indians, Armenians, Arabs and more all traded alongside each other. With its racial and religious mix, and dedication to the pursuit of free trade, Penang was in many ways the first custom-made city of globalisation.

The island’s fortunes sank as it lost business to its arch-rival, Singapore. In the post-colonial period Penang fell victim to the rise of nationalism. The region’s freshly minted republics chose to develop their own ports. Penang enjoyed a revival during the 1970s with the setting-up of Malaysia’s first free-trade zone (a “free port” by another name); this attracted big names in electronics, like Intel and Bosch, which built some of the first offshore assembly lines. But this boom was founded on cheap labour, and as Malaysia became richer other emerging economies, such as China and Vietnam, drew the assembly work away.

To recover its prosperity, Penang has sought to reinvent itself. With the rise of India and China, Penang’s location again looks very handy to foreign companies as a place to invest, as in the 18th century. It is relatively close to both big markets—yet offers advantages that trump Asia’s giants’.

Penang’s own “Silicon Valley” companies know that the rule of law in Malaysia gives them the sort of protection for patents and intellectual property they would not enjoy in China, and an ease of doing business that they could not find in India. Wages are higher than they were, but no more so nowadays than on the Chinese seaboard. The federal government has also spent liberally on bridges and the airport, making Penang better connected to the rest of Asia. And old George Town has been smartened up, which helps to bring in foreigners to live, work—and have surgery.

The result is another boom. Last year more investment poured into the state than any other in Malaysia. Scores of new electronics firms have swooped in to join the pioneers, along with an expanding cluster of 20 or so medical-device manufacturers. Crucially, most of the new jobs are in research and development rather than assembly. An American chip-designer, Altera, has a new facility with 1,100 workers in Penang, 800 of them engineers. Its head says that almost all the engineers are locals—which is good for Malaysia.

Whom to thank?

When the Democratic Action Party won the state’s legislative assembly three years ago, it became the first opposition party to triumph in Penang in more than 40 years. The victory presented a direct challenge to the Barisan Nasional (BN) coalition that has ruled the country continuously since independence in 1957. Penang’s new leader, Lim Guan Eng, says that the federal government has an “ambivalent” attitude towards him, cutting off some funding but not undermining his authority. “They don’t want us to get any credit, but they can’t afford to see us fail”.

The revival of Penang was already under way in 2008, but Mr Eng’s new policies have helped it along. He has become the first governor in Malaysia to open up all state tenders to competition. This has entailed dismantling the special preferences for ethnic Malays that have underpinned the BN’s rule since the early 1970s. That was when the Malay majority institutionalised affirmative action for themselves, to the disadvantage of ethnic Chinese (a majority in Penang), who were perceived to have got unduly rich. Mr Eng claims that by reforming the system he has ended the cronyism and corruption that wasted money under previous regimes.

Adapted to the national stage, such policies could transform the way that the Malaysian federal government conducts business. Mr Eng says that the savings he has made by ending the “old systems of patronage” allow him to spend money on new social programmes instead, such as modest handouts for the elderly. These policies are popular, and the assault on corruption pleases foreign investors. Little wonder, then, that Penang has become a political weathervane as much as a lesson in economic development.

  1. #1 by DAP man on Friday, 12 August 2011 - 1:02 pm

    Any Penangite who intends to vote for BN must be moron two times over.
    Can any goon tell me that Penang was better ruled under BN than it is under the DAP?

  2. #2 by Loh on Friday, 12 August 2011 - 2:00 pm

    A senior government officer who watched the valuation of the PKFZ land going up from 21 RM per square foot to 25 RM with comments about 10 year repayment period, and 6 per cent interest did not realize that the difference in the price was influenced by the payment scheme and interest rate. The trial judge on LLS case commented that an uneducated person might be fooled. A lot of uneducated person made good business, and they can’t even be fooled with all those leads. That senior officer could not be so naive as to be ignorant to the cause of valuation change, and he mentioned that he took dictation from his boss in writing the letter. The most important aspect of that letter was about the money to be paid for the land, and any government officer, let alone the senior member, should have realized that a letter by the government commit the government. That senior officer might have pretended to be stupid, because that stupidity he displayed was extraordinary.

    Now that LLS has proved that he knew nothing about land purchase, and even if he had an interest in it, he was deceived or misled by his staff. That particular senior government officer initiated the wrong information. Was the PM deceived, or he too was too smart to be deceived?

  3. #3 by yhsiew on Friday, 12 August 2011 - 3:47 pm

    ///The principles of competency, accountability and transparency (CAT) are the key to reinventing the Penang state government, says Penang Chief Minister Lim Guan Eng.

    “Our formula towards reinventing government is centred on the CAT philosophy; driven by competency, accountability and transparency. We believe a clean government can perform better than a corrupt one,” he said.///

    The above are the very words of Lim Guan Eng speaking at a Transparency International Malaysia talk entitled, “Reinventing The Penang State Administration”. Lim Guan Eng has got the formula right; today Penang is reaping the benefits of his CAT philosophy. I believe Penang may one day catch up with Singapore if Lim Guan Eng stays on as the Chief Minister.

    Well done Guan Eng!

  4. #4 by boh-liao on Friday, 12 August 2011 - 4:42 pm

    Dis article surely written by a Westerner not too familiar with d system here 1
    “Mr Eng”? Who’s dat? Cute
    “first governor in Malaysia” – Mr Eng, a governor? Got meh?
    Still a nice article fr The Economist, esp “getting back its mojo” – Q is: Penang state or Mr Lim, d CM, got mojo? (mojo = sex appeal)
    NR green with jealousy lah, no praise fr The Economist 4 his fanciful Transformation P
    HH will order his officers 2 blacken d relevant page in d 12.8.11 issue of The Economist

  5. #5 by boh-liao on Friday, 12 August 2011 - 4:43 pm

    Ooops ………. salah …..
    HH will order his officers 2 blacken d relevant page in d 13.8.11 issue of The Economist

  6. #6 by boh-liao on Friday, 12 August 2011 - 4:54 pm

    Wow, after dis article, more medical tourists will rush 2 Pg lor
    But they must be pre-warned, if couples, must bring their marraige certificate
    If not, may get midnight raid, kena check 4 khalwat n may be forced 2 do nu de squat
    Also, pre-warned not 2 wear yellow, nanti kena locked up n asked 2 pan sai na ked

  7. #7 by k1980 on Friday, 12 August 2011 - 5:42 pm

    Mr Eng? Who’s dat?

    Mr Jib? Who’s dat?

    Mr Soiled Leg— everybody knows him.

    Mr Long Sick— at present sweating in court for corruption

  8. #8 by boh-liao on Friday, 12 August 2011 - 7:35 pm

    D mamak gang in Pg sure no like dis article, they will burn The Economist in public n send a coffin n black cake 2 its editor
    D mamak gang n Perkosa will protest in front of The Economist office 4 claiming a pendatang n si mata sepit as d governor of Penang

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