GOVERNMENT'S ROLE AND ECONOMIC DEVELOPMENT OFP~NAN6 Thesis Submitted To The Graduate School Of The Chinese University Of Hong Kong In Partial Fulfillment Of The Requirements Of The Degree Of Master Of Philosophy By KWONG Kam Kwan Government and Public Administration Division June 1996 o 9 MAY r197 ACKNOWLEDGEMENTS If there is any merit to be found in this study, it is thanks to Dr CHANG Chak Yan, the honourable supervisor of my thesis, who has spent a lot of time, effort, and patience, in guiding me to organize and wri te this thesis. His opinions and guidances were invaluable in cUltivating my intellectual development throughout my past years of study in graduate school. It is worth noting that his supervision, patience, trust and assistance are the major factors that have motivated my efforts. I wish to take this opportunity to express my deepest gratitude to him and my sincere appreciation of the attention that he has spared me. During the course of writing this thesis, I have become indebted to my supervisor, Dr CHANG, who is the core person in helping me to contact the officials of the PDC and to collect most of the important data which is not easily accessible. I would also like to express my gratitude to Mr CHEAH Lee Kooi, Head of the Public Affairs Unit of the PDC, who did his utmost to provide the data I needed; and my sincere appreciation should be offered to Miss NG Eliza who has striven to motivate me all the way round to complete this paper. I have to say thank you to Miss Jacqueline Mau and Miss Alice Yeung of GPA Office of their assistance and effort in internal communication. It only remains to say that I bear sole responsibili ty for any of the inadequacies or shortcomings of this thesis. ABSTRACT The miracle of the Japan's economic development has captured the attention of the world. And with the rise of the Four Asian Newly Industrialized Countries (NICs) in the 70s the world has once again been witness to dynamic growth in Asia. In the late 80s and 90s, it is the turn of countries such as Malaysia and Thailand to enter periods of rapid economic growth. In the course of economic growth in these countries, the governments have played a key role to motivate the public and private sectors to help boost the economy. In Penang, the state government has contributed a great deal to the construction of the state's economy since the early 1970s. The special point of this case is that the state government has shown significant awareness of the potential weaknesses of a government involving itself in the course of development, such as the inefficiencies and inertia implicit in hierarchical processes. In view of these considerations, the state government established a semi­ governmental institute -- the Penang Development Corporation (PDC) -- responsible for all activities concerning economic development, including the formulation and implementation of economic policy. The extent of the PDC' s power cause judged from examination of its personnel; its board members are maj or government officials fr?m the state and Federal governments, and the Chief Minister of Penang is the Chairman of the Board. These appointments reveal that the PDC policy is the policy of the state, and that the state is actually controlling the PDC. Penang has enjoyed a rapid economic growth over the past 25 years. The role of the Penang government has been crucial to the course of this development. II Table of Contents Ac know 1 edgemen t s ............. · · · · . · · · · · · · · · · . · · · · · · · · · · : ~ Abs tract ............................................ · . · 11 Chapter 1 Research Design .................................... 2 Introduction Research topic Research assumption Conceptual framework Data collection Footnotes 2 Historical Perspective ............................ 12 Introduction The historical status of Penang The 1967 Crisis and changes in late 1960s The economic performance of Penang since 1970 The North Growth Triangle Footnotes Appendix A 3 The Role of the Penang Development Corporation in Penang's Development ........................... 39 Introduction The Penang Development Corporation The indirect legislative role of the PDC The performance and achievement of the PDC in promoting Penang's economy The performance and achievement of the PDC in supporting Penang's infrastructure and economic construction The Organizational structure of the PDC The Northern Growth Triangle The development strategies of the PDC in IMT-GT Footnotes 4 Conclusion ....................................... 75 Review of the conceptual framework Findings Prospects Footnotes Major Bibliography .......................... ~ .......... 84 Chapter One Research Design 1.1 Introduction The study of the interrelationship between a government's role and the economic development of a given society is the study of political economy. According to James Coleman The term "political economy" refers to, (a) an 18th century branch of the art of government concerned with directing governmental policies towards the promotion of the wealth of the government and the community as a whole; and (b) a modern social science dealing with the interrelationship of political and economic processes 1 . In f ac,t l't'1S c 1 ear th a t po 1 1' t 1CS' an d th e economy are often closely intertwined. As Malenbaum found that economic growth is highly dependent on the given political structure, including its leadership, and seeks their attainment as explicit and major goals, 2 otherwise, economic growth will become impossible • In other words,the econom1C development of a given society is, to a large extent, influenced by its government's policies. The examination of this issue prompted the construction and design of this research paper. 2 This paper consists of four chapters. Chapter one will describe the research design and research method of the paper, and chapter two will review the historical background of Penang, its present status and its future economical performance. Chapter three will study the case of the Penang Development Corporation (PDC), which 1S a non-governmental institution responsible for boosting the economy. The final chapter will provide a conclusion and try to assess the prospects for Penang's economic development. 1.2 Research Topic The remarkable success of the economic growth of the East Asian Newly Industrialized Countries (NICs ) -- South Korea, Taiwan, Hong Kong and Singapore -- draws the attention of political scientists, economists and sociologists in examining, within their ownfields, the cause and nature of this success. These are common elements in the backgrounds of the four NICs: first, they were once occupied as colonies. Second, they are small, in geographic terms, when compared with other 3 This paper consists of four chapters. Chapter one will describe the research design and research method of the paper, and chapter two will review the historical background of Penang, its present status and its future economical performance. Chapter three will study the case of the Penang Development Corporation ( P DC) , which is a non-governmental institution responsible for boosting the economy. The final chapter will provide a conclusion and try to assess the prospects for Penang's economic development. 1.2 Research Topic The remarkable success of the economic growth of the East Asian Newly Industrialized Countries ( NI Cs ) -- South Korea, Taiwan, Hong Kong and Singapore -- draws the attention of political scientists, economists and sociologists in examining, within their ownfields, the cause and nature of this success. These are common elements in the backgrounds of the four NICs: first, they were once occupied as colonies. Second, they are small, in geographic terms, when compared with other 3 countries in the region. It is widely accepted that Japan, in Asia, performs the leading role in economic growth, followed by the four NI Cs in the second row, Thailand and Malaysia in the third row, and the Philippines and 3 Indonesia in the fourth row. The successes of the four NICs have a common origin in the proposition of a labour intensive market at the beginning of a stage of Import Substitution Industrialism(ISI), and a common redevelopment has the transformation to transform to a hi-tech, skills and serV1ce Export Oriented Industrialism During this period of development, the governments played a key role which, influenced the pattern of development. In other words, the success of economic growth is highly dependent on the implementation of government policy. Malaysia is now at the labour intensive market stage (i.e. at the ISI stage) and it is likely that it will develop into the transnational period. With its thirteen separate states, each governed by its own elected local government, Malaysia 1S a very complicated case to study. Local government sometimes faces the dilemma of whether or not to follow the 4 federal government's economic policy. The study of government and the economy is not a straightforward matter. Therefore, the scope of this research paper is defined by the development of the politico-economic aspects and geographical situations of the Asian Four NI Cs and to what extent these elements relate to Penang -- the only island state of Malaysia. The topic of this paper lS then 'The Governments' Role And Economic Development Of Penang' . Its aim is to examine the role of Penang Government in the course of economic development. 1.3 Research Assumption I assume that in the rapid growth of economic development in Asia, the local government plays a key role in economic development to the central government which leads the central government to attain a economic success. 5 1.4 Conceptual Framework studying the government's role in Penang's economic development, I have considered the following: (l)the proper roles of government regarding economic development; and (2) a suitable interpretative model to explore the pattern of development in Asia. Thus, I try to use the concept of Robert Wade's discussion of the proper roles of a government.