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Southeast Asian labyrinth : restrictive foreign investment regulatory policies of Malaysia, Thailand… Yee, Ernest 1987

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SOUTHEAST ASIAN LABYRINTH: RESTRICTIVE FOREIGN INVESTMENT REGULATORY POLICIES OF MALAYSIA, THAILAND AND SINGAPORE FROM 1970 TO 1980 By ERNEST YEE B.A. (Hons.), U n i v e r s i t y of B r i t i s h Columbia, 1983 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS i n THE FACULTY OF GRADUATE STUDIES (Department of P o l i t i c a l Science) We accept t h i s t h e s i s as conforming to the r e q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA June 1987 ® Ernest Yee, 1987 4 6 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my writ ten permission. Department The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 DE-6(3/81) ABSTRACT T h i s t h e s i s examines the l e v e l s o f r e s t r i c t i v e f o r e i g n i n v e s t m e n t r e g u l a t o r y p o l i c i e s o f M a l a y s i a , T h a i l a n d and S i n g a p o r e from 1 9 7 0 t o 1 9 8 0 . The s t u d y seeks t o e x p l a i n why t h e i r p o l i c i e s v a r i e d . I t p r e s e n t s a d e s c r i p t i v e c omparison of each c o u n t r y ' s p o l i c i e s r e s t r i c t i n g f o r e i g n i n v e s t m e n t . T h i s d i s c u s s i o n d e a l s w i t h g e n e r a l q u a n t i t a t i v e l i m i t s on f o r e i g n o w n e r s h i p , r e s t r i c t i o n s on c e r t a i n economic s e c t o r s , r e s t r i c t i o n s on t h e o p e r a t i o n s o f f o r e i g n - o w n e d c o r p o r a t i o n s , and t h e use of government-owned c o r p o r a t i o n s as i n s t r u m e n t s of c o n t r o l o v er f o r e i g n i n v e s t m e n t . Based on the c o m p a r i s o n , the s t u d y c o n c l u d e s t h a t M a l a y s i a p l a c e d g r e a t e r r e s t r i c t i o n s on f o r e i g n i n v e s t m e n t than T h a i l a n d o r S i n g a p o r e . I t i s argued t h a t d i f f e r e n c e s i n t h e d o m e s t i c p o l i t i c a l and economic s e t t i n g s o f M a l a y s i a , T h a i l a n d and S i n g a p o r e e x p l a i n M a l a y s i a ' s g r e a t e r r e s t r i c t i v e n e s s . The t h e s i s examines each s t a t e ' s p a s t e x p e r i e n c e w i t h a c o l o n i a l power, economic s t r a t e g i e s o f t h e p o l i t i c a l e l i t e s , d o m e s t i c p o l i t i c a l p r e s s u r e s , and t h e p r e s e n c e o f e t h n i c m i n o r i t i e s . I t a l s o l o o k s a t such c o n t r i b u t i n g f a c t o r s as t h e s i z e of t h e n a t u r a l r e s o u r c e s e c t o r , t h e p r e v a l e n c e of i n d u s t r i e s w i t h o l d t e c h n o l o g y , and t h e l e v e l o f f o r e i g n o wnership of i n d u s t r y i n each c o u n t r y . i i i T h i s t h e s i s concludes t h a t M a l a y s i a p l a c e d more r e s t r i c t i o n s than T h a i l a n d or Singapore because i t had a v e r y d i f f e r e n t domestic s e t t i n g : an economically-dominant e t h n i c m i n o r i t y , domestic p r e s s u r e f o r r e s t r i c t i o n s , and a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y . Taken t o g e t h e r , these d i f f e r e n c e s e x p l a i n M a l a y s i a ' s g r e a t e r r e s t r i c t i o n s on f o r e i g n investment. Of the e x p l a n a t o r y v a r i a b l e s , e t h n i c f a c t o r s are the most important. i v TABLE OF CONTENTS Page CHAPTER I I n t r o d u c t i o n 1 CHAPTER I I Comparison of P o l i c i e s to R e s t r i c t F o r e i g n Investment 21 CHAPTER I I I E x p l a n a t i o n f o r Ma l a y s i a ' s Greater R e s t r i c t i o n s 46 CHAPTER IV C o n c l u s i o n 88 SELECTED BIBLIOGRAPHY 101 V LIST OF TABLES TABLE 1: Summary of F i n d i n g s Page 91 v i ACKNOWLEDGEMENT I would l i k e to thank my t h e s i s committee, P r o f e s s o r s Diane Mauzy and Mark Zacher. Diane Mauzy was very h e l p f u l with her i n s i g h t f u l comments, v a l u a b l e a d v i c e , and benevolent d i r e c t i o n . I a l s o wish t o express my a p p r e c i a t i o n to P r o f e s s o r s Jean Laponce and Robert Jackson. They guided me through the undergraduate honours program i n p o l i t i c a l s c i e n c e and i n s p i r e d me to do graduate s t u d i e s i n the d i s c i p l i n e . I would l i k e to acknowledge my g r a t i t u d e to Nancy Mina, P e t u l a M u l l e r , Dory Urbano, and B e t t y G r e i g f o r h e l p i n g me around the v a r i o u s a d m i n i s t r a t i v e p i t f a l l s of the u n i v e r s i t y . I would a l s o l i k e t o thank S y l v i a Woodcock f o r g r a c i o u s l y t o l e r a t i n g my frequent d i s c u s s i o n s i n the P o l i t i c a l S c i e nce Reading Room. My deepest thanks go t o my t h e s i s s u p e r v i s o r , P r o f e s s o r Mark Zacher. I have been taught by Mark Zacher a t both the undergraduate and graduate l e v e l . I have a l s o worked f o r him as a r e s e a r c h a s s i s t a n t and l a t e r as a te a c h i n g a s s i s t a n t . Whenever I spent too much time on p o l i t i c a l matters or doing i n t e r n a t i o n a l development work, Mark Zacher p a t i e n t l y s t e e r e d me back to my t h e s i s . I am sure t h a t I sometimes appeared to spend more time i n Toronto, Ottawa, and Geneva than I d i d on campus. I owe a v i i g r e a t d e a l to Mark Zacher f o r h i s encouragement and help over the y e a r s . F i n a l l y , I wish to thank the many f r i e n d s I have made at the U n i v e r s i t y of B r i t i s h Columbia. I w i l l always remember my years i n the Department of P o l i t i c a l S c i e nce with fondness. CHAPTER I I n t r o d u c t i o n Many observers i n the 1980s have expressed t h e i r b e l i e f t h a t the next century w i l l be dominated by the c o u n t r i e s of the P a c i f i c . American S e c r e t a r y of S t a t e George P. S c h u l t z , i n h i s message to the T h i r d P a c i f i c Economic Cooperation Conference h e l d i n B a l i , Indonesia d u r i n g November 1983, echoed t h i s view: The P a c i f i c i s r a p i d l y becoming the world's most dynamic economic r e g i o n . I t s economies have achieved a remark-a b l e r e c o r d of s u s t a i n e d growth over the l a s t decade, and are i n c r e a s i n g l y assuming p o s i t i o n s of l e a d e r s h i p i n our g l o b a l economic system. T h i s p r o s p e r i t y has brought unprecedented b e n e f i t s to the people of our r e g i o n . Much of t h i s success has been achieved through a commitment to f r e e economies and market p r i n c i p l e s , as w e l l as to sound management. I t has a l s o been a product of our g l o b a l f r e e market system, which has allowed n a t i o n s — p a r t i c u l a r l y those of the P a c i f i c — t o expand t h e i r overseas markets and to reap tljie b e n e f i t s of t h e i r s k i l l and i n d u s t r y . The A s i a - P a c i f i c r e g i o n i n p a r t i c u l a r , with h a l f of the world's p o p u l a t i o n , has become a c e n t r e of world economic 2 and p o l i t i c a l a t t e n t i o n . During the decade of the 1970s, the A s i a - P a c i f i c r e g i o n experienced an economic r a t e of growth which was twice as high as the l e v e l achieved by the c o u n t r i e s of the O r g a n i z a t i o n f o r Economic Cooperation and 2 Development (OECD). Moreover, as a group, the A s i a n - P a c i f i c c o u n t r i e s accounted f o r the second h i g h e s t p r o p o r t i o n of g l o b a l t r a d e a f t e r the European Economic Community (EEC). The Canadian government has recog n i z e d the long-term economic p o t e n t i a l of the A s i a - P a c i f i c , and i n 1985 ordered the Department of E x t e r n a l A f f a i r s to r e a l l o c a t e from other areas an a d d i t i o n a l $10 m i l l i o n 3 a n n u a l l y to promote Canadian t r a d e with P a c i f i c c o u n t r i e s . While the economies of the i n d u s t r i a l i z e d c o u n t r i e s performed s l u g g i s h l y through the tumultuous years of the 1970s, M a l a y s i a , T h a i l a n d and Singapore had r e a l annual Gross Domestic Product (GDP) growth r a t e s of 7.8%, 7.2%, and 8.5%, r e s p e c t i v e l y . Canada, c o n v e r s e l y , had a 4 cor r e s p o n d i n g f i g u r e of o n l y 3.9%. Even t a k i n g i n t o c o n s i d e r a t i o n t h a t economic growth tends t o slow down i n the more mature economies of developed s t a t e s , the economic achievements of these three members of the A s s o c i a t i o n of 5 Southeast A s i a n Nations (ASEAN) are im p r e s s i v e . Singapore, with a per c a p i t a GDP i n 1980 exceeding U.S. $4500, i s now c o n s i d e r e d a newly i n d u s t r i a l i z e d country (NIC). The upgraded c l a s s i f i c a t i o n has caused Singapore t o l o s e some t r a d e p r e f e r e n c e s g i v e n t o de v e l o p i n g c o u n t r i e s by the i n d u s t r i a l i z e d s t a t e s . M a l a y s i a ' s per c a p i t a GDP i n 1980 was approximately U.S. $1700 which p l a c e s i t among the 3 h i g h e s t 25% of dev e l o p i n g c o u n t r i e s . The f i g u r e f o r T h a i l a n d , however, was about U.S. $700 which c l a s s i f i e s i t as a middle income de v e l o p i n g country. Canada's economic r e l a t i o n s with ASEAN are growing i n importance, even though they are dwarfed by Canada's d e a l i n g s with the U n i t e d S t a t e s and Japan. In 1980, ASEAN had a GDP which was about t w o - t h i r d s of the f i g u r e f o r Canada and a p o p u l a t i o n over ten times l a r g e r . Canada's imports from the ASEAN s t a t e s grew from U.S. $57 m i l l i o n i n 1970 to U.S. $332 m i l l i o n i n 1980. S i m i l a r l y , Canada's exports to ASEAN expanded over the decade from U.S. $87 m i l l i o n t o U.S. $603 m i l l i o n . Although t o t a l t r a d e between Canada and ASEAN r e p r e s e n t s under 1% of each o t h e r ' s g l o b a l 7 t r a d e , i t grew approximately 649% from 1970 to 1980. In 1984, o v e r a l l t r a d e between Canada and ASEAN was $1.5 b i l l i o n . ASEAN as an e n t i t y i s Canada's e i g h t h l a r g e s t g t r a d i n g p a r t n e r , s u r p a s s i n g France and I t a l y . Canadian investment i n the s i x ASEAN s t a t e s exceeded $1.6 b i l l i o n i n 1984. 9 T h i s t h e s i s i s a study of the r e s t r i c t i v e f o r e i g n investment r e g u l a t o r y p o l i c i e s of M a l a y s i a , T h a i l a n d and Singapore from 1970 to 1980. The study w i l l seek to e x p l a i n why t h e i r p o l i c i e s v a r i e d . Before beginning the a n a l y s i s , the t h e s i s w i l l d i s c u s s why these s t a t e s and t h i s 4 time p e r i o d were chosen f o r the study. I t w i l l a l s o e x p l a i n why the three c o u n t r i e s want f o r e i g n investment and then o u t l i n e the e x p l a n a t o r y hypotheses to be examined. Although they have s i g n i f i c a n t d i f f e r e n c e s which w i l l be d i s c u s s e d l a t e r i n t h i s t h e s i s , the c o u n t r i e s of M a l a y s i a , T h a i l a n d and Singapore were chosen f o r the study because they have s e v e r a l common c h a r a c t e r i s t i c s . They are g e o g r a p h i c a l l y connected i n Southeast A s i a . The t h r e e c o u n t r i e s b a s i c a l l y form one long North-South e x t e n s i o n of the Malay p e n i n s u l a from T h a i l a n d to Malaya ( P e n i n s u l a r M a l a y s i a ) to Singapore. To the East are the non-contiguous Borneo Malaysian s t a t e s of Sarawak and Sabah. A l l t h r e e c o u n t r i e s have a t r o p i c a l monsoon c l i m a t e . In a d d i t i o n , each of the c o u n t r i e s has h i s t o r i c a l t i e s with an E n g l i s h - s p e a k i n g i n d u s t r i a l i z e d s t a t e . M a l a y s i a and Singapore were B r i t i s h c o l o n i e s , while T h a i l a n d , although never f o r m a l l y c o l o n i z e d , had c l o s e connections with B r i t a i n i n the 19th century. T h a i l a n d ceded s u b s t a n t i a l t e r r i t o r y to the c o l o n i a l powers i n the e a r l y 1900s, i n c l u d i n g f o u r southern Malay areas to B r i t a i n i n 1909, which l a t e r became p a r t of M a l a y s i a . With the s t a r t of the Korean War i n 1950, T h a i l a n d became an anti-Communist a l l y of the U n i t e d S t a t e s i n Southeast A s i a . P o p u l a t i o n i n the three s t a t e s tends to be 5 g e o g r a p h i c a l l y c o n c e n t r a t e d . M a l a y s i a ' s people are l a r g e l y s e t t l e d on the West coast of P e n i n s u l a r M a l a y s i a , whereas T h a i l a n d ' s c i t i z e n r y are congregated around Bangkok and the C e n t r a l P l a i n s area. Singapore i s a c i t y - s t a t e and i s the most densely populated of the c o u n t r i e s to be examined. The e t h n i c Chinese community i s s i g n i f i c a n t i n the three s t a t e s . M a l a y s i a ' s Chinese made up about 35% of the country's p o p u l a t i o n i n 1980, while Malays, Indians, and other m i n o r i t i e s accounted f o r 53%, 11%, and 1%, r e s p e c t i v e l y . E t h n i c m i n o r i t i e s t o t a l l e d a l a r g e 47% of the p o p u l a t i o n of M a l a y s i a . Although the m a j o r i t y Malays dominate p o l i t i c a l l y , the Chinese are preeminent e c o n o m i c a l l y . T h i s s i t u a t i o n i n M a l a y s i a has had s e r i o u s consequences which w i l l be examined l a t e r i n the t h e s i s . T h a i l a n d , on the other hand, a l s o had the Chinese as i t s b i g g e s t m i n o r i t y group, but they represented o n l y approximately 7% of the p o p u l a t i o n . Although they are ec o n o m i c a l l y dominant, the Chinese are onl y a r e l a t i v e l y s m a l l m i n o r i t y and are f a i r l y w e l l a s s i m i l a t e d i n T h a i l a n d . In Singapore, about 76.9% of the p o p u l a t i o n i n 1980 were Chinese, whereas Malays and Indians made up most of the remaining 23.1%. The Chinese dominate both p o l i t i c a l l y and ec o n o m i c a l l y i n Singapore. These s t a t e s p r a c t i c e v a r i a t i o n s of Western 6 p a r l i a m e n t a r y democracy, even though t h e i r governments have a u t h o r i t a r i a n t e n d e n c i e s , m i r r o r i n g t h e i r c u l t u r a l t r a d i t i o n s . Competitive e l e c t i o n s occur, but s i g n i f i c a n t l i m i t s on p o l i t i c a l a c t i v i t y e x i s t . Although the th r e e are not l i k e l y to succumb to communist i n s u r g e n t s i n the near f u t u r e , t h e i r governments have had to d e a l with communist groups t r y i n g to s e i z e power. F i n a l l y , M a l a y s i a , T h a i l a n d and Singapore are market economies with g e n e r a l l y pro-West o r i e n t a t i o n s . They rank among the most i n d u s t r i a l i z e d of the de v e l o p i n g c o u n t r i e s and a l l t h r e e attempt to a t t r a c t f o r e i g n investment. In 1980, a g r i c u l t u r e accounted f o r 22% of GDP i n M a l a y s i a , w h i l e manufacturing and mining made up 21% and 5%, r e s p e c t i v e l y . M a l a y s i a i s the world's b i g g e s t t r o p i c a l timber exporter and both the l a r g e s t e x p o r t e r and producer of t i n , n a t u r a l rubber, palm o i l , and pepper. The country a l s o exports o i l . A g r i c u l t u r e had a 25% share of T h a i l a n d ' s GDP i n 1980. Manufacturing c o n t r i b u t e d 21% and mining r e p r e s e n t e d 2%. T h a i l a n d i s an important r i c e e x p o r t e r and i s the second b i g g e s t producer of t i n i n the world. The s t a t e i s an o i l importer. In Singapore, manufacturing accounted f o r 23% of GDP i n 1980, but a g r i c u l t u r e and mining together made up o n l y 2%. Being a c i t y - s t a t e , Singapore has very few n a t u r a l r e s o u r c e s , but 7 i t i s a very l a r g e o i l r e f i n i n g c e n t r e . About 37% of Mal a y s i a ' s p o p u l a t i o n i s i n v o l v e d i n a g r i c u l t u r e and f i s h i n g . The government d e f i n e s almost h a l f of those i n the a g r i c u l t u r a l s e c t o r as being poor. The bulk of the r u r a l poor are Malays and the Malaysian government has s t r i v e n to a l l e v i a t e t h e i r p o v e r t y . R i c e has t r a d i t i o n a l l y been T h a i l a n d ' s b i g g e s t merchandise export and roughly 70% of the country's people are s t i l l i n v o l v e d i n growing the crop. T h a i l a n d i s r e s p o n s i b l e f o r 40% of the g l o b a l r i c e t r a d e . Many r u r a l people i n the No r t h e a s t e r n , Northern, and very Southern s e c t i o n s of the country do s u b s i s t e n c e farming. They are poor and have not been very a f f e c t e d by T h a i l a n d ' s economic growth over the l a s t twenty y e a r s . In s t a r k c o n t r a s t to M a l a y s i a and T h a i l a n d , Singapore has an i n s i g n i f i c a n t a g r i c u l t u r a l s e c t o r . T h i s t h e s i s analyzes the p e r i o d from 1970 to 1980. The year 1970 was chosen as a d i v i d i n g l i n e because American P r e s i d e n t R i c h a r d M. Nixon announced the beginning of the withdrawal of American troops from Vietnam i n September 1969. The departure of the Un i t e d S t a t e s had a profound impact on Southeast A s i a and p r o v i d e s a good s t a r t i n g p o i n t f o r the study. The i n t e r n a t i o n a l economic i n s t a b i l i t y of the 1970s makes the decade a p a r t i c u l a r l y 8 i n t e r e s t i n g p e r i o d to examine. The aftermath of the second o i l c r i s i s of the decade makes 1980 a reasonable t e r m i n a t i o n p o i n t f o r the a n a l y s i s . A f t e r the impressive economic growth of the 1970s, M a l a y s i a , T h a i l a n d and Singapore have s u f f e r e d economic slumps i n re c e n t y e a r s . F a l l i n g commodity p r i c e s combined with growing p r o t e c t i o n i s m i n the i n d u s t r i a l i z e d c o u n t r i e s have hurt M a l a y s i a ' s f o r e i g n exchange earnings from e x p o r t s . T h i s has l e d to i n c r e a s e d f o r e i g n debt and a GDP growth r a t e of o n l y approximately 0.5% i n 1986. S i m i l a r l y , T h a i l a n d has a l s o been a d v e r s e l y a f f e c t e d by dropping commodity p r i c e s . Besides low g l o b a l p r i c e s f o r i t s a g r i c u l t u r a l e x p o r t s , the Thai economy has been i n j u r e d by the EEC's v a r i o u s a g r i c u l t u r a l t r a de b a r r i e r s and s u b s i d i e s and by the U n i t e d S t a t e s ' s u b s i d i e s to American r i c e farmers. N e v e r t h e l e s s , T h a i l a n d s t i l l managed a 3.8% r a t e of GDP growth i n 1986. Singapore s u f f e r e d a n e g a t i v e economic growth r a t e of 2% i n 1985. In February 1986, a government Economic Committee c h a i r e d by B r i g a d i e r General Lee Hsien Loong, M i n i s t e r of Trade and Indu s t r y and son of the Prime M i n i s t e r , i s s u e d a r e p o r t on Singapore's economy. The Economic Committee sought to stop Singapore's economic d e c l i n e through v a r i o u s p o l i c y changes. The r e p o r t of the Economic Committee marked the end of the Second I n d u s t r i a l 9 R e v o l u t i o n , a development s t r a t e g y adopted by the government i n 1979. T h i s s t r a t e g y emphasized higher technology i n d u s t r i e s which were c a p i t a l - i n t e n s i v e and r e q u i r e d more s k i l l e d and more h i g h l y p a i d l a b o u r . The Economic Committee's r e p o r t s t a t e d t h a t Singapore's r e c e s s i o n was caused by a d e c l i n e i n the country's i n t e r n a t i o n a l c o m p e t i t i v e n e s s , f a l l i n g commodity p r i c e s , and an economic slowdown i n the U n i t e d S t a t e s . Singapore's 12 GDP growth r a t e recovered somewhat i n 1986 to reach 1.9%. M a l a y s i a , T h a i l a n d and Singapore, l i k e d e v e l o p i n g c o u n t r i e s i n g e n e r a l , want to i n d u s t r i a l i z e and, thus, modernize. As a r e s u l t , t h e i r governments b e l i e v e t h a t f o r e i g n investment i s needed because i t b r i n g s c a p i t a l , technology t r a n s f e r , and access to markets. In the e a r l y stages of economic development, the l e s s developed c o u n t r i e s (LDCs) u s u a l l y do not have enough domestic c a p i t a l to i n d u s t r i a l i z e a t the r a t e t h a t they d e s i r e . Domestic savings may be q u i t e low r e l a t i v e to a s t a t e ' s Gross N a t i o n a l Product (GNP). Moreover, p o l i t i c a l and economic i n s t a b i l i t y , together with u n c e r t a i n t y concerning p r o f i t a b i l i t y , may d e t e r l o c a l people from i n v e s t i n g i n t h e i r c ountry. Developing s t a t e s , t h e r e f o r e , look to f o r e i g n sources of c a p i t a l to help them reach the d e s i r e d l e v e l s of investment. The c a p i t a l i s i n i t i a l l y used to 10 b u i l d up i n f r a s t r u c t u r e , such as e l e c t r i c i t y , water, t r a n s p o r t a t i o n networks, and communication systems. Once adequate i n f r a s t r u c t u r e i s i n p l a c e , p r o f i t s expand, which i n t u r n l e a d to both i n c r e a s e d domestic savings and i n c e n t i v e t o i n v e s t . T h e o r e t i c a l l y , the need f o r f o r e i g n investment to a l l e v i a t e domestic c a p i t a l s h o r t f a l l s w i l l 13 g r a d u a l l y d e c l i n e . Technology t r a n s f e r i s another reason t h a t d e v e l o p i n g c o u n t r i e s want overseas investment. The technology o f t e n gained through f o r e i g n investment i n v o l v e s both management and p r o d u c t i o n . The management s k i l l s needed to o r g a n i z e an e n t i r e i n d u s t r i a l process are c o n s i d e r e d c o n t r o l t e c h n o l o g i e s , w h i l e p r o d u c t i o n t e c h n o l o g i e s are the techniques used f o r a c t u a l l y making a product. Both types of t e c h n o l o g i e s are sought by d e v e l o p i n g s t a t e s , where t r a d i t i o n a l methods of p r o d u c t i o n dominate the economy. Without adequate c o n t r o l t e c h n o l o g i e s , p r o d u c t i o n t e c h n o l o g i e s cannot be p r o p e r l y u t i l i z e d . Moreover, l e s s developed c o u n t r i e s may even be unaware of the technology a v a i l a b l e , c a u s i n g them to buy technology t h a t i s not w e l l s u i t e d f o r t h e i r circumstances, and a t a premium p r i c e . Thus, investment from f o r e i g n sources i s d e s i r e d because i t 14 can l e a d to the t r a n s f e r of v a l u a b l e i n f o r m a t i o n . L a s t l y , market access i s a c r u c i a l f a c t o r c o n t r i b u t i n g 11 to the g e n e r a l p e r c e p t i o n among de v e l o p i n g s t a t e s t h a t they r e q u i r e f o r e i g n investment. Developing c o u n t r i e s u s u a l l y begin i n d u s t r i a l i z a t i o n by s u p p l y i n g t h e i r domestic markets through a degree of import s u b s t i t u t i o n . However, to a c h i e v e the most e f f i c i e n t economies of s c a l e , l e s s developed s t a t e s g e n e r a l l y attempt to expand beyond t h e i r l i m i t e d domestic markets by promoting exports to other c o u n t r i e s , e s p e c i a l l y i n d u s t r i a l i z e d ones. Furthermore, exports generate f o r e i g n exchange, which a l l o w the LDC t o import the c a p i t a l goods, such as equipment and other m a t e r i a l s , e s s e n t i a l to i n d u s t r i a l i z a t i o n . M u l t i n a t i o n a l c o r p o r a t i o n s (MNCs) p r o v i d e e s t a b l i s h e d g l o b a l t r a d i n g networks and access to markets of developed c o u n t r i e s . Hence, most d e v e l o p i n g s t a t e s t r y to a t t r a c t m u l t i n a t i o n a l 15 c o r p o r a t i o n s . Dependency t h e o r i s t s g e n e r a l l y argue t h a t the economic development of the d e v e l o p i n g s t a t e s has been stymied i n the past because i t was based on the needs of the c o l o n i a l powers. T h e r e f o r e , T h i r d World economies focussed mainly on e x p o r t i n g n a t u r a l resources to the i n d u s t r i a l i z e d c o u n t r i e s . F o r e i g n investment dominated these economies and s t i f l e d the formation of a domestic business c l a s s . A c c o r d i n g to dependency t h e o r i s t s , t h i s s i t u a t i o n caused the p e r i p h e r a l LDC economies to be dependent on the core 12 i n d u s t r i a l i z e d economies. As a r e s u l t , the dependent economies s u f f e r the e f f e c t s of changes i n the dominant economies and do not have the power independently to a l t e r t h i s r e l a t i o n s h i p . Dependency t h e o r i s t s argue t h a t MNCs perpetuate the i n e q u i t a b l e , dependent r e l a t i o n s h i p t h a t LDCs have with the i n d u s t r i a l i z e d s t a t e s . Despite the warnings of dependency w r i t e r s , most d e v e l o p i n g c o u n t r i e s s t i l l want MNCs to p a r t i c i p a t e i n t h e i r economies. The governments of LDCs b e l i e v e t h a t modernization r e q u i r e s f o r e i g n investment and t h a t a l t e r n a t i v e s t o f o r e i g n investment do not e x i s t . Although they are aware of the d e s t a b i l i z i n g e f f e c t s of dependency, as shown by t h e i r d e s i r e to a t t r a c t c o r p o r a t e headquarters i n order to prevent r a p i d MNC de p a r t u r e s , d e v e l o p i n g c o u n t r i e s g e n e r a l l y f e e l t h a t the b e n e f i t s of f o r e i g n investment and modernization outweigh the c o s t s of continued dependency. """^  M a l a y s i a and T h a i l a n d , l i k e most other d e v e l o p i n g c o u n t r i e s , encourage f o r e i g n investment because they b e l i e v e t h a t i t p r o v i d e s the c a p i t a l , technology t r a n s f e r , and market access t h a t they r e q u i r e i n order to i n d u s t r i a l i z e and modernize. Although Singapore has a r e l a t i v e l y l a r g e supply of accumulated domestic c a p i t a l i n i t s C e n t r a l P r o v i d e n t Fund, a government-managed pension fund, Singapore attempts to draw f o r e i g n investment mainly 13 f o r the l a t t e r two reasons of technology t r a n s f e r and market a c c e s s . N e v e r t h e l e s s , r e s t r i c t i o n s on f o r e i g n investment do e x i s t i n a l l three c o u n t r i e s , although i n v a r y i n g degrees. T h i s t h e s i s asks the c e n t r a l q u e s t i o n : why d i d M a l a y s i a p l a c e more r e s t r i c t i o n s on f o r e i g n investment than i t s neighbouring f e l l o w ASEAN s t a t e s , T h a i l a n d and Singapore, d u r i n g the p e r i o d 1970 to 1980? For the purposes of t h i s t h e s i s , " f o r e i g n investment" w i l l be d e f i n e d as c a p i t a l s u p p l i e d through both d i r e c t and p o r t f o l i o investment. D i r e c t investment i n v o l v e s the t r a n s f e r of c a p i t a l v i a the a c q u i s i t i o n of a s s e t s , such as f a c t o r i e s and p r o p e r t i e s , by a f o r e i g n c o r p o r a t i o n or i n d i v i d u a l . P o r t f o l i o investment, on the other hand, e n t a i l s the forwarding of c a p i t a l through the purchase of s e c u r i t i e s , l i k e shares and bonds, by a f o r e i g n company or person. " R e s t r i c t i o n s " w i l l be narrowly d e f i n e d as f o u r s p e c i f i c types of p o l i c y a c t i o n s : g e n e r a l q u a n t i t a t i v e l i m i t s on f o r e i g n ownership, r e s t r i c t i o n s on c e r t a i n economic s e c t o r s , r e s t r i c t i o n s on the o p e r a t i o n s of foreign-owned c o r p o r a t i o n s , and the use of government-owned c o r p o r a t i o n s as instruments of c o n t r o l over f o r e i g n investment. T h i s t h e s i s w i l l put forward v a r i o u s e x p l a n a t o r y hypotheses f o r examination. The study w i l l argue t h a t a 14 country which has been dominated e c o n o m i c a l l y by a c o l o n i a l power i s more l i k e l y to impose r e s t r i c t i o n s on f o r e i g n investment than other s t a t e s due to economic n a t i o n a l i s m and reasons of n a t i o n a l s e c u r i t y . Economic n a t i o n a l i s m r e f e r s to the f e e l i n g of h o s t i l i t y which a country's e l i t e s and/or g e n e r a l p o p u l a t i o n have toward the p r e v a i l i n g p a t t e r n of c o r p o r a t e ownership i f i t i s one of economic domination by the former c o l o n i a l power. The L D C s c i t i z e n s want to e l i m i n a t e the l a s t v e s t i g e s of c o l o n i a l i s m , e x e r t t h e i r independence and, i n t h e i r view, c o n t r o l t h e i r own d e s t i n y . S i m i l a r l y , the n a t i o n a l s e c u r i t y r a t i o n a l e i s based on the government's d e s i r e t o r e g a i n c o n t r o l over s e c t o r s of the economy which are c o n s i d e r e d v i t a l , such as u t i l i t i e s and mass communication, to the s t a t e ' s n a t i o n a l s e c u r i t y . I f a country has not had the experience of being dominated e c o n o m i c a l l y by a c o l o n i a l power i t i s l e s s l i k e l y to impose r e s t r i c t i o n s . The study w i l l f u r t h e r argue t h a t a country whose e l i t e s f o l l o w an economic s t r a t e g y based on economic n a t i o n a l i s m and f a v o u r a b l e to heavy government economic i n t e r v e n t i o n i s more l i k e l y to impose r e s t r i c t i o n s . The f l i p s i d e of t h i s hypothesis i s the argument t h a t a country whose e l i t e s do not f o l l o w a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y i s l e s s l i k e l y to impose 15 r e s t r i c t i o n s . In a d d i t i o n , i f a s t a t e ' s governing group p e r c e i v e s t h a t i t i s v u l n e r a b l e to domestic p o l i t i c a l p r e s s u r e from economic n a t i o n a l i s t advocates of r e s t r i c t i o n s , the country i s more l i k e l y to invoke r e s t r i c t i o n s on f o r e i g n investment. I f the governing group does not p e r c e i v e t h a t i t i s v u l n e r a b l e to domestic p r e s s u r e from economic n a t i o n a l i s t s , the country i s l e s s l i k e l y to invoke r e s t r i c t i o n s . Another h y p o t h e s i s which t h i s t h e s i s w i l l c o n s i d e r i s the p r o p o s i t i o n t h a t i n a country where the m a j o r i t y e t h n i c group i s p o l i t i c a l l y dominant, but e c o n o m i c a l l y s u b o r d i n a t e , government a c t i o n aimed a t r e d r e s s i n g p e r c e i v e d economic imbalances v i s - a - v i s l a r g e , m i n o r i t y , domestic e t h n i c groups can have the secondary e f f e c t of a l s o r e s t r i c t i n g f o r e i g n investment. I f a country does not have an e c o n o m i c a l l y dominant m i n o r i t y e t h n i c group, government a c t i o n having the secondary e f f e c t of r e s t r i c t i n g f o r e i g n investment i s l e s s l i k e l y t o occur. Moreover, the study a l s o w i l l argue t h a t a country with a high p r o p o r t i o n of n a t u r a l resource i n d u s t r i e s i s more l i k e l y to l e g i s l a t e r e s t r i c t i o n s i n the n a t u r a l r e s o u r c e s e c t o r . These i n d u s t r i e s , as e x e m p l i f i e d by m i n e r a l e x t r a c t i o n and a g r i c u l t u r e , are r e l a t i v e l y v i s i b l e , have symbolic v a l u e to economic n a t i o n a l i s t sentiment, and 16 r a i s e b a s i c q u e s t i o n s about f o r e i g n ownership of n a t u r a l , o f t e n d e p l e t a b l e , r e s o u r c e s . In a d d i t i o n , they are o f t e n p o o r l y i n t e g r a t e d i n t o the l o c a l economy, tend to dominate e i t h e r the s t a t e ' s GDP or e x p o r t s , and f r e q u e n t l y employ r e l a t i v e l y l a r g e numbers of l o c a l workers i n low s k i l l j o b s . These i n d u s t r i e s tend to export n a t u r a l resources as low value-added, primary products, whose p r i c e s are d i c t a t e d by world markets. The f l i p s i d e of t h i s h y p o t hesis i s the c o n t e n t i o n t h a t a country which has a s m a l l n a t u r a l resource s e c t o r i s l e s s l i k e l y to impose r e s t r i c t i o n s . A f u r t h e r hypothesis to be examined i s the view t h a t a country which has a high prevalence of i n d u s t r i e s where the technology i s r e l a t i v e l y o l d and f a i r l y r e a d i l y a c c e s s i b l e , such as car p a r t s , i s more l i k e l y to invoke r e s t r i c t i o n s due to p e r c e p t i o n s of d e c l i n e i n the value of f o r e i g n f i r m s ' c o n t r i b u t i o n s to the country's economic development and consequently i n t h e i r b a r g a i n i n g power and the p e r c e p t i o n t h a t o t h e r s , p o s s i b l y even the host c o untry, c o u l d operate t h a t e n t e r p r i s e . I f a country does not have a high p r e v a l e n c e of i n d u s t r i e s with o l d technology, i t i s l e s s l i k e l y to impose r e s t r i c t i o n s . L a s t l y , t h i s t h e s i s w i l l put forward the p r o p o s i t i o n t h a t a country with high f o r e i g n ownership of i n d u s t r y i s 17 more l i k e l y to l e g i s l a t e r e s t r i c t i o n s . I f a country does not have high f o r e i g n ownership of i n d u s t r y , i t i s l e s s l i k e l y to pass r e s t r i c t i o n s . The c e n t r a l argument of the study i s the c o n t e n t i o n t h a t more r e s t r i c t i o n s on f o r e i g n investment o c c u r r e d i n M a l a y s i a than i n i t s neighbouring f e l l o w ASEAN s t a t e s , T h a i l a n d and Singapore, because of t h e i r d i f f e r e n t domestic p o l i t i c a l and economic s i t u a t i o n s . These d i f f e r e n c e s are found i n economic s t r a t e g i e s , domestic p o l i t i c a l p r e s s u r e s , and the economic p o s i t i o n of e t h n i c m i n o r i t i e s . Of these d i f f e r e n c e s , e t h n i c f a c t o r s form the paramount e x p l a n a t o r y v a r i a b l e . The r e s t of t h i s t h e s i s i s d i v i d e d i n t o t h r e e c h a p t e r s . The next chapter w i l l p resent a d e s c r i p t i v e comparison of each country's p o l i c i e s r e s t r i c t i n g f o r e i g n investment. The d i s c u s s i o n w i l l d e a l with g e n e r a l q u a n t i t a t i v e l i m i t s on f o r e i g n ownership, r e s t r i c t i o n s on c e r t a i n economic s e c t o r s , r e s t r i c t i o n s on the o p e r a t i o n s of foreign-owned c o r p o r a t i o n s , and the use of government-owned c o r p o r a t i o n s as instruments of c o n t r o l over f o r e i g n investment. Chapter I I I w i l l seek to e x p l a i n M a l a y s i a ' s g r e a t e r r e s t r i c t i o n s on f o r e i g n investment by a n a l y z i n g d i f f e r e n c e s i n the domestic p o l i t i c a l and economic s e t t i n g s , which have been a f f e c t e d by each s t a t e ' s 18 experience with a c o l o n i a l power, by the economic s t r a t e g i e s of the p o l i t i c a l e l i t e s , by domestic p o l i t i c a l p r e s s u r e s , and by the presence of e t h n i c m i n o r i t i e s . I t w i l l a l s o look at such c o n t r i b u t i n g f a c t o r s as the s i z e of the n a t u r a l resource s e c t o r , the prevalence of i n d u s t r i e s with o l d technology, and the l e v e l of f o r e i g n ownership of i n d u s t r y i n each country. F i n a l l y , the l a s t chapter w i l l p r o v i d e a summary of the key f i n d i n g s of the t h e s i s and put forward some c o n c l u s i o n s . 19 NOTES CHAPTER I 1. Centre f o r S t r a t e g i c and I n t e r n a t i o n a l S t u d i e s , Issues For P a c i f i c Economic Co o p e r a t i o n : A Report of  the T h i r d P a c i f i c Economic Cooperation Conference  B a l i , November 1983. ( J a k a r t a : Centre f o r S t r a t e g i c and I n t e r n a t i o n a l S t u d i e s , 1984), p.5. 2. For the purposes of t h i s d i s c u s s i o n , the c o u n t r i e s of the A s i a - P a c i f i c r e g i o n i n c l u d e Japan, China, M a l a y s i a , T h a i l a n d , Singapore, Indonesia, the P h i l i p p i n e s , B r u n e i , Hong Kong, South Korea, and Taiwan. 3. Roman L e p i e s z a , "Canada And The Changing Economy of The A s i a - P a c i f i c B a s i n , " paper presented a t the Conference on Canada and I n t e r n a t i o n a l Trade, I n s t i t u t e of I n t e r n a t i o n a l R e l a t i o n s , Vancouver, June 1983, p . l ; and David S t e w a r t - P a t t e r s o n , "Canada's trade focus worries ASEAN," The Globe and M a i l (Toronto), November 4, 1985, p.Bl4. 4. Donald K. Crone, "The D i v e r s i f i c a t i o n S t r a t e g y of the ASEAN S t a t e s : I m p l i c a t i o n s f o r Canadian Economic T i e s with Southeast A s i a , " paper presented a t the Conference on Canada and I n t e r n a t i o n a l Trade, I n s t i t u t e of I n t e r n a t i o n a l R e l a t i o n s , Vancouver, June 1983, pp.2-3. 5. The member s t a t e s of ASEAN are M a l a y s i a , T h a i l a n d , Singapore, Indonesia, the P h i l i p p i n e s , and B r u n e i . 6. B r i a n Wawn, The Economies of the ASEAN C o u n t r i e s :  Indonesia, M a l a y s i a , P h i l i p p i n e s , Singapore and  T h a i l a n d (London: Macmillan Press, 1982), pp.38, 104 and 135. 7. Crone, " D i v e r s i f i c a t i o n , " p.4. 8. P a c i f i c B asin Economic C o u n c i l , B r i e f i n g Book f o r the  Canadian Committee 18th Annual Meeting May 13-16, 1985  Auckland, New Zealand. (Ottawa: P a c i f i c B asin Economic C o u n c i l , 1985), p.(2) 3. 9. Stewar t - P a t t e r s o n , p.Bl4. 20 10. Wawn, pp.38, 40, 106, 137, 153, 155 and 156. 11. Wawn, pp.57-58 and 154; and Far E a s t e r n Economic  Review, 23 January 1986, p.69. 12. Far Ea s t e r n Economic Review, 1 May 1986, pp.24-28; and Far E a s t e r n Economic Review, 2 A p r i l 1987, p.74. 13. H i k o j i Katano, "Foreign C a p i t a l , Technology and Market Access i n East and Southeast A s i a n Development -I n t e r n a t i o n a l Economic I n t e r a c t i o n s i n the 1980s," Two  Decades of Asi a n Development and Outlook f o r the  1980s, eds. Takahiko Haseyama, A k i r a H i r a t a , and Toru Yanagihara (Tokyo: I n s t i t u t e of Developing Economies, 1983), pp.301-304. 14. I b i d . , pp.305-306. 15. I b i d . , pp.308-309. 16. Donald K. Crone, The ASEAN S t a t e s : Coping With  Dependence (New York: Praeger, 1983), pp.19-22. 21 CHAPTER I I Comparison of P o l i c i e s to R e s t r i c t F o r e i g n Investment M a l a y s i a , T h a i l a n d and Singapore a l l encouraged f o r e i g n investment d u r i n g the p e r i o d from 1970 to 1980. However, at the same time, a l l three a l s o imposed r e s t r i c t i v e measures on f o r e i g n investment, though to d i f f e r i n g e x t e n t s . T h i s chapter w i l l look a t each country's p o l i c i e s r e g a r d i n g g e n e r a l q u a n t i t a t i v e l i m i t s on f o r e i g n ownership, r e s t r i c t i o n s on c e r t a i n economic s e c t o r s , r e s t r i c t i o n s on the o p e r a t i o n s of foreign-owned c o r p o r a t i o n s , and the use of government-owned c o r p o r a t i o n s as instruments of c o n t r o l over f o r e i g n investment. Chapter II w i l l argue t h a t M a l a y s i a was more r e s t r i c t i v e i n c e r t a i n areas and g e n e r a l l y p l a c e d more r e s t r i c t i o n s on f o r e i g n investment than T h a i l a n d and Singapore. E x p l a n a t i o n s f o r M a l a y s i a ' s g r e a t e r r e s t r i c t i v e n e s s w i l l be put forward i n Chapter I I I . General Q u a n t i t a t i v e L i m i t s on F o r e i g n Ownership M a l a y s i a s e t g e n e r a l q u a n t i t a t i v e l i m i t s on f o r e i g n ownership i n the New Economic P o l i c y (NEP) which was adopted i n 1971. The adoption of the New Economic P o l i c y l e d to p o l i c i e s which were geared toward a r e d u c t i o n i f not of the r o l e , at l e a s t of the share, of f o r e i g n p a r t i c i p a t i o n i n the economy. However, M a l a y s i a ' s a t t i t u d e toward 22 f o r e i g n investment remained one of 'welcome' but i t by and l a r g e dropped i t s l a i s s e z - f a i r e economic posture f o r one which i t s p o l i c y - makers c a l l 'economic n a t i o n a l i s m ' . The o b j e c t i v e s of the NEP were s e t out i n the Second M a l a y s i a P l a n , 1971-1975, which s t a t e d t h a t "The Government has s e t a t a r g e t t h a t w i t h i n a p e r i o d of twenty y e a r s , Malays and other indigenous people w i l l manage and own a t l e a s t 30% of the t o t a l commercial and i n d u s t r i a l a c t i v i t i e s 2 i n a l l c a t e g o r i e s and s c a l e s of o p e r a t i o n . " The NEP was t r y i n g to r e g u l a t e the ownership of e q u i t y i n order to r e d i s t r i b u t e wealth to Malaysians i n g e n e r a l and bumiputra (Malays and other indigenous peoples) i n p a r t i c u l a r . The NEP had the g o a l of i n c r e a s i n g the bumiputra ownership of c o r p o r a t e a s s e t s from 1.9% i n 1970 to 30% i n 1990. Other Malaysian ( l a r g e l y e t h n i c Chinese) ownership was to expand from 23.5% i n 1970 to 40% i n 1990, w h i l e the share of f o r e i g n e r s was to f a l l from 60.7% to 30%. The balance of e q u i t y i n 1970 was mainly owned by f e d e r a l and s t a t e governments. The NEP planned t h i s r e d i s t r i b u t i o n of ownership to occur i n an environment of high economic growth so t h a t f o r e i g n investment would grow i n a b s o l u t e 3 terms, but would s h r i n k r e l a t i v e t o the bumiputra p o r t i o n . R e g i s t r a t i o n with the M i n i s t r y of Trade and I n d u s t r y and l i c e n s e s from the M i n i s t r y were necessary f o r new 23 investment i n manufacturing and f o r investment to expand e x i s t i n g companies. During the time p e r i o d under c o n s i d e r a t i o n , the Malaysian government sought to reach the NEP ownership o b j e c t i v e s by o r d e r i n g a l l companies l i c e n s e d a f t e r 1972 to meet the g e n e r a l ownership requirements of 30% h e l d by bumiputra, 40% by other M a l a y s i a n s , and 30% by 4 f o r e i g n e r s b e f o r e the end of 1990. The f o r e i g n ownership g u i d e l i n e s were l a t e r r e l a x e d i n 1984 and 1986 l a r g e l y due to economic r e c e s s i o n . T h a i l a n d , c o n v e r s e l y , p l a c e d few s e r i o u s r e s t r i c t i o n s on f o r e i g n c a p i t a l d u r i n g the decade. There were no o f f i c i a l l i m i t s on f o r e i g n ownership as i n M a l a y s i a . Investments from f o r e i g n sources simply r e q u i r e d r e g i s t r a t i o n with the Department of Commerce and the M i n i s t r y of Finance's Bureau of Revenue. N e v e r t h e l e s s , the government g e n e r a l l y p r e f e r r e d j o i n t ventures between T h a i s and f o r e i g n e r s . ^ S i m i l a r l y , Singapore d i d not attempt to s i g n i f i c a n t l y l i m i t overseas c a p i t a l . T o t a l l y foreign-owned companies were p e r m i t t e d , although investment i n manufacturing had to be r e g i s t e r e d with the r e g i s t r a t i o n board and j o i n t ventures were promoted. S p e c i f i c l e g i s l a t i o n r e g a r d i n g f o r e i g n takeovers of Singaporean c o r p o r a t i o n s d i d not e x i s t , but the C o u n c i l on S e c u r i t y I n d u s t r i e s oversaw 24 c o r p o r a t e takeovers a c c o r d i n g to the g e n e r a l Singapore Code on Open-bid Stock Purchase and Merger because the government, at l e a s t i n p r i n c i p l e , supposedly d i d not d i f f e r e n t i a t e between domestic and f o r e i g n investors.*' R e s t r i c t i o n s On C e r t a i n Economic Se c t o r s In M a l a y s i a , f o r e i g n e r s were o f f i c i a l l y p e r m i t t e d to d i r e c t l y i n v e s t i n a l l i n d u s t r i e s , except p u b l i c u t i l i t i e s . D e s p i t e the p u b l i c p o s i t i o n of openness, th e r e were unpublished l i s t s of areas where new investment was not a llowed. Moreover, the I n d u s t r i a l C o o r d i n a t i o n Act (1975) se t out c e r t a i n r e s t r i c t e d economic s e c t o r s . The Act, f o c u s s i n g on manufacturing companies, s t a t e d t h a t t o t a l M a l a y s i a n ownership was mandatory i n e n t e r p r i s e s aimed at the domestic Malaysian market i f s i m i l a r f i r m s e x i s t e d or i f the technology u t i l i z e d was r e a d i l y o b t a i n a b l e . However, i f the technology i n v o l v e d was not a v a i l a b l e , up to 30% f o r e i g n ownership was p e r m i t t e d i n i m p o r t - s u b s t i t u t i n g s e c t o r s of the economy. Companies u t i l i z i n g imported p a r t s to produce export goods, on the o t h e r hand, c o u l d have 51%-70% f o r e i g n ownership i f 80%-99% of the goods were exported. I f a l l p r o d u c t i o n was s o l d overseas, then 100% f o r e i g n ownership was allowed. E x p o r t - o r i e n t e d e n t e r p r i s e s u s i n g renewable Malaysian raw m a t e r i a l s c o u l d have 30%-55% f o r e i g n ownership c o n t i n g e n t 25 on the f u l f i l l m e n t of v a r i o u s other market c r i t e r i a . F i n a l l y , non-Malaysians were allowed to own up to 45% of a c o r p o r a t i o n ' s share e q u i t y i f the f i r m was e x p o r t - o r i e n t e d and used non-renewable domestic raw m a t e r i a l s , but they had to formulate a t i m e - t a b l e to decrease t h e i r ownership to 30%. Companies formed p r i o r t o 1970 (and, thus, the NEP) d i d not have r e q u i r e d l e v e l s of Malaysian e q u i t y and employment. N e v e r t h e l e s s , they were encouraged to e s t a b l i s h long-range c o r p o r a t e s t r a t e g i e s which took i n t o account the o b j e c t i v e s of the NEP, and any expansion of e x i s t i n g f a c i l i t i e s or manufacture of new products were 7 s u b j e c t to the I n d u s t r i a l C o o r d i n a t i o n Act (1975). The T h a i government a l s o p l a c e d r e s t r i c t i o n s on c e r t a i n economic s e c t o r s d u r i n g t h i s time span, but the l e g i s l a t i o n was not as s i g n i f i c a n t as i n M a l a y s i a because few of the s p e c i f i e d a c t i v i t i e s had major f o r e i g n i n v e s t -ment. The A l i e n Business Law of 1972, which was r e l a x e d i n 1979, r e q u i r e d m a j o r i t y Thai ownership of companies i n p a r t i c u l a r i n d u s t r i e s . These r e s t r i c t e d business a c t i v i t i e s were l a r g e l y i n a g r i c u l t u r e , t r a d e , s e r v i c e s , and h a n d i c r a f t s . During the p e r i o d of c i v i l i a n government, 1973-1976, some f o r e i g n c o r p o r a t i o n s were f o r c e d to reduce t h e i r i n t e r e s t i n a number of business e n t e r p r i s e s i n order o to achieve m a j o r i t y ownership by T h a i s . 26 Singapore, on the other hand, p e r m i t t e d f o r e i g n c a p i t a l i n a l l economic s e c t o r s except p u b l i c u t i l i t i e s . Although f o r e i g n investment i n banking, insu r a n c e , stock b r o k e r i n g , and t r a d e r e q u i r e d a p p r o v a l from the a p p r o p r i a t e government department or s t a t u t o r y board, Singapore d i d not impose r e s t r i c t i o n s on p a r t i c u l a r economic s e c t o r s t o the 9 e x t e n t done by M a l a y s i a and, to a l e s s e r degree, T h a i l a n d . R e s t r i c t i o n s On Operations The M a l a y s i a n I n d u s t r i a l C o o r d i n a t i o n Act (1975) r e q u i r e d manufacturing companies with s h a r e h o l d e r s ' e q u i t y of M$500,000 or g r e a t e r and which had t w e n t y - f i v e or more employees to o b t a i n a l i c e n s e from the M i n i s t r y of Trade and I n d u s t r y . These l i c e n s e s r e s t r i c t e d the o p e r a t i o n s of foreign-owned c o r p o r a t i o n s by s e t t i n g out the s p e c i f i c o p e r a t i n g c o n d i t i o n s f o r each f i r m as a means of a c h i e v i n g the g o a l s of the NEP. The Malaysian I n d u s t r i a l Development A u t h o r i t y (MIDA) managed the l i c e n s i n g process and reviews. Operating r e g u l a t i o n s covered, among other t h i n g s , the area of j o b s . Non-Malaysians, f o r example, were u s u a l l y only allowed to h o l d p o s i t i o n s which demanded t e c h n i c a l or managerial e x p e r t i s e not found among the domestic p o p u l a t i o n . T h i s p o l i c y of M a l a y s i a n i z a t i o n was designed to induce f o r e i g n i n v e s t o r s to t r a i n Malaysians f o r more s k i l l e d p o s i t i o n s . " ^ 27 A f u r t h e r r e s t r a i n t on o p e r a t i o n s concerned borrowing by foreign-owned companies. C o r p o r a t i o n s with n o n - r e s i d e n t s as m a j o r i t y owners r e q u i r e d the a u t h o r i z a t i o n of the C o n t r o l l e r of F o r e i g n Exchange before they c o u l d borrow over M $500,000 l o c a l l y . P e rmission was g e n e r a l l y forthcoming i f the loan d i d not surpass the f i r m ' s combined t o t a l of share e q u i t y , r e s e r v e s , and long-term f o r e i g n l o a n s . U s u a l l y , f o r e i g n i n v e s t o r s had to u t i l i z e a l a r g e amount of t h e i r own c a p i t a l b efore they c o u l d secure loans l o c a l l y and at l e a s t 50% of t h e i r domestic borrowing had to be from Malaysian i n c o r p o r a t e d f i n a n c i a l i n s t i t u t i o n s i f these banks had s u f f i c i e n t f i n a n c i a l c a p a c i t y . T r a n s a c t i o n s i n v o l v i n g n o n - r e s i d e n t s l e n d i n g over M $100,000 to r e s i d e n t s a l s o needed the p e r m i s s i o n of the C o n t r o l l e r of F o r e i g n Exchange. 1' 1' Moreover, f o r e i g n f i r m s had to have the a p p r o v a l of the F o r e i g n Investment Committee (FIC) before they c o u l d take over a Malaysian company. The FIC, e s t a b l i s h e d i n 1974, c r e a t e d and a d m i n i s t e r e d g u i d e l i n e s to ensure t h a t f o r e i g n investment conformed with the NEP and was the c e n t r a l agency which d i r e c t e d a l l other government bodies d e a l i n g with f o r e i g n investment. FIC g u i d e l i n e s r e g u l a t e d the a c q u i s i t i o n of c o r p o r a t e a s s e t s , mergers, and takeovers so t h a t these a c t i o n s u l t i m a t e l y l e d to an i n c r e a s e i n 28 Mal a y s i a n , p a r t i c u l a r l y bumiputra, ownership. The Committee a l s o aimed to use f o r e i g n investment to expand e x p o r t s , d i v e r s i f y the economy, and generate jobs and t r a i n i n g f o r Ma l a y s i a n s . P a r t i e s i n v o l v e d i n planned a c q u i s i t i o n s , mergers, or takeovers needed to convince the FIC t h a t t h e i r a c t i v i t i e s would e v e n t u a l l y b e n e f i t M a l a y s i a e c o n o m i c a l l y . FIC g u i d e l i n e s covered f o r e i g n purchases of 15% or more of the a s s e t s of a Malaysian company and any purchases of a s s e t s valued over M $1 m i l l i o n . Takeover of a f i r m through a t e c h n i c a l a s s i s t a n c e agreement or 12 management c o n t r o l was a l s o s u b j e c t to the g u i d e l i n e s . L a s t l y , the a c t i v i t i e s of f o r e i g n banks were s i g n i f i c a n t l y c o n s t r a i n e d . At the end of the time span being d i s c u s s e d , seventeen of M a l a y s i a ' s t h i r t y - e i g h t commercial banks were i n c o r p o r a t e d i n other c o u n t r i e s . F o r e i g n banks, except f o r those e s t a b l i s h e d i n M a l a y s i a p r i o r to independence, were allowed o n l y one business c e n t r e , which was s i t u a t e d i n Kuala Lumpur. In a d d i t i o n , a l l commercial banks, i n c l u d i n g foreign-owned ones, were r e q u i r e d to d i r e c t a minimum of 8% of t h e i r loans to a g r i c u l t u r a l e n t e r p r i s e s , 10% to housing, and 17% to bumiputra-owned businesses."'"^ L i k e M a l a y s i a , T h a i l a n d imposed v a r i o u s r e s t r i c t i v e measures a g a i n s t the a c t i v i t i e s of f o r e i g n companies d u r i n g 29 the p e r i o d under c o n s i d e r a t i o n . The M i n i s t r y of Industry, through the F a c t o r y C o n t r o l Act of 1962, had the power to p r e c l u d e the formation of a new company or the expansion of a c u r r e n t company i n t o the manufacture of p a r t i c u l a r p r o d u c t s . In the l a t e 1970s, these product l i n e s i n c l u d e d p l a s t i c mats, j u t e products, car p a r t s , canned p i n e a p p l e , and f i s h i n g n e t s . The Industry M i n i s t r y made i t s d e c i s i o n s i n response to requests from t r o u b l e d domestic producers or i f i t concluded t h a t the Thai market was s a t u r a t e d by a c e r t a i n product. The F a c t o r y Act a l s o a u t h o r i z e d the M i n i s t r y of I n d u s t r y to apply domestic content requirements. M o t o r c y c l e s , f o r example, had to have 70% 14 domestic content i n 1979. Under the auspices of the A l i e n Employment Act of 1973, the Thai government, s i m i l a r to i t s Malaysian c o u n t e r p a r t , r e g u l a t e d the h i r i n g p r a c t i c e s of f o r e i g n f i r m s . Companies with over ten employees had to h i r e T h a i s f o r a t l e a s t h a l f of the p o s i t i o n s a v a i l a b l e . Government p r i c e c o n t r o l s a l s o impinged on f o r e i g n c o r p o r a t i o n s ' freedom of o p e r a t i o n s . The M i n i s t r y of Commerce managed p r i c e c o n t r o l s on supposedly e s s e n t i a l p roducts, such as r i c e , sugar, and energy. However, i n p r a c t i c e , even manufactured goods, l i k e c a r b a t t e r i e s , t i r e s , and cement, were p l a c e d under p r i c e c o n t r o l s . F i n a l l y , f o r e i g n 30 c o r p o r a t i o n s had to g a i n the c e n t r a l bank's appr o v a l b e f o r e they c o u l d repay c a p i t a l or remit p r o f i t s , d i v i d e n d s , i n t e r e s t , and r o y a l t i e s overseas. I f an investment had been h e l d f o r a minimum of two y e a r s , 20% of the d i v i d e n d s 15 c o u l d be r e m i t t e d a n n u a l l y . In the area of banking, the Thai government r e s t r i c t e d the o p e r a t i o n s of f o r e i g n banks to Bangkok. In a d d i t i o n , the Bank of T h a i l a n d (the c e n t r a l bank) g e n e r a l l y l i m i t e d the e n t r y of f o r e i g n banks i n t o T h a i l a n d . No new l i c e n s e s f o r f o r e i g n banks were awarded from 1977 to the end of the p e r i o d being d i s c u s s e d i n t h i s study. Banking became e s s e n t i a l l y a r e s t r i c t e d economic s e c t o r toward the c o n c l u s i o n of the decade. There were s i x t e e n Thai commercial banks, accounting f o r 90% of d e p o s i t s , compared to f o u r t e e n f o r e i g n banks with commercial branches. A l l commercial banks, i n c l u d i n g f o r e i g n ones, were r e q u i r e d by the c e n t r a l bank to i s s u e 13% of t h e i r loans to the a g r i c u l t u r a l s e c t o r e i t h e r by d e p o s i t i n g funds with the Bank f o r A g r i c u l t u r e and A g r i c u l t u r a l C o o p e r a t i v e s or by d i r e c t l y l e n d i n g to a g r i c u l t u r a l business concerns. F o r e i g n banks were p e r m i t t e d to f u n c t i o n mainly as c o n d u i t s f o r c a p i t a l f l o w i n g i n t o T h a i l a n d from overseas. Thus, f o r e i g n banks were given o n l y a s m a l l niche w i t h i n which they c o u l d operate."^ 31 Singapore, on the other hand, had very few r e s t r i c t i o n s on the o p e r a t i n g c o n d i t i o n s of f o r e i g n investment. The d e c i s i o n s of the N a t i o n a l Wages C o u n c i l , c r e a t e d i n 1972 to advise the government on wage p o l i c y , impinged on the freedom of a l l companies, i n c l u d i n g foreign-owned ones, to n e g o t i a t e s a l a r i e s . The N a t i o n a l Wages C o u n c i l recommended s p e c i f i c wage i n c r e a s e s which the Singaporean government always accepted and employers and employees f o l l o w e d . Thus, the government a c t u a l l y s e t wages. Under the p o l i c y of the Second I n d u s t r i a l R e v o l u t i o n , f o r example, the government decided t o adopt a high wage stance i n 1979 which r e s u l t e d i n a 13% growth i n average earnings the f o l l o w i n g year. Banking, however, had more s e r i o u s l i m i t a t i o n s . Singapore had three b a s i c c a t e g o r i e s f o r commercial banks: f u l l l i c e n s e , r e s t r i c t e d l i c e n s e , and o f f s h o r e . F u l l l i c e n s e banks had no r e s t r i c t i o n s on r e g u l a r commercial o p e r a t i o n s . R e s t r i c t e d l i c e n s e banks, on the other hand, were p e r m i t t e d o n l y one business c e n t r e and were l i m i t e d to wholesale f i n a n c i a l t r a n s a c t i o n s . R e t a i l banking was the pr e s e r v e of f u l l l i c e n s e banks. F i n a l l y , o f f s h o r e banks were g e n e r a l l y c o n f i n e d t o s e c u r i n g overseas c a p i t a l f o r on-lending t o other c o u n t r i e s . T h e i r t r a n s m i t t i n g of c a p i t a l o c c u r r e d o u t s i d e of the domestic banking system of Singapore. 32 Although the r e s t r i c t e d l i c e n s e was o r i g i n a l l y intended as a r e s t r a i n e d o p e r a t i o n a l s t a t u s f o r f o r e i g n banks when i t was i n t r o d u c e d i n 1971, the government d i d not award any new l i c e n s e s f o r foreign-owned r e s t r i c t e d l i c e n s e , or f u l l s t a t u s , banks from 1973 to 1980. As i n T h a i l a n d , banking i n Singapore became v i r t u a l l y a r e s t r i c t e d economic s e c t o r . F o r e i g n banks were l e f t o n l y with o f f s h o r e s t a t u s , which was c r e a t e d i n 1973. However, Singapore d i f f e r e d s i g n i f i c a n t l y from both T h a i l a n d and M a l a y s i a because foreign-owned banks dominated Singapore's f i n a n c i a l s e c t o r . In 1970, twenty-six out of t h i r t y - s e v e n f u l l l i c e n s e banks were f o r e i g n . At the end of the decade, the f i g u r e s were 17 twenty-four out of t h i r t y - s e v e n . Government-Owned C o r p o r a t i o n s The Malaysian government made e x t e n s i v e use of government-owned c o r p o r a t i o n s as instruments of c o n t r o l over f o r e i g n investment d u r i n g the p e r i o d c o v e r i n g 1970 to 1980. For example, the Petroleum Development A c t (1974), which c r e a t e d the government o i l company PETRONAS, granted i t s o l e r i g h t s to the e x p l o r a t i o n and e x p l o i t a t i o n of o i l i n M a l a y s i a . T h e r e f o r e , f o r e i g n o i l companies had to enter i n t o e x p l o r a t i o n and p r o d u c t i o n - s h a r i n g c o n t r a c t s with PETRONAS to operate i n the country. The government, l e d by then PETRONAS Chairman Tengku R a z a l e i g h , even went so f a r 33 as to propose i n 1975 t h a t PETRONAS be a l l o c a t e d the a u t h o r i t y to o b t a i n 1% of the stock of f o r e i g n o i l companies i n s p e c i a l "management shares" worth the e q u i v a l e n t of 500 shares of common stock each. Through a system of weighted v o t i n g , these "management shares" would have given PETRONAS e f f e c t i v e c o n t r o l of a l l f o r e i g n o i l companies i n M a l a y s i a . The h a r s h l y n e g a t i v e r e a c t i o n of f o r e i g n i n v e s t o r s , whose c a p i t a l the Malaysian government co n t i n u e d to d e s i r e d e s p i t e the p r o p o s a l , caused the nonimplementation of t h i s s u r r e p t i t i o u s attempt at . .. 18 s e m i - e x p r o p r l a t i o n . The j o i n t ventures of PERNAS, the l a r g e s t government o r g a n i z a t i o n r e s p o n s i b l e f o r i n c r e a s i n g bumiputra involvement i n bus i n e s s , and i t s s u b s i d i a r i e s f u r t h e r demonstrated the Malaysian government's use of state-owned c o r p o r a t i o n s as r e g u l a t o r y instruments. PERNAS was e s t a b l i s h e d i n 1969 and was government-funded. By 1975, PERNAS had e q u i t y i n f o r t y - s e v e n f i r m s and c o n t r o l l e d e i g h t wholly-owned s u b s i d i a r i e s which i n tu r n had i n t e r e s t s i n another t h i r t y - n i n e companies. These s u b s i d i a r i e s were i n v o l v e d i n s e c u r i t i e s , r e a l e s t a t e , c o n s t r u c t i o n , e n g i n e e r i n g , insurance, and t r a d i n g . The company had j o i n t 19 ventures i n v a r i o u s s e c t o r s . PERNAS " p r e f e r r e d t o work with f o r e i g n f i r m s which were prepared to p r o v i d e t e c h n i c a l 3 4 e x p e r t i s e w h i l e a l l o w i n g the C o r p o r a t i o n to maintain 20 e f f e c t i v e c o n t r o l . " During the 1970s, j o i n t ventures of t h i s form between f o r e i g n c o r p o r a t i o n s and companies owned by the Malaysian government became i n c r e a s i n g l y common. MNCs j o i n e d these business e n t e r p r i s e s to garner p o l i t i c a l favour and to take advantage of tax and other i n c e n t i v e s p r o v i d e d by the government. The Malaysian government, on the other hand, promoted these j o i n t ventures because they allowed the s t a t e to r e c e i v e more f o r e i g n investment, w h i l e c o n t r o l l i n g i t . Turning to a few of PERNAS1 wholly-owned s u b s i d i a r i e s , PERNAS S e c u r i t i e s , formed i n 1971, managed the p o r t f o l i o investments of i t s parent c o r p o r a t i o n and f u n c t i o n e d l i k e a p r i v a t e company. The f i r m i n v e s t e d i n business e n t e r p r i s e s i n order to i n c r e a s e bumiputra ownership of c o r p o r a t e s t o c k . PERNAS E n g i n e e r i n g , s e t up i n 1971, however, ente r e d i n t o j o i n t ventures i n the manufacturing s e c t o r . To i l l u s t r a t e , PERNAS E n g i n e e r i n g c r e a t e d a j o i n t venture e l e c t r o n i c s c o r p o r a t i o n , PERNAS NEC-Multiplex, i n 1973 with the Japanese f i r m Nippon E l e c t r o n i c Company. PERNAS En g i n e e r i n g was m a j o r i t y owner of the j o i n t venture, which u t i l i z e d overseas c a p i t a l and f o r e i g n advanced technology i n a labour i n t e n s i v e , e x p o r t - o r i e n t e d e n t e r p r i s e . Soon a f t e r i t s forma t i o n , PERNAS NEC-Multiplex r e c e i v e d a b i g 35 supply c o n t r a c t from the Malaysian Department of Telecommunications, which probably i n d i c a t e d some p o l i t i c a l 22 f a v o u r i t i s m . E s t a b l i s h e d i n 1973, PERNAS Mining, i n the same way, s t r o v e to i n c r e a s e bumiputra f i n a n c i a l i n t e r e s t s i n mining, with s p e c i a l emphasis on t i n , which accounted f o r 8.9% of M a l a y s i a ' s t o t a l exports and 4.9% of i t s gross 23 domestic product i n 1980. Conzinc R i o t i t o M a l a y s i a , a foreign-owned c o r p o r a t i o n , was awarded i n p r i n c i p l e the t i n p r o s p e c t i n g and e x t r a c t i o n r i g h t s f o r the seabed o f f the c o a s t s of Perak, Penang, and Selangor i n 1969. Two years l a t e r , the Malaysian government removed these r i g h t s and l a t e r bestowed them to PERNAS. In 1974, PERNAS Mining d i s c o v e r e d t i n i n the Perak c o a s t a l seabed. PERNAS Chairman Tengku R a z a l e i g h denied a l l e g a t i o n s t h a t p o l i t i c a l 24 motives were behind the r i g h t s withdrawal. T h i s more a g g r e s s i v e approach to r e s t r i c t i n g f o r e i g n investment v i a government companies became dominant i n the l a t e 1970s when PERNAS changed i t s p o l i c y of p a r t i c i p a t i n g mainly i n j o i n t ventures to one of buying very l a r g e amounts of shares i n c e r t a i n foreign-owned c o r p o r a t i o n s , e s p e c i a l l y those i n v o l v e d i n t i n and i n p l a n t a t i o n s . The Malaysian government decided t h a t s u c c e s s f u l implementation of the NEP r e q u i r e d more c o n t r o l over the economy, p a r t i c u l a r l y i n s e c t o r s where f o r e i g n and domestic 36 i n v e s t o r s were not s u p p o r t i v e of i t s economic p o l i c i e s . PERNAS appeared to t a r g e t f r e q u e n t l y c o r p o r a t i o n s f o r takeover b i d s because they were u n w i l l i n g t o y i e l d to the government's wishes. In 1975, f o r example, PERNAS t r i e d to take over Haw Par B r o t h e r s I n t e r n a t i o n a l , a m u l t i n a t i o n a l c o r p o r a t i o n based i n Singapore, and use i t t o , i n t u r n , win c o n t r o l of London T i n , which was the world's b i g g e s t t i n company. However, the Singaporean government, through the Singapore S e c u r i t i e s I n d u s t r y C o u n c i l and the Singapore Stock Exchange, together with the London C i t y Takeover and Merger Panel of B r i t a i n , e f f e c t i v e l y blocked the takeover by imposing c o n d i t i o n s which were not a c c e p t a b l e to PERNAS. The s t a t e company responded the f o l l o w i n g year by e s t a b l i s h i n g New Tradewinds, a j o i n t venture between PERNAS S e c u r i t i e s and a B r i t i s h c o r p o r a t i o n c a l l e d C h a r t e r C o n s o l i d a t e d . In a complicated maneuver i n v o l v i n g the j o i n t venture company, PERNAS bought e f f e c t i v e c o n t r o l of London T i n i n 1977. Ch a r t e r C o n s o l i d a t e d , which had the second b i g g e s t mining i n t e r e s t s i n M a l a y s i a a f t e r London T i n , then s o l d i t s mining h o l d i n g s to New Tradewinds f o r 28.65% of the j o i n t venture's s t o c k . PERNAS, through i t s m a j o r i t y ownership of New Tradewinds and, thus, e f f e c t i v e c o n t r o l of the mining concerns of London T i n and C h a r t e r 37 C o n s o l i d a t e d , owned the world's b i g g e s t t i n p r o d u c t i o n c o r p o r a t i o n . New Tradewinds soon afterwards was renamed the Malaysian Mining C o r p o r a t i o n . I t c o n t r o l l e d over 25% of M a l a y s i a ' s t o t a l t i n output, about 66% of the output of f o r e i g n based companies i n M a l a y s i a , and almost 15% of g l o b a l t i n p r o d u c t i o n . T h i s new c o r p o r a t i o n a l s o had t i n h o l d i n g s i n T h a i l a n d and N i g e r i a . In 1977, the mining companies c o n t r o l l e d by the Malaysian Mining C o r p o r a t i o n began to t r a n s f e r t h e i r c o r p o r a t e headquarters to M a l a y s i a . PERNAS, u s i n g s t a t e c a p i t a l i s m , thus gained c o n t r o l of one 2 6 of M a l a y s i a ' s key export and n a t u r a l resource i n d u s t r i e s . A f u r t h e r prominent i l l u s t r a t i o n of the Malaysian government's more a g g r e s s i v e approach to r e g u l a t i n g f o r e i g n investment d u r i n g t h i s time span was p r o v i d e d by PERNAS' takeover of Sime Darby, a B r i t i s h based company. Sime Darby had l a r g e p l a n t a t i o n i n t e r e s t s and i n d u s t r i a l concerns i n M a l a y s i a along with h o l d i n g s i n Hong Kong and China. Throughout the mid-1970s, the Malaysian government n e g o t i a t e d with Sime Darby i n an attempt to r e s t r u c t u r e and M a l a y s i a n i z e the c o r p o r a t i o n i n order to f u r t h e r the goals of the NEP. Sime Darby's management was not c o o p e r a t i v e and i n 1976 c l a s h e d with the Malaysian C a p i t a l Issues Committee over a new i s s u e of stock. Sime Darby f e l t i t was not s u b j e c t to the Committee's a u t h o r i t y because the 38 company was i n c o r p o r a t e d i n B r i t a i n . The Chairman of the C a p i t a l Issues Committee and Bank Negara, Tan S r i I s m a i l A l i , responded by a statement which s a i d "There i s no p l a c e f o r p i r a t e s and business buccaneers i n t h i s c o u n t r y . . . A l l shares must be l i s t e d b efore they can be d e a l t w i t h . We expect those who operate i n t h i s country to comply with our 27 r e g u l a t i o n s . " N e i t h e r PERNAS nor Sime Derby's management owned a m a j o r i t y of the w i d e l y c a p i t a l i z e d company's shares. A f t e r a s t r u g g l e f o r proxy v o t e s , PERNAS succeeded at the end of 1976 i n e l e c t i n g Malaysians to h a l f of the p o s i t i o n s on Sime Darby's Board of D i r e c t o r s , i n c l u d i n g the c o r p o r a t i o n ' s chairmanship. The Malaysian government had again used a government-owned c o r p o r a t i o n to c o n t r o l f o r e i g n investment while implementing the NEP. S h o r t l y before M a l a y s i a f e l t the moderating e f f e c t s of a major r e c e s s i o n , government agencies even went so f a r as to take over Boustead, one of the f i r s t f o r e i g n c o r p o r a t i o n s to comply with the NEP. Boustead, a B r i t i s h p l a n t a t i o n , e n g i n e e r i n g , and t r a d i n g company, o f f e r e d 30% of i t s shares to bumiputra bodies i n 1976. N e v e r t h e l e s s , i n 1980, government o r g a n i z a t i o n s took c o n t r o l of the c o r p o r a t i o n i n an a g g r e s s i v e move to f u r t h e r the goals of the NEP. 2 8 In c o n t r a s t , T h a i l a n d ' s use of government-owned 39 c o r p o r a t i o n s was not as f a r - r e a c h i n g as the a c t i o n s taken by M a l a y s i a . Although the Thai government's o f t e n s t a t e d i n t e n t i o n was to focus on p r i v a t e e n t e r p r i s e to achieve economic development, government bodies d i d d i r e c t l y manage business v e n t u r e s . The government was i n v o l v e d i n banking, paper manufacturing, and sugar p r o c e s s i n g . Moreover, i n 1975, the government revoked the o f f s h o r e t i n c o n c e s s i o n of the T h a i E x p l o r a t i o n and Mining Company, a j o i n t venture between S h e l l and Union Carbide, and awarded i t to the government-owned O f f s h o r e Mining O r g a n i z a t i o n , though B i l l i t o n T h a i l a n d , a s u b s i d i a r y of S h e l l , d i d r e c e i v e a p o r t i o n of the co n c e s s i o n i n 1976. S i m i l a r l y , the Petroleum A u t h o r i t y of T h a i l a n d p a r t i c i p a t e d i n the development of the p e t r o c h e m i c a l i n d u s t r y . T h e r e f o r e , d e s p i t e the government's f r e e e n t e r p r i s e o r i e n t a t i o n , state-owned companies operated b u s i n e s s e s , p a r t i c u l a r l y as j o i n t venture p a r t n e r s with overseas i n v e s t o r s . J o i n t ventures y i e l d e d the government a f a i r l y c o n s i d e r a b l e amount of formal and i n f o r m a l l e v e r a g e over f o r e i g n 29 i n v e s t o r s . The u t i l i z a t i o n of government-owned companies was very p r e v a l e n t i n Singapore, where the government had an economic p h i l o s o p h y which advocated a mixed economy. In the 1970s, the government had major e q u i t y h o l d i n g s i n 40 p e t r o c h e m i c a l s , c o n s t r u c t i o n , and r e a l e s t a t e . As government emphasis s h i f t e d to technology and human resources i n the 1980s, so d i d the a c t i v i t i e s of government c o r p o r a t i o n s . I n t r a c o , f o r example, was e s t a b l i s h e d i n 1968 with the government as i t s b i g g e s t s h a r e h o l d e r . By the end of the p e r i o d under c o n s i d e r a t i o n , I n t r a c o had gone from being a simple t r a d i n g company to computers, r o b o t i c s , r e s o u r c e and p l a n t a t i o n development, t r a v e l s e r v i c e s , and c o r p o r a t e s e c u r i t i e s . I n t r a c o had seventeen wholly-owned s u b s i d i a r i e s and twenty-one a s s o c i a t e d companies. Some i n f l u e n c e over the a c t i o n s of f o r e i g n c o r p o r a t i o n s was gained by the government through p u b l i c e n t e r p r i s e s u n dertaking j o i n t ventures and m i n o r i t y s h a r e h o l d i n g s i n f o r e i g n companies. To i l l u s t r a t e , the 49% government-owned Development Bank of Singapore (DBS) i n t u r n owned 35% of Singapore Nomura Merchant Banking, a j o i n t venture with Nomura S e c u r i t i e s of Japan, u n t i l 1981. S i m i l a r l y , DBS h e l d 50% of DBS Daiwa S e c u r i t i e s I n t e r n a t i o n a l , a j o i n t venture with Daiwa S e c u r i t i e s of Japan from 1971 to 1983. By the end of the time span being examined, DBS had s i x t e e n r e a l e s t a t e s u b s i d i a r i e s , an a s s o c i a t e d r e a l e s t a t e f i r m , ten f i n a n c i a l s u b s i d i a r i e s , and e i g h t a s s o c i a t e d f i n a n c i a l companies. The Singaporean government o b v i o u s l y c o u l d i n f o r m a l l y e x e r t c o n t r o l over f o r e i g n i n v e s t o r s through 41 j o i n t ventures and m i n o r i t y s h a r e h o l d i n g s . F o r e i g n f i r m s were u n l i k e l y to be w i l l i n g to r a i s e the i r e of one of t h e i r government connected p a r t n e r s or part-owners. T h i s w i e l d i n g of government-owned companies as instruments to c o n t r o l f o r e i g n investment probably reached i t s z e n i t h i n 1981 when the Government of Singapore Investment C o r p o r a t i o n (GISC) was c r e a t e d with the Prime M i n i s t e r as i t s head. The GISC manages a l l the investments of the government and has the o f f i c i a l i n t e n t i o n of i n v e s t i n g . , . . . 3 0 mainly i n f o r e i g n companies. T h i s chapter has examined the p o l i c i e s of M a l a y s i a , T h a i l a n d and Singapore i n f o u r areas. Only M a l a y s i a through i t s NEP had o f f i c i a l g e n e r a l q u a n t i t a t i v e l i m i t s on f o r e i g n investment. A l l three c o u n t r i e s , on the other hand, had r e s t r i c t i o n s on c e r t a i n economic s e c t o r s . From 1973 to 1976, T h a i l a n d even f o r c e d some f o r e i g n i n v e s t o r s to reduce t h e i r h o l d i n g s i n p a r t i c u l a r companies so t h a t m a j o r i t y T h a i ownership p r e v a i l e d . N e v e r t h e l e s s , M a l a y s i a , under i t s I n d u s t r i a l C o o r d i n a t i o n Act (1975), had the most e x t e n s i v e range of r e s t r i c t i o n s on s p e c i f i c economic s e c t o r s . In g e n e r a l , both M a l a y s i a and T h a i l a n d had s e v e r a l s i g n i f i c a n t r e s t r i c t i o n s on the o p e r a t i o n s of foreign-owned c o r p o r a t i o n s , while Singapore had q u i t e few. However, r e g a r d i n g banking i n p a r t i c u l a r , a l l t h r e e s t a t e s 42 imposed s u b s t a n t i a l l i m i t s , with Singapore a c t i n g perhaps the most r e s t r i c t i v e . L a s t l y , i n the area of government-owned c o r p o r a t i o n s , the three c o u n t r i e s used them to c o n t r o l f o r e i g n investment, e s p e c i a l l y v i a j o i n t ventures and m i n o r i t y s h a r e h o l d i n g s . M a l a y s i a , n e v e r t h e l e s s , was the o n l y one to u t i l i z e the stock market e x t e n s i v e l y to undertake h o s t i l e takeovers of foreign-owned c o r p o r a t i o n s by government companies. M a l a y s i a was c l e a r l y more r e s t r i c t i v e than T h a i l a n d and Singapore i n t h r e e of the f o u r areas s t u d i e d . M a l a y s i a , t h e r e f o r e , p l a c e d more r e s t r i c t i o n s o v e r a l l on f o r e i g n investment than the other two c o u n t r i e s . 43 NOTES CHAPTER I I 1. J . Saravanamuttu, The Dilemma of Independence: Two  Decades of M a l a y s i a ' s F o r e i g n P o l i c y 1957-1977 (Penang, M a l a y s i a : P e n e r b i t U n i v e r s i t i Sains M a l a y s i a , 1983), p.121. 2. Quoted i n R.S. M i l n e , "The P o l i t i c s of M a l a y s i a ' s New Economic P o l i c y , " P a c i f i c A f f a i r s , 49 (Summer 1976), 240. 3. Centre f o r S t r a t e g i c and I n t e r n a t i o n a l S t u d i e s , Issues  For P a c i f i c Economic Cooperation: A Report of the  T h i r d P a c i f i c Economic Cooperation Conference B a l i ,  November 1983 ( J a k a r t a : Centre f o r S t r a t e g i c and I n t e r n a t i o n a l S t u d i e s , 1984), p.94; N.D. Karunaratne and M.B. A b d u l l a h , " I n c e n t i v e Schemes and F o r e i g n Investment i n the I n d u s t r i a l i z a t i o n of M a l a y s i a , " A s i a n Survey, XVIII (March 1978), 263-264; and M i l n e , p.240. 4. Centre, p.94. 5. Centre, p.98; and Donald K. Crone, The ASEAN S t a t e s :  Coping With Dependence (New York: Praeger, 1983), p.113. 6. Augustine Tan, "Changing P a t t e r n s of Singapore's F o r e i g n Trade and Investment s i n c e 1960," Singapore:  Twenty-five Years of Development, eds. Poh Seng You and Chong Yah Lim (Singapore: Nan Yang Xing Zhou Lianhe Zaobao, 1984), p.74; Centre, p.97; Mee-Kau Nyaw and Chan-leong Chan, " S t r u c t u r e and Development S t r a t e g i e s of the Manufacturing I n d u s t r i e s i n Singapore and Hong Kong: A Comparative Study," A s i a n  Survey, XXII (May 1982), 459; and Crone, p.111. 7. Centre, p.94; Crone, p.105; and Darwood I n t e r n a t i o n a l C o n s u l t i n g Inc., Canada-ASEAN I n d u s t r i a l C ooperation  O p p o r t u n i t i e s , V o l . I I : M a l a y s i a (Ottawa: CIDA, 1982), pp.20-21. 44 8. Chulacheeb Chinwanno and Somsak Tambunlertchai, "Japanese Investment i n T h a i l a n d and I t s Prospects i n the 1980s," ASEAN - Japan R e l a t i o n s : Investment, ed. Sueo S e k i g u c h i (Singapore: I n s t i t u t e of Southeast A s i a n S t u d i e s , 1983), p.195; Centre, p.98; and Crone, p.113. 9. Centre, p.97. 10. Centre, p.94; Darwood, pp.20 and 25; and Karunaratne and A b d u l l a h , pp.263-264. 11. Karunaratne and Abdullah, pp.263-264; Darwood, p.25; and Centre, p.94. 12. Darwood, pp.19-20, Crone, p.105; and Saravanamuttu, pp.119-120. 13. Darwood, p.40; and B r i a n Wawn, The Economies of the  ASEAN C o u n t r i e s : Indonesia, M a l a y s i a , P h i l i p p i n e s ,  Singapore and T h a i l a n d (London: Macmillan P r e s s , 1982), pp.65-66. 14. I n t e r n a t i o n a l Bank f o r R e c o n s t r u c t i o n and Development, T h a i l a n d : I n d u s t r i a l Development S t r a t e g y i n T h a i l a n d . (Washington: I n t e r n a t i o n a l Bank f o r R e c o n s t r u c t i o n and Development, 1980), pp.22-23 and 36. 15. I n t e r n a t i o n a l Bank, pp.35-36; Wawn, pp.139 and 159; K o j i T a i r a , " C o l o n i a l i s m i n F o r e i g n S u b s i d i a r i e s : Lessons From Japanese Investment i n T h a i l a n d , " A s i a n  Survey, XX ( A p r i l 1980), 389-390; C l a r k D. Neher, " T h a i l a n d , " P o l i t i c s In The ASEAN S t a t e s , ed. Diane K. Mauzy (Kuala Lumpur: Marican & Sons, 1984), p.34; and Centre, p.98. 16. Wawn, pp.161-162; Far E a s t e r n Economic Review, 5 A p r i l 1984, pp.82 and 84; and I n t e r n a t i o n a l Bank, p.51. 17. Wawn, pp.126-127 and 132-133; Lee Sheng-Yi, "Money, Banking and Finance i n Singapore," Singapore:  Twenty-five Years of Development, eds. Poh Seng You and Chong Yah Lim (Singapore: Nan Yang Xing Zhou Lianhe Zaobao, 1984), pp.111-113 and 131; and Far Ea s t e r n Economic Review, 24 December 1982, pp.30-31. 18. Centre, p.53; and Saravanamuttu, pp.117-118. 45 19. M i l n e , pp.245-246. 20. Bruce Gale, P o l i t i c s and P u b l i c E n t e r p r i s e i n  M a l a y s i a . (Singapore: E a s t e r n U n i v e r s i t i e s P r e s s , 1981), p.108. 21. I b i d . 22. Gale, pp.102-103; and Saravanamuttu, p.118 f n . 23. W i l l i a m L. Baldwin, The World T i n Market: P o l i t i c a l  P r i c i n g and Economic Competition (Durham, N.C.: Duke U n i v e r s i t y Press, 1983), pp.42-43. 24. Gale, pp.105-106 and 117. 25. Far E a s t e r n Economic Review, 16 August 1984, p.70; and Gale, pp.109 and 129-130. 26. Gale, pp.116-117, 119-121, 123 and 126; and John Thorburn, M u l t i n a t i o n a l s , Mining and Development: A  Study of the T i n I n d u s t r y (Westmead, England: Gower P u b l i s h i n g Company, 1981), p.83. Besides being an attempt to c o n t r o l f o r e i g n investment, these a c t i o n s were p a r t of a complicated b i d by the Malaysian government to form a " t i n ramp," or i n t e r n a t i o n a l t i n c a r t e l . The f a i l u r e of the t i n ramp i n 1981-1982 probably caused a major drop i n t i n p r i c e s and the c o l l a p s e of the t i n market i n 1985. The c o l l a p s e l e d to the shutdown of 314 of M a l a y s i a ' s 488 t i n mines i n 1986. Malaysian government bodies l o s t m i l l i o n s of d o l l a r s as a r e s u l t of the f a i l e d t i n ramp. See Diane K. Mauzy, "Malaysia i n 1986: The Ups and Downs of Stock Market P o l i t i c s , " A s i a n Survey, XXVII (February 1987), 233; and Far E a s t e r n Economic Review, 7 August 1986, pp.45-47. 27. Quoted i n Gale, pp.127-128. 28. I b i d . , p.188. 29. Wawn, pp.139 and 156-157. 30. L i n d a Low, " P u b l i c E n t e r p r i s e s i n Singapore," Singapore: Twenty-five Years of Development, eds. Poh Seng You and Chong Yah Lim (Singapore: Nan Yang Xing Zhou Lianhe Zaobao, 1984), pp.267-268 and 272-274; Far  E a s t e r n Economic Review, 6 December 1984, pp.75-76; and Far E a s t e r n Economic Review, 19 January 1984, pp.90-91. 46 CHAPTER III E x p l a n a t i o n f o r M a l a y s i a ' s Greater R e s t r i c t i o n s T h i s chapter w i l l attempt to e x p l a i n why M a l a y s i a p l a c e d more r e s t r i c t i o n s on f o r e i g n investment than T h a i l a n d and Singapore d u r i n g time span c o v e r i n g 1 9 7 0 to 1 9 8 0 . The argument w i l l be put forward t h a t important d i f f e r e n c e s i n the n a t i o n a l p o l i t i c a l and economic s e t t i n g s of the three s t a t e s caused M a l a y s i a ' s g r e a t e r r e s t r i c t i v e n e s s . The chapter w i l l a nalyze each country's past experience with a c o l o n i a l power, economic s t r a t e g i e s , domestic p o l i t i c a l p r e s s u r e s , and the presence of e t h n i c m i n o r i t i e s . I t w i l l a l s o look at the s i z e and p o l i t i c a l importance of the n a t u r a l resource s e c t o r , the p r e v a l e n c e of i n d u s t r i e s with o l d technology, and the l e v e l of f o r e i g n ownership of i n d u s t r y i n each s t a t e . V a r i o u s hypotheses, r e l a t e d to the p o l i t i c a l and economic c h a r a c t e r i s t i c s under d i s c u s s i o n , w i l l be examined. T h i s chapter w i l l conclude t h a t e t h n i c f a c t o r s are the key e x p l a n a t o r y v a r i a b l e among the d i f f e r i n g n a t i o n a l s e t t i n g s . Past C o l o n i a l C o n t r o l One s i g n i f i c a n t v a r i a b l e i s each country's p a s t experience with a c o l o n i a l power. The r e l a t e d h y p othesis i s t h a t a country which has been dominated e c o n o m i c a l l y by a c o l o n i a l power i s more l i k e l y to impose r e s t r i c t i o n s than 47 one t h a t has not, due to economic n a t i o n a l i s m and reasons of n a t i o n a l s e c u r i t y . Economic n a t i o n a l i s m r e f e r s to a f e e l i n g of h o s t i l i t y toward the p r e v a i l i n g p a t t e r n of ownership, while n a t i o n a l s e c u r i t y a l l u d e s to the d e s i r e to r e g a i n c o n t r o l over s e c t o r s of the economy c o n s i d e r e d v i t a l to n a t i o n a l s e c u r i t y . I f a country has not been dominated e c o n o m i c a l l y by a c o l o n i a l power i n the past , i t i s l e s s l i k e l y to impose r e s t r i c t i o n s . M a l a y s i a was a former B r i t i s h c o l o n y and i t s f o r e i g n investment p o l i c i e s i n the pre-1970 p e r i o d were l a i s s e z - f a i r e i n nature. T h i s r e s u l t e d i n f o r e i g n ownership and domination of v i r t u a l l y every major s e c t o r of the economy which, i n t u r n , through a process of feedback, l e d to a r i s e i n economic n a t i o n a l i s m . In 1970, f o r e i g n ownership accounted f o r approximately 75% of the a g r i c u l t u r a l and f i s h e r y s e c t o r i n M a l a y s i a , 72% of mining, 63% of commerce, 60% of l i m i t e d companies, and 59% of manufacturing."'" B r i t i s h business i n t e r e s t s were preeminent i n commerce, mining, and a g r i c u l t u r e d u r i n g the c o l o n i a l e r a . In the interwar p e r i o d , over 70% of f o r e i g n investment i n M a l a y s i a was of B r i t i s h o r i g i n . By the 1970s, however, Japan had become the b i g g e s t source of 2 overseas investment i n M a l a y s i a . Then PETRONAS Chairman Tengku R a z a l e i g h v o i c e d the 4 8 f e e l i n g s of many economic n a t i o n a l i s t s when he s a i d i n 1 9 7 5 t h a t "Foreign f i r m s are not re s p o n s i v e to the needs of the people. The time has come f o r Malaysians to f r e e the 3 n a t i o n from f o r e i g n domination of the economy." S i m i l a r l y , the n a t i o n a l s e c u r i t y aspect was put forward by then M i n i s t e r of F o r e i g n A f f a i r s Tengku Ahmad Rithauddeen when he wrote i n an a r t i c l e f o r the Far E a s t e r n Economic Review i n 1 9 7 5 t h a t "Malaysia, i n l i n e with other T h i r d World n a t i o n s , b e l i e v e s t h a t an independent s t a t e must e x e r c i s e f u l l s o v e r e i g n t y over i t s n a t u r a l r e s o u r c e s r a t h e r than a l l o w a s i t u a t i o n to develop where i t w i l l be a t the 4 behest of m u l t i n a t i o n a l c o r p o r a t i o n s . " In the same a r t i c l e , Tengku Ahmad Rithauddeen a l s o r e i t e r a t e d t h a t f o r e i g n investment was s t i l l d e s i r e d by M a l a y s i a , d e s p i t e the government's simultaneous wish t o c o n t r o l the country's economy: F o r e i g n investment i n M a l a y s i a i s always welcome so long as the o p e r a t i o n s of f o r e i g n entrepreneurs are i n accord with the aims of our New Economic P o l i c y (NEP). Indeed, the o u t l i n e P e r s p e c t i v e Plan r e c o g n i z e s the c o n t i n u i n g r o l e of f o r e i g n i n v e s t o r s and assures them a 30% share of economic a c t i v i t i e s by 1 9 9 0 , a r e d u c t i o n from the preponderant 62% e x e r c i s e d at p r e s e n t . I t has o f t e n been found t h a t many f o r e i g n companies pay only l i p - s e r v i c e to the NEP, p a r t i c u l a r l y i n regard to p a r t i c i p a t i o n by bumiputras. 49 The Malaysian s i t u a t i o n , thus, very c l e a r l y supports the hypothesis s t a t e d e a r l i e r i n t h i s s e c t i o n . T h a i l a n d , c o n v e r s e l y , was never f o r m a l l y c o l o n i z e d , though i t had c l o s e r e l a t i o n s with B r i t a i n i n the 19th c e n t u r y , s t a r t i n g with the Bowring T r e a t y , and opened i t s urban c e n t r e s to f o r e i g n commercial i n t e r e s t s i n order to a v o i d g i v i n g the c o l o n i a l powers any p r e t e x t f o r s e i z i n g c o n t r o l , and even ceded l a r g e t r a c t s of l a n d to c o l o n i a l powers i n the e a r l y years of t h i s c e n t u r y . With the outbreak of the Korean War i n 1950, T h a i l a n d a l l i e d i t s e l f with the U n i t e d S t a t e s to f o l l o w a p o l i c y of containment i n Southeast A s i a . American a i d , investment, and t r a d e flowed i n t o T h a i l a n d . The U n i t e d S t a t e s began to gain a g r e a t d e a l of i n f l u e n c e over the T h a i government. F o r e i g n and domestic companies coopted many i n f l u e n t i a l bureaucrats and m i l i t a r y o f f i c e r s d u r i n g the 1950s. These s e n i o r government o f f i c i a l s were appointed to the boards of d i r e c t o r s of major c o r p o r a t i o n s and were brought i n as s h a r e h o l d e r s and p a r t n e r s of b u s i n e s s e s . A symbiotic r e l a t i o n s h i p was formed. The Thai business community formed j o i n t ventures with f o r e i g n i n v e s t o r s and became more prosperous with i n c r e a s e d flows of c a p i t a l and t r a d e . Hence, the support of the important urban middle c l a s s f o r f o r e i g n investment was achieved. 5 0 Most f o r e i g n investment i n T h a i l a n d went to the manufacturing s e c t o r , which accounted f o r o n l y 10% of GDP i n the e a r l y 1960s. In the p a s t , the a g r i c u l t u r a l s e c t o r , which formed the backbone of the Thai economy, had l i t t l e 7 f o r e i g n investment. Moreover, f o r e i g n investment was g e n e r a l l y not v e r y s i g n i f i c a n t i n the pre-1970 p e r i o d . T h a i s owned 69.2% of r e g i s t e r e d c a p i t a l i n t h e i r country d u r i n g the i n t e r v a l from 1960 to 1973, while Americans, Europeans, and Japanese accounted f o r 5.0%, 5.9%, and g 11.5%, r e s p e c t i v e l y . T h a i l a n d r e c e i v e d merely U.S. $39 m i l l i o n of f o r e i g n investment i n 1971, whereas Singapore o b t a i n e d U.S. $116 m i l l i o n and M a l a y s i a procured U.S. $188 m i l l i o n . Except f o r two i n t e r l u d e s of c i v i l i a n government, 1945 to 1948 and 1973 to 1976, the m i l i t a r y b a s i c a l l y governed T h a i l a n d from 1932 to 1980. T h a i l a n d ' s anti-Communist alignment with the United S t a t e s r e s u l t e d i n the American development of T h a i l a n d ' s economic i n f r a s t r u c t u r e . A f t e r the American withdrawal from Vietnam, the Thai government asked the U n i t e d S t a t e s to remove i t s troops from T h a i l a n d , which was completed by 1976. The Thai government i n t h i s manner a c q u i r e d c o n t r o l of v a r i o u s economic s e c t o r s c o n s i d e r e d c r u c i a l f o r n a t i o n a l s e c u r i t y and developed due to the American m i l i t a r y presence. 51 D i s p l a y s of Thai economic n a t i o n a l i s m i n the mid-1970s were d i r e c t e d l a r g e l y at Japanese investment. However, the r e l a t i v e l y b i g flow of c a p i t a l from Japan d i d not occur u n t i l the 1960s."'"''" U n l i k e M a l a y s i a , T h a i l a n d was never a colony, was not dominated by f o r e i g n ownership, and d i d not have a r e l a t i v e l y developed economic i n f r a s t r u c t u r e u n t i l the American m i l i t a r y presence expanded i n 1950. T h a i l a n d supports the f l i p s i d e of the hypothesis and the d i f f e r e n c e between T h a i l a n d and M a l a y s i a i n t h i s aspect i s one reason M a l a y s i a was more r e s t r i c t i v e toward f o r e i g n investment. Singapore was a former B r i t i s h c olony and f o r e i g n ownership was p r e v a l e n t i n i t s economy. In 1972, c a p i t a l from f o r e i g n sources accounted f o r 80.4% of t o t a l investment i n Singapore. Japan alone was r e s p o n s i b l e f o r 40.8% while the U n i t e d S t a t e s and the EEC s u p p l i e d 12.7% 12 and 10.4%, r e s p e c t i v e l y . N e v e r t h e l e s s , Singapore d i d not r e a c t to f o r e i g n economic domination i n the same manner as M a l a y s i a because of a few m i t i g a t i n g f a c t o r s . Singapore had s u b s t a n t i a l economic d i f f i c u l t i e s a f t e r A World War I I . I t had f u n c t i o n e d as the e n t r e p o t of Southeast A s i a , but by the end of the 1950s, entrep o t t r a d e began to decrease i n comparative terms because of the r i s e of economic n a t i o n a l i s m i n the r e g i o n . C o u n t r i e s p r e f e r r e d to have d i r e c t l i n k s with t h e i r t r a d i n g p a r t n e r s . In 52 a d d i t i o n , from 1947 to 1957, Singapore had a 4.3% annual r a t e of i n c r e a s e i n p o p u l a t i o n , which was one of the h i g h e s t i n the world a t the time. T h e r e f o r e , unemployment and housing became a major concern i n the l a t e 1950s. The Singaporean government decided a t the end of the decade to focus on i n d u s t r i a l i z a t i o n . New investment from overseas, l a r g e l y by MNCs, flowed i n t o Singapore to u t i l i z e the s t a t e as an i n t e r m e d i a t e manufacturing base. Singapore's trade t i e s were c r e a t e d or strengthened through f o r e i g n i n v e s t o r s . Most of the MNCs i n v o l v e d had e s t a b l i s h e d markets around the world and Singapore's s m a l l domestic market was not l a r g e enough to support a p o l i c y of i m p o r t - s u b s t i t u t i o n . Hence, f o r e i g n investment was welcomed by the Singapore government, p a r t i c u l a r l y when the government switched i t s s t r a t e g y t o e x p o r t - o r i e n t e d 13 i n d u s t r i a l i z a t i o n i n the mid-1960s. Because of t h e i r country's l a c k of n a t u r a l resources and s m a l l market, the Singapore government b e l i e v e d t h a t n a t i o n a l s u r v i v a l depended on i n d u s t r i a l i z a t i o n and, consequently, f o r e i g n investment. Prime M i n i s t e r Lee Kuan Yew l u c i d l y put forward the government's reasoning i n February 1968: Cooperation between e d u c a t i o n a l l y not advanced and i n d u s t r i a l l y underdeveloped c o u n t r i e s can o n l y produce m i n i s c u l e economic gains to be d i v i d e d between l a r g e 5 3 numbers of poor and hungry people To make progress which can be more q u i c k l y f e l t by the people, the underdeveloped c o u n t r i e s of South and Southeast A s i a must be a s s o c i a t e d with the most i n d u s t r i a l l y advanced and prosperous to borrow on f a i r l y generous terms not o n l y the c a p i t a l and equipment, but a l s o the e x p e r t i s e i n management, t e c h n o l o g i c a l and i n d u s t r i a l t e c h n i q u e s ^ ^ e d u c a t i o n and t r a i n i n g methods. The h y pothesis put forward e a r l i e r i n t h i s s e c t i o n i s r e f u t e d by the case of Singapore, which was a former co l o n y and was dominated by overseas c a p i t a l , because of the s t a t e ' s unique circumstances. Although M a l a y s i a a l s o wanted f o r e i g n investment, Singapore's p e r c e p t i o n of i t s o v e r r i d i n g need f o r f o r e i g n investment o f f s e t any h i s t o r i c p r o c l i v i t i e s toward s u b s t a n t i a l l y r e s t r i c t i n g c a p i t a l from overseas. Economic S t r a t e g y and Domestic Pressure The v a r i a b l e s being examined i n t h i s s e c t i o n are the economic s t r a t e g y of e l i t e s and domestic p o l i t i c a l p r e s s u r e . Two hypotheses are r e l e v a n t . One i s t h a t a c ountry whose e l i t e s f o l l o w an economic s t r a t e g y based on economic n a t i o n a l i s m and f a v o u r a b l e to heavy government economic i n t e r v e n t i o n i s more l i k e l y t o impose r e s t r i c t i o n s . The f l i p s i d e of t h i s h ypothesis i s the argument t h a t a country whose e l i t e s do not f o l l o w a 54 n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y i s l e s s l i k e l y t o impose r e s t r i c t i o n s . The ot h e r hypothesis argues t h a t a country whose governing group p e r c e i v e s t h a t i t i s v u l n e r a b l e to domestic p o l i t i c a l p r e s s u r e from economic n a t i o n a l i s t advocates of r e s t r i c t i o n s i s a l s o more l i k e l y t o impose r e s t r i c t i o n s . I f the governing group does not p e r c e i v e t h a t i t i s v u l n e r a b l e to domestic p r e s s u r e from economic n a t i o n a l i s t s , the country i s l e s s l i k e l y to invoke r e s t r i c t i o n s . M a l a y s i a ' s s h i f t t o more r e s t r i c t i v e f o r e i g n investment r e g u l a t o r y p o l i c i e s i n the e a r l y to mid-1970s r e f l e c t e d a change i n the dominant economic s t r a t e g y of the s t a t e ' s governing e l i t e s . Together with important domestic f a c t o r s which w i l l be d i s c u s s e d l a t e r , the t r a n s f o r m a t i o n of the i n t e r n a t i o n a l environment i n f l u e n c e d the shaping of the new p r e v a i l i n g s t r a t e g y . With B r i t a i n ' s withdrawal from areas East of the Suez Canal i n the mid to l a t e 1960s, the S o v i e t Union's espousal of a p o l i c y of p e a c e f u l c o - e x i s t e n c e , and the Un i t e d S t a t e s ' departure from Vietnam, M a l a y s i a began to le a n more toward a f o r e i g n p o l i c y posture of n e u t r a l i s m and non-alignment. Although M a l a y s i a s t i l l maintained a f a i r l y pro-West f o r e i g n p o l i c y , a T h i r d World o r i e n t a t i o n was emphasized. T h i s new stance c o i n c i d e d with the coming to power of a new group of people 55 i n the U n i t e d Malays N a t i o n a l O r g a n i z a t i o n (UMNO), which was the dominant p o l i t i c a l p a r t y i n the permanent c o a l i t i o n ( c a l l e d the A l l i a n c e P a r t y and l a t e r the N a t i o n a l Front) governing M a l a y s i a . A change from the l a i s s e z - f a i r e f o r e i g n investment p o l i c i e s of the pre-1970 e ra o c c u r r e d . The new l e a d e r s h i p f o l l o w e d an economic s t r a t e g y advocating economic n a t i o n a l i s m and a mixed ( i n t e r v e n t i o n i s t and c a p i t a l i s t ) economy. T h i s economic s t r a t e g y was p a r t l y e x p l a i n e d by Prime M i n i s t e r Tun Razak i n September 1974 a t a conference on "Southeast A s i a ' s N a t u r a l Resources and the World Economy": ...We i n M a l a y s i a b e l i e v e i n economic n a t i o n a l i s m i n g u i d i n g the e x p l o i t a t i o n of our n a t u r a l r e s o u r c e s i n such a way t h a t our people and country w i l l o b t a i n the g r e a t e s t b e n e f i t . We b e l i e v e t h a t p r i v a t e e n t e r p r i s e , whether domestic or f o r e i g n has an important r o l e t o p l a y i n our development. Our o b j e c t i v e i s to b r i n g about an e f f e c t i v e and e q u i t a b l e mixture of domestic and f o r e i g n e n t e r p r i s e on the one hand, and p r i v a t e and p u b l i c e n t e r p r i s e on the o t h e r , so t h a t our n a t i o n a l i n t e r e s t can be advanced to the context of an expanding, stab"J.g and e q u i t a b l e world economic o r d e r . M a l a y s i a p r a c t i s e d a v e r s i o n of Western p a r l i a m e n t a r y democracy with e l e c t i o n s , p o l i t i c a l p a r t i e s , and a l e g i s l a t i v e assembly. Some UMNO p o l i t i c i a n s may have f e l t i t was p o l i t i c a l l y advantageous to appear h a r d - l i n e i n 56 p u b l i c and to use n a t i o n a l i s t i c r h e t o r i c i n order to inflame n a t i o n a l i s t sentiments and gain v o t e s . These sentiments stemmed from the country's past economic domination by a c o l o n i a l power and with concerns over economic c o n t r o l . Although the governing group i n M a l a y s i a was b a s i c a l l y pro-West and continued to d e s i r e f o r e i g n investment f o r development purposes throughout t h i s p e r i o d , the p r o v o c a t i v e p u b l i c statements of advocates of economic n a t i o n a l i s m probably caused the government to f e e l some p o l i t i c a l p r e s s u r e to take a more n a t i o n a l i s t s t a nce. T h i s domestic p o l i t i c a l p r e s s u r e l i k e l y had some i n f l u e n c e on the government's d e c i s i o n to t r y to c o n t r o l f o r e i g n investment. Tengku R a z a l e i g h , who served as Finance M i n i s t e r under Tun Hussein Onn and, f o r a w h i l e , under c u r r e n t Prime M i n i s t e r Dr. Mahathir Mohamad, was perhaps the most prominent h a r d - l i n e economic n a t i o n a l i s t . R a z a l e i g h seemed to have used n a t i o n a l i s t statements and a c t i o n s to gain the honorary t i t l e of Bapa Ekonomi M a l a y s i a (Father of the Malaysian Economy) i n 1975 from the Malay Chamber of Commerce, where he was Chairman. In the same year, R a z a l e i g h was e l e c t e d as one of three V i c e - P r e s i d e n t s of the UMNO. Besides the p o s i t i o n s a l r e a d y mentioned, d u r i n g the 1970s, Tengku R a z a l e i g h a l s o served as the o r i g i n a l 57 Chairman of PERNAS and the Chairman of PERNAS S e c u r i t i e s , 17 PETRONAS, and Bank Bumiputra. In a speech to the Malay Chamber of Commerce i n J u l y 1975, R a z a l e i g h epitomized h i s statements d u r i n g t h i s p e r i o d when he s a i d " I f other c o u n t r i e s have l e g i s l a t i o n and r e g u l a t i o n s to ensure t h a t t h e i r economies do not f a l l i n t o the hands of o t h e r s , the time has come f o r Malaysians themselves to c o n t r o l the 18 n a t i o n ' s r e s o u r c e s . " P o l i t i c a l p r e s s u r e from economic n a t i o n a l i s t s , l i k e R a z a l e i g h , must have a f f e c t e d the government's p o s i t i o n on f o r e i g n investment. Thus, both hypotheses under c o n s i d e r a t i o n i n t h i s s e c t i o n are v a l i d f o r M a l a y s i a . In T h a i l a n d , on the other hand, the governing e l i t e s f o l l o w e d an economic s t r a t e g y which was anti-communist and market economy o r i e n t e d . "Over the past h a l f - c e n t u r y there have been numerous changes i n l e a d e r s h i p ( i n c l u d i n g experiments with f u l l democracy), but these changes have a l t e r e d very l i t t l e the c o n s e r v a t i v e outlook of the Bangkok 19 government." Coups i n T h a i l a n d were u s u a l l y u t i l i z e d by s e n i o r m i l i t a r y o f f i c e r s as a method of changing the people h o l d i n g p o s i t i o n s of l e a d e r s h i p . "There was never any t h r e a t of any dramatic p o l i t i c a l r upture or changing of 20 T h a i l a n d ' s a b i d i n g anti-communist, pro-Western i d e o l o g y . " Even d u r i n g the 1973-1976 interregnum of democratic, 58 c i v i l i a n government, when p u b l i c demands f o r n a t i o n a l i s t economic p o l i c i e s were f a i r l y s t r o n g , the e l i t e s i n government adhered to a s t r a t e g y based on an open economy. In August 1975, Prime M i n i s t e r K u k r i t Pramoj, d u r i n g a speech to mark the formation of a F o r e i g n Investment A d v i s o r y C o u n c i l f o r the Board of Investment, s a i d unequivocably t h a t "This n a t i o n r e a l i z e s t h a t we cannot do 21 without f o r e i g n b u s i n e s s . " In t h i s same speech to a g a t h e r i n g of the heads of f o r e i g n chambers of commerce, K u k r i t went f u r t h e r : I am r e a l i s t i c enough to understand t h a t i t i s unreasonable to ask f o r e i g n companies to i n v e s t l a r g e amounts of money and to expect them to g i v e management c o n t r o l to T h a i n a t i o n a l s . That i s a r i d i c u l o u s r e q u e s t . . . T h a i l a n d has no i n t e n t i o n of a s k i n g f o r e i g n i n v e s t o r s with l a r g e investments to t u r n over t h e i r management, or the m a j o r i t y of t h e i r e q u i t y s t r u c t u r e , to Thai n a t i o n a l s . What we ask i s t h a t f o r e i g n companies should work here as p a r t n e r s , so t h a t your investments here can be meaningful i n terms of f i n a n c i a l gains and a t the s a n ^ ^ i m e they should b e n e f i t my c o u n t r y . In c o n t r a s t to t h e i r Malaysian c o u n t e r p a r t s , the Thai e l i t e s i n government d i d not adopt a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y . However, the governing group i n T h a i l a n d d i d r e c e i v e s u b s t a n t i a l p o l i t i c a l p r e s s u r e from sup p o r t e r s of economic 59 n a t i o n a l i s m i n the e a r l y to mid-1970s. During the 1960s, the i n f l o w of f o r e i g n c a p i t a l was encouraged and the economy grew s t r o n g l y . F o r e i g n investment, p a r t i c u l a r l y from Japan, expanded. However, the s t a r t of the withdrawal of American troops from Southeast A s i a i n 1969 p r e c i p i t a t e d the end of the Thai economic boom. The N a t i o n a l Student Center of T h a i l a n d (NSCT) was e s t a b l i s h e d i n 1970. Although the NSCT t a r g e t e d most of i t s p o l i t i c a l a c t i o n s a g a i n s t the m i l i t a r y regime l e d by Thanom K i t t i k a c h o r n and Prapat C h a r u s a t h i a r a , i t a l s o o r g a n i z e d an i n c r e a s i n g number of student demonstrations a g a i n s t what the student l e a d e r s b e l i e v e d was the Japanese economic c o l o n i z a t i o n of T h a i l a n d . These student demonstrations reached t h e i r i n t e n s i v e peak when the Japanese Prime M i n i s t e r v i s i t e d 23 T h a i l a n d i n January 1974. Concomitant with the student demonstrations was a r i s i n g l e v e l of economic n a t i o n a l i s m among the g e n e r a l p o p u l a t i o n . Most Th a i s d i d not communicate much with f o r e i g n i n v e s t o r s and d i d not understand them. Some xenophobia appears to have c o n t r i b u t e d to i n c r e a s i n g n a t i o n a l i s m . Many Tha i s b e l i e v e d t h a t f o r e i g n e r s b e n e f i t e d more than t h e i r Thai a s s o c i a t e s from j o i n t ventures and 24 o t h e r business d e a l i n g s i n T h a i l a n d . The Japanese were s i n g l e d out f o r t h e i r p e r c e i v e d e x p l o i t a t i o n of T h a i s , 60 a l t h o u g h " . . . t h e w i d e s p r e a d resentment o f t h e Japanese was provoked more by the v i s i b l e a s p e c t s o f 'Japanese p r e s e n c e 1 such as the f l o o d o f Japanese goods, gaudy a d v e r t i s e m e n t s , samurai movies, and swarms of Japanese t o u r i s t s , than by c o l o n i a l i s m i n t h e i n t e r n a l l a b o r markets of Japanese 25 s u b s i d i a r i e s and a f i l i a t e s i n T h a i l a n d . " The growing n a t i o n a l i s t i c f e e l i n g among the urban p o p u l a c e was backed up by t h e c r i t i c i s m s o f many T h a i i n t e l l e c t u a l s . Educated T h a i s o p e n l y v o i c e d t h e i r v iews j u s t p r i o r t o and d u r i n g t h e p e r i o d o f d e m o c r a t i c , c i v i l i a n government, 1973-1976, t h a t T h a i l a n d ' s economy was becoming dominated by m u l t i n a t i o n a l c o r p o r a t i o n s and o t h e r f o r e i g n i n v e s t o r s who were not s a t i s f a c t o r i l y a s s i s t i n g t h e development of the c o u n t r y . They argued t h a t f o r e i g n companies f a i l e d t o a d e q u a t e l y t r a i n T h a i s and p l a c e them i n s e n i o r p o s i t i o n s . They a l s o b e l i e v e d t h a t t h e s m a l l amount of t e c h n o l o g y t r a n s f e r t h a t had o c c u r r e d t h r o u g h f o r e i g n i n v e s t m e n t p r o f i t e d o n l y the few urban T h a i s who were p a r t n e r s i n j o i n t v e n t u r e s and was, t h e r e f o r e , i n c r e a s i n g economic d i s p a r i t y i n the c o u n t r y . A l a r g e number of T h a i i n t e l l e c t u a l s a l s o f e l t t h a t t h e Japanese were p a r t i c u l a r l y e x p l o i t a t i v e o f T h a i l a b o u r i n terms of t r e a t m e n t and p r o m o t i o n s . N a t i o n a l i s t i c i n t e l l e c t u a l u n r e s t appeared p u b l i c l y i n t h e A p r i l 1972 i s s u e o f t h e 61 Chulalongkorn U n i v e r s i t y S o c i a l Science Review. The whole i s s u e d e a l t with the non-Thai c o n t r o l of T h a i l a n d ' s economy. C r i t i c i s m focused on the e t h n i c Chinese l i v i n g i n T h a i l a n d and on the Japanese. A movement to boycott Japanese products formed a few months a f t e r the j o u r n a l ' s u-i • 4.- 26 p u b l i c a t i o n . A l l t h i s outpouring of economic n a t i o n a l i s m put a g r e a t d e a l of p o l i t i c a l p r e s s u r e on the beleaguered m i l i t a r y regime of Thanom and Prapat, which f e l l i n October 1973 and was r e p l a c e d by a democratic, c i v i l i a n government. During the three years of u n s t a b l e democratic government, students o r g a n i z e d frequent demonstrations and s t r i k e s and s e v e r a l d i f f e r e n t c i v i l i a n c o a l i t i o n s formed the government f o r v a r y i n g lengths of time. The T h a i government was v u l n e r a b l e to the p o l i t i c a l p r e s s u r e emanating from economic n a t i o n a l i s t s i n the e a r l y to mid-1970s. As a r e s u l t , p o l i c i e s r e s t r i c t i n g f o r e i g n investment, such as the A l i e n Business Law of 1972 and the A l i e n Employment Act of 1973, were passed by v a r i o u s Thai governments. However, the m i l i t a r y coup d ' e t a t which i n s t a l l e d Tanin K r a i v i x i e n as Prime M i n i s t e r i n October 1976 "... submerged those 27 elements t h a t opposed f o r e i g n investment." The wave of economic n a t i o n a l i s m i n T h a i l a n d subsided. The r i s e of d i s c o n t e n t toward f o r e i g n investment i n 62 the e a r l y 1 9 7 0 s was perhaps as much an a t t a c k on T h a i l a n d ' s m i l i t a r y government and economic s t r u c t u r e as i t was a c r i t i c i s m of overseas c a p i t a l . Many people were d i s t u r b e d by the growing economic d i s p a r i t i e s i n s o c i e t y and by the domination of the m i l i t a r y e l i t e and t h e i r a s s o c i a t e s i n 2 8 the business s e c t o r . "Foreign business and f o r e i g n investments, being the most conspicuous symbol of economic d i s p a r i t i e s , became a convenient t a r g e t f o r p u b l i c a t t a c k 29 on the country's economic s t r u c t u r e . " The government's r e s c i n d i n g of the Thai E x p l o r a t i o n and Mining Company's o f f s h o r e t i n c o n c e s s i o n i n 1 9 7 5 , f o r example, was l a r g e l y a r e s u l t of charges of f r a u d and c o r r u p t i o n a g a i n s t c e r t a i n m i l i t a r y o f f i c e r s , i n a d d i t i o n to the more g e n e r a l 30 complaints about m u l t i n a t i o n a l c o r p o r a t i o n s . R e s t r i c t i v e measures taken a g a i n s t s p e c i f i c f o r e i g n companies c o u l d sometimes a l s o be a r e f l e c t i o n of s t r u g g l e s w i t h i n the Thai b u r e a u c r a t i c p o l i t y . I f a p a r t i c u l a r m i l i t a r y and b u r e a u c r a t i c group was ascendant i n the government, t h e i r f o r e i g n p a r t n e r s i n j o i n t ventures and a s s o c i a t e s heading f o r e i g n companies would o f t e n r e c e i v e p r e f e r e n t i a l treatment i n the a p p l i c a t i o n of f o r e i g n investment r e g u l a t i o n s . The r e v e r s e was a l s o t r u e . Thus, " [ i ] t i s i m p o s s i b l e to t e l l to what degree anti-Japanese p o l i c y statements are a r e s u l t of economic n a t i o n a l i s m . . . 6 3 or whether they are merely a r e f l e c t i o n of f r a c t i o n a l 31 s t r i f e . . . " N e v e r t h e l e s s , i t i s c l e a r t h a t economic n a t i o n a l i s m had some i n f l u e n c e on p o l i c i e s . T h a i l a n d ' s e l i t e s i n government d i d not f o l l o w a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y ; t h e r e f o r e , the f l i p s i d e of the f i r s t h y pothesis given f o r t h i s s e c t i o n i s c o r r e c t . Although the governing group i n T h a i l a n d d i d r e a c t to a c e r t a i n degree to p o l i t i c a l p r e s s u r e from economic n a t i o n a l i s t s i n the e a r l y to mid-1970s, domestic pressure f o r r e s t r i c t i o n s ceased to be s i g n i f i c a n t with the m i l i t a r y coup of 1976. T h e r e f o r e , the case of T h a i l a n d a l s o supports the f l i p s i d e of the second h y p o t h e s i s . N a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y and domestic p r e s s u r e f o r r e s t r i c t i o n s were not important f a c t o r s i n T h a i l a n d as they were i n M a l a y s i a . The preeminent economic s t r a t e g y of Singapore's governing e l i t e s focussed on the concept of s u r v i v a l . A c c o r d i n g to the s t r a t e g y , the s u r v i v a l of Singapore as an independent s t a t e was c o n t i n g e n t upon the achievement of economic growth, which, i n t u r n , r e q u i r e d f o r e i g n investment. The Singaporean e l i t e s g e n e r a l l y b e l i e v e d t h a t Singapore had to form interdependent r e l a t i o n s h i p s i n a growing world economy. T h i s i m p l i e d a f r e e - f l o w of goods and c a p i t a l between c o u n t r i e s to achieve economic growth 6 4 and p r o s p e r i t y . The government's adherence to t h i s view was e x e m p l i f i e d by then F o r e i g n M i n i s t e r and l a t e r Deputy Prime M i n i s t e r S. Rajaratnam i n February 1972 when he s a i d "... we draw sustenance not o n l y from the r e g i o n but a l s o from the i n t e r n a t i o n a l economic system to which we as a G l o b a l C i t y belong and which w i l l be the f i n a l a r b i t e r of 3 3 whether we prosper or d e c l i n e . " The dominant economic s t r a t e g y a l s o emphasized a mixed economy with the government a c t i v e l y p a r t i c i p a t i n g where deemed a p p r o p r i a t e . S u r v i v a l was the o v e r r i d i n g f a c t o r . "In essence, t h i s means th a t Singapore's p e r c e p t i o n of i s s u e s i s based p r i m a r i l y on the assessment of t h e i r 3 4 r e l e v a n c e to the economic development of Singapore." Although the governing People's A c t i o n P a r t y (PAP) c a l l e d i t s e l f a democratic s o c i a l i s t p a r t y , i t d i d not f o l l o w a r i g i d l y s o c i a l i s t economic p h i l o s o p h y . The PAP was q u i t e f l e x i b l e r e g a r d i n g the means used to a t t a i n the ends. Ensuing from the economic s t r a t e g y , the PAP encouraged p r i v a t e e n t e r p r i s e and a r e l a t i v e l y f r e e market was maintained. At the same time, a f a i r amount of government economic p l a n n i n g and s t a t e ownership of business 35 . . . e n t e r p r i s e s o c c u r r e d . Prime M i n i s t e r Lee Kuan Yew e x p l a i n e d the pragmatic economic p h i l o s o p h y of h i s government i n 1980 when he s t a t e d t h a t government 65 c o r p o r a t i o n s p l a y e d a key r o l e i n p a r t i c u l a r s e c t o r s , but o n l y "when the p r i v a t e entrepreneurs were h e s i t a n t or o v e r - c a u t i o u s . The Singaporean Government was w i l l i n g t o venture s t a t e c a p i t a l . . . [ b u t ] these e n t e r p r i s e s had to s u r v i v e the t e s t of co m p e t i t i o n i n a free-market 3 6 economy." Hence, the government was i n t e r v e n t i o n i s t e c o n o m i c a l l y , but not n a t i o n a l i s t i c . The case of Singapore supports the f l i p s i d e of the f i r s t h y p o t hesis s t a t e d i n t h i s s e c t i o n . In terms of domestic p o l i t i c a l p r e s s u r e from economic n a t i o n a l i s t s , the governing group was not v u l n e r a b l e . Singapore p r a c t i s e d a form of Western p a r l i a m e n t a r y democracy and the PAP has won a m a j o r i t y i n every g e n e r a l e l e c t i o n s i n c e 1959. There were no o p p o s i t i o n members of par l i a m e n t from 1968 to 1981. Economic n a t i o n a l i s t s a d v o c a ting r e s t r i c t i o n s on f o r e i g n investment were not a f a c t o r . Singapore d i f f e r e d s u b s t a n t i a l l y from M a l a y s i a r e g a r d i n g the economic s t r a t e g y of t h e i r e l i t e s and domestic p o l i t i c a l p r e s s u r e . E c o n o m i c a l l y Dominant E t h n i c M i n o r i t y The s i t u a t i o n being analyzed next i s the economic p o s i t i o n of e t h n i c m i n o r i t i e s . The hypothesis here p o s t u l a t e s t h a t i n a country where the m a j o r i t y e t h n i c group i s p o l i t i c a l l y dominant, but e c o n o m i c a l l y 66 s u b o r d i n a t e , government a c t i o n aimed a t r e d r e s s i n g p e r c e i v e d economic imbalances v i s - a - v i s , l a r g e , m i n o r i t y , domestic e t h n i c groups can have the secondary e f f e c t of a l s o r e s t r i c t i n g f o r e i g n investment. I f a country does not have an ec o n o m i c a l l y dominant e t h n i c m i n o r i t y , government a c t i o n having the secondary e f f e c t of r e s t r i c t i n g f o r e i g n investment i s l e s s l i k e l y t o occur. In e x p l a i n i n g M a l a y s i a ' s g r e a t e r r e s t r i c t i o n s toward f o r e i g n investment, the country's e t h n i c s i t u a t i o n i s a c r u c i a l f a c t o r . A c c o r d i n g to 1980 census r e s u l t s , about 53% .of Ma l a y s i a ' s p o p u l a t i o n were Malays. Chinese accounted f o r approximately 35%, while Indians and other m i n o r i t i e s made up 11% and 1%, r e s p e c t i v e l y . E t h n i c m i n o r i t i e s taken together r e p r e s e n t e d a huge 47%. T h i s e t h n i c breakdown of the p o p u l a t i o n was the r e s u l t of B r i t i s h c o l o n i a l p o l i c y . In the l a t e 1800s, immigrant Chinese l a b o u r e r s were brought i n t o P e n i n s u l a r M a l a y s i a to work i n the t i n mines and indentured Indian workers were engaged f o r the rubber e s t a t e s . These Chinese and Indians were c o n s i d e r e d s o j o u r n e r s , so the B r i t i s h d i d not attempt to i n t e g r a t e the e t h n i c groups. When M a l a y s i a was c r e a t e d i n 1963, Malays dominated p o l i t i c a l l y , but they were mainly employed i n s m a l l - s c a l e a g r i c u l t u r e and i n the c i v i l s e r v i c e . L a r g e - s c a l e a g r i c u l t u r e , i n d u s t r y , and commerce were 67 c o n t r o l l e d by f o r e i g n e r s and e t h n i c Chinese. A b i g f a l l i n the p r i c e of rubber i n the 1960s i n c r e a s e d p e r c e i v e d economic i n e q u a l i t i e s among the d i f f e r e n t e t h n i c groups. C i v i l u n r e s t broke out with r a c i a l r i o t s on May 13, 1969. These r i o t s were a major c a t a l y s t l e a d i n g to changes i n domestic p o l i t i c s and had s e r i o u s r a m i f i c a t i o n s f o r f o r e i g n investment. A f t e r a long e l e c t i o n campaign i n 1969, the r u l i n g A l l i a n c e P a r t y c o a l i t i o n was r e e l e c t e d with 66 out of 103 s e a t s i n P a r l i a m e n t . T h i s was the p a r t y ' s worst showing i n an e l e c t i o n . A mainly e t h n i c Chinese o p p o s i t i o n p a r t i e s ' c e l e b r a t o r y parade o c c u r r e d i n Kuala Lumpur on May 12. The f o l l o w i n g day, a responding Malay march r e s u l t e d i n wide-spread e t h n i c v i o l e n c e centered l a r g e l y i n the c a p i t a l . A f t e r the r i o t s , then Prime M i n i s t e r Tunku Abdul Rahman was p r e s s u r e d to r e s i g n . N a t i o n a l i s t i c d i s s i d e n t s w i t h i n the UMNO, known as " u l t r a s " , used the r i o t s to undermine p a r t y and p u b l i c c o n f i d e n c e i n Tunku Abdul Rahman. Dr. Mahathir Mohamad and Datuk Musa Hitam, who l a t e r became Prime M i n i s t e r and Deputy Prime M i n i s t e r , r e s p e c t i v e l y , were g e n e r a l l y c o n s i d e r e d " u l t r a s " . From May 1969 to February 1971, M a l a y s i a was governed by a N a t i o n a l Operations C o u n c i l headed by Deputy Prime M i n i s t e r Tun Abdul Razak. During t h i s p e r i o d , Razak and h i s a d v i s o r s 68 d e c i d e d t h a t , although Malays were p o l i t i c a l l y dominant, Malay d i s s a t i s f a c t i o n about t h e i r e t h n i c group's l a c k of economic power was the main reason f o r the r a c i a l r i o t s . When he became Prime M i n i s t e r i n 1970, Razak appointed both Mahathir and Musa to h i s c a b i n e t . Razak a l s o put f o r t h new economic measures to p l a c a t e the " u l t r a s " . As a r e s u l t , the New Economic P o l i c y was formulated with a c e n t r a l o b j e c t i v e of i n c r e a s i n g bumiputra ownership of share c a p i t a l t o 30% of the t o t a l by 1990. A N a t i o n a l C o n s u l t a t i v e C o u n c i l , comprised of r e p r e s e n t a t i v e s from the v a r i o u s major i n t e r e s t groups i n the country, was formed i n 1970 and, among other t h i n g s , approved the NEP. Hence, the NEP was adopted by the Malaysian government as a way to 37 r e g a i n n a t i o n a l u n i t y and prevent f u t u r e r a c i a l r i o t s . The NEP, however, had the secondary e f f e c t of r e s t r i c t i n g f o r e i g n investment. The government, through the NEP, sought to produce an economic balance i n c o r p o r a t e ownership among bumiputra, other Malaysians (Chinese and I n d i a n s ) , and f o r e i g n e r s so t h a t bumiputra would c o n t r o l a p e r c e i v e d f a i r share of the economic a s s e t s of t h e i r ^ . . . country, p a r t i c u l a r l y v i s - a - v i s the Chinese m i n o r i t y . The NEP aimed to a l l e v i a t e and e l i m i n a t e poverty and to end the i d e n t i f i c a t i o n of economic f u n c t i o n with r a c e . A c c o r d i n g to the Second M a l a y s i a P l a n 1971-1975; 69 Economic balance, i n a growing and dynamic economy, r e f e r s to the e q u i t a b l e and l e g i t i m a t e s h a r i n g of the rewards and r e s p o n s i b i l i t i e s of economic development. The p r i n c i p a l reward of economic development — the growing income generated by the n a t i o n a l economy — must be e q u i t a b l y d i s t r i b u t e d . . . B a l a n c e a l s o r e f e r s to r a c i a l shares i n management and ownership and i n employment i n the v a r i o u s s e c t o r s of the economy. At p r e s e n t , non-Malays and f o r e i g n e r s dominate the manufacturing and commercial s e c t o r s . . . T h e Government has s e t a t a r g e t t h a t w i t h i n a p e r i o d of 20 y e a r s , Malays and other indigenous people w i l l manage and own a t l e a s t 30% of the t o t a l commercial and i n d u s t r i a l a c t i v i t i e s i n a l l c a t e g o r i e s and s c a l e s of o p e r a t i o n . To p a r t l y a l l e v i a t e c o n f l i c t s between the bumiputra and other M a l a y s i a n s , e s p e c i a l l y the e t h n i c Chinese, which c o u l d occur due to the economic and s o c i a l r e s t r u c t u r i n g caused by the NEP, the Malaysian government expected a context of economic expansion, and f o r a l l Malaysians to b e n e f i t at the expense of f o r e i g n e r s . The government planned f o r t o t a l investment, i n c l u d i n g c a p i t a l from f o r e i g n sources, to expand i n a b s o l u t e terms, but the r e l a t i v e share of f o r e i g n ownership was s l a t e d t o f a l l from 60.7% to 30%. At the same time, e q u i t y ownership by both bumiputra and other Malaysians was supposed to grow i n 39 a b s o l u t e and r e l a t i v e terms. To achieve the o b j e c t i v e s of the NEP, the Malaysian 70 government, as s t a t e d e a r l i e r , i n t e r v e n e d s u b s t a n t i a l l y i n t o the economy. Government c o r p o r a t i o n s were s e t up to buy share c a p i t a l " i n t r u s t " f o r the bumiputra. PERNAS expanded i n t o a very l a r g e conglomerate e n t e r i n g i n t o j o i n t ventures with f o r e i g n c o r p o r a t i o n s and a c q u i r i n g major share h o l d i n g s i n both f o r e i g n and Malaysian f i r m s . The company acted as a surrogate f o r the bumiputra. Through the time p e r i o d under c o n s i d e r a t i o n , the bulk of the e q u i t y d e s i g n a t e d as being owned by bumiputra was a c t u a l l y h e l d by government bod i e s , such as PERNAS and St a t e Economic Development C o r p o r a t i o n s (SEDCs). The government b e l i e v e d t h a t the bumiputra business c l a s s was not y e t st r o n g enough t o compete with Malaysian Chinese and f o r e i g n e r s . T h e r e f o r e , the government, through the C o u n c i l of T r u s t f o r the Indigenous Peoples (MARA), s e t up a f i n a n c i a l consortium i n 1972 to assemble and i n v e s t bumiputra s a v i n g s . S i m i l a r l y , i n 1974, the M i n i s t r y of Trade and Ind u s t r y e s t a b l i s h e d a t r u s t fund to purchase shares i n i n d u s t r i a l companies i n order to r e s e l l them or otherwise e v e n t u a l l y t r a n s f e r them to bumiputra i n d i v i d u a l s . . The government-owned c o r p o r a t i o n s and bumiputra investment t r u s t funds u s u a l l y a c q u i r e d the shares of foreign-owned 40 companies. In M a l a y s i a , e t h n i c f a c t o r s were the c r u c i a l reason 71 f o r r e s t r i c t i o n s on f o r e i g n investment. Although the Mal a y s i a n government wanted i n c r e a s e d f o r e i g n investment, p o l i c i e s aimed a t r e d r e s s i n g p e r c e i v e d economic imbalances between Malays and e t h n i c Chinese had the secondary e f f e c t of r e s t r i c t i n g f o r e i g n ownership. Thus, the case of M a l a y s i a supports the hypothesis p o s t u l a t e d f o r t h i s s e c t i o n . The T h a i s i t u a t i o n , i n c o n t r a s t , d i f f e r e d c o n s i d e r a b l y from t h a t f a c e d by M a l a y s i a . A c c o r d i n g to e s t i m a t e s , the Chinese, the b i g g e s t m i n o r i t y group, o n l y accounted f o r about 7% of the p o p u l a t i o n . Moreover, much i n t e r m a r r i a g e and a s s i m i l a t i o n has o c c u r r e d . Major Chinese immigration s t a r t e d i n the l a t e 1700s. By 1970, Chinese made up the m a j o r i t y of the Thai middle c l a s s and dominated commerce, w h i l e T h a i s c o n t r o l l e d mining, a g r i c u l t u r e , and f i s h i n g . P r i o r to 1970, d i f f e r e n t regimes i n government passed laws aimed a t r e d u c i n g the domination of the business s e c t o r by Chinese. In a d d i t i o n , the unrest of economic n a t i o n a l i s t s i n the e a r l y t o mid-1970s was d i r e c t e d at both the Japanese and the Chinese l i v i n g i n T h a i l a n d . Nonetheless, beginning i n the 1950s, Thai m i l i t a r y o f f i c e r s , p o l i t i c i a n s , and bureaucrats e s t a b l i s h e d a s o r t of i n f o r m a l , s y m b i o t i c r e l a t i o n s h i p with the Chinese business community. Government o f f i c i a l s s a t as d i r e c t o r s of company boards or 72 a c t e d as business p a r t n e r s i n r e t u r n f o r s u p p o r t i n g Chinese economic i n t e r e s t s . These o f f i c i a l s f e l t they needed the f i n a n c i a l backing, which the Chinese p r o v i d e d them, i n 41 order to strengthen t h e i r p o l i t i c a l power. The Chinese, u n l i k e the Malaysian s i t u a t i o n , were on l y a r e l a t i v e l y s m a l l m i n o r i t y i n T h a i l a n d and were q u i t e a s s i m i l a t e d . Although they were e c o n o m i c a l l y s t r o n g , they coopted many Thai government o f f i c i a l s f o r t h e i r business v e n t u r e s . S i g n i f i c a n t government a c t i o n aimed r e d r e s s i n g economic imbalances v i s - a - v i s the Chinese d i d not occur i n the 1970 to 1980 p e r i o d . T h a i l a n d supports the h y p o t h e s i s . In Singapore, the m a j o r i t y e t h n i c group was both p o l i t i c a l l y and e c o n o m i c a l l y dominant. About 76.9% of the p o p u l a t i o n i n 1980 were Chinese. Malays and Indians accounted f o r most of the remaining 23.1%. The n a t i o n a l p o l i t i c a l and business e l i t e of Singapore was composed l a r g e l y of e t h n i c Chinese who had r e c e i v e d l o c a l and 42 Western e d u c a t i o n . The circumstances i n Singapore uphold the h y p o t h e s i s . In s t a r k c o n t r a s t to M a l a y s i a , e t h n i c f a c t o r s d i d not i n f l u e n c e the government's p o l i c i e s toward r e s t r i c t i n g f o r e i g n investment. S i z e of N a t u r a l Resource Sector T h i s s e c t i o n d i s c u s s e s the s i z e of the n a t u r a l resource s e c t o r i n the three c o u n t r i e s . The hypothesis 73 here p o s t u l a t e s t h a t a country with a high p r o p o r t i o n of n a t u r a l r esource i n d u s t r i e s , such as m i n e r a l e x t r a c t i o n and a g r i c u l t u r e , i s more l i k e l y to pass r e s t r i c t i o n s i n the n a t u r a l r esource s e c t o r . T h i s i n c r e a s e d l i k e l i h o o d occurs because n a t u r a l resource i n d u s t r i e s are r e l a t i v e l y v i s i b l e , have symbolic v a l u e to economic n a t i o n a l i s t sentiment, and r a i s e b a s i c q u e s t i o n s about f o r e i g n ownership of n a t u r a l , and o f t e n d e p l e t a b l e , r e s o u r c e s . Furthermore, they are o f t e n p o o r l y i n t e g r a t e d i n t o the l o c a l economy, tend to dominate e i t h e r the country's GDP or e x p o r t s , and f r e q u e n t l y employ r e l a t i v e l y l a r g e numbers of l o c a l workers i n low s k i l l j o b s . These i n d u s t r i e s tend to export n a t u r a l resources as low value-added, primary products, whose p r i c e s are d i c t a t e d by world markets. The f l i p s i d e of t h i s h y p o thesis i s the c o n t e n t i o n t h a t a country which has a s m a l l n a t u r a l resource s e c t o r i s l e s s l i k e l y to impose r e s t r i c t i o n s . In 1980, a g r i c u l t u r e and mining accounted f o r 27% of M a l a y s i a ' s GDP, whereas manufacturing was r e s p o n s i b l e f o r 21%. Approximately 37% of M a l a y s i a ' s people were employed i n a g r i c u l t u r e and f i s h i n g . The bulk were Malays and the government c a t e g o r i z e d h a l f of them as poor. As a r e s u l t , n a t u r a l r e s o u r c e i n d u s t r i e s were h i g h l y s a l i e n t i n M a l a y s i a . 74 The M a l a y s i a n I n d u s t r i a l C o o r d i n a t i o n Act (1975) s t a t e d t h a t companies u s i n g imported p a r t s to manufacture export items were p e r m i t t e d 51%-70% f o r e i g n ownership i f 80%-100% of the products were s o l d overseas and they c o u l d have 100% f o r e i g n ownership i f t o t a l p r o d u c t i o n was exported. E x p o r t - o r i e n t e d f i r m s u s i n g renewable Malaysian raw m a t e r i a l s , on the other hand, were allowed 30%-55% f o r e i g n ownership. S i g n i f i c a n t l y , i f a company was e x p o r t - o r i e n t e d , but u t i l i z i n g non-renewable domestic n a t u r a l r e s o u r c e s , f o r e i g n e r s were p e r m i t t e d o n l y 45% ownership and were r e q u i r e d to p l a n a schedule t o decrease 43 t h e i r share e q u i t y to 30%. N a t u r a l resource i n d u s t r i e s , p a r t i c u l a r l y those employing d e p l e t a b l e raw m a t e r i a l s , had more r e s t r i c t i o n s r e g a r d i n g f o r e i g n ownership than manufacturing f i r m s u s i n g imported p a r t s to make goods f o r overseas markets. T h i s upholds the h y p o t h e s i s . The a c t i o n s of PETRONAS and PERNAS, as c i t e d i n Chapter I I , g i v e f u r t h e r weight to the hypothesis of t h i s s e c t i o n . In 1975, PETRONAS u n s u c c e s s f u l l y t r i e d to c o n t r o l a l l f o r e i g n o i l companies through the proposed c r e a t i o n of "management shares". Moreover the a c t which c r e a t e d PETRONAS r e s u l t e d i n f o r e i g n o i l companies having t o s i g n e x p l o r a t i o n and p r o d u c t i o n s h a r i n g agreements with PETRONAS before they c o u l d operate i n M a l a y s i a . S i m i l a r l y , seabed 75 t i n p r o s p e c t i n g and e x t r a c t i o n r i g h t s were removed from a f o r e i g n c o r p o r a t i o n and giv e n to PERNAS i n 1971. PERNAS took over Sime Darby, a B r i t i s h - b a s e d company with b i g Malaysian p l a n t a t i o n h o l d i n g s , i n 1976 and foreign-owned London T i n i n 1977. Another B r i t i s h - c o n t r o l l e d company with p l a n t a t i o n s i n M a l a y s i a , Boustead, was a c q u i r e d by the government i n 1980 even though the company had f u l f i l l e d 44 NEP ownership requirements f o u r years e a r l i e r . PERNAS and PETRONAS q u i t e c l e a r l y sought t o r e s t r i c t f o r e i g n investment i n n a t u r a l resource i n d u s t r i e s . The hypothesis i s shown to be v a l i d by the case of M a l a y s i a . The n a t u r a l resource s e c t o r was a l s o l a r g e and important i n T h a i l a n d . A g r i c u l t u r e and mining r e p r e s e n t e d 27% of the country's GDP i n 1980, wh i l e manufacturing accounted f o r 21%. About 70% of T h a i l a n d ' s p o p u l a t i o n was i n v o l v e d i n growing r i c e . N e v e r t h e l e s s , T h a i l a n d imposed very few s i g n i f i c a n t r e s t r i c t i o n s i n the n a t u r a l resource s e c t o r . The A l i e n Business Law of 1972 r e q u i r e d m a j o r i t y T h a i ownership i n v a r i o u s a g r i c u l t u r a l business a c t i v i t i e s . However, Thai measures were g e n e r a l l y very weak compared to the a c t i o n s taken by the Malaysian government. The case of T h a i l a n d somewhat r e f u t e s the hypothesis p o s t u l a t e d f o r t h i s s e c t i o n . 76 In Singapore, manufacturing made up 23% of GDP i n 1980, but a g r i c u l t u r e and mining accounted f o r o n l y 2%. Singapore i s a c i t y - s t a t e with almost no n a t u r a l r e s o u r c e s . Consequently, the n a t u r a l s e c t o r was s m a l l and unimportant i n Singapore and s i g n i f i c a n t r e s t r i c t i o n s were not invoked. The case of Singapore supports the h y p o t h e s i s . Prevalence of I n d u s t r i e s with O l d Technology The s i t u a t i o n being d i s c u s s e d next i s the p r e v a l e n c e of i n d u s t r i e s with o l d technology. The study p o s t u l a t e s the hypothesis t h a t a country with a high prevalence of i n d u s t r i e s where the technology i s r e l a t i v e l y o l d and f a i r l y r e a d i l y a v a i l a b l e i s more l i k e l y to invoke r e s t r i c t i o n s due to p e r c e p t i o n s of a d e c l i n e i n the v a l u e of f o r e i g n f i r m s ' c o n t r i b u t i o n s to the country's economic development and consequently i n t h e i r b a r g a i n i n g power and the p e r c e p t i o n t h a t o t h e r s , p o s s i b l y even the host country, c o u l d operate t h a t e n t e r p r i s e . I f a country does not have a high p r e v a l e n c e of i n d u s t r i e s with o l d technology, i t i s l e s s l i k e l y to impose r e s t r i c t i o n s . L i k e most d e v e l o p i n g c o u n t r i e s , M a l a y s i a ' s i n d u s t r i e s g e n e r a l l y used technology t h a t was r e l a t i v e l y o l d and f a i r l y r e a d i l y a v a i l a b l e . Manufacturing focussed on l a b o u r - i n t e n s i v e p r o d u c t s . T u r n i n g once again to r e s t r i c t i o n s d e s c r i b e d i n the p r e v i o u s chapter, one f i n d s 77 t h a t the I n d u s t r i a l C o o r d i n a t i o n Act (1975) made complete Malaysian ownership o b l i g a t o r y i n companies aimed a t the domestic market of M a l a y s i a i f the technology i n v o l v e d was r e a d i l y a c c e s s i b l e . I f the technology was not e a s i l y o b t a i n a b l e , i m p o r t - s u b s t i t u t i n g f i r m s were allowed 30% f o r e i g n ownership. The o p e r a t i o n of f o r e i g n companies were r e g u l a t e d along the same l i n e s . Non-Malaysians were u s u a l l y o n l y p e r m i t t e d to hold jobs which needed t e c h n i c a l or managerial e x p e r t i s e not found among the domestic 45 p o p u l a t i o n . M a l a y s i a , t h e r e f o r e , upholds the h y p o t h e s i s . T h a i l a n d ' s i n d u s t r i e s a l s o u s u a l l y u t i l i z e d o l d technology. Because of the s t r e n g t h of the country's a g r i c u l t u r a l s e c t o r , T h a i l a n d d i d not s i g n i f i c a n t l y develop manufacturing u n t i l the 1960s. In T h a i l a n d , the F a c t o r y C o n t r o l Act of 1962 gave the M i n i s t r y of Indu s t r y the a u t h o r i t y to prevent new f i r m s or e x i s t i n g f i r m s from expanding i n t o the p r o d u c t i o n of c e r t a i n items, such as c a r p a r t s . The M i n i s t r y acted whenever i t decided t h a t the domestic market was s a t u r a t e d by a p a r t i c u l a r product or i n 46 response to submissions from Thai companies. The product l i n e s t a r g e t e d , where f o r e i g n and domestic companies were r e s t r i c t e d , o c c a s i o n a l l y i n v o l v e d i n d u s t r i e s u s i n g r e l a t i v e l y o l d and a c c e s s i b l e technology. However, i n g e n e r a l , T h a i l a n d d i d not have the t e c h n o l o g y - r e l a t e d 78 r e s t r i c t i o n s t h a t o c c u r r e d i n M a l a y s i a . T h a i l a n d r e f u t e s the h y p o t h e s i s . Singapore's i n d u s t r i e s on the other hand tended to use h i g h e r technology than e i t h e r M a l a y s i a or T h a i l a n d . Moreover, i n 1979, the Singapore government adopted a development s t r a t e g y known as the Second I n d u s t r i a l R e v o l u t i o n . T h i s new s t r a t e g y emphasized hig h e r technology i n d u s t r i e s which were c a p i t a l - i n t e n s i v e and r e q u i r e d more s k i l l e d l a b o u r . Rather than n e g a t i v e inducements, a Byzantine a r r a y of tax i n c e n t i v e s was o f f e r e d to f o r e i g n i n v e s t o r s to encourage them to i n v e s t i n 47 high technology i n d u s t r i e s i n Singapore. Singapore had r e l a t i v e l y fewer i n d u s t r i e s with o l d technology and was l e s s r e s t r i c t i v e than M a l a y s i a ; t h e r e f o r e , i t supports the h y p o t h e s i s . L e v e l of F o r e i g n Ownership of I n d u s t r y The l a s t s i t u a t i o n being analyzed i s the l e v e l of f o r e i g n ownership of i n d u s t r y . The r e l a t e d h y p othesis i s t h a t a country with high f o r e i g n ownership of i n d u s t r y i s more l i k e l y to l e g i s l a t e r e s t r i c t i o n s . I f a country does not have hi g h f o r e i g n ownership of i n d u s t r y , i t i s l e s s l i k e l y to invoke r e s t r i c t i o n s . In M a l a y s i a , f o r e i g n e r s owned about 75% of the a g r i c u l t u r a l and f i s h i n g s e c t o r , 72% of mining, and 59% of manufacturing i n 1970. T h i s high l e v e l of f o r e i g n 79 ownership r e s u l t e d i n r e s t r i c t i o n s . The M a l aysian government encouraged j o i n t ventures and gave a m u l t i t u d e of i n c e n t i v e s to promote j o i n t ventures between f o r e i g n i n v e s t o r s and M a l a y s i a n s . Negative inducements were a l s o used. As p r e v i o u s l y d e t a i l e d , the I n d u s t r i a l C o o r d i n a t i o n A c t (1975) s e t out the l e v e l s of f o r e i g n ownership allowed i n d i f f e r e n t types of i n d u s t r i a l e n t e r p r i s e s . Wholly-owned s u b s i d i a r i e s of f o r e i g n c o r p o r a t i o n s were r e q u i r e d to become p a r t i a l l y M alaysian owned i f they wanted to operate i n c e r t a i n i n d u s t r i a l s e c t o r s . In some cases, such as e x p o r t - o r i e n t e d companies u t i l i z i n g non-renewable Malaysian raw m a t e r i a l s , f o r e i g n i n v e s t o r s had to reduce t h e i r s h a r e h o l d i n g s so t h a t wholly-owned f i r m s became companies 48 where f o r e i g n e r s r e t a i n e d o n l y a m i n o r i t y p o s i t i o n . Government-owned companies and f o r e i g n c o r p o r a t i o n s e s t a b l i s h e d many j o i n t ventures d u r i n g the 1970s. To operate i n M a l a y s i a , f o r e i g n o i l companies were r e q u i r e d to s i g n e x p l o r a t i o n and p r o d u c t i o n - s h a r i n g c o n t r a c t s with PETRONAS. They were e s s e n t i a l l y f o r c e d i n t o j o i n t ventures with the s t a t e o i l company. PERNAS' takeovers of major companies, l i k e London T i n and Sime Darby, f u r t h e r demonstrated t h a t foreign-owned f i r m s were more l i k e l y to face r e s t r i c t i o n s . Moreover, as p o i n t e d out p r e v i o u s l y , the M a l aysian government a c q u i r e d Boustead, even though i t 80 was 30% owned by M a l a y s i a n s . Because f o r e i g n e r s were s t i l l 49 m a j o r i t y owners, Boustead was t a r g e t e d f o r takeover. Hence, the Malaysian examples s u b s t a n t i a t e the h y p o t h e s i s . T h a i l a n d had f a i r l y low f o r e i g n ownership of i n d u s t r y . H i s t o r i c a l l y , most f o r e i g n ownership i n T h a i l a n d went to manufacturing, which accounted f o r o n l y 10% of GDP i n the e a r l y 1960s. The a g r i c u l t u r a l s e c t o r , which was the f o u n d a t i o n of T h a i l a n d ' s economy, had l i t t l e f o r e i g n investment. U n l i k e M a l a y s i a , T h a i l a n d d i d not have a l a r g e p l a n t a t i o n s e c t o r owned by former c o l o n i a l r u l e r s . Most T h a i farmers were self-employed. During the pre-1970 p e r i o d , f o r e i g n investment i n g e n e r a l was not very s i g n i f i c a n t . T h a i s owned 69.2% of r e g i s t e r e d c a p i t a l i n t h e i r country from 1960 to 1973. T h a i l a n d d i d not have the high f o r e i g n ownership which e x i s t e d i n M a l a y s i a and, t h e r e f o r e , had fewer r e s t r i c t i o n s . The case of T h a i l a n d supports the h y p o t h e s i s . Singapore had a high l e v e l of f o r e i g n ownership. In 1972, c a p i t a l from f o r e i g n sources accounted f o r 80.4% of t o t a l investment i n Singapore. D e s p i t e high f o r e i g n ownership of i n d u s t r y , e s p e c i a l l y i n manufacturing, Singapore had few r e s t r i c t i o n s . The case of Singapore r e f u t e s the h y p o t h e s i s . T h i s chapter has analyzed s e v e r a l domestic p o l i t i c a l 81 and economic s i t u a t i o n s of M a l a y s i a , T h a i l a n d and Singapore i n order to e x p l a i n why M a l a y s i a p l a c e d g r e a t e r r e s t r i c t i o n s on f o r e i g n investment than the other two c o u n t r i e s . E x p l a n a t o r y hypotheses r e l a t e d t o the d i f f e r e n c e s were p o s t u l a t e d and t h e i r v a l i d i t y was examined. Looking at each s t a t e ' s past experience with a c o l o n i a l power, the study found t h a t the h y p o t h e s i s , r e g a r d i n g economic domination by a c o l o n i a l power i n the pa s t , was supported by M a l a y s i a and T h a i l a n d . The case of Singapore r e f u t e d the h y p o t h e s i s . Two hypotheses concerning economic s t r a t e g y and domestic p o l i t i c a l p r e s s u r e were put forward. The f i r s t h y p o t h e s i s , r e l a t i n g to a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y , was upheld by a l l t h r e e c o u n t r i e s . The second p r o p o s i t i o n , i n v o l v i n g domestic p o l i t i c a l p r e s s u r e f o r r e s t r i c t i o n s , was a l s o supported by the circumstances i n the three s t a t e s . T h a i l a n d and Singapore supported the f l i p s i d e of these two hypotheses. They were not n a t i o n a l i s t i c i n t h e i r economic s t r a t e g i e s v i s - a - v i s f o r e i g n investments (although T h a i l a n d has always been somewhat n a t i o n a l i s t i c i n terms of r e s e r v i n g c e r t a i n o c cupations f o r e t h n i c T h a i s ) and they were not i n t e r v e n t i o n i s t i n the commercial s e c t o r (although Singapore has i n t e r v e n e d i n r e l a t e d s e c t o r s , such as with 82 government housing and with h o s p i t a l and s c h o o l c o n s t r u c t i o n ) . N e i t h e r has experienced s i g n i f i c a n t domestic p o l i t i c a l p r e s s u r e s to impose r e s t r i c t i o n s . M a l a y s i a , on the other hand, had a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y and had domestic p r e s s u r e f o r r e s t r i c t i o n s . These c h a r a c t e r i s t i c s were p a r t i a l reasons f o r M a l a y s i a ' s higher l e v e l of r e s t r i c t i o n s . The h ypothesis p o s t u l a t e d f o r the s i t u a t i o n of the presence of an e c o n o m i c a l l y dominant e t h n i c m i n o r i t y was proven v a l i d by each of the t h r e e cases. M a l a y s i a had an e c o n o m i c a l l y dominant e t h n i c m i n o r i t y and was s u b s t a n t i a l l y more r e s t r i c t i v e than e i t h e r T h a i l a n d or Singapore, who d i d not have an e c o n o m i c a l l y dominant m i n o r i t y e t h n i c group. Much of M a l a y s i a ' s most s i g n i f i c a n t r e s t r i c t i o n s on f o r e i g n investment stemmed from i t s f a i r l y unique e t h n i c s i t u a t i o n . E t h n i c f a c t o r s , t h e r e f o r e , were a key reason f o r M a l a y s i a ' s g r e a t e r r e s t r i c t i v e n e s s . The study a l s o looked a t the s i z e and importance of the n a t u r a l resource s e c t o r . The hypothesis s t a t e d t h a t t h e r e was a g r e a t e r l i k e l i h o o d of r e s t r i c t i o n s on f o r e i g n f i r m s i n the n a t u r a l resource s e c t o r i f the country had a high p r o p o r t i o n of n a t u r a l resource i n d u s t r i e s . M a l a y s i a and Singapore supported the h y p o t h e s i s , but T h a i l a n d r e f u t e d i t . 83 T u r n i n g to the hypothesis r e l a t e d to the p r e v a l e n c e of i n d u s t r i e s with o l d technology, the chapter found t h a t M a l a y s i a and Singapore again supported the h y p o t h e s i s , w h i l e T h a i l a n d r e f u t e d i t . F i n a l l y , the hypothesis d e a l i n g with the l e v e l of f o r e i g n ownership of i n d u s t r y was upheld by the circumstances i n both M a l a y s i a and T h a i l a n d , but the evidence i n Singapore r e f u t e d the h y p o t h e s i s . The p r e c e d i n g examination of n a t i o n a l p o l i t i c a l and economic c h a r a c t e r i s t i c s r e v e a l e d major d i f f e r e n c e s among the t h r e e c o u n t r i e s . M a l a y s i a ' s g r e a t e r r e s t r i c t i o n s on f o r e i g n investment are e x p l a i n e d by i t s uniqueness r e g a r d i n g a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y , domestic p r e s s u r e f o r r e s t r i c t i o n s , and an e c o n o m i c a l l y dominant e t h n i c m i n o r i t y . The economic s t r a t e g y and domestic p r e s s u r e arose l a r g e l y from M a l a y s i a ' s e t h n i c circumstances. T h e r e f o r e , e t h n i c f a c t o r s were the paramount reason f o r M a l a y s i a ' s p l a c i n g of s t r o n g e r r e s t r i c t i o n s on f o r e i g n investment d u r i n g the time span from 1970 to 1980. 84 NOTES CHAPTER I I I 1. J . Saravanamuttu, The Dilemma of Independence: Two  Decades of Ma l a y s i a ' s F o r e i g n P o l i c y 1957 - 1977 (Penang, M a l a y s i a : P e n e r b i t U n i v e r s i t i Sains M a l a y s i a 1983), pp.128, 130-131, 133 and 141. 2. B r i a n Wawn, The Economies of the ASEAN C o u n t r i e s :  Indonesia, M a l a y s i a , P h i l i p p i n e s , Singapore and  T h a i l a n d (London: Macmillan P r e s s , 1982), pp.52-53; and Donald K. Crone, The ASEAN S t a t e s : Coping With  Dependence (New York: Praeger, 1983), pp.104 and 121. 3. Quoted i n Crone, p.104. 4. Far E a s t e r n Economic Review, 29 August 1975, p.(Focus)3. 5. I b i d . 6. Frank C. D a r l i n g , " P o l i t i c a l F u n c t i o n s of the Un i t e d S t a t e s Embassy i n T h a i l a n d , " A s i a n Survey XVIII (November 1978), 1193-1194; and Pasuk Phong p a i c h i t , "The Open Economy and I t s F r i e n d s : The 'Development' of T h a i l a n d , P a c i f i c A f f a i r s , 53 ( F a l l 1980), 444-445, 450 and 457 - 458. 7. Wawn, p.150. 8. Sura S a n i t t a n o n t , "The Role of Japanese Investment i n T h a i l a n d , " Readings i n T h a i l a n d ' s P o l i t i c a l Economy, ed. V i c h i t v o n g Na Pombhejara (Bangkok: Bangkok P r i n t i n g E n t e r p r i s e Co., 1978), p.261. 9. Wawn, pp.50, 115 and 145. 10. I b i d . , p.138. 11. Sura, pp.254 and 256. 12. Augustine Tan, "Changing P a t t e r n s of Singapore's F o r e i g n Trade and Investment s i n c e 1960," Singapore:  Twenty-five Years of Development, eds. Poh Seng You and Chong Yah Lim (Singapore: Nan Yang Xing Zhou Lianhe Zaobao, 1984), p.74. 85 13. Mee-Kau Nyaw and Chan-leong Chan, " S t r u c t u r e and Development S t r a t e g i e s of the Manufacturing I n d u s t r i e s i n Singapore and Hong Kong: A Comparative Study," A s i a n Survey, XXII (May 1982), 456-457; Chia Siow Yue, "Singapore's Trade and Development S t r a t e g y and ASEAN Economic Cooperation with S p e c i a l Reference to the ASEAN Common Approach to F o r e i g n Economic R e l a t i o n s , " ASEAN i n a Changing P a c i f i c and World Economy, ed. Ross Garnaut (Canberra: A u s t r a l i a n N a t i o n a l U n i v e r s i t y P r e s s , 1980), p.246; and Seah Chee Meow, "Singapore," P o l i t i c s In The ASEAN S t a t e s , ed. Diane K. Mauzy (Kuala Lumpur: Marican & Sons, 1984), p.198. 14. Quoted i n Lee Boon Hiok, " C o n s t r a i n t s On Singapore's F o r e i g n P o l i c y , " A s i a n Survey XXII (June 1982), 529. 15. Diane K. Mauzy, "Ma l a y s i a , " P o l i t i c s In The ASEAN  S t a t e s , ed. Diane K. Mauzy (Kuala Lumpur: Marican & Sons, 1984), pp.161-163; Saravanamuttu, pp.128 and 130; Bruce Gale, P o l i t i c s and P u b l i c E n t e r p r i s e i n  Ma l a y s i a (Singapore: E a s t e r n U n i v e r s i t i e s P r e s s , 1981), pp.28-29; and R.S. Mi l n e , "The P o l i t i c s of Ma l a y s i a ' s New Economic P o l i c y , " P a c i f i c A f f a i r s , 49 (Summer 1976), 235. 16. Quoted i n Saravanamuttu, p.117. 17. M i l n e , pp.240, 244, 249-250 and 257; Mauzy, p.179; and Gale, pp.108-109. 18. Quoted i n Saravanamuttu, p.119. 19. P a c i f i c B asin Economic C o u n c i l , B r i e f i n g Book f o r the Canadian Committee 18th Annual Meeting May 13-16, 1985  Auckland, New Zealand (Ottawa: P a c i f i c B asin Economic C o u n c i l , 1985), p.(20) 1. 20. Far E a s t e r n Economic Review, 20 November 1985, p.34. 21. Quoted i n K o j i T a i r a , " C o l o n i a l i s m i n F o r e i g n S u b s i d i a r i e s : Lessons From Japanese Investment i n T h a i l a n d , " A s i a n Survey, XX ( A p r i l 1980), 389. 22. I b i d . 23. Sura, p.256; and C l a r k D. Neher, " T h a i l a n d , " P o l i t i c s  In The ASEAN S t a t e s , ed. Diane K. Mauzy (Kuala Lumpur: Marican & Sons, 1984), p.26. 86 24. S u r a f pp.256-257. 25. K o j i , p.378. 26. Neher, p.53; Sura, p.257; and K o j i , p.378. 27. Neher, p.53. 28. Phong p a i c h i t , p.451. 29. Sura, p.257. 3 0. Wawn, p.15 6. 31. Crone, p.114. 32. L i n d a Low, " P u b l i c E n t e r p r i s e s i n Singapore," Singapore: Twenty-five Years of Development, eds. Poh Seng You and Chong Yah Lim (Singapore: Nan Yang Xing Zhou Lianhe Zaobao, 1984), pp.267-268 and 276; and Lee, p.526. 33. Quoted i n Seah, p.317 f n . 34. P a c i f i c , p.(18) 2. 35. Low, p.276. 36. Quoted i n Far E a s t e r n Economic Review, 1 August 1980, p.44. 37. Mauzy, pp.161-163; Saravanamuttu, pp.128 and 130; Gale, pp.28-29; and M i l n e , p.235. 38. Quoted i n Saravanamuttu, pp.114-115. 39. Centre f o r S t r a t e g i c and I n t e r n a t i o n a l S t u d i e s , Issues  For P a c i f i c Economic Cooperation: A Report of the  T h i r d P a c i f i c Economic Cooperation Conference B a l i ,  November 1983 ( J a k a r t a : Centre f o r S t r a t e g i c and I n t e r n a t i o n a l S t u d i e s , 1984), p.94; N.D. Karunaratne and M.B. A b d u l l a h , " I n c e n t i v e Schemes and F o r e i g n Investment i n the I n d u s t r i a l i z a t i o n of M a l a y s i a , " A s i a n Survey, XVIII (March 1978), 263-264; and M i l n e , p.240. 40. M i l n e , pp.143, 240, 244-246, 249-250 and 257; Mauzy, p.179; and Gale, pp.108-109. 87 41. Neher, pp.34-36; M i l t o n Osborne, Southeast A s i a : An  I n t r o d u c t o r y H i s t o r y , 2nd ed. (Sydney, A u s t r a l i a : George A l l e n & Unwin, 1983), pp.90 and 95-97; Crone, p.113; and K o j i , p.378. 42. Howard M. F e d e r s p i e l , "Islam and Development i n the Nations of ASEAN," A s i a n Survey, XXV (August 1985), 809, 812, 814-815 and 819. 43. Darwood I n t e r n a t i o n a l C o n s u l t i n g Inc., Canada - ASEAN  I n d u s t r i a l Cooperation O p p o r t u n i t i e s , V o l . I I ;  M a l a y s i a (Ottawa: CIDA, 1982), pp.20-21. 44. Centre, p.53; Saravanamuttu, pp.117-118; Gale, pp.105-106, 116-117, 119-121, 123 and 126; and John Thorburn, M u l t i n a t i o n a l s , Mining and Development; A  Study of the T i n I n d u s t r y (Westmead, England: Gower P u b l i s h i n g Company, 1981), p.83. 45. Darwood, pp.20-21 and 25; Karunaratne and A b d u l l a h , pp.263-264; and Centre, p.94. 46. I n t e r n a t i o n a l Bank f o r R e c o n s t r u c t i o n and Development, T h a i l a n d : I n d u s t r i a l Development S t r a t e g y i n T h a i l a n d (Washington: I n t e r n a t i o n a l Bank f o r R e c o n s t r u c t i o n and Development, 1980), pp.22-23 and 36. 47. Tan, pp.50-51; and Nyaw and Chan, pp.459 and 465. 48. Darwood, pp.20-21 and 47. 49. Saravanamuttu, pp.117-118. 88 CHAPTER IV C o n c l u s i o n T h i s study has examined the l e v e l s of r e s t r i c t i v e f o r e i g n investment r e g u l a t o r y p o l i c i e s of M a l a y s i a , T h a i l a n d and Singapore from 1970 to 1980. The three c o u n t r i e s have s e v e r a l common c h a r a c t e r i s t i c s . They neighbour each other i n the same g e o g r a p h i c a l area i n Southeast A s i a and they are members of ASEAN. A l l th r e e were e i t h e r B r i t i s h c o l o n i e s or had c l o s e t i e s with B r i t a i n d u r i n g the c o l o n i a l e r a . The three s t a t e s each have a s i g n i f i c a n t e t h n i c Chinese community. M a l a y s i a , T h a i l a n d and Singapore have f a i r l y a u t h o r i t a r i a n governments, but they p r a c t i s e t h e i r own m o d i f i e d forms of Western p a r l i a m e n t a r y democracy. They a l s o have g e n e r a l l y pro-West o r i e n t a t i o n s . The three c o u n t r i e s have market economies and are c o n s i d e r e d among the most i n d u s t r i a l i z e d of the de v e l o p i n g c o u n t r i e s . M a l a y s i a , T h a i l a n d and Singapore encourage f o r e i g n investment. They want t o modernize through i n d u s t r i a l i z a t i o n . The governments of these c o u n t r i e s b e l i e v e t h a t f o r e i g n investment i s e s s e n t i a l because i t r e s u l t s i n the a c q u i s i t i o n of c a p i t a l , technology t r a n s f e r , and access to markets. These elements are judged t o be v i t a l f o r r a p i d i n d u s t r i a l i z a t i o n . Even when the three 89 c o u n t r i e s p l a c e d r e s t r i c t i o n s on investment from overseas sources, they continued to want f o r e i g n investment. The t h r e e s t a t e s imposed d i f f e r i n g degrees of r e s t r i c t i v e measures d u r i n g the p e r i o d from 1 9 7 0 to 1 9 8 0 . The second chapter e v a l u a t e d each country's p o l i c i e s c oncerning l i m i t s on f o r e i g n ownership, r e s t r i c t i o n s on c e r t a i n economic s e c t o r s , r e s t r i c t i o n s on the o p e r a t i o n s of foreign-owned c o r p o r a t i o n s , and the use of government-owned c o r p o r a t i o n s as instruments of c o n t r o l over f o r e i g n investment. I t was found t h a t e x t e n s i v e l i m i t s on f o r e i g n investment e x i s t e d o n l y i n M a l a y s i a through i t s NEP. A l l three c o u n t r i e s had r e s t r i c t i o n s on c e r t a i n economic s e c t o r s , but M a l a y s i a had the most e x t e n s i v e range. Both M a l a y s i a and T h a i l a n d p l a c e d major r e s t r i c t i o n s on the o p e r a t i o n s of foreign-owned c o r p o r a t i o n s . Except f o r the s p e c i f i c s e c t o r of banking, where i t set perhaps the most r e s t r i c t i o n s , Singapore had few s i g n i f i c a n t r e s t r i c t i o n s on o p e r a t i o n s . F i n a l l y , the second chapter found t h a t although a l l t h r e e s t a t e s used government-owned companies to c o n t r o l f o r e i g n investment, o n l y M a l a y s i a engaged i n e x t e n s i v e h o s t i l e takeovers of foreign-owned c o r p o r a t i o n s on the stock market by government companies. While a l l three had r e s t r i c t i o n s , M a l a y s i a was c o n s i d e r a b l y more r e s t r i c t i v e than T h a i l a n d 90 and Singapore i n the areas assessed by the second c h a p t e r . Thus, i t was concluded t h a t M a l a y s i a g e n e r a l l y p l a c e d more r e s t r i c t i o n s on f o r e i g n investment than T h a i l a n d and Singapore. Chapter I I I sought to e x p l a i n M a l a y s i a ' s g r e a t e r r e s t r i c t i v e n e s s by l o o k i n g a t d i f f e r e n c e s i n the v a r i o u s domestic p o l i t i c a l and economic s i t u a t i o n s of the three c o u n t r i e s (see t a b l e 1 below). The study analyzed each s t a t e ' s past experience with a c o l o n i a l power. The r e l a t e d e x p l a n a t o r y hypothesis p o s t u l a t e d t h a t a country which has been dominated e c o n o m i c a l l y by a c o l o n i a l power i n the pas t i s more l i k e l y to impose r e s t r i c t i o n s due to economic n a t i o n a l i s m and reasons of n a t i o n a l s e c u r i t y . I f a country has not been dominated e c o n o m i c a l l y by a c o l o n i a l power i n the p a s t , i t i s l e s s l i k e l y to impose r e s t r i c t i o n s . T h i s p r o p o s i t i o n was supported by the cases of M a l a y s i a and T h a i l a n d , but r e f u t e d by the s i t u a t i o n i n Singapore. The Singapore government's p e r c e p t i o n of i t s country's o v e r r i d i n g need f o r f o r e i g n investment o f f s e t h i s t o r i c i n f l u e n c e s toward s i g n i f i c a n t r e s t r i c t i o n s . The t h i r d chapter then analyzed the economic s t r a t e g y of e l i t e s and domestic p o l i t i c a l p r e s s u r e i n the three c o u n t r i e s . The f i r s t h y p o t hesis i n t h i s s e c t i o n argued t h a t a country whose e l i t e s f o l l o w an economic s t r a t e g y TABLE 1 Summary of F i n d i n g s Hypothesis 1. Past c o l o n i a l c o n t r o l — r e s t r i c t i o n s or no past c o l o n i a l c o n t r o l — o p e n n e s s 2. N a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y — r e s t r i c t i o n s or l a c k of n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y — o p e n n e s s 3. Domestic pressure f o r r e s t r i c t i o n s — r e s t r i c t i o n s or l a c k of domestic pressure f o r r e s t r i c t i o n s — o p e n n e s s 4 . Economically dominant e t h n i c m i n o r i t y — r e s t r i c t i o n s or l a c k of economically dominant e t h n i c m i n o r i t y — o p e n n e s s M a l a y s i a Supports Supports Supports Supports T h a i l a n d Supports Supports Supports Supports Singapore Refutes Supports Supports Supports TABLE 1-Continued Hypothesis M a l a y s i a T h a i l a n d Singapore 5. Large s i z e and importance of n a t u r a l resource s e c t o r — r e s t r i c t i o n s or Small s i z e and unimportance of n a t u r a l resource s e c t o r — o p e n n e s s Supports Refutes Supports 6. Prevalence of i n d u s t r i e s with o l d t e c h n o l o g y — r e s t r i c t i o n s or s c a r c i t y of i n d u s t r i e s with o l d technology—openness Supports Refutes Supports 7. High f o r e i g n ownership of i n d u s t r y — Supports Refutes r e s t r i c t i o n s or low f o r e i g n ownership of i n d u s t r y — Supports openness 93 based on economic n a t i o n a l i s m and f a v o u r a b l e to heavy government economic i n t e r v e n t i o n i s more l i k e l y to impose r e s t r i c t i o n s . The f l i p s i d e of t h i s h y p o thesis i s the argument t h a t a country whose e l i t e s do not f o l l o w a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y i s l e s s l i k e l y to impose r e s t r i c t i o n s . The hypothesis was supported by a l l three c o u n t r i e s . Although Singapore was ec o n o m i c a l l y i n t e r v e n t i o n i s t i n some s e c t o r s , i t was not n a t i o n a l i s t i c . Moreover, Singapore's i n t e r v e n t i o n was g e n e r a l l y i n areas t h a t were not of gre a t i n t e r e s t t o f o r e i g n i n v e s t o r s . These areas i n c l u d e d c o n s t r u c t i o n of low c o s t housing, c r e a t i o n of i n d u s t r i a l e s t a t e s , h e a l t h c a r e , and e d u c a t i o n . The second hypothesis i n t h i s s e c t i o n s t a t e d t h a t a country whose governing group p e r c e i v e s t h a t i t i s v u l n e r a b l e to domestic p o l i t i c a l p r e s s u r e from economic n a t i o n a l i s t advocates of r e s t r i c t i o n s i s more l i k e l y to impose r e s t r i c t i o n s . I f the governing group does not p e r c e i v e t h a t i t i s v u l n e r a b l e to domestic p r e s s u r e from economic n a t i o n a l i s t s , the country i s l e s s l i k e l y to impose r e s t r i c t i o n s . The hypothesis was upheld by a l l thr e e s t a t e s . T u r n i n g to the s i t u a t i o n of an ec o n o m i c a l l y dominant e t h n i c m i n o r i t y , the study put forward the hypothesis t h a t i n a country where the m a j o r i t y e t h n i c group i s p o l i t i c a l l y 94 dominant, but ec o n o m i c a l l y s u b o r d i n a t e , government a c t i o n aimed at r e d r e s s i n g p e r c e i v e d economic imbalances v i s - a - v i s l a r g e , m i n o r i t y , domestic e t h n i c groups can have the secondary e f f e c t of a l s o r e s t r i c t i n g f o r e i g n investment. I f a country does not have an e c o n o m i c a l l y dominant m i n o r i t y e t h n i c group, government a c t i o n having the secondary e f f e c t of r e s t r i c t i n g f o r e i g n investment i s l e s s l i k e l y to occur. T h i s hypothesis was a l s o supported by each of the th r e e c o u n t r i e s . The study then examined the s i z e and importance of the n a t u r a l r esource s e c t o r . I t was p o s t u l a t e d t h a t a country with a high p r o p o r t i o n of n a t u r a l resource i n d u s t r i e s i s more l i k e l y to pass r e s t r i c t i o n s i n the n a t u r a l resource s e c t o r . The f l i p s i d e of t h i s h y p o thesis i s the c o n t e n t i o n t h a t a country which has a s m a l l and unimportant n a t u r a l resource s e c t o r i s l e s s l i k e l y to impose r e s t r i c t i o n s . M a l a y s i a and Singapore supported the h y p o t h e s i s , while T h a i l a n d r e f u t e d i t . Although T h a i l a n d r e q u i r e d m a j o r i t y T h a i ownership i n v a r i o u s a g r i c u l t u r a l business a c t i v i t i e s , i n g e n e r a l T h a i l a n d passed very few s i g n i f i c a n t r e s t r i c t i o n s i n the n a t u r a l resource s e c t o r . Thai a c t i o n s were q u i t e weak r e l a t i v e t o the measures taken by M a l a y s i a . Even though the n a t u r a l resource s e c t o r was c r u c i a l t o T h a i l a n d ' s economy, the country d i d not have the 95 overwhelming f o r e i g n ownership that e x i s t e d i n M a l a y s i a . As a r e s u l t , the n a t u r a l resource s e c t o r i n T h a i l a n d was not a h i g h l y v i s i b l e t a r g e t f o r f o r e i g n investment r e s t r i c t i o n s . The s i t u a t i o n d i s c u s s e d next was the prevalence of i n d u s t r i e s with o l d technology. The study p o s t u l a t e d the hypothesis t h a t a country with a high prevalence of i n d u s t r i e s where the technology i s r e l a t i v e l y o l d and f a i r l y r e a d i l y a v a i l a b l e i s more l i k e l y to invoke r e s t r i c t i o n s due to p e r c e p t i o n s of a d e c l i n e i n the v a l u e of f o r e i g n f i r m s ' c o n t r i b u t i o n s to the country's economic development, i n t h e i r b a r g a i n i n g power, and i n the d i f f i c u l t y of running the e n t e r p r i s e . I f a country does not have a high p r e v a l e n c e of i n d u s t r i e s with o l d technology, i t i s l e s s l i k e l y t o impose r e s t r i c t i o n s . Once ag a i n , M a l a y s i a and Singapore upheld the h y p o t h e s i s , whereas T h a i l a n d r e f u t e d i t . S i m i l a r t o the p r e v i o u s h y p o t h e s i s , T h a i l a n d ' s much lower l e v e l of f o r e i g n ownership, r e l a t i v e to M a l a y s i a , p a r t l y e x p l a i n e d i t s c o r r e s p o n d i n g l y lower l e v e l of r e s t r i c t i o n s . On the other hand, although Singapore supported the f l i p s i d e of the h y p o t h e s i s , the Singapore government d i d u t i l i z e i n d i r e c t and i n f o r m a l means of p r e s s u r i n g MNCs with o l d technology, such as government imposed higher wages and p e r s o n a l 96 p e r s u a s i o n by government o f f i c i a l s . The l e v e l of f o r e i g n ownership of i n d u s t r i e s was the l a s t c h a r a c t e r i s t i c e v a l u a t e d by Chapter I I I . The r e l a t e d e x p l a n a t o r y hypothesis p o s t u l a t e d t h a t a country with high f o r e i g n ownership of i n d u s t r y i s more l i k e l y to l e g i s l a t e r e s t r i c t i o n s . I f a country does not have high f o r e i g n ownership of i n d u s t r y , i t i s l e s s l i k e l y to impose r e s t r i c t i o n s . The cases of M a l a y s i a and T h a i l a n d supported the h y p o t h e s i s . However, the case of Singapore r e f u t e d i t . Singapore had a high f o r e i g n ownership of i n d u s t r y , but other f a c t o r s i n t e r v e n e d to o f f s e t any tendencies toward s i g n i f i c a n t l y r e s t r i c t i n g f o r e i g n investment. The country i s a Chinese m a j o r i t y c i t y - s t a t e with a s m a l l domestic market and almost no n a t u r a l r e s o u r c e s . I t has a manufacturing and s e r v i c e - b a s e d economy. The Singapore government b e l i e v e d that n a t i o n a l s u r v i v a l depended on i n d u s t r i a l i z a t i o n , s t r o n g economic l i n k s t o the developed c o u n t r i e s , and, t h e r e f o r e , f o r e i g n investment. Moreover, the Singapore government d i d e x e r t some i n d i r e c t and i n f o r m a l i n f l u e n c e over f o r e i g n i n v e s t o r s , through m i n o r i t y shareholdings i n f o r e i g n companies, the s e t t i n g of wage l e v e l s , and p e r s o n a l d i s c u s s i o n s with government o f f i c i a l s , such as the Prime M i n i s t e r h i m s e l f . Because Singapore was very a t t r a c t i v e to f o r e i g n i n v e s t o r s , 97 i t d i d not r e q u i r e many formal r e s t r i c t i o n s t o achieve what the government c o n s i d e r e d to be adequate c o n t r o l . As shown i n t a b l e l f the case of M a l a y s i a supported a l l seven of the expl a n a t o r y hypotheses, w h i l e the cases of T h a i l a n d and Singapore each supported f i v e . T h a i l a n d ' s r e f u t a t i o n of two hypotheses i s l a r g e l y e x p l a i n e d by i t s much lower l e v e l of f o r e i g n investment r e l a t i v e t o M a l a y s i a . On the other hand, Singapore's r e f u t a t i o n of two hypothesis i s mainly due to the government's p e r c e p t i o n of the country's o v e r r i d i n g need f o r f o r e i g n investment and i t s use of i n f o r m a l and i n d i r e c t means of c o n t r o l . Three hypotheses were supported by the evidence i n a l l t h r e e c o u n t r i e s . As a r e s u l t , some g e n e r a l i z a t i o n s can be made. F i r s t l y , a country whose e l i t e s f o l l o w an economic s t r a t e g y based on economic n a t i o n a l i s m and f a v o u r a b l e to heavy government economic i n t e r v e n t i o n i s more l i k e l y to impose r e s t r i c t i o n s on f o r e i g n investment. I f a country's e l i t e s do not f o l l o w a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y , the country i s l e s s l i k e l y to impose r e s t r i c t i o n s . Secondly, a s t a t e whose governing group p e r c e i v e s t h a t i t i s v u l n e r a b l e to domestic p o l i t i c a l p r e s s u r e from economic n a t i o n a l i s t advocates of r e s t r i c t i o n s i s more l i k e l y to invoke r e s t r i c t i o n s on f o r e i g n investment. I f the governing group does not 98 p e r c e i v e t h a t i t i s v u l n e r a b l e to p r e s s u r e from economic n a t i o n a l i s t s , the country i s l e s s l i k e l y t o invoke r e s t r i c t i o n s . T h i r d l y , i n a country where the m a j o r i t y e t h n i c group i s p o l i t i c a l l y - d o m i n a n t , but e c o n o m i c a l l y -s u b o r d i n a t e , government a c t i o n aimed a t r e d r e s s i n g p e r c e i v e d economic imbalances v i s - a - v i s l a r g e m i n o r i t y domestic e t h n i c groups can have the secondary e f f e c t of a l s o r e s t r i c t i n g f o r e i g n investment. I f a country does not have an economically-dominant m i n o r i t y e t h n i c group, government a c t i o n having the secondary e f f e c t of r e s t r i c t i n g f o r e i g n investment i s l e s s l i k e l y to o c c u r . In an attempt to answer the c e n t r a l q u e s t i o n of why M a l a y s i a p l a c e d more r e s t r i c t i o n s on f o r e i g n investment from 1970 to 1980 than e i t h e r T h a i l a n d or Singapore, t h i s study has looked a t many v a r i a b l e s and e v a l u a t e d s e v e r a l e x p l a n a t o r y hypotheses. In the t h i r d chapter, i t was found t h a t M a l a y s i a d i f f e r e d from both T h a i l a n d and Singapore i n t h r e e of the domestic p o l i t i c a l and economic s i t u a t i o n s examined, namely economic s t r a t e g y , domestic p r e s s u r e , and the presence of an economically-dominant e t h n i c m i n o r i t y . The g e n e r a l i z a t i o n s d e r i v e d from the r e l a t e d e x p l a n a t o r y hypotheses e x p l a i n M a l a y s i a ' s h i g h e r l e v e l of r e s t r i c t i v e n e s s . M a l a y s i a ' s f a i r l y unique e t h n i c s i t u a t i o n was the most 99 important reason f o r M a l a y s i a ' s g r e a t e r r e s t r i c t i o n s on f o r e i g n investment. Malaysian government a c t i o n aimed at r e d r e s s i n g p e r c e i v e d economic imbalances between the p o l i t i c a l l y - d o m i n a n t , but e c o n o m i c a l l y - s u b o r d i n a t e , Malay m a j o r i t y and the l a r g e Chinese m i n o r i t y had the secondary e f f e c t of a l s o r e s t r i c t i n g f o r e i g n investment. An economically-dominant Chinese m i n o r i t y and Malay p o l i t i c a l hegemony i n d i r e c t l y r e s u l t e d i n much of M a l a y s i a ' s most s i g n i f i c a n t f o r e i g n investment r e g u l a t o r y p o l i c i e s . The NEP and r e l a t e d l e g i s l a t i o n and r u l e s were the main v e h i c l e s f o r M a l a y s i a ' s r e s t r i c t i o n s . In c o n t r a s t , the Chinese were o n l y a f a i r l y s m a l l m i n o r i t y i n T h a i l a n d and were q u i t e a s s i m i l a t e d . Moreover, Chinese formed the m a j o r i t y e t h n i c group i n Singapore and were both p o l i t i c a l l y and e c o n o m i c a l l y dominant. Domestic p o l i t i c a l p r e s s u r e f o r r e s t r i c t i o n s was a s i g n i f i c a n t , secondary e x p l a n a t o r y v a r i a b l e . M a l a y s i a ' s e t h n i c s i t u a t i o n , together with a high l e v e l of f o r e i g n ownership, l e d to domestic p o l i t i c a l p r e s s u r e f o r r e s t r i c t i o n s from Malay economic n a t i o n a l i s t s . T h i s p r e s s u r e i n f l u e n c e d the Malaysian government's d e c i s i o n t o t r y t o c o n t r o l f o r e i g n investment. Although the governing group i n T h a i l a n d d i d r e a c t to a c e r t a i n degree to p r e s s u r e from economic n a t i o n a l i s t s i n the e a r l y to mid-1970s, 100 economic n a t i o n a l i s t s l o s t a l l s i g n i f i c a n c e with the m i l i t a r y coup of 1976. Economic n a t i o n a l i s t s advocating f o r e i g n investment r e s t r i c t i o n s were a l s o i n s i g n i f i c a n t i n Singapore. F i n a l l y , economic s t r a t e g y was a l s o an important, secondary e x p l a n a t o r y v a r i a b l e . M a l a y s i a ' s p o l i t i c a l e l i t e s f o l l o w e d an economic s t r a t e g y based on economic n a t i o n a l i s m and f a v o u r a b l e to heavy government economic i n t e r v e n t i o n . The d e s i r e by M a l a y s i a ' s l e a d e r s to c o n t r o l t h e i r country's economy arose from the other two e x p l a n a t o r y v a r i a b l e s , the presence of an e c o n o m i c a l l y dominant e t h n i c m i n o r i t y and domestic Malay p o l i t i c a l p r e s s u r e f o r r e s t r i c t i o n s . T h a i l a n d and Singapore d i d not have a s i m i l a r domestic s e t t i n g , and consequently d i d not p a r a l l e l M a l a y s i a ' s adoption of a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y . Thus, M a l a y s i a p l a c e d more r e s t r i c t i o n s on f o r e i g n investment than T h a i l a n d or Singapore d u r i n g the p e r i o d c o v e r i n g 1970 to 1980 because i t had a very d i f f e r e n t domestic s e t t i n g : an economically-dominant e t h n i c m i n o r i t y , domestic p r e s s u r e f o r r e s t r i c t i o n s , and a n a t i o n a l i s t i c and i n t e r v e n t i o n i s t economic s t r a t e g y . Taken to g e t h e r , these d i f f e r e n c e s e x p l a i n M a l a y s i a ' s g r e a t e r r e s t r i c t i v e n e s s . 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