|Vision in the Development of a Nation|
|Dr. Mahathir Bin MOHAMAD*|
|Monday, 12 March 2012 09:54|
Countries used to grow largely through the initiatives of the private sector in the quest for profits. It was seemingly a natural process. It required no real planning nor was the government required to help the process. The government’s main role initially was the provision of law and the maintenance of order. The welfare and well-being of the people depended mostly on their own initiatives.
Inevitably, the rich and the powerful exploited the poor and the weak. Also, conflicts inevitably arose between rich and poor, which often exploded into violence and instability. Consequently, economic growth would often be retarded and this in turn prevents eradication of poverty and development of the nation.
Blueprints for Reducing Economic Gaps
The thinkers and philosophers of the time came up with ways and means to reduce the disparities between rich and poor. One of them was to give the government greater responsibility in determining the way and the course the development of the country should take. Social justice became a matter of prime concern for everyone.
In socialist countries, this took the form of nationalisation and economic planning. The plans not only focussed on stimulating growth, but also equal distribution of the wealth of the nation. The five-year plans of the socialist countries had this objective. It was believed that control of the means of production by the government would ensure the resultant profits would go completely to the government, which would then be equally distributed to all the people.
After years of adopting the strategy, it was found that the expected growth did not take place as hoped. Nationalized industries failed to perform and could not contribute to the development of the nation as was happening to the free market economies. What instead happened was that managers and workers in nationalized industries had no incentive to grow their businesses because they stood to gain very little from the ideas and the work that they put in.
In capitalist societies, the expectation of greater profits acted as great incentives in terms of good management, innovations, and initiatives. But the disparities between rich and poor could not be significantly reduced. In fact, they could increase.
Therefore, after studying the socialist and the capitalist free market systems, Malaysian policy makers and planners decided that the best results would come from a combination of the best elements in the two systems – the socialists’ centrally-planned economy and the capitalists’ free market economy. The Malaysian government thus decided to adopt the capitalist free-market system but mitigate it with economic planning and a limited number of national enterprises.
While the private sector should be allowed to freely conduct business, the government should determine the direction by providing laws, rules, and regulations to govern their activities. This is to ensure exploitation through monopolies or price-fixing would not happen, or would be kept to a minimal.
The Benefits of Tax Exemptions
Planning was detailed and extensive and required the participation of the private sector. The primary objective of industrialisation was to get the investors, foreign and local, to create jobs for the workers. Accordingly, incentives were given to the investors in the form of tax exemptions. Going beyond that action, the government adopted a business-friendly attitude, helping the investors to achieve reasonable profits and to expand their businesses. With these incentives and friendliness in place, local and foreign investors rushed to set up manufacturing industries. Unemployment was reduced rather quickly and the country’s economy became more industrial than agricultural.
The government lost money due to the tax holidays. But with most of the workers earning incomes, the spending power of the people grew. This supported retail and wholesale businesses which pay corporate taxes to the government. This compensated for the loss in revenue due to tax exemption for the industrial investors. The industries also required the support of local businesses and industries, which grew and prospered. Large amounts of money were injected into the local economy, increasing the country’s per capita and GDP rates. Government revenue was also increased as demands for food, clothing, and housing stimulated import and wholesale businesses. This paved the way for corporate and income taxes to be collected. It was clear that the stimulation of business through tax exemptions increased the revenue from income and corporate taxes on the economically stimulated local businesses. A good example can be seen through the abolishment of import taxes on luxury goods, including electronic goods such as cameras, video projectors, televisions, etc. The sales of these tax-free goods soon grew rapidly. Even foreigners would come to Malaysia to buy such goods, as they were cheap compared to other regional markets. The shops selling these tax-free goods then grew in number, with growing sales and great profit seen alike. The government then collected corporate taxes amounting to 28% of the profits made. The corporate tax collected is usually much more than the import duty on the electronic goods, which was now foregone. Import tax exemption in suitable cases is clearly a solid way to stimulate businesses and to increase government revenue through income and corporate taxes.
Tourism and Sports Expansion Areas
The five-year plans enabled the government to focus on particular areas which needed to be promoted. Special attention was given to those which can contribute towards wealth creation and economic growth. For example, tourism was identified as an industry which could contribute greatly to economic growth. As the flow of tourists increased, the service industries, including transportation, hotels, and restaurants, were likewise started and grew from that point. Tourism promotion was given a moderate budget while visa requirements were abolished for certain countries. Natural attractions were enhanced while new tourist products were created.
Sporting events such as F1 racing, cycling races, traditional sports competition, air and maritime shows, etc., attracted visitors. The number of tourists grew from 1 million to 25 million over a period of 20 years, bringing in unforeseen amounts of foreign exchange. Domestic tourism was also promoted. The tourism business puts more money into circulation and the demand for and construction of better infrastructure and utilities helped the physical developments of the country.
Infrastructure, Employment, and Education Developments
With the people earning more money through increases in wages and businesses, there was a demand for housing and office buildings. New towns were planned and old towns were expanded. Light rail transport and commuter trains enabled people to live further away from their work places and be able commute to work, contributing to the expansion of cities.
From the very beginning, education was given priority. At times, almost 25% of the national budget went to education. The education policy was directed toward providing trained personnel for industries and businesses.
After unemployment was almost eradicated through labour intensive industries, further enrichment could only come from higher wages. So the focus was on hi-tech and high value added industries. Workers were trained so as to be able to earn higher salaries from doing more sophisticated and highly skilled work.
Offices, condominiums, shopping complexes were built to meet the needs of a growing and more prosperous population. Roads, railways, hydroelectric power plants and water supply systems were also built by the government to meet the increasing demands of the people. All these things changed the physical appearance of the country. The agrarian appearances disappeared to be replaced by the industrial landscape of new manufacturing plants, factories, roads, bridges, and overhead power lines. Ownership of motor vehicles greatly increased, indicating the level of personal income and development of the country. The country now assumes the appearance of a developed country. Shoppers throng the shopping complexes and the streets are full of well-dressed people going to and from the offices and the shopping complexes.
The vision for the development of the country was enunciated stage by stage. Although the Malaysian vision may not be suitable for all countries, there are elements which may be adopted by all who wish to become developed nations.
Key to Preventing Unrest: Internal Development
I believe that one of the reasons for the uprising against governments in Arab countries is the failure of the governments to look after the needs of the people. The greatest need is for jobs, which will help people attain a steady income to support a decent life. Agriculture does not create enough jobs, but industry does. One hectare of land for agriculture may support one person, but it can instead house a factory of 500 workers. That was why Malaysia opted for labour intensive industries once land was no longer available for cultivation.
Apart from jobs for the working class, industries provided people training in manufacturing. With industrial skills, expansion in all kinds of industries can be established. Soon the dependence on foreign direct investments is reduced as local people accumulate more funds and expertise to start their own industries.
Identifying ‘Developed’ Countries
A country is not considered developed simply because per capita income is high. Most of the oil-producing countries are not considered to be developed. A developed country must have a good infrastructure, an educated and well-trained work force, a large middle class, and good technological and industrial capacities. Infrastructure is important because it supports a good living standard.
Water and electricity must be available at all times. There should not be frequent breakdowns in the supply, especially electricity. Most of the household equipment is powered by electricity. Break-down of supply will result in food being destroyed and homes, offices and shops becoming uninhabitable. Besides, industries depend on a constant supply of electricity. Any failure would result in stoppage and losses. The water supply and electricity also require proper maintenance. For these upgrades to happen, skilled engineers, technicians and repairmen must be trained. This helps to upgrade local industrial capacities.
The quality of the work must improve all the time and be aimed at achievements of world standards as befitting a developed country. All these things cannot be made available instantaneously. For a poor country, the development process will take time. The vision must be within the capacity of the country at any particular period. As development progresses, new visions can be made. An example of a vision that disregards capacity is illustrated as follows: a leader of a developing country wanted to build a large department store in his country like the one he visited (in a developed country) abroad. With the power he wielded, he enabled for the building to be built and for the goods to be displayed for sale. Unfortunately, his people were too poor to buy the expensive products displayed, and the department store eventually closed. This is what will happen when an ambitious leader sets targets which are not realistic and compatible with the state of development of his nation.
The Importance of Leadership
The role of the leader is crucial to the success of a vision. Even when the country has the means and potential to grow, but it is without a leader that has passion and drive, it will not grow. The experience of China is illustrative of this aspect. Mao Zedong was a guerrilla leader who defeated the nationalist forces of Chiang Kai-Shek and set up the People’s Republic of China. Zedong was a brilliant military leader, but running a country is not the same as fighting a war. The Communist ideology which he believed in was also not development-oriented. As a result, China remained developmentally backwards. But Mao’s successor Deng Xiaopeng was a completely different man. Although also a communist, he was a pragmatist who wanted China to develop. He famously said, “it doesn’t matter if the cat is black or white, as long as it catches the mouse.” The result is the China that we see today; twenty years ago, a third world country, and today, China has the second biggest economy in the world.
Clearly, the leader of a nation plays a crucial role in the country’s development. A leader’s decision as to how the country should be developed is of critical importance. A leader must have passion for it, and must personally direct the implementation of that vision. A leader must also be well qualified in terms of knowledge in administration, policies to follow, finance, and commerce. Not only must a leader know something about the process of development which has decided upon, but such a director needs to additionally go on the ground to oversee work being done and to overcome obstacles and constraints by making sure the project is properly implemented. Visits by the head of government at the site of construction motivate the implementers at all levels, therefore, the leader must make fairly frequent visits. Ministers surrounding the leader must also be hands-on, and like their director, they must visit and listen to briefings on the progress made on the implementation of various projects.
Having a vision for development is essential, but this alone is not enough. There must also be adequate knowledge of how the vision is to be implemented in order for the country to be developed.
* The Honorable Dr. Bin Mohammed served as the fourth Prime Minister of Malaysia until 2003. This speech was given at the OIC Member Countries’ 3rd Think Tank Forum on March 3rd 2012 in Baku, Azerbaijan.