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Manufacturing industries in Malaya. Solomon, Devadason 1968

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MANUFACTURING INDUSTRIES IN MALAYA DEVADASON SOLOMON B.A., U n i v e r s i t y of Malaya, 1966 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF M.A. i n the Department of Economics We accept t h i s t h e s i s as conforming t o the r e q u i r e d i t a#d^rd THE UNIVERSITY OF BRITISH COLUMBIA A p r i l , 1968 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f the r e q u i r e m e n t s f o r an advanced degree at the U n i v e r s i t y o f B r i t i s h C o lumbia, I agree t h a t the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y purposes may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n -t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . Department nf Economics The U n i v e r s i t y o f B r i t i s h Columbia Vancouver 8, Canada Date „April, I 9 6 8 . ABSTRACT By the 1920's, the Malayan economy had become dependent on rubber and t i n f o r i t s p r o s p e r i t y . The dangers of s p e c i a l i z i n g i n two export commo-d i t i e s t h a t were subject t o v i o l e n t p r i c e f l u c t u a t i o n s were soon recognized. I n d u s t r i a l i z a t i o n was advocated as a means o f d i v e r s i f y i n g the economy and reducing the dependence on rubber and t i n . A few primary manufacturing i n d -u s t r i e s t o process rubber, t i n , p i neapples, t a p i o c a , e t c . , were s u c c e s s f u l l y e s t a b l i s h e d . But the e a r l y e f f o r t s t o e s t a b l i s h secondary manufacturing i n d -u s t r i e s were i n e f f e c t i v e i n the face of severe competition from Japan, Ind-o n e s i a , and P h i l i p p i n e s . The depression of the 1930's f u r t h e r hampered the establishment of secondary manufacturing i n d u s t r i e s . At the outbreak of war, the country's i n d u s t r i a l p o s s i b i l i t i e s were more s y s t e m a t i c a l l y and thoroughly i n v e s t i g a t e d and i t was concluded t h a t i n d u s t r i a l i z a t i o n of the country was i m p r a c t i c a l . As r e c e n t l y as 195^- •> a rep o r t by the IBRD on the Economic Development of Malaya s t r e s s e d t h a t apart from Major t e c h n o l o g i c a l or g e o l o g i c a l d i s c o v e r i e s , the p o s s i b i l i t i e s o f e s t a b l i s h i n g l a r g e new i n d -u s t r i e s are l i m i t e d ; and, concluded t h a t Malaya's i n d u s t r i a l development i n the f u t u r e , as i n the p a s t , was l i k e l y t o f o l l o w the p a t t e r n of i n d i v i d u a l l y s m a l l advances over a wide range of i n d u s t r i e s . This p e s s i m i s t i c f o r e c a s t about Malaya's i n d u s t r i a l p o s s i b i l i t i e s was confirmed by the slow r a t e of growth of the manufacturing s e c t o r between 19^ 7 and 1957-But, s i n c e 1959, the manufacturing s e c t o r has expanded very r a p i d l y . Besides, most of the expansion d i d not r e s u l t from the expansion of e x i s t i n g primary manufacturing i n d u s t r i e s or the growth of extensions of primary manufacturing i n d u s t r i e s (as the IBRD re p o r t had expected); b u t , from the r a p i d expansion of the secondary manufacturing s e c t o r , and the i i growth of several, relat ively large, new industries. In this thesis , the causes of this sudden spurt i n the expansion of secondary manufacturing industries are investigated. In Chapter I, a more detailed introduction to the problem is provided. In Chapter I I , the structure and growth of the manufacturing sector are discussed. In Chapter III , the problems of measuring'product-i v i t y i n Malayan manufacturing industries are. discussed, and a crude measure of «sti labour productivity computed. The economics of expansion are discussed in Chapter IV and policies and prospects are reviewed in Chapter V. The main conclusions that emerge from this inquiry into the growth of secondary manufacturing industries are: (1) The rapid expansion of secondary manufacturing industries were caused by (i) a decline i n the price of Malaya's agricultural exports favouring the production of non-agricultural goods for the domestic market; and ( i i ) the implementation of various Government policies designed to en-courage the development of the secondary manufacturing sector. (2) The various incentives introduced by the Government encouraged the capital absorbing industries to expand faster than the labour absorbing industries. (3) The three main objectives of industr ial izat ion—industr ial d ivers i f i ca t ion , expansion of employment opportunities, and raising the per capita income—were a l l achieved to some extent. But, the non-agricultural sector must continue to grow faster than the agricultural sector for many more years i f the country is to be transformed into an industr ia l economy. In order to expand employment in the manufacturing sector more rapidly, the growth of labour absorbing industries should be encouraged. i i i (k) Even countries with l i t t l e domestic supply of capital and industr ial raw materials can successfully develop secondary manufacturing industries provided the country is equipped with an "adequate" economic infrastructure; "educated" workers who can be rapidly trained to acquire industr ia l s k i l l s and be subject to industr ial d i s c i p l i n e ; and, the country isjwilling to encourage the flow of foreign capital to take advantage of the abundant supply of labour. (5) Immediate prospects for further development of secondary manufacturing industries i n Malaya are good. i v Table of Contents Page Chapter I — I n t r o d u c t i o n 1 Chapter I I — S t r u c t u r e arid Growth ' 7 The Malayan Economy 8 The Manufacturing Sector 10 Employment 10 Net Output 22 Chapter I I I — P r o d u c t i v i t y 3k Importance of P r o d u c t i v i t y A n a l y s i s 3h T o t a l Factor P r o d u c t i v i t y 36 P a r t i a l P r o d u c t i v i t y 38 Labour P r o d u c t i v i t y kO Labour P r o d u c t i v i t y i n Malayan Manufacturing I n d u s t r i e s 3^ Trends i n P r o d u c t i v i t y 59 Chapter I V — T h e Economics of Expansion 69 Export P r i c e s and Growth of Secondary Manufacturing I n d u s t r i e s . . 69 E f f e c t s of Government P o l i c y on the Manufacturing Sector 73 I n c e n t i v e s f o r Secondary Manufacturing I n d u s t r i e s 73 A Model 79 E v a l u a t i o n of Subsidies 86 An A l t e r n a t e Hypothesis 89 Chapter V — P o l i c i e s and Prospects 90 Objectives and The i r R e a l i z a t i o n 90 Resource Endowment and I n d u s t r i a l i z a t i o n 95 Prospects f o r the Manufacturing Sector 98 B i b l i o g r a p h y 102 Appendix I — S o u r c e s o f Data 10k Appendix I I — D e f i n i t i o n s 110 V L i s t of Tables Page I Gross Domestic Product of Malaya by Industry o f O r i g i n (at Constant f a c t o r cost i960) f o r i960 and 1963 9 I I F u l l - t i m e Employees i n Manufacturing by Ind u s t r y , 1959-63 11-12 I I I Annual Percentage Increase of F u l l - t i m e Employees i n Manufacturing, by Ind u s t r y , 1960-63 15-16 IV Percentage D i s t r i b u t i o n of F u l l - t i m e Employees i n Manufacturing, by I n d u s t r y , 1959-63 20-21 V Net Output of Manufacturing I n d u s t r i e s by Ind u s t r y , 1959-63. . . . 23 -2 U VI Annual Percentage Growth of Net Output of Manufacturing I n d u s t r i e s by In d u s t r y , 196O-63 26-27 V I I Percentage D i s t r i b u t i o n of Net Output of Manufacturing I n d u s t r i e s , by In d u s t r y , 1959-63 31-32 V I I I Labour P r o d u c t i v i t y i n Manufacturing by In d u s t r y , 1963......... UU-^ 5 IX Percentage D i s t r i b u t i o n of Full-Time Workers and Part-time Workers i n Manufacturing I n d u s t r y , by Employment S t a t u s , 1963.. kQ-k9 X Percentage D i s t r i b u t i o n of F u l l - t i m e workers and part-time Workers i n Manufacturing I n d u s t r i e s , by Men, and Women, and C h i l d r e n , 1963 51-52 XI P r o d u c t i v i t y and the R a t i o of Labour cost t o Net Output i n Manufacturing I n d u s t r i e s , 1963 55-56 X I I Index of Net Output per Full-Time Worker i n Manufacturing I n d u s t r i e s , 196I-63 6l-62 X I I I Index of Real Net Output per F u l l - t i m e worker i n Se l e c t e d Manufacturing I n d u s t r i e s , 1961-63 66 XIV P r e d i c t e d Rank and A c t u a l Rank of Twenty-seven Secondary Manufacturing I n d u s t r i e s according t o Rate o f Growth i n Output 8U v i Acknowle dgment I wish t o r e c o r d my g r a t i t u d e t o Dr. P.A. Hener and Dr. P.G. Bradley, who as s u p e r v i s o r s at d i f f e r e n t stages i n the p r e p a r a t i o n of t h i s t h e s i s , rendered v a l u a b l e a s s i s t a n c e i n the form of con-s t r u c t i v e c r i t i c i s m and h e l p f u l suggestions. CHAPTER I INTRODUCTION One of the characteristics of underdeveloped countries"'" is that a large proportion of the population is engaged i n agriculture. In many of them, this proportion ranges from 60 to 80 per cent. In pract ical ly a l l the underdeveloped countries productivity in the agricultural sector has teen estimated to be lower than productivity i n the non-agricultural sector. In fact for the underdeveloped countries as a whole, i t appears that although 60 to 80 per cent of the population is engaged i n agriculture, the agricult -ural sector contributes only about ko per cent to the national output. The re la t ively smaller non-agricultural sector contributes 60 per cent to the 3 national output. In other words, labour productivity i n the non-agricultural sector, i s about four times as high as productivity i n the agricultural -one.. Many underdeveloped countries have therefore concluded that economic develop-ment implies a structural shif t from agricultural occupations to non-agricult-ural occupations. Underdeveloped countries are defined as countries with real per capita income of less than $500 (U.S.) [See Benjamin Higgins Economic  Development (New York:Norton) 1959 P .6 ] By this definit ion Malaya i s an underdeveloped country. Per capita income i n Malaya has been estimated as $320 (U.S.) 2 The reverse is not necessarily true. o See (l) United Nations, S t a t i s t i c a l Yearbook on Income and  Employment. (New York), 1957. and (2) Food and Agricultural Organization. S t a t i s t i c a l Year- book (Rome), 1957. - 2 -Dr. Hans Singer of the U.N. Department of Economic Affairs put i t this way:** Economic development w i l l mean a structural change. The proportion of population i n agriculture w i l l have to f a l l , and the non-agricultural sector w i l l have to expand. It may he noted that for our present purposes i t i s entirely irrelevant whether this structural change is considered as the 'purpose' or 'objective' of economic development, or as i t s consequence. The economic ac t ivi t ies of a nation may be divided into three broad categories: (l) Primary production, which includes agriculture, forestry, f i s h i n g , hunting and mining; (2) Secondary production comprising manufacturing and construction; and (3) Tertiary production which includes transport and communication, trade, government, personal and domestic services. The whole process of shi f t ing from primary production to secondary and tert iary production may be termed as "Industr ial izat ion" . However, when industr ial izat ion i s advocated as a means of achieving iS economic development, the emphasisAon the development of secondary manu-facturing industries. Manufacturing industries may be desired by underdeveloped countries for other reasons as w e l l , as the following quotation from Dr. 5 Singer shows: In the economic l i f e of a country and i n i t s economic history, a most important element is the mechanism by which "one thing leads to another", and the most important contribution of an industry is not i t s immediate product (as i s perforce assumed by economists and stat-is t ic ians) and not even i t s effects on other industries and immediate H.W. Singer, "The mechanics of Economic Development," Indian  Economic Review, August, 1952. -*Hans Singer, "The Distribution of Gains between Investing and Borrowing Countries," American Economic Review Papers and Proceedings, May 1950, p. kl6. - 3 -socia l benefits (thus far economists have been led by Marshall and Pigou to go) but perhaps even further i t s effect on the general level of education, s k i l l , way of l i f e , investiveness, habits , store of technology, creation of new demand, e tc . . And this i s perhaps pre-cisely the reason why manufacturing industries are so universally desired by underdeveloped countries; namely, that they provide the growing points for increased technical knowledge, urban education, the dynamism and resilience that goes with urban c i v i l i z a t i o n , as well as the direct Marshallian external economies. In Malaya, industr ial izat ion was advocated as early as the 1920's mainly as a means of diversifying the economy to escape some of the dangers of exclusive reliance on rubber and t i n . By the 1920's the Malayan economy had become so dependant on rubber and t i n that the report of successive Governors express considerable concern for the economic welfare of the country should a f a l l in the price of rubber and t i n take place. But, apart from public speeches encouraging private businessmen to set up manufacturing industries to diversify the economy, no effort was made by the government to promote the development of the manufacturing sector. Nevertheless, these early appeals did not go unheeded by the Business Community as some manufacturing industries were indeed established in the 1920's. However, only the primary manufacturing industries were successful i n meeting the challenge of foreign competition. The manu-facture of sago, tapioca, pineapples, and the processing of t i n and rubber prospered. The secondary manufacturing industries could not effect ively compete with competing products from Japan, Indonesia and " V i r g i n i a Mclean Thompson, Postmortem on Malaya (New York: Macmillan), 19^3. - l i -the Phil ippines . The largest factory producing secondary manufactured goods i n Malaya—one that employed k,000 labourers and manufactured shoes, t i r e s , bel t ing , sweets, medicine, hats, biscuits and b r i c k s — went bankrupt during the depression. This brought to an end the early efforts to set up secondary manufacturing industries. The harsh facts of the depression reinforced ear l ier arguments emphasising the necessity of economic diversif icat ion for the economic vio'ability of the country. In the 1930 's the government continued to emphasize the des i rabi l i ty of promoting manufacturing industries but stubbornly refused to provide any economic incentives such as a protected market, because of Bri ta in 's firm committment to the principles of free trade within the Commonwealth.^ The outbreak of war, by necessity, re -awakened interest in the country's industr ia l p o s s i b i l i t i e s . Much more serious and exhaustive investigation of setting up new industries was made, mainly from a mili tary strategic point of view.; But the results were disappointing, and Malaya came out of the war with no more secondary manufacturing industries than she had gone in with. Miss Thompson, i n her book, Post Mortem on Malaya, summarised the situation as f o l l o w s : 8 While more of a study of the problem had been undertaken than ever before, i t s conclusion only pointed out the impracticability of seriously industr ia l iz ing the country. A Mission organized by the IBRD in their report on the Economic Development of Malaya written in 195^ were far from optimistic about the potential for developing new manufacturing industries. They e x p l i c i t l y ' G . C . Allen and A . G . Donnithorne, Western Enterprise i n Indonesia  and Malaya: A Study i n Economic Development (London: George Allen & Unwin L t d . ) , 1957. 8 0 p . c i t . P. 3^ stated, "Major technological or geological discoveries apart, the possi -b i l i t i e s for the establishment of large new industr ia l enterprises seem limited" and added, "Malaya's industr ia l development i n the future, as i n the past, seems l i k e l y then to follow the pattern of individually small advances over a wide range of industries catering chiefly to the domestic and nearby markets."9 The slow rate of growth of the manufact-uring sector between 19^7 and 1957 was most disappointing. During this period, inspite of the "Korean boom" of 1951, employment i n the manu-facturing sector expanded by a mere 7-5 per cent over a period of ten years^ The I .B .R.D. report, therefore, did not envisage a growth rate of more than 3 or h per cent per annum for the manufacturing sector as a whole. Besides, the I .B .R.D. report expected most of the expansion of the manu-facturing sector to take the form of extensions of the existing primary manufacturing industries such as the expansion of the coconut product industry., the manufacture of rubber goods for the domestic market, and expansion i n the wood products, pineapple canning, and f i s h processing industries But, since 1959, inspite of a l l the pessimistic forecast, i t i s the secondary manufacturing industries that have shown the most rapid rate of expansion. Besides, most of the rapidly expanding industries are not extensions of primary manufacturing industries. "international Bank for Reconstruction and Development, Economic  Development of Malaya (Baltimore: Johns Hopkins Press), 1955, P. 120-1. ^Malaya , Department of S t a t i s t i c s , Census of Population, 1957 V o l . XIV (Kuala Lumpur: Government Printer) . Data on output is not available, since the f i r s t Census of Manufacturing Industries was conducted only i n 1959-^-International Bank: op c i t , p. h2k-5. - 6 -This thesis investigates the rapid expansion of Secondary Manu-facturing industries since 1959, and arrives at the following conclusions: (1) The rapid expansion of secondary manufacturing industries were caused by (i) a decline i n the price of Malaya's agricultural exports favouring the production of non-agricultural goods for the domestic market; and ( i i ) the implementation of various Government policies designed to encourage the development of the secondary manufacturing sector. (2) The various incentives introduced by the Government en-couraged the capital absorbing industries to expand faster than the labour absorbing industries. (3) The three main objectives of industr ial izat ion—industr ial d i v e r s i f i c a t i o n , expansion of employment opportunities, and raising the per capita income—were a l l achieved to some extent. But, the non-agri-cultural sector must continue to grow faster than the agricultural sector for many more years i f the country is to be transformed into an industr ia l economy. In order to expand employment i n the manufacturing sector more rapidly , the growth of labour absorbing industries should be encouraged. {h) Even countries with l i t t l e domestic supply of capital and industr ia l raw materials can successfully develop secondary manufacturing industries provided the country is equipped with an "adequate" economic infrastructure; "educated" workers who can be rapidly trained to acquire industr ia l s k i l l s and be subject to industr ia l d i s c i p l i n e ; and, the country i s w i l l i n g to encourage the flow of foreign capital to take advantage of the abundant supply of labour. (5) Immediate prospects for further development of secondary manufacturing industries i n Malaya are good. CHAPTER II STRUCTURE AND GROWTH It has been noted that the process of economic development involves a structural transformation of the economy. In general, this cal ls for a shif t from less productive primary production industries to highly productive secondary and tert iary industries. This transformation of the economy may be achieved by varying growth rates among the sectors. I f the price system works effec t ively , this shif t from less productive sectors to more productive sectors w i l l take place as a result of the factors responding to the market. The less productive sectors w i l l either stagnate or decline while the more productive sectors w i l l expand rapidly, and consequently, over time the structure of the economy would be favour-ably altered. In other cases, government intervention i n the economy may help to bring about this transformation by reducing the growth rate of some sectors and stimulating growth in others. But i n a l l cases struct-ural changes i n the economy are brought about by divergent rates of growth among sectors. The different rates of growth of various sectors (and industries) therefore form an integral part of the discussion on structural transformation. Before proceeding to a discussion of the structural changes in the Manufacturing sector, a very brief survey of the changing structure of the Malayan economy is made i n order to f i t the whole discussion within the context of the Malayan economy and i t s development. I - 8 -The Malayan Economy Table I shows the gross domestic product of Malaya by industry of origin (at constant factor cost) for the years 19^0 and 1963. The primary sector made up of agriculture, f i s h i n g , forestry and hunting increased from $1,976 mil l ion to $2,2kl million—an increase of 13.h per cent over a three-year period. But the relative importance of primary production i n the gross domestic product of the country f e l l from 37.8 per cent to 35-9 per cent. The contribution of the manufacturing sector to the gross domestic product rose from $^53 mil l ion to $587 million—an increase of 29.6 per cent. As a result , the relative importance of the manufacturing sector, as measured by the gross domestic product, rose from 8.7 per cent to 9.h per cent. The Construction industry shows a s t r iking advance from $158 mil l ion to $27** million—an increase of 73 . U per cent over a three-year period. However, i t i s well known that construction act ivi ty fluctuates widely from year to year. Therefore this remarkable advance is unlikely to hold i n the future. From the development point of view the performance of the Malayan economy from i 9 6 0 to 1963 i s impressive. Gross domestic product expanded from $5,220 mil l ion to $6,2^3 million—an increase of 19.6 per cent and the share of the secondary and ter t iary sectors i n the gross domestic product rose from 62 .2 per cent to 6^.1 per cent. At the same time the proportion of population engaged in agriculture occupations f e l l from 6 l per cent to 58 per cent."*" We may therefore conclude that for the Malayan economy the whole process of industr ial izat ion was proceeding sa t is fac tor i ly from i 9 6 0 to 1963. 'Food and Agricultural Organization, Year Book, 1965. TABLE I GROSS DOMESTIC PRODUCT OF MALAYA BY INDUSTRY OF ORIGIN (AT CONSTANT FACTOR COST i 9 6 0 ) FOR i 9 6 0 AND 1963 Industry-$ Mi H i on Per Cent Percentage Increase I960 1963 I960 1963 from i 9 6 0 to 1963 1. Agriculture, Forestry, Hunting and Fishing 1,976 2,2kl 37.8 35-9 13.1+ 2. Mining and Quarrying 306 36k 5.9 5.8 18 .9 3. Manufacturing ^53 587 8.7 9.k 29.6 k. Construction 158 21k 3.0 k.k 73.1+ 5- Electricity, Gas and Water 70 95 1.3 1.5 35.7 6. Transport, Storage and Communications 189 207 3.6 3.3 9-5 7. Wholesale and Retailing 817 979 15.6 15 .7 19.8 .8. Banking, Insurance and Real Estate 71 96 1.1+ 1.5 35.2 9. Ownership of Dwelling 2U5 277 k.l k.k 13.1 10. Public Administration and Defence 339 375 6.5 6.0 10.6 11. Services 596 7^8 11.1+ 12.0 25.5 Gross Domestic Product at factor cost 5,220 6,21+3 100.0 100.0 19.6 Source: Food and Agricultural Organization, Year Book, 1965. - 10 -The Manufacturing Sector Having b r i e f l y noted that for the economy as a whole the proces of industr ial izat ion is proceeding sa t i s fac tor i ly , attention is now directed to a detailed examination of the manufacturing sector, which has been singled out because of i t s special importance i n the development of a country. In the rest of this chapter, the growth of manufacturing industries and the consequent changes in structure w i l l be examined i n terms of employment and net output. Employment Employment i n the manufacturing sector is of great interest to development economists, economic planners and the government. Development economists are interested i n the growth of the manufacturing sector i n terms of employment because the manufacturing sector i s expected to play a crucial role i n the structural transformation of the economy from a low-income agricultural country to a high-income industrial ized country. The development economist is also interested i n the structure of the manu-facturing sector and changes within i t , since the process of economic development necessitates quantitative and qualitative changes, both within the manufacturing sector and outside i t . To economic planners, the analys of the manufacturing sector in terms of employment, provides valuable i n -formation for planning development; for observing " l i n k s " i n the manu-facturing sector; and, for evaluating the success of a plan in terms of the employment objective. One of the government's stated objective for the promotion of the manufacturing sector is to create more employment TABLE II FULL-TIME EMPLOYEES IN MANUFACTURING BY INDUSTRY, 1959-63. Number of Full-Time Employees Industry 1959 I960 1961 1962 1962 1963 Primary Manufacturing Indust ries (old) (new) 1. Rubber Remilling offEstates 4,910 5,082 4,937 4,982 5,272 5,346 2. Rubber Latex Processing off Estates 2,375 2,316 2,000 2,115 2,115 2,231 3. Crude Coconut O i l M i l l s off Estates 859 824 827 786 786 799 4. Large Rice M i l l s 1,735 1,791 1,819 1,768 1,786 1,788 5. Sawmills, Plywood, and Particle Board M i l l s l_M>k 8,841 8,591 8,925 9,500 10,237 Primary Manufacturing Tota]h_7,343 18,85^ : 18,174 18,475 19,441 20,401 Secondary Manufacturing Industries 1. Ice Cream & Other Dairy Products 336 334 423 549 611 645 2. Biscuit Factories 1,128 1,469 1,555 1,708 1,980 2,065 3. Ice Factories 5 6 l 534 517 543 543 553 4. Soft Drinks and Carbonated Beverages 1,792 1,913 1,912 1 ,861 1 ,941 2,065 5. Tobacco Products 3,122 3,345 3,484 3,810 3,810 3,773 6. Joineries 372 364 411 532 677 744 7. Wooden Boxes, Cases and crat es 86 112 167 159 159 154 8. Rubber Footwear, t i res and tubes, foam rubber products and rubber products nec 1*,971 4,974 5,375 5,524 5,524 6,306 9. Coconut o i l ref ineris 136 123 120 143 161 188 10. Paints, varnishes & lacquer: 103 158 265 295 295 361 11. Soaps, washing and cleaning compounds 594 660 735 906 962 1,031 12. Medical and Pharmaceutical Preparations 221 260 284 311 375 394 13. Perfumes, cosmetics, and t o i l e t preparations 106 130 179 220 346 363 Ik. Matches 543 497 521 529 529 534 15. A l l other Chemical products 500 634 664 815 944 982 16. Structural clay products 1,158 l , 4 l 6 1,659 1,926 2,186 2,301 17. Pottery, china, and earth-243 enware products 158 160 171 172 207 18 . Structural cement and concr ite products 1+93 636 676 802 1,121 1,311 19. Iron Foundaries 160 206 171 195 243 211 TABLE II (continued) FULL-TIME EMPLOYEES IN MANUFACTURING BY INDUSTRY, 1959-63. Number of Full-Time Employees Industry 1959 I960 1961 1962 1962 1963 (old) (new) Secondary Manufacturing Ind jstries 2 0 . Architectural Metal Product 3 177 225 22*1 220 661 819 2 1 . Wire and wire products 157 197 209 2U5 431 450 2 2 . Hardware tools and cutlery (including repairs) 50 2k 22 2k 240 245 23 . Tin cans and Metal Boxes 48o 563 745 708 833 999 2H. Brass, copper, pewter and aluminimum products 23k 278 3U5 348 449 591 2 5 . Other metal products 335 4 l 4 499 62k 926 1,460 2 6 . Industrial Machinery & part 31,065 1,271 1,31k 1,551 2,680 2,650 27. Shipbuilding and repairing and boatbuilding & repairin I 433 468 5k9 563 762 823 2 8 . Motor Vehicle Bodoes 202 250 289 370 462 481 2 9 . Motor Vehicle Parts and Accessories 9 10 11 12 75 81 3 0 . Bicycle , Tricycle and Trishaw k6 101 107 61 61 58 31 . Other covered industries an 1 establishments 2,355 2,879 3,427 3,964 4,393 5,784 Secondary Manufacturing Tot a l 22,1( 3£4,605 27,090 29,690 34,587 38,665 Manufacturing Industries Total 39,446 43,459 45,264 48 ,266 54,028 59,066 - 13 -opportunities for the rapidly expanding population i n the country. The government is therefore naturally interested i n the rate of expansion of employment i n the manufacturing sector. In terms of employment the manufacturing industries are very small. This may be observed from Table I I , which presents the number of ful l - t ime employees i n each manufacturing industry. The largest manu-facturing industry i n terms of employment—Sawmills, Plywood and Part-i c l e Board Mills—employed only about 10,000 ful l - t ime workers i n 1963. The next largest industry, Rubber Products, employed only about 6 ,000 employees. Other Covered Industries and Establishments Group employed 5,784 ful l - t ime employees; but, i t must be remembered that this employment was spread over several industries. Another interesting observation is that the primary manufacturing industries as a group are relat ively large compared to the secondary manufacturing industries. For instance, i n 1963, the five primary manufacturing industries together accounted for more than 20,000 ful l - t ime employees whereas the thi r ty secondary manufacturing i n d -ustries (excluding the Other Covered Industries and Establishments Group) represented less than 33,000 ful l - t ime employees. In the primary manu-facturing sector the smallest industry—Coconut O i l M i l l s off Estates— account for 799 ful l - t ime employees and the largest—Sawmills, Plywood and Particle Board Mills—account for 10,237 full - t ime employees. In secondary manufacturing, on the other hand, the smallest industry—Bicycle, Tricycle and Trishaw Parts and Accessories accounts for as l i t t l e as 58 full - t ime workers; while the largest secondary manufacturing industry—Rubber Products —accounts for 6,306 ful l - t ime employees. - Ik -The primary manufacturing industries are large because they are older established industries and most of their products have a large dom-estic or world market. Rubber Remilling off Estates and Rubber Latex Processing off Estates are among the oldest established manufacturing industries and their products (except for a small proportion sold to Rubber Products manufacturing) industries)are mostly exported. The Sawmills, P l y -wood and Particle Board M i l l s on the other hand have a large domestic market and a relat ively small export market. Large Rice M i l l s and Crude Coconut O i l M i l l s both depend entirely on the domestic market for their prosperity. Most of the secondary manufacturing industries, on the other hand, rely on a small but gradually expanding domestic market. The largest secondary manufacturing industries—Rubber Products, Sobacco Products, Biscuit Factories, Soft Drinks and Carbonated Beverages, Structural Clay Products —are a l l relat ively old industries that have always been supported by a strong domestic market. The Industrial Machinery and Parts industry i s a re lat ively new industry, but i t is expanding very rapidly as a result of the rapid pace of industr ial izat ion being pursued. The rate of expansion of employment i n Manufacturing industries i s shown in Table III . Employment i n the manufacturing sector expanded by an impressive 10.2 per cent i n i 9 6 0 , slowed down to k02 per cent in 1 9 6 l , and rose by 6.6 per cent and 9-3 per cent i n 1962 and 1963 respectively. The low rate of growth for 1 9 6 l was due mainly to a decline of employment i n the primary manufacturing industries. From i 9 6 0 to 1963 the growth of employment in secondary manufacturing industries never f e l l below 9 .6 per cent and i n 1963 i t was an impressive 11.8 per cent. The growth of the TABLE III ANNUM. PERCENTAGE INCREASE OF FULL-TIME EMPLOYEES IN MANUFACTURING, BY INDUSTRY, 10,60-63. Annual Percentage Increase 3 , of , Industry I960 1961 1962 1963 1 3 Primary Manufacturing Industries 1. Rubber Remilling off Estates 3.5 -2.9 0.9 1.4 2 . Rubber Latex Processing off Estates -2.5 -13.6 5-8 5.5 3. Crude Coconut O i l M i l l s off Estates -4.1 0.4 -5.0 1.7 4. Large Rice M i l l s 3.2 1.6 -2.8 1.1 5. Sawmills, Plywood, and Particle Board M i l l s 18. k -2.8 3.9 7-8 Primary Manufacturing Total 8.7 -3.6 2.2 4.9 Secondary Manufacturing Industries 1. Ice Cream & Other Dairy Products -0.6 26.6 29.8 5.6 2 . Biscuit Factories 30.2 5.9 9.8 4.3 3 . Ice Factories -4.8 -3.2 5.0 1.8 4. Soft Drinks and Carbonated Beverages 6.8 - 0 . 1 -2.7 6.4 5. Tobacco Products 7 .1 4.2 9.4 - 1 . 0 6. Joineries - 2 . 2 12.9 29.4 9-9 7. Wooden Boxes, Cases and crates 30.2 49.1 -4.8 -3.1 8. Rubber Footwear, t i res and tubes, foam rubber products, 14.2 and rubber products n .e . c . 0.1 8 .1 2.8 9. Coconut o i l refineries -9.6 -2.4 19.2 16.8 10. Paints, varnishes & lacquers 53.4 67.7 11.3 22.4 11. Soaps, washing and cleaning compounds 11.1 11.4 23.3 7.2 12. Medical and Pharmaceutical Preparations 17.6 9.2 9.5 5-1 13. Perfumes, cosmetics, and t o i l e t preparations 22.6 37-7 22.9 4.9 Ik. Matches -8.5 4.8 1.5 0.9 15- A l l other Chemical products 26.8 4.7 22.7 4.0 16. Structural clay products 22.3 17.2 16.1 5.3 17. Pottery, china, and earth-17.4 enware products 1.3 6.9 0.6 18. Structural cement and concrete products 2 9 . 0 6.3 18.6 16.9 19- Iron Foundaries 28.8 -17.0 14.0 -13.2 Decreases are shown by negative numbers Based on the extended coverage for 1962. TABLE I I I (continued) ANNUAL PERCENTAGE INCREASE OF FULL-TIME EMPLOYEES IN MANUFACTURING, BY INDUSTRY, I96O-63. Annual Percentage Increase o f . Full-Time Empl oyees Industry I960 1961 1962 1963 Secondary Manufacturing I n d u s t r i es 20. A r c h i t e c t u r a l Metal Products 27.1 -O.k -1.8 23-9 21. Wire and Wire products 25.5 6.1 17.2 4.4 22. Hardware t o o l s and c u t l e r y ( i n c l u d i n g r e p a i r s ) -52.0 -8.3 9-1 2.1 23. T i n cans and Metal Boxes 17.3 32.3 -5.0 19-9 24. Brass, copper, pewter and aluminum products 18 .8 24.1 0.9 31.6 25. Other metal products 16.6 20.5 25.0 57.7 26. I n d u s t r i a l Machinery & p a r t s 19.3 8.1 12.9 -1.1 27. S h i p b u i l d i n g and r e p a i r i n g and b o a t b u i l d i n g & r e p a i r i n g 8.1 17.3 2.6 8.0 28. Motor V e h i c l e Bodies 23.8 15.6 28.0 4.1 29. Motor V e h i c l e P a r t s and Accessories 11.1 10.0 9.1 8.0 30. B i c y c l e , T r i c y c l e and Trishaw 19 .6 5.9 -43.0 -4.9 31. Other covered i n d u s t r i e s and establishments 22.3 19.0 15.7 31.7 Secondary Manufacturing T o t a l 11.3 10.7 9-6 11.8 Manufacturing I n d u s t r i e s T o t a l 10.2 4.2 6.6 9-3 - 17 -primary manufacturing industries on the other hand, fluctuates greatly and shows no clear trend. In i 9 6 0 , employment i n the primary manufacturing industries rose by 8 .7 per cent in 1962, and rose by k.9 per cent i n 1963. In 1 9 6 l , the primary manufacturing industries were affected adversely by a f a l l in the price of rubber and in the price of timber and wood prod-ucts. Consequently, most of the decrease i n employment took place i n Rubber Processing off Estates industry and the Sawmills, Plywood and Particle Board M i l s . Two Rubber Latex Processing establishments ceased operations, and employment in the industry declined by 3 l 6 full - t ime employees. This accounted for the f a l l of 13.6 per cent i n the industry's ful l - t ime employment. Employment in the Sawmills, Plywood and Particle Board M i l l s f e l l by only 2 . 8 per cent. But this accounted for a decrease of 250 ful l - t ime employees. The f a l l in the price of rubber also affected the Rubber Remilling off Estates industry, i n which the number of f u l l -time employees declined by 1^5. The other two primary manufacturing industries experienced a very small increase in employment. Although the secondary manufacturing industries as a group, show clear signs of vigorous growth, there are great variations i n the rate of growth of individual industries. The most outstanding growth of employment is observed i n the Paints, Varnishes and Lacquers industry, where employment has more than trebled between 1959 and 1963 . Perfumes, Cosmetics and Toilet Preparations is the next fastest growing industry and employment in this industry more than doubled between 1959 and 1962. The Other Metal Products industries, A l l Other Chemical Products group, Structural Clay Products and the Structural Cement and Concrete Products - 18 -are other industries with exceptionally high growth rates. In fact , a l l of the industries selected under the "probable above-average growth potential" c r i te r ion , have maintained a consistently high growth rate. This suggests that the prediction that the country's industr ial izat ion program would leave a maximum impact on the product of Chemical Products, Metal Products, Industrial Machinery and Parts, Transport Equipment and Construction is largely correct. The Other Covered Industries and Establishments group's impressive growth is most probably due to the inclusion of a l l firms with Pioneer Status that did not f a l l within one of the remaining 35 industr ia l grouping. Finally,between 1959 and 1963, employment i n the Hardware, Tools and Cutlery industry and Ice Factories declined considerably. Employment in the Hardware, Tools and Cutlery industry f e l l from 50 i n 1959 to 2k i n 1963 . It is suggested that the decline of this industry is due to a shif t in the techniques of production i n other sectors of the economy; for instance, the tendency to use more up to date machinery rather than the t radi t ional tools in agriculture. In the case of Ice Factories ful l - t ime employment declined from 5 6 l i n 1959 to 553 i n 1963; and, this i s probably due to the emergence of a a few large ice factories which are more capital intensive i n their methods of production. Table IV shows the percentage distribution of full - t ime employees i n manufacturing industries. In 1959 primary manufacturing accounted for kk per cent of ful l - t ime employment i n the manufacturing sector; but by 1962 employment i n primary manufacturing accounted for only 38.5 per cent. This structural change is the result of a rapid - 19 -expansion of the secondary manufacturing sector and the l e v e l l i n g off of growth i n primary manufacturing industries. Among the primary manufact-uring industries there has been no significant change in the relative importance of industries: but they have a l l become relat ively less important within the whole manufacturing sector. In the secondary manufacturing sector, Rubber Products con-tinues to be the largest industry; but, i t s importance relative to the manufacturing sector has declined from 12.6 per cent i n 1959 to 10 .7 per cent i n 1963. This i s probably caused by the rather slow expansion of the Malayan market for rubber products relative to the expansion of the domestic market for Chemical Products, Metal Products, Industrial Machinery and other import substitutes. The other Covered Industries and Establishments accounted for 6 .0 per cent of full - t ime employees i n the manufacturing industries in 1959- By 1963 this had risen to 9 . 8 per cent. Unfortunately, from the analytical point of view, this does not reveal very much since this group includes establishments from several industries. There are shifts i n the relative importance of other secondary manufacturing industries but none is large enough to merit special comment. TABLE I V PERCENTAGE DISTRIBUTION OF FULL-TIME EMPLOYEES IN MANUFACTURING BY INDUSTRY, 1959-63. F u l l - T i m e Employees I n d u s t r y [Per C e n t ) 1959 I960 1961 1962 1962 1963 P r i m a r y M a n u f a c t u r i n g I n d u s t r i 5S ( o l d ) (new) 1. Rubber R e m i l l i n g o f f E s t a t e s 12. 4 11.7 10.9 10.3 9 . 8 9.0 2. Rubber L a t e x P r o c e s s i n g o f f E s t a t e s 6.0 5.3 4.4 4.4 3.9 3.8 3. Crude Coconut O i l M i l l s o f f E s t a t e s 2.2 1.9 1.8 1.6 1.4 1.4 4 . L a r g e R i c e M i l l s 4.4 4.1 4.0 3.7 3.3 3.0 5. S a w m i l l s , P l y w o o d and P a r t i c l e B o a r d M i l l s 18.9 20.3 19-0 I 8 . 5 17.6 17.3 P r i m a r y M a n u f a c t u r i n g T o t a l 44.0 43.4 40.2 38.5 36.0 34.5 S e c o n d a r y M a n u f a c t u r i n g I n d u s t r i e s 0.8 0.8 0.9 1.1 1.1 1.1 2.9 3.4 3.4 3.5 3.7 3.5 1.4 1.2 1.1 1.1 1.0 0.9 4.5 4.4 4.2 3.9 3.5 3.5 7.9 7.7 7.7 7.9 7.1 6.4 0.9 0.8 0.9 1.1 1.3 1.3 0.2 0.3 0.4 0.3 0.3 0.3 12.6 11.4 11.9 11.4 10.2 10.7 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.6 0.6 0.5 0.6 1.5 1.5 1.6 1.9 1.8 1.7 0.6 0.6 0.6 0.6 0.7 0.7 0.3 0.3 0.4 0.5 0.6 0.6 1.4 1.1 1.2 1.1 1.0 0.9 1.3 1.4 1-5 1.7 1.7 1.7 2.9 3.3 3.7 4.0 4.0 3.9 0.4 0.4 0.4 0.4 0.4 0.4 1.2 1.5 1.5 1.7 2.1 2.2 0.4 0.5 0.4 0.4 0.4 0.4 1. I c e Cream & Ot h e r D a i r y P r o d u c t s 2. B i s c u i t F a c t o r i e s 3. I c e F a c t o r i e s 4. S o f t D r i n k s and C a r b o n a t e d B e v e r a g e s 5. Tobacco P r o d u c t s 6. J o i n e r i e s 7. Wooden B o x e s , Cases and c r a t e s 8. Rubber F o o t w e a r , t i r e s and t u b e s , foam r u b b e r p r o d u c t s , and r u b b e r p r o d u c t s n.e.c. 9. Coconut o i l r e f i n e r i e s 10. P a i n t s , v a r n i s h e s & l a c q u e r s 11. Soaps, w a s h i n g and c l e a n i n g compounds 12. M e d i c a l and P h a r m a c e u t i c a l P r e p a r a t i o n s 13. P e r f u m e s , c o s m e t i c s , and t o i l e t p r e p a r a t i o n s 14. Matches 15. A l l o t h e r C h e m i c a l p r o d u c t s 16. S t r u c t u r a l c l a y p r o d u c t s 17. P o t t e r y , c h i n a , and e a r t h -enware p r o d u c t s 18. S t r u c t u r a l cement and c o n c r e t e p r o d u c t s 19. I r o n F o u n d a r i e s TABLE I V ( c o n t i n u e d ) PERCENTAGE DISTRIBUTION OF FULL-TIME EMPLOYEES IN MANUFACTURING BY INDUSTRY, 1959-63. I n d u s t r y F u l l - T i m e Employees ( P e r Cent) Se c o n d a r y M a n u f a c t u r i n g I n d u s t r 1959 Les i960 1961 1962 ( o l d ) 1962 (new) 1963 20. A r c h i t e c t u r a l M e t a l P r o d u c t s 0.4 0.5 0.5 0.5 1.2 1.4 21. W i r e and Wir e p r o d u c t s 0.1+ 0.1+ 0.5 0.5 0.8 0.8 22. Hardware t o o l s and c u t l e r y ( i n c l u d i n g r e p a i r s ) 0.1 0.1 0.0 0.0 0.4 0.4 23. T i n cans and M e t a l Boxes 1.2 1.3 1.6 1.5 1.5 1.7 24. B r a s s , c o p p e r , p e w t e r and aluminum, p r o d u c t s 0.6 0.6 0.8 0.7 0.8 1.0 25- O t h e r m e t a l p r o d u c t s 0.9 0.9 1.1 1.3 1.7 2.5 26. I n d u s t r i a l M a c h i n e r y & p a r t s 2.7 2.9 3.0 3.2 5.0 4.5 27- S h i p b u i l d i n g and r e p a i r i n g and b o a t b u i l d i n g & r e p a i r i n g 1.1 1.1 1.2 1.2 1.4 1.4 28. M o t o r V e h i c l e B o d i e s 0.5 0.6 0.6 0.8 0.9 0.8 29- M o t o r V e h i c l e P a r t s and A c c e s s o r i e s 0.0 0.0 0.0 . 0.0 0.1 0.1 30. B i c y c l e , T r i c y c l e and Trishaw- 0.1 0.2 0,.2 0.1 0.1 0.1 31. O t h e r c o v e r e d i n d u s t r i e s and e s t a b l i shment s 6.0 6.6 7.6 8,2 8.1 9.8 S e c o n d a r y M a n u f a c t u r i n g T o t a l 56.0 56.6 59;8 61.5 64.0 65.5 M a n u f a c t u r i n g I n d u s t r i e s T o t a l 100.0 100.0 100.0 100.0 100.0 100.0 - 22 -Net Output The growth of the manufacturing sector in terms of real net output could not be measured because no suitable price deflators could be found. Fortunately, except for the primary manufacturing industries, price variations are known to have been negligible . The whole discussion on net output which follows is therefore based on output valued at current prices . The growth of the manufacturing sector between 1959 and 1963 i n terms of net output i s impressive as can be observed from Table V. In 1959» the output of the manufacturing industries was $166.7 m i l l i o n . By 1962 i t rose to $248.4 million—an increase of 49 per cent i n four years. The increase from 1962 to 1963 is even more impressive—from $272.1 mi l l ion to $327.1 mi l l ion—a phenomenal 20 .2 per cent r i s e . The primary manufacturing industries, however, can hardly be regarded as expanding. In 1959 they accounted for $77.1 mil l ion of output. In i 9 6 0 this increased to $94.7 mil l ion but since then i t declined to $87.1 mill ion i n 1961 and $88.1 mil l ion in I 9 6 2 . Between 1962 and 1963 a significant recoveryjis apparent, with net output increasing from $90.9 mill ion (based on the new more complete coverage) to $97-6 m i l l i o n . The growth of the secondary manufacturing industries, on the other hand, i s marked with a consistently high rate of growth. The net output of secondary manufacturing i n 1959 was about $89.5 m i l l i o n . But by 1962 i t has risen to $160.3 million—an increase of 79 per cent i n four years. The performance of the secondary manufacturing industries i n 1962 and 1963 (based on the more complete coverage) reinforces evidence of extremely rapid growth; net output rose from $ l 8 l . 2 mil l ion in 1962 to $229.6 mil l ion i n 1963—an increase of 26.7 per cent i n one year. TABLE V WET OUTPUT OF MANUFACTURING INDUSTRIES BY INDUSTRY, 1959-63. Net Output ($1,000) Industry 1959 i 9 6 0 1961 1962 (new) 1963 ~ Primary Manufacturing Indust ries (old) 1962 1. Rubber Remilling off Estates 23 ,275 24,205 • 24 ,158 17,148 18,155 20 ,488 2 . Rubber Latex Processing off Estates 12,872 18,801 15,923 21.762 21.762 20,787 3 . Crude Coconut O i l M i l l s off Estates 7,583 4,536 4,863 5,317 5,317 4,750 4 . Large Rice Mil ls 6 ,453 10 .744 9.088 7,756 7,756 8,552 5 . Sawmills, Plywood, and Particle Board M i l l s 26,949 36 ,435 33,054 36,120 37,894 42 ,989 Primary Manufacturing Total 77 ,132 1 94,721 ; 87,086 86 ,103 90 ,884 97,566 Secondary Manufacturing Indu? ?tries 1. Ice Cream & Other Dairy Products 2 ,003 1.717 2,387 4,810 4,086 6,882 2 . Biscuit Factories 4,717 5 ,143 5 ,048 5 ,345 6,352 6,818 3 . Ice Factories 2,966 4,125 3,950 4 ,354 4 ,354 4,229 4 . Soft Drinks and Carbonated Beverages 9,658 11 ,249 11,145 11,582 11 ,903 12,501 5 . Tobacco Products 10.624 17,866 22,219 27 ,876 27,876 28,257 6. Joineries 987 1,229 1,551 2,o4o 2,552 2,760 7- Wooden Boxes, Cases & Crates 271 425 491 494 494 468 8. Rubber Footwear, t i res and tubes, foam rubber products, and rubber products n . e . c . 12,377 14 ,312 15,607 14,497 15 ,497 20 ,099 9- Coconut o i l refineries 572 749 721 577 878 1,513 10. Paints, varnishes & lacquers 1,151 1,696 2,587 3,991 3,991 4 ,647 11. Soaps, washing and cleaning compounds 5,287 6 ,614 6 ,380 10,291 10,668 13 ,432 12. Medical and Pharmaceutical Preparations 540 1,687 2,197 2 ,424 3,339 3,897 13 . Perumes, cosmetics, and t o i l e t preparations 762 1 ,864 4,819 5 ,403 6 ,023 8,759 14. Matches 1,729 1,661 1,636 1,811 1,811 1,736 15. A l l other Chemical products 3,224 4,154 5,009 4,862 5,579 8,000 16. Structural clay products 3,156 4,179 5,150 5 ,843 6564, 7,482 17. Pottery, china, and earth-enware products 547 536 585 584 719 868 18. Structural cement and concrel .e products 2 ,2230 2,928 3 ,270 4,281 5,490 6,853 19- Iron Foundaries 536 654 617 849 1,090 788 TABLE V (continued) NET OUTPUT OF MANUFACTURING INDUSTRIES BY INDUSTRY, 1959-63. Net Output ($1,000) Industry 1959 I960 1961 1962 1962 1963 Secondary Manufacturing Indust ries (old) (new) 2 0 . Architectural Metal Products 589 762 843 851 2,342 3,296 2 1 . Wire and Wire products 7^0 1,000 1,271 1,276 1,423 1,807 2 2 . Hardware tools and cutlery (including repairs) 119 80 75 76 1,225 1,196 23. Tin cans and Metal Boxes 1,276 2,097 2,517 2,384 2,605 3,840 2k. Brass, copper, pewter and 916 1,666 aluminum products 1,290 1,310 2,098 2,525 25. Other metal products 2,549 2,426 3,180 3,787 5,006 7,155 26. Industrial Machinery & parts 2,799 3,695 4,355 5,193 9,078 9,253 27. Shipbuilding and repairing 2,068 3,783 3,454 and boatbuilding & repairing 1,701 1,821 2,067 28. Motor Vehicle Bodies 705 863 1,178 1,301 1,738 1,660 29- Motor Vehicle Parts and Accessories 29 27 39 54 253 227 30. Bicycle, Tricycle and 238 Trishaw 117 258 288 215 215 31. Other covered industries and establishments 14,671 18,233 23,011 28,521 31,198 54,928 Secondary Manufacturing Total 89,548 115,540 135,503 160,305 181,230 229,568 Manufacturing Industries Total 166,680 210,255 222,589 248,409 272,114 327,133 - 25 -Table VI presents the annual percentage increase i n output. For the manufacturing s e c t o r , the annual r a t e of growth has never f a l l e n below 5-9 per cent and has been even as high as 2 0 . 0 per cent. The annual r a t e o f growth of secondary manufacturing i n d u s t r i e s has never f a l l e n below 17.3 per cent and had reached a peak of 29-0 per cent i n i 9 6 0 . The primary manufacturing i n d u s t r i e s , on the other hand, show no c l e a r t r e n d of growth. In i 9 6 0 the annual r a t e of growth i n output of the primary manufacturing i n d u s t r i e s was as h i g h as 2 2 . 8 per cent but i n 1 9 6 l i t d e c l i n e d by 8.1 per cent and then began t o r i s e g r a d u a l l y — b y 1.2 per cent i n 1962 and 7.3 per cent i n 1963. In 1 9 6 l , a l l the primary manufacturing i n d u s t r i e s were s, a f f e c t e d by considerable p r i c e d e c l i n e ^ , and t h e r e f o r e , the d e c l i n e i n the value of net output i n primary manufacturing i n d u s t r i e s need not necess-a r i l y i n d i c a t e a d e c l i n e i n r e a l net output. However, the t r e n d i n the output of primary manufacturing i n d u s t r i e s i n d i c a t e s t h a t two of t h e m — Rubber R e m i l l i n g and Crude Coconut O i l M i l l s — a r e d e c l i n i n g i n d u s t r i e s . The t r e n d i n two other primary manufacturing i n d u s t r i e s i s u n c e r t a i n . These are the Rubber Latex P r o c e s s i n g Industry and the Large Rice M i l l s 9 Sawmills, Plywood and P a r t i c l e Board M i l l s , on the other hand, seems t o be the only primary manufacturing i n d u s t r y t h a t i s assured of a reasonable r a t e of expansion. : The expansion i n the output of secondary manufacturing i n d u s t -r i e s v a r i e s from i n d u s t r y t o i n d u s t r y . The only secondary manufacturing i n d u s t r y i n which net output has f a l l e n i n absolute terms between 1959 and 1962 i s the Hardware, T o o l s , and C u t l e r y i n d u s t r y i n which i t f e l l from $119,000 i n 1959 t o $76,000 i n 1962. As was noted e a r l i e r , the d e c l i n e o f t h i s i n d u s t r y i s due t o d e c l i n i n g demand f o r i t s products. 2See P. 15. TABLE VI ANNUAL PERCENTAGE GROWTH OF NET OUTPUT OF MANUFACTURING INDUSTRIES, BY INDUSTRY, 1960-63. Annual Percentage Increase i n Industry Net Output Primary Manufacturing Industres I960 1961 1962 1963 d 1. Rubber Remilling off Estates 4 . 0 - 0 . 2 - 2 9 . 0 12 .8 2 . Rubber Latex Processing off Estates 4 6 . 1 -15 .3 36.7 - 4 . 5 3 . Crude Coconut O i l M i l l s off Estates -ho.2 7-2 9 .3 -10 .7 4 . Large Rice M i l l s 66.5 -15.4 -14.7 10 .3 5- Sawmills, Plywood, and Particle Board M i l l s 35.2 - 9 - 3 9 .3 13.4 Primary Manufacturing Total 2 2 . 8 - 8 . 1 1.2 7 .3 Secondary Manufacturing Industries 1. Ice Cream & Other Dairy Products - 1 4 . 3 39.0 101.5 35.3 2 . Biscuit Factories 9.0 - 1 . 8 5-9 7-3 3 . Ice Factories 39-1 - 4 . 2 10.2 - 2 . 9 4 . Soft Drinks and Carbonated Beverages 16.5 - 0 . 9 3.9 5.0 5 . Tobacco Products 68.2 2 4 . 4 25.5 1.4 6. Joineries 24.5 26.2 31.5 8.2 7 . Wooden Boxes, Cases and crates 56.8 15.5 0.6 »5 .3 8 . Rubber Footwear, t i res and tubes, foam rubber products, and rubber products n . e . c . 15.6 9 . 0 - 0 . 7 29-7 9- Coconut o i l refineries 30.9 3 .7 2 0 . 0 72 .3 10 . Paints, varnishes & lacquers 47.3 52.5 54.3 16.4 11 . Soaps, washing and cleaning 61.3 compounds 2 5 . 1 - 3 . 5 25.9 12 . Medical and Pharmaceutical Preparations 212.4 30.2 1 0 . 3 16.7 13. Perfumes, cosmetics, and t o i l e t preparations 144.5 158.5 12.1 45.4 l 4 . Matches - 3 . 9 -1 .4 10.7 - 4 . 1 15. A l l other Chemical products 2 8 . 8 20.6 - 2 . 9 43.4 16. Structural clay products 2 8 . 8 20.6 - 2 . 0 43.4 17- Pottery, china, and earth-enware products - 2 . 0 9.1 - 0 . 2 2 0 . 7 18. Structural cement and concrete products 31.3 11.7 30.9 2 4 . 8 19. Iron Foundaries 22.0 -5-7 37.6 - 2 7 . 7 Hi. TABLE VI (continued) ANNUAL PERCENTAGE GROWTH OF NET OUTPUT OF MANUFACTURING INDUSTRIES, BY INDUSTRY, 1960-63. 3. Annual Percentage Increase i n Net Output Industry i960 1961 1962 1963^ Secondary Manufacturing Industrie s 2 0 . Architectural Metal Products 29-1* 10.6 0 .9 1*0.7 2 1 . Wire and Wire products 35.1 27 .1 0.1* 27.0 2 2 . Hardware tools and cutlery (including repairs) -32.8 - 6 . 2 1.3 - 2 . 4 2 3 . Tin cans and Metal Boxes 64 .3 2 0 . 0 -1*.3 47.4 21*. Brass, copper, pewter and aluminum products 1*0.8 1.5 27.2 2 0 . 4 2 5 . Other metal products 4 . 8 31.1 19.1 42.9 2 6 . Industrial Machinery '& parts 32.0 17.9 19.2 1.9 27 . Shipbuilding and repairing - 8 . 7 and boatbuilding & repairing 7-0 13.5 0 .0 2 8 . Motor Vehicle Bodies 22.1* 36.5 10.4 - 4 . 5 29- Motor Vehicle Parts and Accessories 6.9 44.4 38.5 - 1 0 . 3 30. Bicycle , Tricycle and Trishaw 120.5 - 3 7 . 1 - 2 5 . 3 10.7 31. Other covered industries and est abl i shments 21*.3 26.2 2 3 . 9 76 .0 Secondary Manufacturing Total . 29 .0 17-3 18.3 26.7 Manufacturing Industries Total 1 2 6 . 1 5-9 11 .6 ' 20.2 decreases are shown by Negative numbers. ^Based on the extended coverage for 1962. - 28 -A l l the Chemical Products industries, except the Match industry, show-very rapid expansion i n terms of output. Most of the Metal products industries , Industrial Machinery and Parts, most of the Transport Equipment Industries, Joineries and the Structural Clay and Concrete Products industries too show a rapid rate of growth i n output. This i s consistent with earl ier observations, and comments on expansion of employ-ment i n these industries . Two of the industries included under the f i r s t 3 c r i t e r i o n , Tobacco Products, and Ice Cream and Other Dairy Products, also showed above average growth. The growth of pioneer industries i s believed to have been the cause of the rapid rate of growth of the Other Covered Industries and Establishments group. affected by price^changes. It i s known that price fluctuations i n the outputs and inputs of primary—f-luetati-ons—i-n-t he-out put s-and-ii-nputs-of-primary manufacturing industries i s substantial . But, i n the secondary manufacturing industries, except for occasional instances, price variations from year to year are believed to be relat ively small. For the secondary manufacturing industries as a group, a good deal of the r ise i n price i n some industries i s l i k e l y to be largely offset by the f a l l i n price i n some of the other industries leaving only the rate of i n f l a t i o n i n the economy to affect the value of net output. Thus, the increase of net output i n real terms w i l l be 3 or k per cent below the actual rate of annual increase shown i n the table. For the primary manufacturing industries, since price movements are known to be substantial from year to year; and, because there are only five industries Since the net output series used is a value series, i t is 3 - 29 -a l l of which can simultaneously experience price movements i n the same direct ion; price changes can substantially affect the value of net output of the primary manufacturing industries as a group. In fact , the primary manufacturing industries as a group had lower average prices i n 1961, 1962 and 1963 compared to i 9 6 0 . For the manufacturing sector, because the primary manufacturing industries have been affected by substantially lower prices ; and, the secondary manufacturing i n d -ustries as a group can be assumed to have had price increases not much greater than the rate of i n f l a t i o n injthe country; and because the primary manufacturing industries have a weighting of not less than 2 9 . 8 per cent, the value of net output for the manufacturing sector expressed i n current dollars can be treated as though i t i s real ly expressed i n constant dollars . At the individual industry l e v e l , however, price variations can be entirely i n one direc t i o n ; and therefore, a part of the fluctuations i n the value of net output i s caused by price movements. Much as i t i s desirable to eliminate price variations from the value of net output, i t i s regretted that the lack of any industry s e l l i n g price index (or any other suitable index to adjust for price variations) , necessitated this analysis to be carried out i n current dol lars . Apart from the fluctuations caused by price changes, i t must be remembered that a time series has four component movements: (l) trend, (2) seasonal variations, (3) c y c l i c a l movements, and (h) irregular movements. In this study, the main interest i s on trend. But, since the time period is short, i t is extremely d i f f i c u l t to separate the trend from the c y c l i c a l and irregular movements. It is therefore not surprising that in some industries, fluctuations i n the - 30 -th^^fn3re-n©t-su3?p^i-si»g—th^ expansion of f^che output varies greatly. Besides, as most of the secondary manufacturing industries i n Malaya are small, the mere addition of one or two large establishments to an industry, could increase net output by more than 100 per cent. For this reason, i t i s suggested that percentage figures be carefully interpreted, i n the context of the absolute figures from which they are derived. In general, whenever a new large establishment commences production there is a big jump i n output i n the industry, and in the subsequent years, the increase i n output grows at a much smaller pace. When the relative importance of manufacturing industries i s measured i n terms of net output, a clear trend of a shif t from primary manufacturing industries to secondary manufacturing industries is estab-l i shed . This may be noted from Table VII. In 1959, the output of primary manufacturing industries accounted for k6 per cent of the output of manufacturing industries ; but, i t had declined to around 30 per cent by 1963. Put another way, the secondary manufacturing industries had grown so rapidly that within a period of five years they increased their share of the net output of the manufacturing sector from around 54 per cent i n 1959 to TO per cent i n 1963. A l l the primary manufacturing industries have declined i n their relative importance but the decline is most pronounced i n Rubber Remilling and Coconut O i l M i l l s . Among the secondary manufacturing industries most of the industries included under the second c r i t e r i o n 3 and Tobacco Products and Ice Cream and Other Dairy 3 See Appendix IP./08 TABLE VII PERCENTAGE DISTRIBUTION OF NET OUTPUT OF MANUFACTURING INDUSTRIES, BY INDUSTRY, 1959-63. Industry Net Output (Per Cent) 1959 i 9 6 0 1961 1962 (old) 1962 (new) 1963 Primary Manufacturing Industrie 1. Rubber Remilling off Estates l 4 . 0 11.5 10.8 6.9 6.1 6.3 2 . Rubber Latex Processing off Esates 7.7 8.9 7.2 8.8 8 .0 6.4 3 . Crude Coconut O i l Mil ls off Estates 4.5 2.2 2.2 2 .1 2 .0 1.5 4 . Large Rice M i l l s 3.9 5-1 4 .1 3 .1 2 .8 2.6 5 . Sawmills, Plywood and Particle Board M i l l s 16.2 17-3 14.8 14.5 13.9 13.1 Primary Manufacturing Total 46.3 45.0 39.1 35-5 33.4 2 9 . 8 Secondary Manufacturing Industries 1. Ice Cream & Other Dairy Products 2 . Biscuit Factories 3. Ice Factories 4. Soft Drinks and Carbonated Beverages 5 . Tobacco Products 6. Joineries • 7.'Wooden Boxes, Cases and Crates 8. Rubber Footwear, t i res and tubes, foam rubber products, and rubber products n .e . c . 9- Coconut o i l refineries 1 0 . Paints, varnishes & lacquers 11. Soaps, washing and cleaning compounds 12. Medical and Pharmaceutical Preparations 13. Perfumes, cosmetics, and t o i l e t preparations 14. Matches 15 . A l l other Chemical products 16. Structural clay products 17- Pottery,china, and earth-enware products 18. Structural cement and concrete products 19. Iron Foundaries 1.2 2 .8 1.8 5-8 6.4 0.6 0.2 7.4 0 . 3 0 .7 3 .2 0 . 3 0.5 1.0 1.9 1.9 0 . 3 1.3 0 . 3 0 . 8 2 .4 2 . 0 5.3 8.5 0.6 0.2 6 .8 0.4 0 .8 3 .1 0 .8 0 .9 0 .8 2 .0 2 .0 0 . 3 1.4 0 . 3 1.1 2.3 1.8 5.0 10.0 0.7 0.2 7.0 0.3 1.2 2.9 1.0 2.2 0.7 2.2 2.3 0.3 1.5 0.3 1.9 2.2 1.8 4 .7 11.2 0 . 8 0 .2 6.2 0 .2 1.6 4 .1 1.0 2.2 0.7 2 .0 2.4 0.2 1.7 0.3 1.9 2 .3 1.6 4 .4 10.2 0.9 0 .2 5-7 0 . 3 1.5 3.9 1.0 2.2 0.7 2 .0 2 .4 0 . 3 2 .0 0 .4 2 .1 2.1 1.3 3.8 8.6 0 . 8 0 .1 6.1 0.5 1.4 4 .1 1.2 2.7 0.5 2.4 2 .3 0 . 3 2 . 1 0 .2 TABLE V I I ( c o n t i n u e d ) PERCENTAGE DISTRIBUTION OF NET OUTPUT OF MANUFACTURING INDUSTRIES, BY INDUSTRY, 1959-63. I n d u s t r y Net Output ( P e r Cent) - 1959 s I960 1961 1952 ( o l d ) 1962 (new) 19b3 Se c o n d a r y M a n u f a c t u r i n g I n d u s t r i e 20. A r c h i t e c t u r a l M e t a l P r o d u c t s 2 1 . W i r e and W i r e p r o d u c t s 22. Hardware t o o l s and c u t l e r y ( i n c l u d i n g r e p a i r s ) 23. T i n cans and M e t a l Boxes 24. B r a s s , c o p p e r , p e w t e r and aluminum p r o d u c t s 25- O t h e r m e t a l p r o d u c t s 2 6 . I n d u s t r i a l M a c h i n e r y & p a r t s 27. S h i p b u i l d i n g and r e p a i r i n g and b o a t b u i l d i n g & r e p a i r i n g 2 8 . Motor V e h i c l e B o d i e s 29- M o t o r V e h i c l e P a r t s and A c c e s s o r i e s 30. B i c y c l e , T r i c y c l e and T r i s h a w 31. O t h e r c o v e r e d i n d u s t r i e s and e s t a b l i s hment s 0.3 0.4 0.1 0 . 8 0 . 5 1 . 5 1.7 1.0 0.1+ 0.0 0.1 8.8 O.k 0 . 5 0.0 1.0 0 . 6 1.1 1 . 8 0.9 0.1+ 0.0 0.1 8.7 0.1+ 0 . 6 0.0 l . i 0 . 6 i.i+ 2.0 0.9 0 . 5 0.0 0.1 10.3 0.3 0 . 5 0.0 1.0 0.7 1 . 5 2.1 0 . 8 0 . 5 0.0 0.1 11 . 5 0.9 0 . 5 0.1+ 1.0 0 . 8 1 . 8 3.3 1.4 0 . 6 0.1 0.1 11 . 5 1.0 0 . 6 0.4 1.2 0 . 8 2.2 2 . 8 1.1 0 . 5 0.1 0.1 16.8 S e c o n d a r y M a n u f a c t u r i n g T o t a l 53.7 55.0 60.9 64.5 66.6 70.2 M a n u f a c t u r i n g I n d u s t r i e s T o t a l 100.0 100.0 100.0 100.0 100.0 . 100.0 - 33 -Products industries have become relat ively more important. This i s the consequence of above-average rate of growth realized i n these industries. Two important but inter-related facts regarding the manu-facturing industries have now been established. F i r s t , the secondary manufacturing industries are growing faster than the primary manufacturing industries i n terms of the relevant measures of growth. Second, the difference i n the rate of growth of primary and secondary manufacturing industries has been so great that within a short period of five years a substantial shif t from primary manufacturing to secondary manufacturing has taken place within the manufacturing sector. CHAPTER III PRODUCTIVITY Importance of Productivity Analysis The t o t a l output of an economy is determined by the quantity of productive factors employed, their quality and the efficiency of their combination i n output. Productivity measures the quality of the factors and the efficiency with which they are combined in production. Total output i s therefore the product of the quantity of factors used and their productivity. It follows that the to ta l output can be expanded by increas-ing the quantity of factors employed, by increasing the productivity of employed factors, or by a combination of both. In underdeveloped countries the quantity of "employable resources" -aJe- l imited and their supply can be expanded very gradually only over a long period of time. Of course, there are abundant supplies of labour; but, labour is usually not an "employable resourceV i n the vague sense that i t s marginal product is lower than the already low subsistence wage rates prevailing i n the economy. Land ( i . e . a l l supply of known economically exploitable natural resources) and capital is l imited i n quantity; and, their supply can be increased only over time. The productivity of labour on the other hand, is very low; and, i n most underdeveloped countries, the reorganization of production can i n many cases y i e l d an immediate rise i n labour productivity # - 35 -The task of improving the quality of the factor^s and the task of i n -creasing their supply is of course a long-run problem which must be solved i f growth i s to continue into the distant future. But the point to be stressed i n the context of this discussion is that the start -ing point for the development process i s not increasing the quantity of employable resources—which cannot be done—but, to increase productivity by introducing new methods of production; and then, to divert part of the resources to increasing the stock of capital and to the discovery of new resources.''" It should also be stressed that development demands that productivity should rise not for just a period of time, but that i t should continue to do so into the distant future. Capital and technology can often be imported i n the short-run; but, i n the long-run, the economy has to depend on i t s own resources for development. - 36 -T o t a l Factor P r o d u c t i v i t y At t h i s stage i t i s u s e f u l t o have a p r e c i s e d e f i n i t i o n of p r o d u c t i v i t y . I f p r o d u c t i v i t y i s conceived of as a measure of the e f f i c i e n c y of p r o d u c t i o n , the appropriate concept i s t o t a l f a c t o r p r o d u c t i v i t y . T o t a l f a c t o r p r o d u c t i v i t y , TFP, may be d e f i n e d as the r a t i o of outputs t o i n p u t s . Since f o r any s p e c i f i c y e a r , the value of the output i s the sum of the costs of i n p u t s , the r a t i o o f output t o inpu t s based on current p r i c e s w i l l be simply u n i t y . A mathematical i l l u s t r a t i o n w i l l make t h i s c l e a r . Let X represent output, P the p r i c e of the output; L, K, and R stand f o r inputs of l a b o u r , c a p i t a l , and raw m a t e r i a l s r e s p e c t i v e l y , and w, i , and r be f a c t o r p r i c e s . Then the t o t a l f a c t o r p r o d u c t i v i t y , TFP = PX wL + i K + rR -But wL + i K + rR = PX Therefore TFP = 1 The t o t a l f a c t o r p r o d u c t i v i t y can t h e r e f o r e be measured only w i t h reference t o a base p e r i o d . In other words TFP i s r e a l l y a product-i v i t y index which w i l l show by what p r o p o r t i o n p r o d u c t i v i t y has i n c r e a s e d i n an i n d u s t r y or s e c t o r w i t h reference t o a base p e r i o d . One can t h e r e -f o r e w r i t e : TFP = t / o V * + + r o R t where the s u b s c r i p t s o and t r e f e r t o the base p e r i o d and the p e r i o d of comparison r e s p e c t i v e l y . - 37 -Since TFP i s a productivity index which relates the output to a l l inputs, i t provides a useful measure of efficiency i n an industry, sector, or economy over a period of time. But i t has "been used on very few occasions because of the pract ical d i f f i c u l t i e s i n computing the p index. The price of the output, the quantity of the output, the quantity of labour employed i n terms of man-hours, and the wage rate are a l l obtainable f a i r l y easi ly . But the amount of capital used i n production and i t s price i s f u l l of theoretical complexities and is almost impossible to obtain i n practice. Since no adequate price data and the amount of capital and raw material used in production in Malayan manufacturing industries i s available, no attempt w i l l be made to estimate their t o t a l factor productivity. 2 A good pract ical application of the concept of to ta l factor productivity i s found i n Productivity Trends i n the United States by J.W. Kendrick, Princeton University Press (l96l). - 38 -Par t ia l Productivity When the ratio of output to part of inputs i s computed, i t i s commonly referred to as p a r t i a l productivity. Output per worker, y i e l d per acre, ton-miles per truck are a l l examples of p a r t i a l productivity measures. Basical ly , p a r t i a l productivity measures can be divided into two groups: (l) those that are computed with reference to labour input; and (2) those that are computed with reference to input of capi ta l . The f i r s t i s often referred to as labour productivity and the second is called productivity of capi ta l . Productivity of capital i s almost as d i f f i c u l t to compute as t o t a l factor productivity. The lack of estimates on the consumption of capital in production makes i t impossible to calculate the productivity of capital i n Malayan manufacturing industries. Labour productivity i n Malayan manufacturing industries can be estimated to a reasonable degree of accuracy with the data obtained in Manufacturing Censuses and Surveys. A l l productivity analysis in this study w i l l therefore deal with labour productivity. P a r t i a l productivity measures are not measures of overall efficiency because they relate to one[or some of the inputs and not to a l l inputs. It i s always possible for labour to have become more productive i n an industry and capital to have become less productive or vice versa. Par t ia l productivity indicates how productively a particular factor or some group of factors are being used. It does not indicate how e f f i c i e n t l y or i n e f f i c i e n t l y other factors are employed. Only i f the p a r t i a l prod-uct iv i ty of a l l the factors has increased, i t is clear that the overall efficiency of production has improved. - 39 -P a r t i a l productivity measures, however, have some advantages over t o t a l productivity measures i n their comparability. P a r t i a l prod-uct iv i ty can be expressed both i n absolute figures and i n the form of an index. Absolute data are convenient for comparisons between different economic units (for example, for inter-industry comparisons, comparisons between sectors or comparisons between countries.) For instance, output per man-hour i n the steel industry i n Canada and i n the United States can be compared i n terms of tons per man-hour; and output per man-hour i n the Chemical Products industries i n Malaya in 1963 can be compared with output i n the Rubber Products industry i n the same year (using Malayan dollars to evaluate both products). P a r t i a l productivity measures expressed i n the form of index numbers on the other hand, f a c i l i t a t e comparison of productivity changes over time within the same economic uni t . - ko -Labour Productivity Labour productivity i s often misinterpreted by laymen and by many labour leaders who tend to argue that high labour productivity is due almost entirely to the s k i l l and effort of the workers. It i s therefore relevant to stress that labour productivity measures show not only the s k i l l and effort of the manpower input; but, they represent the combined effect of a number of separate, though interrelated, factors such as the amount and quality of capi ta l , the scale of operations, the level of technology, managerial eff ic iency, as well as the l e v e l of education, s k i l l , and effort of the workers. Measuring the efficiency of production i n manufacturing industries i n terms of labour productivity may be j u s t i f i e d on three grounds. F i r s t , as has already been noted, labour productivity i s implici ty affected by the efficiency of other factor inputs. Second, labour is a major input—in Malaya i t represents 35 per cent of the cost of production for the manufacturing sector, while i n Canada, labour costs account for 50 per cent of the value added by the 3 manufacturing sector. Of course the ratio of labour to t o t a l cost of production varies from industry to industry; but, i n general labour is always, a major component of input. This means that even i f a more complex measure of productivity such as the to ta l factor productivity is computed, labour would have a heavy weight. F i n a l l y , i n the context of development and industr ia l iza t ion , labour productivity i s the most relevant measure for policy decisions. J Computed from data obtained from General Review of the  Manufacturing Industries of Canada, 19^1, by the Dominion Bureau of S t a t i s t i c s , (Ottawa:Queen's Printer) 1965-- hi -From the point of industr ial izat ion labour productivity-is relevant because development is seen as a transformation of the economy which w i l l result in a relat ively larger proportion of the population being engaged i n industry and a smaller proportion in agriculture. I f labour i n manufacturing industries i s to be increased and labour in agricultural occupations is to be decreased, labour productivity i n manufacturing industries must remain higher than labour productivity i n agriculture while the transformation is taking place. Otherwise, this transformation would not increase output or bring about development. Labour input, for productivity purposes, is usually meas-ured i n time units . There are several kinds of time units which can be used for measuring the volume of labour. The basic one is the man-hour, the others may be man-days, man-weeks, man-months or man-years. The basic conceptual difference between the man-hour and the other measures is that a man-hour is a fixed period of time, the length of which never changes, while, without specif icat ion, the actual length of time at work i n the case of other time-units cannot be known, and i t is also changing over time. It i s therefore obvious that output per man-hour provides more precise data for comparing productivity over time or between industries. Unfortunately man-hour data has not been collected i n the Censuses or Surveys. Therefore only output per man-year can be calculated. Throughout the rest of this discussion the term "output per man" w i l l be used to mean output per man-year since a l l our reference period w i l l be a year. - \2 -When comparing output per man for different industries i t must be remembered that the length of the working week may di f fer from a«y industry to another, -one-. In computing output per man, the part-time workers were assumed to work half as much as full - t ime workers, and to the extent that this arbitrary assumption did not hold, the difference i n the proportion of part-time workers to ful l - t ime workers i n different industries w i l l also account for differences in "productivity" between different industries. In comparing productivity indexes for different years, the proportion of part-time workers and the length of the working week is not l i k e l y to affect the results s ignif icant ly since there has been no substantial change i n the pro-portion of part-time workers, and i n the length of the working week. Most of the productivity indexes computed are unadjusted for price changes because no suitable index to adjust for price changes were available for a l l the industries. For a few industries for which suitable indexes for price adjustments were available, productivity based on price adjusted data was computed separately. - k3 -Labour Productivity in Malayan Manufacturing Industries Table VIII presents net output per full - t ime worker i n the manufacturing sector. The estimated number of full - t ime workers during 1963 used to compute net output per full - t ime worker, was obtained by adding half the average number of part-time workers during 1963 to the average number of full - t ime workers. The average i n both cases was the average of 12 month-end figures. For the manufacturing industries as a whole, net output per full - t ime worker was around $ 5 , 2 0 0 . In the primary manufacturing industries net output per full - t ime worker averaged about $ 4 , 6 0 0 . Among the primary manufacturing industries Rubber Remilling with a net output per full - t ime worker of $3,800 had the lowest labour productivity; and, Rubber Latex Processing with a net output per ful l - t ime worker of $9,600 had the highest labour productivity. Net output per ful l - t ime worker for the secondary manufacturing industries averaged nearly $ 5 , 5 0 0 . However, i n the Hardware, Tools and Cutlery industry where labour was least productive, net output per full - t ime worker was as low as $1,900^ a»d Perfumes, Cosmetics and Toilet Preparations—the i n d -ustry with the highest labour productivity—had a net output per f u l l -time worker of $21 ,000. Labour was thus more productive i n secondary manufacturing rather than i n primary manufacturing; but, there are many secondary manufacturing industries with labour productivity well below the productivity of labour i n the least productive primary man-ufacturing industry. Differences in net output per full - t ime worker between industries i n table VIII can be caused by two sets of factors. It can TABLE V I I I LABOUR PRODUCTIVITY IN MANUFACTURING BY INDUSTRY, 1963. Industry Primary Manufacturing I n d u s t r i e s Net output ($1,000) Estimated No. of f u l l -time workers during 1963 Net Output per f u l l -time worker 1. Rubber R e m i l l i n g o f f Estates 2. Rubber Latex P r o c e s s i n g o f f Estates 3. Crude Coconut O i l M i l l s o f f Estates 4. Large Rice M i l l s 5. Sawmills, Plywood, and P a r t i c l e Board M i l s 20,488 20,787 4,750 8,552 42.989 5,409 2,167 942 1,959 10,634 3,788 9-592 5,042 4,365 4,043 Primary Manufacturing T o t a l 97,566 21,411 4,622 Secondary Manufacturing I n d u s t r i e s 1. Ice Cream & other Dairy Products 2 . B i s c u i t F a c t o r i e s 3. Ice F a c t o r i e s 4. Soft Drinks and Carbonated . Beverages 5. Tobacco Products 6. J o i n e r i e s 7. Wooden Boxes, Cases and Crates 8. Rubber Footwear, t i r e s and tubes, foam rubber products , and rubber products n.e.c. 9 . Coconut o i l r e f i n e r i e s 10. P a i n t s , varnishes & lacquers 11. Soaps, washing and c l e a n i n g compounds 12. Medical and Pharmaceutical Preparations 13. Perfumes, cosmetics, and t o i l e t preparations 14. Matches 15. A l l other Chemical products 16. S t r u c t u r a l c l a y products 17. P o t t e r y , c h i n a , and e a r t h -enware products 18. S t r u c t u r a l cement and concrete products 19. I r o n Foundaries 6 ,882 6,818 4,229 12 ,501 28,257 2 ,760 468 20,099 1,513 4,647 13,432 3,897 8,759 1,736 8,000 7,482 868 6,853 788 724 2,451 577 2,165 4,173 835 226 6,204 227 347 1,111 491 416 532 1,315 2 ,428 381 l , 3 8 l 237 9,506 2,782 7,329 5,774 6,771 3,305 2,071 3,240 6.665 13,392 12,090 7,937 21,055 3,263 6,079 3,082 2,278 4,962 3,325 TABLE V I I I( continued) LABOUR PRODUCTIVITY IN MANUFACTURING BY INDUSTRY, 1963. Net output Estimated Net Output Industry ($1,000) No. of f u l l - per f u l l -time workers time worker Secondary Manufacturing I n d u s t r i e s during 1963 20. A r c h i t e c t u r a l Metal Products 3,296 1,023 3,222 21. Wire and Wire products 1,807 481 3,757 22. Hardware t o o l s and c u t l e r y ( i n c l u d i n g repars) 1,196 627 1,907 23. T i n cans and Metal Boxes 3,84o 834 4,111 24. Brass, copper, pewter and aluminum products 2,525 616 4,099 25. Other metal products 7,155 1,634 4,379 26. I n d u s t r i a l Machinery & pa r t s 9,253 2,997 3,087 27. S h i p b u i l d i n g and r e p a i r i n g and b o a t b u i l d i n g & r e p a i r i n g 3,454 883 3,912 2 8 . Motor V e h i c l e Bodies 1,660 516 3,217 29. Motor V e h i c l e P a r t s and Accessories 227 97 2,340 30. B i c y c l e , T r i c y c l e and Trishaw- 238 85 2 ,800 31. Other Covered I n d u s t r i e s and Establishments 54,928 5,731 9,584 Secondary Manufacturing T o t a l 229,568 41,846 5,486 Manufacturing I n d u s t r i e s T o t a l 327,133 62,957 5,196 - -be caused by factors that account for genuine differences in prod-u c t i v i t y , such as differences i n s k i l l , differences i n technology and differences i n managerial efficiency between industries i n the comb-ination of the factors of production. On the other hand, differences i n net output per ful l - t ime worker between industries, can also be caused by a lack of consistency andknadequateness of the concepts and methodology used to determine productivity differences. It i s therefore suggested that before examining the causes of differences i n labour productivity between industries, inconsistencies i n the use of net output per ful l - t ime worker to compare productivity between i n d -ustries be carefully examined. F i r s t , there may be differences i n the length of hours worked by ful l - t ime workers i n different industries. In view of the fact that no man-hour data i s available, no estimate of differences i n net output per ful l - t ime worker due to differences i n number of hours worked i n different industries can be made. Next, the assumption that part-time workers, on the average, worked half that of full - t ime workers is arbitrary. In some industries part-time workers may have worked more or less than half as much as ful l - t ime workers. Therefore the proportion of part-time workers i n an industry may have affected the r e l i a b i l i t y and comparability of the estimate of net-output per full - t ime worker. Both these d i f f i c u l t i e s would have been sat isfactor i ly resolved i f man-hour data had been available. A t h i r d complication arises from the presence of a substantial proportion of unpaid workers which varies from industry to industry. Unpaid workers may not work for the same length of time as employees do. - kl -Unpaid ful l - t ime -workers, for instance, may not work for the same length of time as do full - t ime employees. As was pointed out e a r l -i e r , a substantial proportion of unpaid workers are family members or relatives of owners of the establishment, who, because they are unable to f ind alternative employment, just tag along with the establishment and do whatever work arises from time to time. Such workers w i l l be recorded as full - t ime unpaid workers; when, i n fact , they actually represent the extent of disguised unemployment i n manu-facturing industries . Other family members or relatives of owners of the establishment may have some other part-time or full - t ime occupation, and may contribute just as much to the production of the manufacturing establishment concerned; but, w i l l be c lass i f ied as part-time unpaid workers. So the distinction between full - t ime and part-time workers for unpaid workers has l i t t l e analytical significance. The extent of the lack of comparability caused by the presence of part-time workers and the presence of unpaid workers can be observed from Table IX. The Match industry is the only industry with no part-time workers. In the remaining manufacturing industries the proportion of part-time workers to to ta l workers varies from 0.3 per cent i n the Other Covered Industries and Establishments group to 2k.9 per cent i n the A l l Other Chemical Products Industries. Rubber Latex Processing, and the Match industry are the only industries with no unpaid workers. Among the other manufacturing industries, the proportion of ful l - t ime unpaid workers varies from 0.7 per cent i n the Rubber Remilling offEstates industry to just over 50.0 per cent i n the Hardware Tools and Cutlery Industry. The TABLE IX PERCENTAGE DISTRIBUTION OF FULL-TIME WORKERS AND PART-TIME WORKERS IN MANUFACTURING INDUSTRIES, BY EMPLOYMENT STATUS, 1963. Industry Primary Manufacturing Indus-t r i e s Full-Time Workers P a i d Employ-ees Part-Time Workers Unpaid]3-Work-ers T o t a l P a i d Employ-ees Unpaid' Work-ers 96.5 99-5 91.8 95.4 97-2 HI Potal 1. Rubber R e m i l l i n g o f f Estates 2. Rubber Latex P r o c e s s i n g o f f E tates 3. Crude Coconut O i l M i l l s o f f Estates 4. Large Rice M i l l s 5. Sawmills, Plywood and P a r t i c l e Board M i l l s 95-8 99-9 80.1+ 90. 4 92. 4 0.7 11.5 5-0 4.8 3.4 0.5 6.4 4.4 2.5 0.0 1.7 0.2 0.3 3.5 0.5 8.1 4.6 2.8 Primary Manufacturing T o t a l 93.3 3.6 96.9 2.9 0.2 3.1 Secondary Manufacturing I n d u s t r i e s 1. Ice Cream & Other Dairy Products 2. B i s c u i t F a c t o r i e s 3. Ice F a c t o r i e s 4. Soft Drinks and Carbonated Beverages 5. Tobacco Products 6. J o i n e r i e s 7. Wooden Boxes, Cases and cratefe 8. Rubber Footwear, t i r e s and tubes, foam rubber products, and rubber products n.e.c. 9. Coconut o i l r e f i n e r i e s 10. P a i n t s , varnishes & lacquers 11. Soaps, washing and cl e a n i n g compounds 12. Medical and Pharmaceutical Preparations 13. Perfumes, cosmetics, and t o i l e t p r eparations 14. Matches 15. A l l other Chemical products 16. S t r u c t u r a l c l a y products 17. P o t t e r y , c h i n a , and e a r t h -enware products 18. S t r u c t u r a l cement and con-cre t e products 19. I r o n Foundaries 82.2 78.2 93.2 91.5 86.6 84.1 59.9 97-9 79-3 96.8 91.1 73.4 79.6 100.0 64.6 90.5 55.9 88.2 78.4 10.6 13.3 3.4 5.0 4.7 6.4 16.3 0.9 14.8 0.8 5.8 11.2 12.3 10.4 3.8 19-3 6.7 18.9 92.7 91.6 96.6 96.6 91-5 90.5 76.3 98.8 94.1 97-6 96.9 84.5 91.9 100.0 75.0 94.3 75-2 94.9 97-4 5-5 5-3 3.2 3.0 7.0 8.9 20.6 1.0 2.5 0.3 2.1 9-3 3.9 21.1 4.7 18.4 4.2 1.0 1.8 3.1 0.2 0.4 1.5 0.6 3.1 0.2 3.4 2.1 1.0 6.1 4.2 3.8 1.0 6.4 0.9 0.7 7.3 8.4 3.4 3.4 8.5 9-5. 23.7 1.2 5.4 2.4 3.1 15.5 8.1 24.9 5.7 24.8 5-1 2.6 TABLE IX (continued) PERCENTAGE DISTRIBUTION OF FULL-TIME WORKERS AND PART-TIME WORKERS IN MANUFACTURING INDUSTRIES, BY EMPLOYMENT STATUS, 1963. I Full-Time Workers Part-Time Work^ prs Industry- P a i d Unpaid 1 P a i d Unpaid 9 -Employ- Work- T o t a l Employ-Employ- T o t a l Secondary Manufacturing ees ers ees ees I n d u s t r i e s 20. A r c h i t e c t u r a l M e t l Products 73.0 15.5 88.5 10.9 0.6 11.5 21. Wire and Wire Products 88. k 7-1 95-5 4.1 0.4 4.5 22. Hardware t o o l s and c u t l e r y ( i n c l u d i n g r e p a i r s ) 36.1 50.1 86.3 2.9 10.8 13.7 23. T i n cans and Metal Boxes 98.9 0.7 99-6 0.2 0.2 0.4 2 4 . B r a s s , copper pewter and aluminum products 84.2 9.2 93.4 5-7 0.9 6.6 2 5 . Other metal products 92.0 4.8 96.8 2.9 0.3 3.2 2 6 . I n d u s t r i a l Machinery & p a r t s 84.1 8.2 92.3 7.1 0.6 7.7 27- S h i p b u i l d i n g and r e p a i r i n g 96.1 and b o a t b u i l d i n g & r e p a i r i n g 93.2 2.9 3.3 0.6 3.9 28. Motor V e h i c l e Bodies 86.0 8.2 94.3 5-7 — 5.7 2 9 - Motor V e h i c l e P a r t s and Accessories 79-4 12.7 92.1 7-9 — 7-9 30. B i c y c l e , T r i c y c l e and Trishaw 66.7 2 4 . 1 90.8 6.9 2.3 9.2 31. Other covered i n d u s t r i e s and establishments 99-1 0.6 99-7 0.3 0.0 0.3 Secondary Manufacturing T o t a l 88.0 6.2 94.2 4.6 1.2 4.8 Manufacturing I n d u s t r i e s T o t a l 8 9 - 7 5.3 95-1 4.0 0.9 4.9 a Unpaid workers are working p r o p r i e t o r s , working,partners, and unpaid f a m i l y workers. - 50 -Hardware, Tools and C u t l e r y Industry a l s o has the highest p r o p o r t i o n of unpaid part-time workers. I t w i l l be r e c a l l e d t h a t i t a l s o had the lowest labour p r o d u c t i v i t y , which suggests t h a t the observation that a pa r t of the unpaid workers do r e a l l y represent d i s g u i s e d un-employment i s probably r i g h t . Four i n d u s t r i e s do not have any p a r t -time unpaid workers. These are Latex P r o c e s s i n g , Matches, Motor V e h i c l e Bodies and Motor V e h i c l e P a r t s and Accessories i n d u s t r i e s . Among the remaining i n d u s t r i e s , the p r o p o r t i o n of unpaid workers i n the part-time workers category i s u s u a l l y l a r g e r than the p r o p o r t i o n of unpaid workers i n the f u l l - t i m e category. V a r i a t i o n s i n the p r o p o r t i o n of women and c h i l d r e n i n the labour input of d i f f e r e n t i n d u s t r i e s i s another f a c t o r which a f f e c t s the p r o d u c t i v i t y c a l c u l a t i o n s . C h i l d r e n are def i n e d as workers below the age of 16. Since c h i l d r e n represent l e s s than 1.6 per cent of t o t a l workers ( f u l l - t i m e and part-time) i n manufacturing i n d u s t r i e s , i t i s convenient t o group them w i t h women. The p r o p o r t i o n o f women and c h i l d r e n employed v a r i e s not only from i n d u s t r y t o i n d u s t r y but a l s o between f u l l - t i m e and part-time workers w i t h i n the same i n d u s t r y . This may be noted from Table X. For the manufacturing i n d u s t r i e s as a whole, women and c h i l d r e n represent about 2k per cent of f u l l - t i m e workers. The comparable f i g u r e f o r part-time workers i s around 29 per cent. For secondary manufacturing i n d u s t r i e s as a group, the r e l e v a n t f i g u r e s are 31 and 3k per cent; and, f o r the primary manufacturing i n d u s t r i e s i t was around 11 per cent f o r both f u l l - t i m e and part-time workers. For groupings such as the above, v a r i a t i o n s i n the p r o p o r t i o n of women and TABLE X PERCENTAGE DISTRIBUTION OF FULL-TIME WORKERS AND PART-TIME WORKERS IN MANUFACTURING INDUSTRIES, BY MEN, AND WOMEN, AND CHILDREN 3-, 1963. F u l l - T i m e Workers P a r t - T i m e Workers I n d u s t r y Men Women and Men Women and P r i m a r y M a n u f a c t u r i n g I n d u s t r i e s C h i l d -r e n C h i l d -r e n 1. Rubber R e m i l l i n g o f f E s t a t e s 76.3 23 . 7 77.8 22.2 2 . Rubber L a t e x P r o c e s s i n g o f f E s t a t e s 82.1 17-9 8 0 . 0 2 0 . 0 3 . Crude Coconut O i l M i l l s o f f E s t a t e s 92.k 7-5 9 0 . 1 9.9 4. L a r g e R i c e M i l l s kl.5 2.4 86.7 13 . 3 5- S a w m i l l s , P l y w o o d , and P a r t i c l e B o a r d M i l l s 9k.6 5.4 97.7 2.3 P r i m a r y M a n u f a c t u r i n g T o t a l 88.8 11.2 8 9 . 3 10.7 Secondary M a n u f a c t u r i n g I n d u s t r i e s 1. I c e Cream & O t h e r D a i r y P r o d u c t s 6 8 . 0 32 . 0 59.6 40.4 2. B i s c u i t F a c t o r e s 54.6 45.4 37.8 62.2 3 . I c e F a c t o r i e s 97.9 2.1 95.0 5-0 4. S o f t D r i n k s and C a r b o n a t e d Beverages 74.0 25.0 57.7 42.3 5. Tobacco P r o d u c t s 45.6 54.4 39-0 61.0 6 . J o i n e r i e s 91.1 8.9 98.8 1.2 7. Wooden B o x e s , Cases and C r a t e s 83.7 16.3 86.9 1 3 . 1 8. Rubber F o o t w e a r , t i r e s and t u b e s , foam r u b b e r p r o d u c t s , and r u b b e r p r o d u c t s n.e.c. 52.8 47.2 797 2 0 . 3 9 . Coconut o i l r e f i n e r i e s 91.0 9-0 21.4 78.6 10. P a i n t s , v a r n i s h e s & l a c q u e r s 83.2 16.8 100.0 11. Soaps, w a s h i n g and c l e a n i n g compounds 68.6 31.4 51.4 48.6 12. M e d i c a l and P h a r m a c e u t i c a l P r e p a r a t i o n s 42.7 57.3 43.4 56.6 13. P e r f u m e s , c o s m e t i c s , and t o i l e t p r e p a r a t i o n s 55-6 44.4 13 . 5 86.5 Ik. Matches 29.6 70.4 15. A l l o t h e r C h e m i c a l p r o d u c t s 80.4 19.6 48.5 51.5 16. S t r u c t u r a l C l a y p r o d u c t s 68.1 31.9 67.8 32 . 2 17. P o t t e r y , c h i n a , and e a r t h -29.6 enware p r o d u c t s 87.I 12.9 70.4 18. S t r u c t u r a l cement and c o n c r e t e p r o d u c t s 75.3 24.7 92.0 8 . 0 19. I r o n F o u n d a r i e s 92.4 7.6 71.4 2 8 . 6 TABLE X (continued) PERCENTAGE DISTRIBUTION OF FULL-TIME WORKERS AND PART-TIME WORKERS IN MANUFACTURING INDUSTRIES, BY MEN, AND WOMEN, AND CHILDRE a, 1963. Full-Time Workers Part-Time Workers Industry Men Women Men Women and and Secondary Manufacturing I n d u s t r i e C h i l d - C h i l d -ren ren 2 0 . A r c h i t e c t u r a l Metal Products 9k.1 5-9 97.7 2 .3 2 1 . Wire and Wire Products lk.7 2 5 . 3 96.9 13.1 2 2 . Hardware t o o l s and c u t l e r y ( i n c l u d i n g r e p a i r s ) 86.8 13-2 83.9 16.1 2 3 . T i n cans and Metal Boxes 50.3 49 .7 100.0 24. B r a s s , copper, pewter and aluminum products 74.1 25-9 8 9 . 1 10.9 2 5 . Other Metal Products 84.2 5.8 9 4 . 3 5.7 26 . I n d u s t r i a l Machinery & pa r t s 96.0 4 . 0 99.6 0 .4 27 . S h i p b u i l d i n g and r e p a i r i n g and b o a t b u i l d i n g & r e p a i r i n g 99-4 0.6 100.0 2 8 . Motor V e h i c l e Bodies 98.7 1.3 100.0 2 9 . Motor V e h i c l e P a r t s and Accessories 9 0 . 4 9.6 75.0 25 .0 30. B i c y c l e , T r i c y c l e and Trishaw 84.8 15.2 25 .0 75.0 31. Other covered i n d u s t r i e s and establishments 67.9 32.1 22.9 77.1 Secondary Manufacturing T o t a l 69.O 31.0 66.2 33.8 Manufacturing I n d u s t r i e s T o t a l 75-7 24.3 71.1 28.9 a C h i l d r e n are defined as workers under 16 years o l d . - 53 -c h i l d r e n among f u l l - t i m e and part-time workers i s not s u b s t a n t i a l enough t o be s i g n i f i c a n t , b e a r i n g i n mind t h a t f u l l - t i m e workers account f o r more than 94 per cent i n a l l three cases. But at the i n d i v i d u a l i n d u s t r y l e v e l the v a r y i n g p o r p o r t i o n of women and c h i l d r e n between f u l l - t i m e and part-time workers can s u b s t a n t i a l l y question the a r b i t r a r y equation of two part-time workers w i t h one .-full-time worker. I n the Coconut O i l R e f i n e r i e s , f o r i n s t a n c e , women and c h i l d r e n account f o r only 9 per cent of f u l l - t i m e workers but they represent n e a r l y 79 per cent of part-time workers. In such cases even i f part-time workers worked h a l f as long as f u l l - t i m e workers do, i t would s t i l l be i n c o r r e c t t o give part-time workers h a l f the weighting because t h e i r composition, and consequently, t h e i r c a p a c i t y t o c o n t r i b u t e t o output i s d i f f e r e n t . The p r o p o r t i o n of women and c h i l d r e n i n f u l l - t i m e workers v a r i e s from 0.6 per cent i n the S h i p b u i l d i n g and R e p a i r i n g and B o a t b u i l d i n g and R e p a i r i n g i n d u s t r y t o 70.4 per cent i n the Match Industry. I n four manufacturing i n d u s t r i e s t h a t have part-time workers, there are no p a r t -time women and.children workers. These are P a i n t s , Varnishes and Lacquers, T i n Cans and Metal Boxes, S h i p b u i l d i n g and R e p a i r i n g and Boat B u i l d i n g and R e p a i r i n g , and Motor V e h i c l e Bodies I n d u s t r i e s . In other i n d u s t r i e s , women and c h i l d r e n part-time workers range from 0.4 per cent i n I n d u s t r i a l Machinery and Parts t o 86.5 per cent i n Perfumes, Cosmetics and T o i l e t Preparations i n d u s t r y . P a r t of the low labour p r o d u c t i v i t y i n the Match i n d u s t r y and B i s c u i t f a c t o r i e s i s due t o the l a r g e p r o p o r t i o n of women and c h i l d r e n workers. I n view o f a l l the above l i m i t a t i o n s i n us i n g the net output - 5h -per ful l - t ime worker as a measure of labour productivity, i t is suggested that small differences, such as a couple of hundred dollars i n the net output per full - t ime worker between industries be assumed to be due to defects in the concepts and methodology of meas-uring productivity. The rest of this section can then be devoted to explaining the causes of significant productivity differences between industries. Some of the main factores that affect labour productivity are the amount and quality of capital per worker, the level of tech-nology used i n production, the scale of operations, entrepreneural efficiency and the s k i l l of the workers. The level of technology and the scale of operations can be seen as embodied i n the quantity and quality of capi ta l . If (l) the rate of return to capital is assumed to be the same i n a l l industries ; (2) wages are assumed to be related to the s k i l l of the workers; (3) returns to entrepreneurs are assumed to be a fixed percentage of the returns to capi ta l ; and (k) a l l the industries have the same production function; Very interesting i n f e r -ences about the quality of labour and the quantity of capital can be made by comparing the ratio of salaries and wages to net output, with the productivity of labour i n the industry. Table XI shows the ratio of salaries and wages to net output i n per cent. Industries with high labour productivity and a low ratio of salaries and wages to net output are capital intensive and employ unskilled labour. For instance, Perfumes, Cosmetics and Toilet Preparations industry has a very low ratio of salaries and TABLE XI PRODUCTIVITY AND THE RATIO OF LABOUR COSTa TO NET OUTPUT IN ALL MANUFACTURING INDUSTRIES, 1963. Net Output S a l a r i e s Percentage Per F u l l - and wages of P a i d Time as a per- employees Worker centage ( f u l l - t i m e I ndustry of Net Output and p a r t -time) t o Primary Manufacturing I n d u s t r i e s T o t a l Workers 1. Rubber R e m i l l i n g o f f E s t a t e s 3,788 43 99 2. Rubber Latex P r o c e s s i n g o f f E s t a t e s 9,592 22 100 3. Crude Coconut O i l M i l l s o f f Estat e s 5,042 28 87 4. Large Rice M i l l s 4,365 39 95 5. Sawmills, Plywood, and P a r t i c l e Board M i l l s 4,043 49 95 Primary Manufacturing T o t a l 4,622 40 96 Secondary Manufacturing I n d u s t r i s s 1. Ice Cream & Other Dairy Products 9,506 26 88 2 . B i s c u i t F a c t o r i e s 2,782 42 83 3 . Ice F a c t o r i e s 7,329 32 96 4 . Soft Drinks and Carbonated Beverages 5,774 33 95 5. Tobacco Products 6,771 20 94 6. J o i n e r i e s 3,305 63 93 7. Wooden Boxes, Cases and Crates 2,071 51 80 8. Rubber Footwear, t i r e s and tubes, foam rubber products, and rubber products n.e.c. 3,240 46 99 9. Coconut o i l r e f i n e r i e s 6,665 ? 23 82 10. P a i n t s , varnishes & lacquers 13,392 22 97 11.. Soap's, washing and c l e a n i n g compounds 12,090 24 93 12. M e d i c a l and Pharmaceutical Preparations 7,937 13 83 13. Perfumes, cosmetics, and t o i l e t p r eparations 21,055 8 83 14. Matches 3,263 33 100 1.5. A l l other Chemical products 6,079 29 86 16 . S t r u c t u r a l Clay products 3,082 52 95 17- P o t t e r y , c h i n a , and e a r t h -enware products 2,278 46 74 18. S t r u c t u r a l cement and concrete products 4,962 35 86 19. I r o n Foundaries 3,325 46 80 TABLE XI (continued) PRODUCTIVITY AND THE RATIO OF LABOUR COSTa TO NET OUTPUT IN ALL MANUFACTURING INDUSTRIES, 1963. Net Output Salaries Percentage Per F u l l - and wages of Paid Time as a per- employees Industry Worker centage (full-time of Net and part-Output time) to Secondary Manufacturing Industrie Total Workers 2 0 . Architectural Metal Products 3,222 43 84 21 . Wire and Wire Products 3,757 34 92 2 2 . Hardware tools and cutlery (including repairs) 1,907 25 39 23. Tin cans and Metal Boxes 4,111 39 99 2 4 . Brass, copper, pewter and aluminum products 4,099 36 90 25- Other Metal Products 4,379 49 95 • 26 . Industrial Machinery & parts 3,087 56 91 27 . Shipbuilding and repairing and boatbuilding & repairing 3,912 58 96 2 8 . Motor Vehicle Bodies 3,217 65 92 29- Motor Vehicle Parts and Accessories 2,340 49 87 30. Bicycle , Tricycle and Trishaw 2,800 31 74 31. Other covered industries and establishments . 9,584 27 99 Secondary Manufacturing Total 5,486 32 93 Manufacturing Industries Total 5,196 35 94 ^oes not include the cost of unpaid workers. - 57 -wages to net output but a very large net output per ful l - t ime worker. This means that the high labour productivity is due almost entirely to the use of abundant capital and the s k i l l of the workers in the industry is low. Industries with a high ratio of salaries and wages to net output and high labour productivity (e .g . , Ice Factories) are capital intensive and employ s k i l l e d labour. Industries with a high ratio of salaries and wages paid to net output and low productivity are labour intensive i n d -ustries with unskilled labour and l i t t l e capi ta l . A low ratio of salaries and wages to net output and low labour productivity is unlikely to occur because this would mean a capital intensive industry with low labour productivity. From Table XI i t can therefore be inferred that a large part of differences i n labour productivity between industries are, in fact , due to differences in the quantity of capital per worker or to the fact that some industries have a higher proportion of s k i l l e d workers than others. It must, however, be emphasized that the inference made i n the above parag-raph is only v a l i d i f salaries and wages do not diverge s ignif i cant ly , from t o t a l payments to the factor labour. Ideally, of course, the ratio of t o t a l labour cost to net output should be used instead of the ratio of salaries and wages to net output. The salaries and wages are used as a convenient approximation for to ta l labour cost. In Malaya, the presence of substantial proportions of unpaid workers i n individual industries puts some limitations to the r e l i a b i l i t y of this type of approximation. In the case of Hardware, Tools and Cutlery industry because paid employees rep-resent only 39 per cent of to ta l workers, the ratio of salaries and wages to net output substantially underestimate^ the cost of labour and therefore the industry i s much more labour intensive than the ratio of salaries and wages to net output indicates. For most of the remain-ing manufacturing industries salaries and wages are f a i r l y reasonable rough approximations of labour cost because paid employees constitute about 90 per cent of the labour force. - 59 -Trends In P r o d u c t i v i t y In computing indexes of p r o d u c t i v i t y , p r i c e d i f f e r e n c e s should be e l i m i n a t e d so that p r o d u c t i v i t y comparisons can be based on r e a l output. Net output cannot be d e f l a t e d d i r e c t l y . The constant d o l l a r value of net output has t o be obtained by deducting the con-stant d o l l a r value o f intermediate inputs from the constant d o l l a r value o f gross output. This means th a t gross output of an i n d u s t r y must f i r s t be d e f l a t e d by an appropriate index t o obtain the constant d o l l a r value f o r output. The constant d o l l a r value o f intermediate input must be se p a r a t e l y determined by d e f l a t i n g i t w i t h a s u i t a b l e index, and the net output obtained by deducting the l a t t e r from the former. This i s the s o - c a l l e d double d e f l a t i o n technique pioneered by Solomon F a b r i c a n t . ^ Mathematically, the double d e f l a t i o n formula can be expressed as f o l l o w s : Formula I : **\F0 ' % p c £ Q P f t -£(l D "o ° u o ' o i n which Q and P stand f o r the q u a n t i t i e s and average base-period u n i t p r i c e s o f products, q and p stand f o r the q u a n t i t i e s and average base-p e r i o d u n i t p r i c e s of intermediate i n p u t s , the s u b s c r i p t s t and o stand f o r the current time p e r i o d and the weight base-period. Solomon F a b r i c a n t , B a s i c Facts on P r o d u c t i v i t y Change, N a t i o n a l Bureau o f Economic Research Occasional Paper No. 63 (1959)-- 60 -Where only the value data and related price indexes are available a slight variations of formula (I) can be used: Formula II : ^ Q f cP t - € q tf? t U^po/ [ ) It can readily be seen that, mathematically, formula (II) reduces to formula (I) . This equality however is not as easily obtained as the formula imply. In order to y i e l d identical results both quantity and price data must be complete. In so far as prices are not available for a l l quantities, or quantities are not available for a l l values, then some uncertainty concerning the resultant indexes w i l l exist . In such cases, the quantity indexes are derived on the assumption that the price of uncovered items moves in the same direction and by the same proportion as the price of those items for which consistent quantity and unit value data are available. In cases where no suitable price and quantity data exist , i t i s common to estimate real net output by using employment data. But, for purposes of calculating labour productivity, an estimate of real output so derived would be useless, since, i n estimating the real output some assumption about labour productivity was implied. For most of the manufacturing industries in Malaya no quantity and real price data for output or for intermediate inputs is available. For this reason, the labour productivity indexes in Table XII were computed without any price adjustments. For a l l the primary manufacturing industries TABLE XII INDEX OF NET OUTPUT PER FULL-TIME WORKER IN MANUFACTURING INDUSTRIES, 1961-63. Net Index of Net Output Industry Output Us*- Full-Time Worker per ( i 9 6 0 = iq 0) Primary Manufacturing full-time Industries worker 1961 1962 1963 1. Rubber Remilling off Estates $4,244 79.3 83.4 8 9 . 3 2 . Rubber Latex Processing off Estates 8,910 85.6 117.3 107.6 3 . Crude Coconut O i l M i l l s off Estates 4,995 100.6 109.2 100.9 4 . Large Rice Mils 5,504 82.7 73.5 79 .3 5 . Sawmills, Plywood, and Particle Board M i l l s 3,854 91 .1 99-4 104.9 Primary Manufacturing Total 4,706 85.5 96.6 98.2 Secondary Manufacturing Industries 1. Ice Cream & Other Dairy Products 2. Biscuit Factories 3. Ice Factories 4. Soft Drinks and Carbonated Beverages 5. Tobacco Products 6. Joineries 7 . Wooden Boxes, Cases and Crat 8. Rubber Footwear, t i res and tubes, foam rubber products, and rubber products n . e . c . 9 . Coconut o i l refineries 10. Paints, varnishes & lacquers 11. Soaps, washing and cleaning compounds 12. Medical and Pharmaceutical Preparations 13. Perfumes, cosmetics;, and t o i l e t preparations 14. Matches 15. A l l other Chemical products 16. Structural Clay products 17. Pottery, china, and earth-enware products 18. Structural cement and concrete products 19. Iron Foundaries es 4,436 3,105 7,681 5,684 4,702 2,400 2,213 2,893 8,916 10,600 11,023 6,025 11,228 3,335 8,081 2,835 2,300 4,396 3,174 114.0 95.4 93 .0 95.5 121.2 144.9 108.8 100.9 55.8 108 .0 80 .1 119.2 132.0 94.9 113.9 105.0 107.3 98.5 82.4 160.3 94 .6 98.0 100.7 144.7 164.1 95.4 96 .0 50.0 126.8 95-1 120.5 123.0 108.9 64.7 97 .3 9 8 . 0 126.9 119.2 214 .3 111.6 95-4 101.6 144.0 137.7 93.6 112.0 74.7 126 .3 109-7 131.7 187.5 97.8 75.2 108 .7 99-0 112.9 104.7 TABLE XII (continued) INDEX OF NET OUTPUT PER FULL-TIME WORKER IN MANUFACTURING INDUSTRIES, 1961-63. Net Index of Net Output Industry Output % ¥ - Full-Time Worker per (I960 = 100) Secondary Manufacturing f u l l - t i m e I n d u s t r i e s worker 1961 1962 1963 20. A r c h i t e c t u r a l Metal Products $3,097 84.5 107.0 io4.o 21. Wire and Wire Products 5,952 78.2 66.4 63.1 22. Hardware t o o l s and c u t l e r y ( i n c l u d i n g r e p a i r s ) 2,538 77.8 79-9 75.1 23 . T i n cans and Metal Boxes 3,530 100.7 90.5 83.6 24. B r a s s , copper, pewter and aluminum products 4,673 83.9 91.2 87-7 25. Other Metal Products 7,876 68.2 78.6 55.6 26. I n d u s t r i a l Machinery & pa r t s 2,394 122.2 159.3 128.9 27. S h i p b u i l d i n g and r e p a i r i n g and b o a t b u i l d i n g and r e p a i r i n g 3,866 103.6 160.9 101.2 28. Motor V e h i c l e Bodies 3,719 106.3 103.2 86.5 29. Motor V e h i c l e P a r t s and Accessories 1,928 134.8 67.3 121.4 30. B i c y c l e , T r i c y c l e and Trishaw 4,017 57.8 59.5 69.7 31 . Other covered i n d u s t r i e s and establishments 6,535 111.2 130.9 146.6 Secondary Manufacturing T o t a l 4,486 107.3 116.3 122.3 Manufacturing I n d u s t r i e s T o t a l 4,583 97-5 108.5 113.4 - 63 -and for ten secondary manufacturing industries some price and quantity data were available to make some reasonable adjustments for price changes. For these f i f teen industries, Indexes of real net output per full - t ime worker was computed, and the results tabulated in Table XIII. In the case of industries for which only price and quantity of gross output was available the deflator for the gross output was applied directly to net output. The assumption implied in this technique is that prices d f intermediate inputs moved i n the same proportion as gross output prices . This assumption did not hold for the labour input i n primary manufacturing industries since wages were constantly r i s i n g , while the price of their output fluctuated. But, for most secondary manufacturing industries, the prices of output and most intermediate inputs are l i k e l y to move together. In any case, the double deflation technique was used for a l l the five manufacturing industries since adequate data was available. In some sec-ondary manufacturing industries, prices and quantities of intermediate inputs were available, but the price and quantities of output was not available. In such instances, the deflator for the intermediate input was applied directly to the net output. The assumption implied in this technique is that the price of the output varies in the same proportion as intermediate inputs. Regarding the f i f teen industries for which indexes of real net output per ful l - t ime worker are tabulated i n Table XIII no comment need be made with reference to Table XII. The unadjusted indexes of Table XII for these f i f teen industries may, however, be compared with the price adjusted index i n Table XIII, just to see the extent to which unadjusted indexes can be misleading. Many of the primary manufacturing - 6k -i n d u s t r i e s which show d e c l i n e s i n p r o d u c t i v i t y i n Table XII a c t u a l l y show considerable increase i n p r o d u c t i v i t y when p r i c e v a r i a t i o n s are e l i m i n a t e d . Among the 21 secondary manufacturing i n d u s t r i e s f o r which p r i c e adjusted p r o d u c t i v i t y indexes could not be computed, t h i r t e e n i n d u s t r i e s show a t r e n d of i n c r e a s i n g p r o d u c t i v i t y . These are the Ice Cream and Dairy Products, J o i n e r i e s , P a i n t s , Varnishes and Lacquers, Perfumes, Cosmetics and T o i l e t P r e p a r a t i o n s , S t r u c t u r a l Clay Products, S t r u c t u r a l Cement and Concrete Products, Iron Foundaries, A r c h i t e c t u r a l Metal Products, I n d u s t r a l Machinery and P a r t s , S h i p b u i l d i n g and Boat-b u i l d i n g , M e d i c i n a l and Pharmaceutical P r e p a r a t i o n s , and the Other Covered I n d u s t r i e s and Establishments group. A l l these i n d u s t r i e s are l i k e l y t o show p r o d u c t i v i t y increases even i f p r i c e i n f l u e n c e i s e l i m i n a t e d but, the magnitude of such r e a l p r o d u c t i v i t y increases w i l l be a l i t t l e l e s s . The remaining eig h t i n d u s t r i e s which show d e c l i n e s i n labour p r o d u c t i v i t y would s t i l l show d e c l i n e s i f p r i c e adjustments are made, but, the d e c l i n e would be considerably l e s s than t h a t shown i n Table X I I . The r a t i o n a l e f o r t h i s b e l i e f i s t h a t , i n most cases, i n d u s t r i e s i n which labour prod-u c t i v i t y has in c r e a s e d are a l s o expanding i n d u s t r i e s i n which p r i c e i s l i k e l y t o r i s e ; and, the i n d u s t r i e s i n which labour p r o d u c t i v i t y has decreased are e i t h e r stagnant or d e c l i n i n g i n d u s t r i e s which are l i k e l y t o face p r i c e d e c l i n e s as w e l l . Large increases i n labour p r o d u c t i v i t y i n i n d u s t r i e s l i k e Ice Cream and Other Dairy Products are b e l i e v ed t o be due t o two f a c t o r s . F i r s t , a s u b s t a n t i a l r i s e i n p r i c e . But, f a r more important, i s the a d d i t i o n o f one or two new establishments w i t h l a r g e amounts of - 65 -capital and modern methods of production. It i s not inconceivable that i n some industries labour productivity can be doubled almost overnight by using more capital and the technology of the West. For the manufacturing sector as a whole, price rises can be assumed to be cancelled by price declines and the unadjusted labour prod-uct ivi ty index for the manufacturing sector can be interpreted as though i t presents a real labour productivity index. For the secondary manu-facturing industries as a group, price increases are l i k e l y to more than offset price declines and the productivity indexes should be revised downwards by 3 or h per cent to take account of r i s i n g prices . For the primary manufacturing industries price declines more than offset price gains and the real index of productivity i s that obtained in Table XIII. Out of the f if teen industries for which indexes of real net output per ful l - t ime worker is presented in Table XIII only four indust-ries showed declines i n labour productivity. These are Large Rice M i l l s , Biscuit Factories, Ice Factories, and Pottery, China and Earthenware industry. In the remaining eleven industries including four primary manufacturing industries real net output per full - t ime worker shows a clear tendency to r i s e . If Table XIII i s compared with Table XII, i t w i l l be noticed that i n five industries the direction of movement of productivity i n the two tables are i n conf l i c t . The industries concerned are Rubber Remilling, Biscuit Factories, Coconut O i l Refineries, Matches and the Motor Vehicle Bodies industries. In four of these cases the unadjusted labour productivity TABLE XIII INDEX OF REAL NET OUTPUT3- PER FULL-TIME WORKER IN SELECTED MANUFACTURING INDUSTRIES, -1961-63. Industry-Net Output per Index of Real Net Output per Full-Time Worker (1900 = 100) Full-time Worker 1961 . 1962 1963 Rubber Remilling off Estates $2,928 111.5 113.7 129.4 Rubber Latex Processing off Estates 6,593 104.0 145.8 145.5 Crude Coconut O i l M i l l s off Estates 4,645 125.4 130.3 108.5 Large Rice M i l l s 5,669 81.1 70.6 77-0 Sawmills, Plywood and Particle Board M i l l s 3,476b 100.0 106.9 116.3 Biscuit Factories 2,988 103.1 105.2 9 3 . 1 Soft Drinks and Carbonated Beverages 5,753 100.9 IO6.5 100.4 Tobacco Products 5,222 115.6 130.3 129.7 Rubber Products 2,274 119.3 124.5 142.5 Coconut O i l Refineries 5,579 103.3 9 4 . 3 119-5 Ice Factories 7,832 93.9 96 .3 93.6 Soap, Washing and Cleaning Compounds l l , 9 2 8 c 100.0 112.6 Matches 2,507 106.0 130.7 130.1 Pottery, China and Earthenware\ 2,329 ;04.9 94.9 97-8 Motor Vehicle Bodies i 2,403 • 141.4 132.4 133.9 The index is based on 1963 prices and i 9 6 0 quantities Data not available for i 9 6 0 Data not available for i960 and 1961 - 67 -indexes show d e c l i n e s w h i l e the p r i c e adjusted p r o d u c t i v i t y indexes show r i s e i n p r o d u c t i v i t y . Only, i n the case of one i n d u s t r y , B i s c u i t F a c t o r i e s , the unadjusted index of p r o d u c t i v i t y shows a r i s e , w h i l e the adjusted p r o d u c t i v i t y index shows a d e c l i n e i n p r o d u c t i v i t y . This suggests t h a t the unadjusted p r o d u c t i v i t y index i s probably a good i n d i c a t o r of the d i r e c t i o n of movement of r e a l p r o d u c t i v i t y . I t a l s o suggests t h a t , on the average, the unadjusted p r o d u c t i v i t y index i s l i k e l y t o have underestimated p r o d u c t i v i t y gains r a t h e r than overestimated them. I t i s r e v e a l i n g t o compare Table X I I w i t h Table VI i n Chapter I I . Most of the i n d u s t r i e s t h a t show increases i n p r o d u c t i v i t y are a l s o i n d u s t r i e s t h a t show the f a s t e s t r a t e of growth i n terms of net output. Ice Cream and Other Dairy Products, Tobacco Products, P a i n t s , Varnishes and Lacquers, Perfumes, Cosmetics and T o i l e t Preparations are a l l exam-p l e s of r a p i d l y expanding i n d u s t r i e s w i t h r i s i n g labour p r o d u c t i v i t y . I n d u s t r i e s w i t h stagnant or t r e n d l e s s growth are a l s o u s u a l l y i n d u s t r i e s w i t h d e c l i n i n g labour p r o d u c t i v i t y , f o r example, B i c y c l e , T r i c y c l e and Trishaw P a r t s Industry. But, there are some notable exceptions t o t h i s r u l e ; such as, Other Metal Products which shows a c o n s i s t e n t r i s e i n output but f o l l o w e d by a c o n s i s t e n t d e c l i n e i n labour p r o d u c t i v i t y . This seems t o i n d i c a t e t h a t expansion i n the output of t h i s i n d u s t r y has prob-ably not been matched by r i s i n g demand, and consequently, a d e c l i n e i n p r i c e has reduced " p r o d u c t i v i t y " , as measured i n monetary u n i t s . Real p r o d u c t i v i t y , however, i s u n l i k e l y t o have d e c l i n e d . Labour p r o d u c t i v i t y i n Malayan secondary manufacturing i n d u s t r i e s have been r i s i n g r a p i d l y i n recent y e a r s ; but i t i s s t i l l very - 68 -low, compared to the industrial ized countries such as the United States or Western Europe. It appears that this big gap i n productivity i s caused by: (l) l i t t l e capital per worker, (2) comparatively ineff ic ient methods of production associated with low capital manufacturing industr-ies using the technology that has been developed for capital intensive production and (3) the rather small scale operation of manufacturing establishments in Malaya. ) CHAPTER IV THE ECONOMICS OF EXPANSION The two main causes of the rapid expansion of secondary-manufacturing industries are: (l) A decline i n the price of Malaya's agricultural exports favouring^he production of non-agricultural goods for the domestic market; and (2) the implementation of various Govern-ment policies designed to encourage the development of the secondary manufacturing sector. F i r s t , how the decline i n export prices affected the growth of the non-agricultural sector (including secondary manu-facturing industries) w i l l be explained. This w i l l be followed by an explanation of how the various incentives introduced by the Government affected the development of the secondary manufacturing industries. Export Prices and Growth of Secondary Manufacturing Industries Malaya's agricultural sector is large and export orientated. It accounts for 38 per cent of the gross domestic product and 59 per cent of employment i n the country. It i s estimated that 75 per cent of the agricultural output are for export. The agricultural export sector is dominated by the rubber industry which accounts for 85 per cent of agricult -ural exports, 2k per cent of the gross domestic product and 30 per cent of employment in the country. A decline i n the price of rubber therefore has a tremendous impact on the whole Malayan economy. - TO -In the 1960's the price of natural rubber steadily declined as a result of increasing competition from synthetic rubber. The average price of natural rubber for 1956-60 was 95 cents per pound; while the average price for 1961-65 f e l l to T^ cents. The adverse effects of f a l l i n g rubber prices wgafrSreinforced by f a l l i n g export prices in pine-apple and pepper as wel l . The price of canned pineapple f e l l from $T93 per ton i n i960 to $T50 i n 1965 whilethe price of pepper f e l l very sharply from $U,1T4 per ton in i960 to $2,030 in 1965. These sharp declines i n the price of agricultural exports, while the price of non-agricultural goods and services remained stable meant that the competitive position of the non-agricultural sector viS-a-viS the export agricultural sector was greatly improved. The economy therefore began to allocate more of i t s resources to the prod-uction of non-agricultural goods for the domestic market. The rapid expansion of secondary manufacturing industries i s partjof this switch from the production of exports to the production of goods for the dome s t i c market. The impact of the f a l l i n g export prices on the growth of the non-agricultural sector can be i l l u s t r a t e d with the help of a simple model. The underlying assumptions of the model are: (l) Only two products X (non-agricultural goods) and Y (agricultural exports) are produced; (2) There are only two factors of production; (3) Competitive conditions p r e v a i l ; and (k) the ratio of the price of labour to capital is constant. In Diagram I below, TT represents the i n i t i a l ( i . e . i960) production p o s s i b i l i t y curve and PP is the price l ine whose slope 71 -represents P /P . OY u n i t s of a g r i c u l t u r a l exports and OX, u n i t s of X x y 1 -L w i l l be produced. The new(production p o s s i b i l i t y curve T'T' represents i the production p o s s i b i l i t y curve f o r a l a t e r p e r i o d (say 1965) when the producti&£i ca p a c i t y of the economy has r i s e n . Since the p r i c e of Y has f a l l e n , the r a t i o P /P w i l l i ncrease and t h i s i s shown by a steeper x J p r i c e l i n e P'P'. The economy w i l l now produce OY^ u n i t s of Y and XQ^ O u n i t s of X. With the i n c l u s i o n of r i s i n g p roductive c a p a c i t y over time the output of both X and Y can expand even when the p r i c e of Y f a l l s , but the percentage increase i n the output of X w i l l be l a r g e r than the percentage increase i n the output of Y as shown i n Diagram I . I t immediately f o l l o w s that the r a t e of i n c r e a s e i n the employment of resources (both labour and c a p i t a l ) i n i n d u s t r y X w i l l a l s o r i s e more r a p i d l y than i n i n d u s t r y Y. Diagram I A g r i c u l t u r a l Exports N o n - a g r i c u l t u r a l goods - 72 -I f the above explanation of the impact of declining export prices on the development of secondary manufacturing industries i s correct, then (l) investment, output, and employment i n the non-agricultural sectors taken together should expand faster than in the agricultural sector, and (2) a l l these three variables must expand more rapidly i n the secondary manufacturing industries than i n the agricultural sector. This i s precisely what is observed. Employment i n the agricultural sector expanded on the average by 1.7 per cent per annum between i 9 6 0 and 196"5, while employment i n the non-agricultural sector expanded at an average rate of 5 per cent per annum during the same period. In the secondary manufacturing sector employment expanded at an average annual rate of 11 per cent. Real output in the agricultural sector expanded on an average annual rate of k.O per cent, whereas real output i n the non-agricultural sector as a whole expanded at an average annual rate of about 7-5 per cent. The real output of secondary manu-facturing industries rose at an average rate of about 20 per cent per annum. Complete investment data is not available, but a decline in investment i n the rubber industry can be inferred from the fact that the number of acres planted or replanted annually f e l l from 251,000 in 1963 to 220,000 and 200,000 i n I96U and 1965 respectively .^-.Investment i n the secondary manufacturing industries, on the other hand, have risen sharply since 1958. F i n a l l y , the switch from export production to the production for the domestic market can be noticed in the f a l l i n g ratio of exports to gross domestic product from 55 per cent in i 9 6 0 to k8 per cent in 1965 (based on i 9 6 0 pr ices) . - 73 -E f f e c t s of Government P o l i c y on the Manufacturing Sector The Government played an important p a r t i n promoting the development o f secondary manufacturing i n d u s t r i e s . The main act i o n s taken by the Government t o promote the development of secondary manu-f a c t u r i n g i n d u s t r i e s w i l l be b r i e f l y d e s c r i b e d , and a model cons t r u c t e d t o e x p l a i n the e f f e c t s of Government p o l i c y on the development of the secondary manufacturing s e c t o r . The model w i l l then be t e s t e d by com-p a r i n g the r e s u l t s p r e d i c t e d by the model w i t h the observed f a c t s . Incentives f o r Secondary Manufacturing I n d u s t r i e s On the production s i d e , government p o l i c i e s were aimed at reducing the cost of c a p i t a l and the r e q u i r e d gross r a t e of r e t u r n on c a p i t a l f o r manufacturing f i r m s . The f o l l o w i n g i n c e n t i v e s had the e f f e c t o f reducing the cost of c a p i t a l t o secondary manufacturing i n d u s t r i e s : ( l ) I n d u s t r i a l S i t e s The government spent 11.1 m i l l i o n d o l l a r s on s i t e develop-ment between 1956 and i 9 6 0 under the F i r s t F i v e Year P l a n . An a d d i t i o n a l 5.7 m i l l i o n d o l l a r s has been spent on s i t e development between 1961 and 1965 under the Second F i v e Year P l a n . These i n d u s t r i a l s i t e s enable manufacturing i n d u s t r i e s t o obt a i n i n d u s t r i a l s i t e s f u l l y - e q u i p p e d w i t h b a s i c f a c i l i t i e s on very favourable terms. There are t e n such i n d -u s t r i a l s i t e s i n Malaya. The "premium"!, the annual r e n t , and the p e r i o d of lease v a r i e s . The "premium" ranges from one d o l l a r per square foot i n The lump sum payment th a t must be made i n the f i r s t instance has been termed as "premium". - Ik -the most s u c c e s s f u l i n d u s t r i a l e s t ate i n P e t a l i n g Jaya t o 3.5 cents per square foot i n the Tampoi I n d u s t r i a l E s t a t e i n Johore. The annual rent ranges from 157 d o l l a r s per acre i n Tampoi t o 1,457 d o l l a r s i n P e t a l i n g Jaya. The p e r i o d of lease ranges from 60 years t o 99 y e a r s . (2) Hew Import Duty Concessions New i n d u s t r i a l machinery and equipment i n i t i a l l y r e q u i r e d f o r launching a p r o j e c t are now normally exempt from import d u t i e s . In some cases, imported raw m a t e r i a l s are a l s o exempted from import d u t i e s - , {3) S p e c i a l Services f o r Industry The C e n t r a l Apprenticeship Board, the I n d u s t r i a l T r a i n i n g I n s t i t u t e , the N a t i o n a l P r o d u c t i v i t y Centre are a l l Government or Quasi-Government i n s t i t u t i o n s e s t a b l i s h e d t o help i n d u s t r i e s solve t h e i r t r a i n e d manpower requirements and increase p r o d u c t i v i t y . The Standards I n s t i t u t i o n of M a l a y s i a has been e s t a b l i s h e d t o t e s t the q u a l i t y o f l o c a l l y produced goods and t o advise i n d u s t r y on the necess-i t y of a p p l y i n g s t a n d a r d i z a t i o n and q u a l i t y c o n t r o l t o l o c a l products. This ensures greater consumer approval of Malayan i n d u s t r i a l products. F i n a l l y , the Fe d e r a l I n d u s t r i a l Development A u t h o r i t y has been e s t a b l i s h e d t o c a r r y out f e a s i b i l i t y s t u d i e s which are made a v a i l a b l e t o i n t e r e s t e d p a r t i e s i n order t o encourage new i n d u s t r i e s . (k) Expansion of Bas i c Services t o Industry The government has spent vast sums of money i n improving and expanding power and water s u p p l i e s , i m p o r i v i n g roads, telecommuni-c a t i o n s , p o r t f a c i l i t i e s and other s o c i a l c a p i t a l p r o j e c t s . Under the - 75 -Firs t Five Year Plan 496.7 mil l ion dollars was spent on such f a c i l i -t i e s . An additional 1 ,173.1 mil l ion dollars was spent, under the Second Plan. The provision of industr ial sites below cost and the 'exemption of import duty on machinery and raw materials can be readily seen as reduc-ing the cost of capi ta l . The reduction of the cost @& capital to private firms brought about by the Special Services for Industry, and the Expansion of Basic Services to Industry, however, are more indirect . These services may be considered as social capital which is complementary to private capi ta l . The increase i n such complementary social capital at no cost to the private firms can then be seen as reducing the cost of private capital . The government also created a favourable climate for foreign investors by implementing the following p o l i c i e s : (1) The Malayan Government continued to permit the remittance of capital and earnings freely within the Sterling Area. In addition, the Government made i t clear that capital and earnings may be remitted out-side the Sterling area with the permission of the Controller of Foreign Exchange. The Government further stressed that this required permission was only a nominal one. (2) The Government also declared that nationalization of foreign investments i s not the policy of the Government; and, backed this pledge by signing Investment Guarantee Agreements with the United States and West Germany under which the investments made by nationals of these two count-ries are guaranteed against Nationalization. The Government also publicly - 76 -declared i t s willingness to sign similar agreements with other count-ries . The Country also became a member of the Convention on the Sett le-ment of Investment Disputes, which permits foreign investors to resort to an International Arbitration and Conciliation Centre to settle any claims against the Malayan Government. (3) Malaya has also extended the r e l i e f from double taxation agreement with the United Kingdom to Japan, Denmark, Norway and Sweden. In i960 the Government, i n cooperation with private enter-pr ise , established the Malayan Industrial Development Finance Limited (MIDFL). MIDFL is the only organization with the sole purpose of providing long-term capital for Malayan industries, by way of contract loans and/or direct share investment. The f a c i l i t i e s i t offers may be summarized as follows: (a) Long or medium term loans secured by f i r s t charge on assets; (b) Equity, preference share or debenture part ic ipat ion; (c) Underwriting of capital issue; (d) Issuing house services for capital f lotat ions ; (e) Advisory services i n regard to industr ia l capi ta l ; (f) Hire-purchase finance of specific items of industr ia l machinery; and, (g) Factory mortgage finance to construct new factory buildings. Malayan Industrial Development Finance Limited has also set up a sub-sidiary company called the Malayan Industrial Estates Limited which builds factories of different sizes and sel ls them on credit terms. - 77 -Pioneer I n d u s t r i e s Some secondary manufacturing i n d u s t r i e s can q u a l i f y f o r Pioneer Status under Pioneer I n d u s t r i e s ( R e l i e f from Income Tax) Ord-inance, 1958. Under t h i s ordinance, the Government i s empowered t o d e c l a r e : (a) any i n d u s t r y which i s not being c a r r i e d on i n the Federation on a commercial s c a l e s u i t a b l e t o the economic requirements or development of the Federation or at a l l ; and (b) there a r e — ( i ) favourable prospects of f u r t h e r development of the i n d u s t r y ; or ( i i ) i n s u f f i c i e n t f a c i l i t i e s i n the Federation t o enable the i n d u s t r y t o be c a r r i e d on on a commercial s c a l e s u i t a b l e t o the economic requirements or development of the F e d e r a t i o n ; and (c) i t i s expedient i n the p u b l i c i n t e r e s t t o encourage the develop-ment or establishment of the i n d u s t r y i n the Federation by the making of an order d e c l a r i n g the i n d u s t r y t o be a pioneer i n d -u s t r y and any product or products of such i n d u s t r y t o be a pioneer product or products.^ Any f i r m t h a t i s granted pioneer s t a t u s w i l l i n i t a l l y enjoy 2 years of t a x r e l i e f which can be extended t o three years where f i x e d cap-i t a l expenditure of between 100,000 d o l l a r s and 250,000 d o l l a r s i s i n c u r r e d ; and f i v e years where such c a p i t a l expenditure exceeds 250,000 d o l l a r s . Pioneer firms are a l s o e n t i t l e d , f o r income t a x purposes, t o carry forward any l o s s i n c u r r e d i n t a x r e l i e f p e r i o d . Since corporations who own t h e i r c a p i t a l r e c e i v e t h e i r rent on c a p i t a l i n the form of a r e s i d u a l l e f t a f t e r the payment of Company Tax on ' p r o f i t s 1 , i t i s convenient f o r t h i s a n a l y s i s t o i n c l u d e the company t a x as a component of the gross r a t e of r e t u r n on c a p i t a l . I f the gross r a t e of r e t u r n on c a p i t a l i s so d e f i n e d , the p o l i c i e s implemented t o a t t r a c t f o r e i g n c a p i t a l , the s e r v i c e s rendered by MIDFL, and the t a x exemptions enjoyed ^M a l a y s i a , Pioneer I n d u s t r i e s ( R e l i e f from Income Tax) Ordinance, 1958 (Kuala Lumpur: Government P r i n t e r ) , 1966, P.3 - 78 -under the Pioneer I n d u s t r i e s l e g i s l a t i o n , can a l l he i n t e r p r e t e d as r e d -u c i n g the r e q u i r e d gross r a t e of r e t u r n on c a p i t a l . The i n c r e a s e d con-fidence i n the securityjof c a p i t a l w i l l reduce the i n t e r e s t r a t e s i n c e " r i s k " has been reduced. MIDFL was organized t o enable manufacturing i n d u s t r i e s t o get loans on more favourable terms than they would other wise be able t o do, and t h e r e f o r e , the s e r v i c e s rendered by MIDFL may be seen as reducing the i n t e r e s t r a t e . The extension of the Double Taxation t r e a t y and the t a x exemption on Pioneer I n d u s t r i e s w i l l reduce or e l i m i n a t e the t a x component of the gross r a t e of r e t u r n on c a p i t a l . On the demand s i d e , the Government provided t a r i f f p r o t e c t i o n f o r some i n d u s t r i e s , protectionjagainst dumping i n g e n e r a l ; and d i v e r t e d i t s own demand f o r manufactured products t o l o c a l l y produced goods where f e a s i b l e : ( l ) T a r i f f P r o t e c t i o n and P r o t e c t i o n against Dumping T a r i f f p r o t e c t i o n i s granted t o i n d u s t r i e s where the e f f i c i e n c y and cost of production of the p a r t i c u l a r i n d u s t r y "warrants" such p r o t e c t i o n . A T a r i f f Advisory Board has been set up t o recommend products f o r which t a r i f f p r o t e c t i o n i s considered t o be i n the best i n t e r -est of the country. The Board u s u a l l y makes i t s recommendation a f t e r a p u b l i c i n q u i r y i n which a l l i n t e r e s t e d p a r t i e s are i n v i t e d t o make t h e i r r e p r e s e n t a t i o n . The Customs (Dumping and Subsidies) Ordinance, 1959> provides f o r the i m p o s i t i o n of d u t i e s — i n a d d i t i o n t o normal import d u t i e s — " i f t h e i r import i s l i k e l y t o endanger or r e t a r d the establishment of i n d u s t r y i n Malaya". - 79 -(2) Preferential Purchase Plan Under the "preferential purchase plan" a l l Government Minis t r ies , Departments and Quasi-Government bodies were required to purchase loca l ly manufactured products "provided their quality is acceptable", and their prices do not exceed prices of equivalent imports by 10 per cent. Through this preferential purchase plan, the Government diverted a good deal of the demandfor manufactured products generated in the public sector under the Second Five Year Plan to loca l ly manufactured goods. The metal products industries, transportation equipment industries and the industries producing construction materials benefited most from the preferential purchase plan. A Model The effects of reduction i n the gross rate of return on capital (r) and the reduction i n the price of capital (P ) (brought about by the various incentives introduced by the Government) on the development of secondary manufacturing industries can now be traced . with the help of a simple model. In order to keep the model as simple as possible the following assumptions are made: (l) Competitive conditions prevai l in both the factor and product markets, (2) there are only two factors of production—labour and capi ta l , (3) the tech-nology of production is such that there are constant returns to scale and unit e l a s t i c i t y of substitution throughout, (h) the supply of capitaljis perfectly e l a s t i c , and (5) the demand for the output of secondary manufacturing industries i s perfectly elast ic at the p r e v a i l -ing price . (The last assumption is quite a restr ic t ive one. It implies that the model neglects the effects of protective t a r i f f s introduced for - 80 -some i n d u s t r i e s and the e f f e c t s of the p r e f e r e n t i a l purchase p l a n . But, because f o r the secondary manufacturing s e c t o r as a whole, there has been no n o t i c e a b l e change i n p r i c e s ; and si n c e no in f o r m a t i o n of p r i c e move-ments i n i n d i v i d u a l i n d u s t r i e s are a v a i l a b l e , the most convenient assumpti t o make i s t h a t p r i c e s have not changed.) The model may be expressed mathematically as f o l l o w s : X = A L a K 1 _ a (1) w = aXP x ~ ..(2) rPk = ( l - a ) X P K (3) L = w*::- (10 where X i s the output, A i s a constant, L i s lab o u r , K i s c a p i t a l , a i s the r a t i o o f labour cost t o the t o t a l output, r i s the gross r a t e of r e t u r n on c a p i t a l , P i s the p r i c e o f c a p i t a l P Y shows a constant p r i c e k f o r X, e i s the e l a s t i c i t y of labour supply, and D x i s the demand f o r X. The production f u n c t i o n given by equation ( l ) f o l l o w s d i r e c t l y from assumptions (2) and ( 3 ) . Equations (2) and (3) f o l l o w from the production f u n c t i o n when competitive c o n d i t i o n s are assumed, and the p r i c e of X i s assumed t o be constant. Equation (k) s t a t e s the supply c o n d i t i o n s f o r labour and equation (5) i s j u s t another way of s t a t i n g assumption (5). - 81 -Assuming t h a t i n i t i a l l y the secondary manufacturing i n d u s t r i e s were i n e q u i l i b r i u m , the impact of a re d u c t i o n i n the gross r e n t a l value of c a p i t a l (^ P.^ ) on the growth of secondary manufacturing i n d u s t r i e s can be t r a c e d w i t h the help of the above model. Log X = Log A + a Log L + ( l - a ) Log K (from equation ( l ) ) I f = a m d L + (l-aj&JdK L ' dt (tf&t W r i t i n g £ X f o r dX , A L f o r dL and A K f o r dK dt dt dt A X = aML_\ + ( l - a ) A K X I L/ K Using X* f o r A. X , L* f o r A L and K* f o r A K X L K X* = aL* + ( l - a ) K* ( l . a ) S i m i l a r l y , from equation (2), (3) and {k) r p k * = X» - K* . . . (2.a) K* X * " • (2.b) w* = 1 L* . . .. (4.a) © w* = X* - L*, . (3.a) 1 L* X* - L* ( s u b s t i t u t i n g (4.a) i n (3.a) e L* (l+l|= X* (5) L* ( l + 1 ) e i = aL* + ( l - a ) [ L * ( l + l ) - ( r P k ) * ] s u b s t i t u t i n g (2.b) e and (5) i n ( l . a ) . L * [ ( l + 1)(1 - (1 - a)) - a] = -(1 - a ) ( r P f c ) * © L * [ ( l + l ) a - a] = -(1 - a ) ( r P k ) © L*[a + a - a] = - ( l - a ) ( r P )* e k L* = - e ( l - a ) ( r P k ) * (6) w* = 1L* = 1 ( - e ( l - a ) ( r P k ) * - ( l - a ) ( r P h ) * .(7) X* = L* (1 + 1 ) = (1 + 1) / / - e ( l - a ) ( r P k ) * \ e ( 5 j = - ( 1 + e ) ^ 1 - a r P ^ j * . . . . (8) K* = X* - (rPk)» = - ( 1 + e ) ^ 1 - aj ( r P f e ) * - ( r P k ) * K* = - ( r P )* 1 + e ( l - a) k a (9) I f the e l a s t i c i t y o f supply of labour i s known, the e f f e c t s of a decrease i n r P ^ on the changes i n output, c a p i t a l , l a b o u r , and wages can be r e a d i l y determined from the model. U n f o r t u n a t e l y , the magnitude of the change i n rP could not be determined by an examination of the p o l i c y changes. A l l t h a t i s known i s that r P ^ has f a l l e n and, t h e r e f o r e ( r P ^ ) * i s negative. This l a c k of i n f o r m a t i o n regarding the magnitude o f ( r P k ) * makes i t impossible t o use the model t o p r e d i c t the p r e c i s e changes i n endogeneous v a r i a b l e s brought about by the p o l i c y changes; and t e s t the model by comparing the p r e d i c t e d values w i t h the e m p i r i c a l evidence a v a i l a b l e . But, assuming that the e l a s t i c i t y o f labour supply f o r a l l i n d u s t r i e s are equal and the pr o p o r t i o n a t e change i n rP k f o r a l l i n d u s t r i e s are the same, the model p r e d i c t s t h a t the proportionate expansion i n output f o r the i n d i v i d u a l i n d u s t r i e s w i l l be d i f f e r e n t , - 83 -depending on the value of the parameter ' a ' i n the production function. According to the model, the proportionate increase in output i s inversely related to the parameter ' a ' . The model predicts that the higher the value of ' a ' the smaller w i l l be the proportionate increase i n output brought about by a given change in rP , and vice versa. This hypothesis k i s tested below. Out of 30 secondary manufacturing industries, three industries completely lacked any basis for comparison with 1959 data as a result of the extension i n coverage since 1962. These three industries were, there-fore, exluded for purposes of testing the above hypothesis. For the remain-ing 27 industries, the rank predicted for the proportionate increase in output since 1959 are shown i n Table XIV. The coefficient of rank correlation is significant at the 5 per cent level for i960, 1963, 1964, and 1965. For 1961 and 1962, the rank correlation coefficient is not significant at the 5 per cent l e v e l . This i s probably due to the lack of sufficient time for some industries to adjust to the decrease i n rP^.. It appears that with the elapse of a longer period of time when adjustments w i l l be more complete the predictions of the model are more l i k e l y to be realized. The highest coefficient of rank correlation is obtained for 1963, and although i t i s s ignif icant , this rank correlation coefficient i s not large enough to claim that the model f i t s very w e l l . The not-so-good f i t is probably due to the very simplifying assumptions that have been made, in the construction of the model—especially, the assumption that prices have not changed. TABLE XIV PREDICTED RANK AND ACTUAL RANK OF TWENTY SEVEN SECONDARY MANUFACTURING INDUSTRIES ACCORDING TO RATE OF GROWTH IN OUTPUT Pred-i c t e d Rank According t o Percentage Increase i n Output s i n c e 1959. Rank Industry- I960 1961 1962 1963 1964 1965 1. Perfumes, cosmetics and T o i l e t Preparations 2 1 1 1 1 1 2. Medical and Pharmaceutical Preparations 1 2 2 2 2 2 3. P a i n t s Varnishes and Lacquer; i 6 k 3 3 3 4 4. Tobacco Products k 5 k 9 9 7 5. Coconut O i l R e f i n e r i e s 11 16 22 10 17 17 6. Soft Drinks and Carbonated Beverages 17 20 20 22 22 22 7. Soap, Washing and Cleaning? Compounds f Wire and Wire Products J 13 lk 7 12 6 11 8. Miscellaneous Chemical Products 12 11 16 6 11 8 9. Ice F a c t o r i e s S t r u c t u r a l Cement and / Concrete Products J T i n Cans and Metal Boxes J 7 12 14 15 12 13 10. B i s c u i t F a c t o r i e s ~ ~ l Matches J> 20 22 21 21 21 21 . 11. Ice Cream, and Other Dairy Products 22 19 5 4 4 3 12. Wooden Boxes, Cases and Crates 5 6 12 18 19 19 13 . Brass, Copper, Pewter and aluminum prdocuts 8 13 13 8 13 10 Ik. Miscellaneous Metal Products P o t t e r y , china and earthen - f ware products ' 21 17 17 11 10 6 15. Rubber Products 18 15 18 19 18 12 1$. S t r u c t u r a l c l a y products 9 8 9 13 7 14 17. I n d u s t r i a l Machinery &parts 10 10 8 5 5 8 18. I r o n Foundaries 16 21 15 20 16 18 19- J o i n e r i e s Ik 9 6 7 8 9 20. Ship and Boat B u i l d i n g 19 18 19 17 20 20 21. B i c y c l e , T r i c y c l e and T r i s h a 16 16 P a r t s and Accessories 3 3 11 15 22. Motor V e h i c l e Bodies 15 7 10 14 14 15 C o e f f i c i e n t of rank 0.39 0.24 0.27 0.43 0.36 0.39 c o r r e l a t i o n - 85 -The main contention of the model—an equal porportionate reduction i n rP^ for a l l industries w i l l lead to different proportionate increase i n output i n different industries, depending on the value of the parameter ' a ' i n their production function—seems j u s t i f i e d . But the results can he conclusive only when the model can be refined to include price changes and tested over a longer period of time. The model could not be tested regarding the porportionate increase i n capital because no data on capital has been collected. The model was not tested regarding labour and the wage levels because the revised coverage since 1Q62 made the comparison of data on employment and payroll with earl ier years impossible. - 86 -Evaluation of Subsidies The role of the government i n promoting the development of secondary manufacturing industries may be concluded with a br ie f discussion on how the subsidies may be evaluated. The services of MIDFL and Basic Services to industry do not involve subsidies since the policy of the Government i s to price these services at cost. T a r i f f protection for Malayan industries are certainly a form of subsidy; but, since t a r i f f protection is given only on the merits of each product o"^  industry, the evaluation of the costs and benefits of t a r i f f protection l i e beyond the scope of this general discussion on the development of the manufacturing sector. Subsidies, i n the form of cheap industr ia l s i tes , additional import duty concessions, Special Services for industry, and the prefer-ential purchase plan can a l l be evaluated together by using the cost-benefit analysis, on the assumption that "costs" are adequately reflected by the market. The t o t a l cost of the above subsidies may be written as S + C „ + C + Me \fhere the cost of the subsidy on industr ia l sites (S) b P s may be expressed as followi-ng=shows-: R S = (C - P - i ) where C i s the actual cost incurred in buying the land and developing the industr ia l s i t e , P i s the "premium" paid by the tenant, R is the annual rent received and ' i ' the interest rate, ( i t is assumed that the rent w i l l be R for an indefinite period of time i n order to keep the model simple.) The cost of Special Services for industry (C ) is the actual cost incurred - 87 -i n providing these services. The cost of the preferential purchase plan (C^) is the amount the Government would have saved i f i t had bought the imports instead of the domestically-produced import-substitutes on a prefer-ent ia l basis . The cost of the import duty concessions (M) may be taken as the amount of import duties that would have been collected on these imports i f the import duty concessions had not been introduced. industries may be approximated by assuming that manufacturing industries i n fact produce a joint product—a s k i l l e d labour force in addition to the manufactured product that they s e l l in the markets. The value of a s k i l l e d worker may be computed as follows: where t represents time, W the wage of a worker i n manufacturing industries, and ¥ the wage of a worker (with the same level of educational qualification) in an alternative employment. (For convenience, i t is assumed that the worker is a young worker who w i l l work 30 years i n the manufacturing industry.) The benefit© from promoting the growth of the manufacturing sector (B) may then be written as: where L is the number of workers absorbed by the expansion of the manufacturing sector brought about by the introduction of subsidies. L can be obtained by The benefits from developing the secondary manufacturing B = L t-1 - 88 -e s t i m a t i n g the increase i n employment i n the manufacturing s e c t o r t h a t would, have been r e a l i z e d i n the absence of any s u b s i d i e s and deducting i t from the a c t u a l increase i n employment i n the manufacturing s e c t o r . The s u b s i d i e s can be considered as being economically sound i f the b e n e f i t s are greater than or equal t o the cost of the subsidy. Therefore, i f : B ^ S + C + C +M, s P the s u b s i d i e s are j u s t i f i e d on economic grounds. The b e n e f i t - c o s t a n a l y s i s can a l s o be used t o evaluate the j u s t i -f i a b i l i t y o f concessions under the Pioneer I n d u s t r i e s l e g i s l a t i o n . The cost of promoting pioneer i n d u s t r i e s (P ) may be defined as f o l l o w s : P c where 0 .^ i s the output of the Pioneer I n d u s t r i e s i n year t , and 0 ^ i s the output t h a t could be obtained i n a non-Pioneer i n d u s t r y , i f i n year t the same amount of labour and c a p i t a l had been employed i n a non-Pioneer i n d u s t r y . (For convenience, i t i s assumed t h a t Pioneer Status i s granted f o r 5 years i n a l l cases but, adjustments i n the formula can be i n c o r p o r a t e d f o r d i f f e r i n g time p eriods.) The b e n e f i t s d e r i v e d from g r a n t i n g Pioneer Status t o an i n d -u s t r y (Bp) may be estimated by an estimate of the r e d u c t i o n i n cost t o the r e s t of the economy emanating from the establishment of the Pioneer Industry. The g r a n t i n g of Pioneer Status can then be p l a c e d on a f i r m economic foundation by d e f i n i n g the c r i t e r i o n f o r the g r a n t i n g of Pioneer Status t o be t h a t B ^ P c. - 89 -An A l t e r n a t e Hypothesis F i n a l l y , an a l t e r n a t e explanation f o r the r a p i d development of secondary manufacturing i n d u s t r i e s s i n c e 1959 s may be the a v a i l a b i l i t y o f a young, more productive labour f o r c e w i t h a higher l e v e l of education, which could be t r a i n e d more cheaply t o acquire i n d u s t r i a l s k i l l s . The production f u n c t i o n f o r such a hypothesis may be w r i t t e n as: X = F( K, L, E) where X i s the output, K i s c a p i t a l , L i s l a b o u r , and E i s the ed u c a t i o n a l l e v e l of la b o u r . This hypothesis has not been i n v e s t i g a t e d i n t h i s t h e s i s because data on the l e v e l of education of workers i n manufacturing i n d u s t r i e s i s not a v a i l a b l e . CHAPTER V POLICIES AND PROSPECTS Objectives and Th e i r R e a l i z a t i o n The three s p e c i f i e d reasons f o r promoting the development of secondary manufacturing i n d u s t r i e s i n Malaya are:''" ( l ) t o achieve some degree of i n d u s t r i a l d i v e r s i f i c a t i o n and free the economy from the hazards o f overdependence on rubber and t i n ; (2) t o provide employ-ment f o r the r a p i d l y expanding p o p u l a t i o n of working age; and (3) t o r a i s e the per c a p i t a output i n the economy. The extent t o which each of these o b j e c t i v e s have been a t t a i n e d w i l l be b r i e f l y evaluated, and where p o l i c y changes are found d e s i r a b l e , appropriate measures w i l l be recommended. I n d u s t r i a l D i v e r s i f i c a t i o n The r a p i d expansion of secondary manufacturing i n d u s t r i e s enabled the manufacturing s e c t o r t o r a i s e i t s share of the gross domestic product from 9 per cent i n i960 t o 11 per cent i n 1965. Thus the expansion of the manufacturing s e c t o r i s one f a c t o r t h a t enabled the economy t o r e -duce i t s dependence on rubber and t i n . ^ The establishment of many new manu-f a c t u r i n g i n d u s t r i e s i s a form o f d i v e r s i f i c a t i o n w i t h i n the manufacturing s e c t o r . Since the Pioneer I n d u s t r i e s L e g i s l a t i o n was introduced i n 1958, ''"Malaysia, F i r s t M a l a y s i a P l a n , 1966-1970 (Kuala Lumpur: Government P r i n t e r ) , 1965. p The c o n t r i b u t i o n of rubber and t i n t o the gross domestic product d e c l i n e d from 30 per cent i n i960 t o 26 per cent i n 1965 (based on i960 p r i c e s . ) - 91 -s e v e r a l new i n d u s t r i e s have been e s t a b l i s h e d . The diverse nature of these new i n d u s t r i e s shows the extent of i n d u s t r i a l d i v e r s i f i c a t i o n 3 achieved w i t h i n the manufacturing s e c t o r . Thus, from the po i n t of i n d u s t r i a l d i v e r s i f i c a t i o n , both the ra t e of expansion of the secondary manufacturing s e c t o r , and the estab-lishment o f new i n d u s t r i e s can be considered s a t i s f a c t o r y . Nevertheless, the Pioneer I n d u s t r i e s L e g i s l a t i o n can be made more a t t r a c t i v e t o i n d u s t r i e s t h a t i n c u r l a r g e i n i t i a l o u t l a y of c a p i t a l , by i n c r e a s i n g the number of years o f exemption from Income Tax f o r firms i n v e s t i n g more than one m i l l i o n d o l l a r s ; o r , by p r o v i d i n g f o r an a c c e l e r a t e d r a t e of d e p r e c i a t i o n f o r Income Tax purposes on c a p i t a l i n v e s t e d i n Pioneer i n d u s t r i e s as soon as t a x r e l i e f e x p i c e s . This a c c e l e r a t e d r a t e of d e p r e c i a t i o n f o r Income Tax purposes would be a form of subsidy on c a p i t a l because the amount o f t a x t h a t i s postponed by the " a c c e l e r a t e d r a t e of d e p r e c i a t i o n " i s an i n t e r e s t f r e e l o a n t o the f i r m f o r the dur a t i o n of the postponement of the t a x . Employment The average annual increase i n employment i n secondary manu-f a c t u r i n g i n d u s t r i e s between 1959-and. 1965 was 11 per cent. This i s sub-s t a n t i a l l y lower than the r a t e o f expansion i n output which averaged w e l l over 20 per cent. The discrepancy between the r a t e of expansion i n output Among the outstanding new i n d u s t r i e s are two petroleum r e f i n e r i e s , a sugar r e f i n e r y , a f l o u r m i l l , cotton s p i n n i n g m i l l s , t y r e f a c t o r i e s : ^ plywood f a c t o r i e s , c i g a r e t t e f a c t o r i e s and an i n t e g r a t e d s t e e l m i l l . - 92?-and employment i s probably due t o an increase i n the c a p i t a l - l a b o u r r a t i o . The v a rious i n c e n t i v e s introduced by the Government reduced the cost of c a p i t a l r e l a t i v e t o l a b o u r , and t h i s presumably l e ^ d t o ( l ) the s u b s t i t u -t i o n of c a p i t a l f o r labour i n n e a r l y a l l i n d u s t r i e s , and (2) i t s t i m u l a t e d the expansion of i n d u s t r i e s w i t h c a p i t a l b i a s e d technology of production. Youth unemployment i n the country i s very h i g h : ^ Of the young men between the ages of 15 and 19 who are seeking work, about 16% are b e l i e v e d unemployed i n Malaya as a whole. In the major towns, the unemployment r a t e i s 21% as compared w i t h about lh% i n r u r a l areas Among young men aged 20 t o 2h, the unemployment r a t e i s lower, averaging 10% i n the l a r g e towns and around 6% i n the r u r a l areas. I t i s t h e r e f o r e d e s i r a b l e t o encourage the growth of labour absorbing i n d u s t r i e s . While the country should t r y t o a t t r a c t as much f o r e i g n c a p i t a l as p o s s i b l e , i t should a l s o t r y t o d i v e r t the a v a i l a b l e c a p i t a l t o i n d u s t r i e s where the maximum amount of employment o p p o r t u n i t i e s w i l l be created. The f o l l o w i n g measures are recommended f o r the promotion of labour absorbing i n d u s t r i e s : ( l ) The I n d u s t r i a l T r a i n i n g I n s t i t u t e or the N a t i o n a l Prod-u c t i v i t y Centre should c a r r y out research i n t o the p o s s i b i l i t i e s of i n t r o -ducing labour b i a s e d technology i n manufacturing i n d u s t r i e s , and making the r e s u l t s of t h e i r i n v e s t i g a t i o n a v a i l a b l e t o p r i v a t e e n t e r p r i s e . (This i s important because so much of the imported technology w i d e l y used i n the manufacturing s e c t o r o r i g i n a t e d i n countries where labour was scarce r e l a t i v e t o c a p i t a l . The same technology i s u n l i k e l y t o be the most e f f i c i e n t one i n countries where the endowment of resources are j u s t the reverse.) Vp. c i t , F i r s t M a l a y s i a P l a n , P. 79~. - 93 -(2) The Pioneer Industries Legislation may be used as an instrument for the promotion of labour absorbing industries by making— above average rate of labour absorption per unit of capital—one of the cr i ter ion for the award of Pioneer Status. (3) The payrol l tax of 2 per cent introduced in 1965 should be removed. The payrol l tax increases the cost of labour and is not conducive to the development of labour absorbing industries. Per Capita Output Raising the per capita output i n Malaya is the long-term goal of industr ia l izat ion . Real per capita output in Malaya rose from $731 i n i960 to $858 i n 1965. Part of this rise is due to the rapid development of secondary manufacturing industries. The expansion of employment i n sec-ondary manufacturing industries relative to the agricultural sector w i l l lead to a higher per capita income as long as the proportion of working population to t o t a l population i n the economy does not decline; and the productivity of labour i n agriculture is lower than labour productivity i n secondary industries. Since labour productivity i n the secondary indust-is ries a*=e- already several times higher than labour productivity in agriculture, the second condition is adequately met. Both employment and population have grown at an annual rate of roughly 3 per cent per annum. Thus, the proportion of working population to to ta l population has not been s ignif icant ly affected. Nevertheless, i f a rapid increase i n per capita income is to be affected by the rapid expansion of industries, a decline in the growth of population is essential . Malaya has already embarked on a family planning program to reduce b i r ths , and the rate of growth of population is expected to decline i n the late 1960's. - 9k -The growth of secondary manufacturing industries w i l l he able to f u l f i l l the objective of raising per capita incomes as long as employment in this sector expands faster than the rate of growth of pop-ulation (and continues to draw labour away from the less productive agricultural sector) ; and, productivity increases i n secondary i n d -ustries are maintained. From the long-term point of view, the policies recommended for industr ia l diversif icat ion and the encouragement of more labour intensive secondary production, w i l l best f u l f i l l the objective of increasing the output of the economy. - 95 -Resource Endowment and I n d u s t r i a l i z a t i o n The survey of a country's i n d u s t r i a l p o t e n t i a l n a t u r a l l y begins w i t h an assessment of the resources of the country. The n a t u r a l resources of Malaya were i n v e s t i g a t e d by the I n t e r n a t i o n a l Bank and found 5 t o be inadequate f o r advanced i n d u s t r i a l development: U n f o r t u n a t e l y , on the b a s i s of present technology, Malaya's t y p i c a l n a t u r a l resources do not seem t o l e n d themselves t o r e a l l y major p r o j e c t s of i n d u s t r i a l development. Malaya i s not a n a t u r a l centre f o r a l a r g e rubber-manufacturing i n d u s t r y , e x p o r t i n g t o the markets of the world. Since rubber normally gains i n weight and b u l k i n the course of manufacture, rubber u s i n g i n d u s t r i e s are more advantageously l o c a t e d near centres of consumption. T i n i s a very minor component i n most of i t s i n d u s t r i a l uses and t r a n s p o r t a t i o n costs are a l s o comparatively low. There have been suggestions t h a t t i n - p l a t e might be manufactured i n conjunction w i t h an i r o n and s t e e l i n d u s t r y based on Malaya's hi g h grade i r o n - o r e d e p o s i t s , but the absence both of coking c o a l and of cheap power r u l e s t h i s out as an economic p r o p o s i t i o n . Besides, a s t e e l i n d u s t r y would r e q u i r e very l a r g e amounts of c a p i t a l i n r e l a t i o n t o the labour i t would employ. Pulp and paper may one day become a major i n d u s t r i a l p o s s i -b i l i t y but at present Malayan timbers appear t o be g e n e r a l l y unsuited f o r commercial p u l p i n g processes. The economic i n f r a s t r u c t u r e and the human s k i l l s r e q u i r e d , however, were adequate t o embark on some i n d u s t r i a l e f f o r t as the f o l l o w i n g q uotation from the Report of the I n t e r n a t i o n a l Bank shows.^ . . . i t seems l i k e l y t h a t , i f s a t i s f a c t o r y r a t e s of progress are t o be achieved, i n d u s t r i a l a c t i v i t y w i l l have t o move i n c r e a s i n g l y i n t o l i n e s more d i r e c t l y and openly competitive w i t h manufactured products from abroad. Malaya i s probably b e t t e r able t o meet t h i s competition than much of the r e s t of A s i a , by v i r t u e of a considerable amount of e n t e r -p r i s e , s k i l l and i n d u s t r i a l experience; reasonably s a t i s f a c t o r y b a s i c I n t e r n a t i o n a l Bank, The Economic Development of Malya, p. k2k. I b i d . , P. 121. - 96 -s e r v i c e s f o r i n d u s t r y , such as power, t r a n s p o r t and communication; a f a i r l y s u b s t a n t i a l i n d u s t r i a l base on which t o b u i l d and t o draw f o r a s s i s t a n c e i n f u r t h e r i n d u s t r i a l i z a t i o n ; and an adequate supply of savings? e s p e c i a l l y t a k i n g i n t o account the l a r g e accumulations of f a i r l y l i q u i d funds remaining from the 1950-1951 boom. The r e a l obstacles t o the promotion of secondary manufacturing i n d u s t r i e s from the resource p o i n t of view were t h e r e f o r e : ( l ) an inadequate supply of l o c a l l y produced i n d u s t r i a l raw m a t e r i a l s ; and (2) an inadequate supply of savings f o r c a p i t a l formation. The f i r s t problem was s o l v e d by importing most of the i n d u s t r i a l raw m a t e r i a l s : petroleum r e f i n e r i e s import crude o i l and process i t i n Malaya; F l o u r m i l l s import wheat; the c i g a r e t t e f a c t o r i e s import tobacco; the sugar f a c t o r y imports u n r e f i n e d sugar; et?. The inadequate supply of c a p i t a l from domestic sources was overcome by importing c a p i t a l from f o r e i g n countries by c r e a t i n g a favourable climate t o f o r e i g n i n v e s t o r s , and by the promise of a high r a t e of r e t u r n . The success of the Malayan e f f o r t t o i n d u s t r i a l i z e , t h e r e f o r e , suggests t h a t countries t h a t do not have an adequate supply of i n d u s t r i a l raw m a t e r i a l s and c a p i t a l , need not be disheartened. These can u s u a l l y be imported, provided the country i s adequately endowed w i t h a sound economic i n f r a s t r u c t u r e and s k i l l e d workers. A country should f i r s t l a y the p r e -c o n d i t i o n s f o r i n d u s t r i a l i z a t i o n such as b u i l d i n g an adequate t r a n s p o r t and communications system, p o r t f a c i l i t i e s , e l e c t r i c power and water s u p p l i e s ; and s c h o o l s , t o produce workers who can be e a s i l y t r a i n e d t o acquire i n d -u s t r i a l s k i l l s . When these p r e c o n d i t i o n s are met, the import of raw m a t e r i a l i s u s u a l l y not a s e r i o u s problem. But, the import of c a p i t a l i s only f e a s i b l e 'The reference t o "an adequate supply of savings" was made i n the context of a much sm a l l e r development e f f o r t that they deemed f e a s i b l e i n 1954. - 97 -i f the promised r a t e of r e t u r n i s higher than c a p i t a l can get i n c a p i t a l -e x p o r t i n g c o u n t r i e s ; and, even at these higher rates o f r e t u r n , c a p i t a l has t o be coaxed by the p r o v i s i o n of a "favourable c l i m a t e " . The "favourable c l i m a t e " c o n s i s t s of guaranteed s e c u r i t y of c a p i t a l from government expro-p r i a t i o n , p o l i t i c a l s t a b i l i t y ; and the implementation of c o n s i s t e n t monetary and f i s c a l p o l i c i e s designed t o encourage i n v e s t o r s . The promise of a h i g h r a t e of r e t u r n f o r c a p i t a l i s l i k e l y t o m a t e r i a l i z e only when an adequate market f o r the products of secondary i n d u s t r i e s i s a v a i l a b l e . Often t h i s would r e q u i r e the quaranteed a v a i l a b i l i t y o f the home market i n the i n i t i a l stages; but as time progresses, at l e a s t some of the i n d u s t r i e s should be capable of c a p t u r i n g f o r e i g n markets. Because, at l e a s t a domestic market i s u s u a l l y e s s e n t i a l f o r secondary manu-f a c t u r i n g i n d u s t r i e s t o be e s t a b l i s h e d ; t h e i r promotion should a l s o be accomp-anied by a general development e f f o r t i n order t o create or expand demand f o r the products of the manufacturing s e c t o r . As was noted e a r l i e r , t h i s was done i n Malaya; and, i t i s one f a c t o r t h a t c o n t r i b u t e d t o the r a p i d expansion of secondary manufacturing i n d u s t r i e s i n the country. In the absence of a home market f o r the products of secondary i n d u s t r i e s , the market and the secondary i n d u s t r i e s may be simultaneously developed; b u t , t h i s would be a much more d i f f i c u l t t a s k and c a l l s f o r more a c t i v e promotion p o l i c i e s i n c l u d i n g the d i r e c t p a r t i c i p a t i o n of government or quasi-government b o d i e s , i f necessary. The d i s c u s s i o n of such problems, however, l i e beyond the scope of t h i s t h e s i s . - 9 8 -Prospects f o r the Manufacturing Sector In s p i t e of the recent r a p i d expansion of secondary manufacturing i n d u s t r i e s , the manufacturing s e c t o r i s amall r e l a t i v e t o the s i z e of the Malayan economy. I t represents only 11 per cent of the gross domestic prod-uct and about 7 per cent of employment i n the country. I t i s t h e r e f o r e obvious t h a t the manufacturing s e c t o r must continue t o grow f a s t e r than the whole economy f o r a l o n g p e r i o d of time before the country can be transformed i n t o an i n d u s t r i a l economy. In t h i s s e c t i o n , the prospects f o r such above-average growth of the manufacturing s e c t o r i s b r i e f l y surveyed. The immediate o p p o r t u n i t i e s f o r the expansion of the manufact-u r i n g s e c t o r continues t o l i e i n the production of s u b s t i t u t e s f o r imported consumer goods. The market f o r many manufactured consumer goods has r a p i d l y expanded i n recent years and these provide a v i a b l e b a s i s f o r the e s t a b l i s h -ment o f many new i n d u s t r i e s and the expansion of o l d ones. Only about ho per cent of the Malayan domestic demand f o r manufactured consumer goods of roughly 2,000 m i l l i o n d o l l a r s i s met from domestic productions. The scope f o r the production of many import s u b s t i t u t e s i s t h e r e f o r e promising. The most r a p i d expansion i n the immediate f u t u r e i s expected t o take place i n the f o l l o w i n g i n d u s t r i e s : food and beverages, wood products, rubber products, chemicals and chemical products, b a s i c metals and machinery manufacturing i n d u s t r i e s . From a long-term p o i n t of view, the o p p o r t u n i t i e s f o r the production of manu-f a c t u r e d consumer goods w i l l expand as the increase i n po p u l a t i o n and r i s i n g per c a p i t a incomes enlarge the domestic market. These o p p o r t u n i t i e s can be _ 99 -f u r t h e r improved i f export markets are developed. Opportunities f o r the establishment and expansion o f intermediate and producer goods i n d u s t r i e s are j u s t beginning t o m a t e r i a l i z e . A chemical complex and an i r o n and s t e e l m i l l have j u s t been e s t a b l i s h e d and are expected t o expand output r a p i d l y . The expansion i n the e l e c t r i c power supply and the establishment of the i n t e g r a t e d s t e e l m i l l together w i t h the existence of high grade i r o n ore i n the country are promising prospects f o r advanced i n d u s t r i a l development. A j u t e m i l l and a pulp and paper p l a n t are expected t o be i n production before 1970. The country i s a l s o i n a b e t t e r p o s i t i o n t o e x p l o i t a l l these new o p p o r t u n i t i e s j u s t beginning t o u n f o l d themselves because of the extensive improvements i n the economic i n f r a s t r u c t u r e . The supply of e l e c t r i c power has been more than doubled between i960 and 1965. The power c a p a c i t y w i l l be f u r t h e r i n c r e a s e d from the present hfl megawatts t o 915 megawatts by 1970. The water supply has i n c r e a s e d from Qk m i l l i o n g a l l o n s per day i n i960 t o 130 m i l l i o n g a l l o n s i n 1965, and i s expected t o be expanded t o 210 m i l l i o n gallons by 1970. Roads, r a i l w a y s , p o r t s , and telecommunications f a c i l i t i e s have a l l been consid e r a b l y expanded between i960 and 1965 and t h i s r a p i d r a t e of ex-pansion i s expectedjto be maintained f o r the 1966-70 p e r i o d . Thus, the prospect^ f o r the development of the manufacturing s e c t o r i n the next decade i s much more promising than i t was a decade ago. The a v a i l a b i l i t y of cheap power has made the establishment o f a t i n p l a t e i n d u s t r y i n conjunction w i t h an i r o n and s t e e l i n d u s t r y f e a s i b l e . The t e c h n o l o g i c a l problem of producing pulp and paper from Malayan hardwoods and grasses appear t o have been p a r t i a l l y solved. The market f o r - 100 -manufactured products has beenjconsMerably expanded by the expansion of the economy, and by the formation of M a l a y s i a . The improved economic i n f r a -s t r u c t u r e ; the a v a i l a b i l i t y of a b e t t e r educated labour f o r c e , ( r e s u l t i n g from the i n t r o d u c t i o n of free primary education); and the establishment of intermediate and producer goods i n d u s t r i e s , should a l l c o n t r i b u t e favourable " e x t e r n a l i t i e s " t o the expansion of the manufacturing s e c t o r . The outlook f o r f u r t h e r development of the manufacturing sectoras so b r i g h t t h a t the F i r s t M a l a y s i a P l a n concluded t h a t "the prospects f o r r a p i d economic ex-o pansion are best i n the f i e l d of manufacturing a c t i v i t y " . The r e a l l i m i t s t o the expansion of the manufacturing s e c t o r i n the f u t u r e , as i n the p a s t , w i l l be the supply of c a p i t a l . Domestic savings are; expected t o be s t a b i l i z e d at around 15 per cent of the gross domestic product. The country must t h e r e f o r e a t t r a c t l a r g e q u a n t i t i e s of f o r e i g n investments i f the new i n d u s t r i a l o p p o r t u n i t i e s are t o be promptly e x p l o i t e d . I n s p i t e of the continued existence of a favourable climate w i t h i n M a l a y s i a , i n the immediate f u t u r e , p o l i t i c a l u n c e r t a i n t i e s i n South East A s i a , may dampen the flow of f o r e i g n investments i n t o the country. The other p r o b l e m — the l a c k of s u i t a b l e n a t u r a l resources f o r advanced i n d u s t r i a l development— have been p a r t i a l l y s o l v e d w i t h the discovery of an economically f e a s i b l e process f o r the production of pulp andpaper from Malayan hardwoods and grasses; and the development of cheap e l e c t r i c power t o e x p l o i t the Op. c i t . , P. 129• - 101 -abundant deposits of high grade i r o n ore. I t t h e r e f o r e appears t h a t the recent r a p i d expansion of secondary manufacturing i n d u s t r i e s can be maintained f o r the next couple of decades, (or s o ) , as long as the supply of c a p i t a l t o e x p l o i t the many and v a r i e d new i n d u s t r i a l o p p o r t u n i t i e s are made a v a i l a b l e . The success-f u l execution of the development plans would ensure t h a t the i n f r a s t r u c t u r e i s adequately developed f o r the manufacturing s e c t o r t o respond t o new i n d u s t r i a l o p p o r t u n i t i e s . However, i f f o r e i g n investments do not respond t o these new o p p o r t u n i t i e s , the r a t e of expansion i s l i k e l y t o be con-s i d e r a b l y reduced. But, even i f f o r e i g n investments are not forthcoming, the manufacturing s e c t o r i s s t i l l l i k e l y t o grow more r a p i d l y than the r e s t of the economy, because the most favourable economic o p p o r t u n i t i e s appear t o lie.-'in t h a t s e c t o r . - 102 -BIBLIOGRAPHY P u b l i c Documents Canada Dominion Bureau o f S t a t i s t i c s . Ind.exes o f Domestic Product by Industry  of O r i g i n , 1935-61. Ottawa: Queen's P r i n t e r , 1963. Dominion Bureau of S t a t i s t i c s . General Review of the Manufacturing Ind- u s t r i e s of Canada, 196l. Ottawa: Queen's P r i n t e r , 1965. Federation of Malaya. Census o f Manufacturing I n d u s t r i e s i n the Federation of Malaya, 1959 Kuala Lumpur: Department of S t a t i s t i c s . Census o f P o p u l a t i o n , 1957 V o l . XIV Kuala Lumpur: Government P r i n t e r , i960. Survey o f Manufacturing I n d u s t r i e s , Federation of Malaya, i960. Kuala Lumpur: Department of S t a t i s t i c s . Survey of Manufacturing I n d u s t r i e s , Federation of Malaya, 1961 Kuala Lumpur: Department of S t a t i s t i c s . Survey o f Manufacturing I n d u s t r i e s , Federation of Malaya, 1962. Kuala Lumpur: Department of S t a t i s t i c s . Survey of Manufacturing I n d u s t r i e s , Federation of Malaya, 1962. Kuala Lumpur: Department o f S t a t i s t i c s . F ederation Year Book, 196l, Kuala Lumpur: Government P r i n t e r F.A.O. S t a t i s t i c a l Yearbook, Rome, 1965. M a l a y s i a I n t e r i m Review o f Development i n Malaya under the Second Five-Year  P l a n Kuala Lumpur: Government P r i n t e r , I96U. M a l a y s i a Year Book, 1966. Kuala Lumpur: Government P r i n t e r Census o f Manufacturing I n d u s t r i e s i n the States of Malaya, 1963 Kuala Lumpur: Department of S t a t i s t i c s . Survey o f Manufacturing I n d u s t r i e s i n the States o f Malaya, 1964. Kuala Lumpur: Department of S t a t i s t i c s . Survey of Manufacturing I n d u s t r i e s i n West M a l a y s i a , 1965. Kuala Lumpur: Department o f S t a t i s t i c s . - 103 -BIBLIOGRAPHY (continued) F i r s t M a l a y s i a P l a n , 1966-70. Kuala Lumpur: Government P r i n t e r , 1965 M i n i s t r y of Commerce and Industry. A Guide t o Investment i n Ma l a y s i a Kuala Lumpur: Government P r i n t e r , 1966. Pioneer I n d u s t r i e s ( R e l i e f from Income Tax) Ordinance, 1958 Kuala Lumpur: Government P r i n t e r , 1966. Income Tax Ordinance, 19^ 7 and Income Tax A c t , 1962. Kuala Lumpur: Government P r i n t e r , 1966. U.K. S t a t i s t i c a l Yearbook on Income and Employment, New York, 1957. Books A l l e n , G.C. and Donnithorne, A.G. Western E n t e r p r i s e i n Indonesia  and Malaya. London: Goerge A l l e n S. Unwin L t d . , 1957. F u l l e r t o n , D.H. and Hampson, H.A. Canadian Secondary Manufacturing  Industry, Ottawa: Queen's P r i n t e r , 1957-H i g g i n s , B. Economic Development, New York: Norton, 1959. IBRD Economic Development of Malaya, Baltimore: Johns Hopkins P r e s s , 1955. Kendrick, J.W. P r o d u c t i v i t y i n the U n i t e d S t a t e s , P r i n c e t o n U n i v e r s i t y P r e s s , 196l Thompson, V.M. Postmortem on Malaya, New York: Macmillan, 19^ 3. A r t i c l e s and Unpublished M a t e r i a l S inger, H.W. "The Mechanics o f Economic Development", Indian Economic  Review, August, 1952. t| The D i s t r i b u t i o n o f Gains between I n v e s t i n g and Borrowing Coun t r i e s , " American Economic Review Papers and Proceedings, May, 1950. Dales, J.H. "A Suggested D e f i n t i o n of Primary Manufacturing." U n i v e r s i t y of Toronto, 1962 (Mimeographed). Dominion Bureau of S t a t i s t i c s . "Primary and Secondary Manufacturing i n Canada." (A paper prepared by the C e n t r a l C l a s s i f i c a t i o n S t a f f and d i s t r i b u t e d w i t h i n the Bureau f o r d i s c u s s i o n i n November, 1964.) P r i g l y , B. "Labour Input Measurement f o r P r o d u c t i v i t y Purposes" (A paper prepared f o r d i s c u s s i o n w i t h i n the Dominion Bureau of S t a t i s t i c s , Feb.196: Worton, D.A. " P r o d u c t i v i t y Measures: How they are constructed and how they are used. (Notes prepared f o r the 1967 programme of seminars f o r summer p r o f e s s i o n a l s at the Dominion Bureau of S t a t i s t i c s . ) APPENDIX I Sources of Data The f i r s t Census of Manufacturing I n d u s t r i e s i n Malaya was conducted f o r the year 1959. The second Census o f Manufacturing I n d u s t r i e s was conducted i n 1963. The next Census i s planned f o r 1967- Since the Department of S t a t i s t i c s conducts a Census o f Manufacturing I n d u s t r i e s only once every f o u r y e a r s , an annual Survey of Manufacturing I n d u s t r i e s has been made s i n c e i 9 6 0 . Since no r e l i a b l e data on manufacturing i n d u s t r i e s i s a v a i l a b l e p r i o r t o 1959 t h i s study has t o be l i m i t e d t o the development of the manufacturing s e c t o r s i n c e 1959-The 1959 Census o f Manufacturing I n d u s t r i e s , being the f i r s t Census of i t s k i n d was faced w i t h s e v e r a l problems. E r r o r s i n the m i s i n -t e r p r e t a t i o n of questions was made by respondents t h a t could not be v e r i f i e d by l o o k i n g f o r consistency w i t h e a r l i e r r e p o r t s . Since respondents were faced w i t h a Census questionnaire f o r the f i r s t time, i t i s l i k e l y t h a t more questions were i n c o r r e c t l y answered, and, any questions t h a t were i n c o r r e c t l y answered was l e s s l i k e l y t o be e l i m i n a t e d during e d i t i n g , s i n c e e d i t o r s would have fewer guides t o go by. Therefore, i n ge n e r a l , i t may be concluded t h a t data obtained from the 1959 Census i s not as r e l i a b l e as data obtained from the Surveys and the 19&3 Census. In f a c t , the i 9 6 0 Survey r e v e a l e d t h a t f o r a l l the i n d u s t r i e s covered by the Survey, a r e v i s i o n of the 1959 data was necessary. In many cases, i n c o n s i s t e n c i e s i n the reports f o r the two consec-u t i v e y e a r s , or i n the re p o r t s f o r i n d i v i d u a l firms i n comparison w i t h the 1959 i n d u s t r y averages, brought t o l i g h t apparent e r r o r s i n i n t e r p r e t a t i o n - 105 -or r e p o r t i n g f o r the 1959 Census. For those i n d u s t r i e s covered by annual Surveys the 1959 data was r e v i s e d t o remove i n c o n s i s t e n c i e s w i t h the I 9 6 0 data, mostly by e s t i m a t i o n , but, i n some cases, as a r e s u l t of r e v i s e d f i g u r e s o f f e r e d by the firms themselves. Adjustments were found t o be necessary under a l l headings. The greatest number of r e v i s i o n s occurred i n the Employment and P a y r o l l data. Re-working of the questions under t h i s heading f o r the i960 survey i n d i c a t e d t h a t , i n a number of cases, workers p r e v i o u s l y c l a s s i f i e d as part-time were r e a l l y f u l l - t i m e ; or t h a t workers p r e v i o u s l y c l a s s i f i e d as p a i d employees were r e a l l y part-time f a m i l y workers or p a r t n e r s , or t h a t s a l a r i e s and wages p r e v i o u s l y r e p o r t e d were incomplete. There were three other reasons f o r r e v i s i n g the 1959 data, but t h e i r e f f e c t was considerably l e s s than t h a t caused by apparent e r r o r s i n 1959 data: (1) In some cases, the new establishments added during i960 from the Department of Machinery's l i s t s were found t o be i n operation p r i o r t o i960. In such cases, estimates f o r 1959 were made, based on the t r e n d of firms r e p o r t i n g f o r both years. (2) In many cases where no reports had been r e c e i v e d f o r 1959 but f o r which estimates were made, the l e v e l of the estimates turned out t o be i n c o r r e c t and had t o be r e v i s e d . In such cases d e f i n i t e proof t h a t the establishment was no longer i n existence made i t necessary t o delete the establishment from the 1959 data. (3) F i n a l l y , wherever an establishment f o r which estimates had been made f o r 1959 s t i l l d i d not report i n i960 and could not be contacted by m a i l or by f i e l d i n v e s t i g a t o r s , i t was assumed t h a t i t , t o o , was no longer i n existence and was d e l e t e d from the 1959 data. F i n a l l y , a number of r e v i s i o n s were due t o r e c l a s s i f i c a t i o n . This r e s u l t e d from more d e t a i l e d commodity data being a v a i l a b l e i n many cases, which - 106 -made p o s s i b l e more accurate assignment of establishments t o the appropriate i n d u s t r y . The o v e r a l l e f f e c t of these r e v i s i o n s was r e l a t i v e l y s m a l l , except f o r Net Value o f Output and Part-Time P a i d Employment. For the i n d u s t r i e s covered i n the Surveys t o t a l gross value of s a l e s f o r 1959 was r e v i s e d downward by 4 per cent; the value of purchases was r e v i s e d upward by 2 per cent; 1959 c l o s i n g stock was r e v i s e d downward by 4.5 per cent; net value of output was r e v i s e d down by^Q! per cent, part-time employment m - — + -/partA ^ was r e v i s e d by 33 per cent and s a l a r i e s and wages p a i d were r e v i s e d upward by 2 per cent. However, the e f f e c t on i n d i v i d u a l i n d u s t r i e s v a r i e d con-s i d e r a b l y . Thus, f o r the manufacturing s e c t o r as a whole, the 1959 data can be considered f a i r l y r e l i a b l e . Revised r e l i a b l e data i s a v a i l a b l e f o r a l l i n d u s t r i e s and establishments covered i n the annual survey of manu-f a c t u r i n g i n d u s t r i e s . But f o r a l l other i n d u s t r i e s , the 1959 data at the i n d u s t r y or i n d u s t r y group l e v e l i s u n s a t i s f a c t o r y . I t should a l s o be noted t h a t , i n g e n e r a l , there e x i s t s a l a c k of c o m p a r a b i l i t y between the 1963 Census and t h a t conducted f o r 19$9» The p r i n -c i p a l reasons a r e : — (1) the i n c r e a s e d establishment coverage i n v a r y i n g degrees i n the d i f f e r e n t i n d u s t r i e s . This increase i n coverage has been due t o the discovery o f many establishments (though a l a r g e number of them are very small i n terms of output) a r i s i n g from a major t a s k undertaken by the Department of S t a t i s t i c s i n compiling an i n d u s t r i a l d i r e c t o r y . The d i r e c t o r y has been b u i l t up from a l a r g e number of a d m i n i s t r a t i v e records. (2) the e x c l u s i o n of four i n d u s t r i e s i n the 1963 Census. These i n d u s t r i e s were l a r g e i n terms of number of establishments i n v o l v e d but assumed (with some j u s t i f i c a t i o n s from the 1959 Census) t o be - 107 -of l e s s e r importance i n terms of net value of output. The i n d u s t r i e s concerned were T a i l o r s and Dressmakers, Motor V e h i c l e Repair Shops, B i c y c l e Repair Shops and Goldsmiths. (3) the i n c l u s i o n of Smokehouses off-Estates and Copra K i l n s o f f E states i n the 1963 Census, wheras they were excluded i n the 1959 Census. However, f o r both the 1959 and 1963 Censuses, the T i n Smelting Industry was excluded because of the enormous gross value of output i n t h i s i n d u s t r y . This e x c l u s i o n provided greater f l e x i b i l i t y i n the cross t a b u l a t i o n s of the remainder Census data v i s - a - v i s secrecy requirement s of the S t a t i s t i c a l Ordinance. (U) the 1959 Census i n c l u d e d Coffee Bean H u l l i n g p l a n t s under "Other Manufacturing I n d u s t r i e s " but i n the 1963 Census, t h i s i n d u s t r y has been i n c l u d e d under " A l l other o f f Estate Process-i n g I n d u s t r i e s " . (5) the 1959 Census Report i n c l u d e d both smokehouses and f a c -t o r i e s under the term "Rubber M i l l i n g o f f EstaJes" As such a h i g h p r o p o r t i o n of t h i s t o t a l number r e l a t e d t o smokehouses on l y , the 1963 Census Report showed them s e p a r a t e l y under , "Smokehouses only" and " M i l l i n g F a c t o r i e s " . I t should alsobe noted t h a t an estate c l a s s i f i e d under " M i l l i n g F a c t o r i e s " may a l s o have smoke-houses, and those c l a s s i f i e d under "Latex P r o c e s s i n g F a c t o r i e s " may a l s o have m i l l i n g f a c t o r i e s and/or smokehouses. However, these s u b s i d i a r y a c t i v i t i e s i f a p p l i c -able have been subsumed under t h e i r major a c t i v i t i e s f o r purposes of r e p o r t i n g and c o m p i l a t i o n . Both the 1959 and 1963 Censuses d i d not attempt t o o b t a i n data on t o t a l i n s t a l l e d machinery or on new c a p i t a l formation, both of which were recommended f o r the I963 World I n d u s t r i a l Census by the United Nations. The c a p i t a l formation question was dropped because i t was f e l t t h a t the t e c h n i c a l resources at the command of the S t a t i s t i c s Department was inadequate t o handle t h i s question. - 108 -MANUFACTURING INDUSTRIES INCLUDED IN THE ANNUAL SURVEY The choice of i n d u s t r i e s t o be i n c l u d e d i n the annual Survey of Manufacturing i n d u s t r i e s was based on the f o l l o w i n g c r i t e r i a : (1) The r e l a t i v e s i z e of the i n d u s t r y measured by e i t h e r gross value of s a l e s or employment (based on data from the 1959 Cen-su s ) , and, i n p a r t i c u l a r , l a r g e average s i z e per establishment, which allowed a high p r o p o r t i o n of coverage w i t h the minimum number of establishments. I n d u s t r i e s f a l l i n g i n t o t h i s category i n c l u d e d a l l those under the heading o f " P r o c e s s i n g of A g r i c u l -t u r a l Products i n F a c t o r i e s o f f E s t a t e s , plus a number of l a r g e Food i n d u s t r i e s (Pineapple Canning, Ice Cream and Dairy Products, l a r g e Rice M i l l s , B i s c u i t F a c t o r i e s , and Ice F a c t o r i e s ) , and i n a d d i t i o n , Soft Drinks and Carbonated Beverages, Tobacco Products, Sawmills, the three Rubber Products i n d u s t r i e s , and H y d r a u l i c Cement. (2) The second c r i t e r i o n was probablg. above average growth poten-t i a l , i . e . i n d u s t r i e s which i t was b e l i e v e d would f e e l the greatest impact from the country's i n d u s t r i a l i z a t i o n program. This group i n c l u d e d a l l the Chemical Products i n d u s t r i e s , most of a l l the Metal Products i n d u s t r i e s , i n d u s t r i a l Machinery and P a r t s , most of the Transport Equipment i n d u s t r i e s , and a group of i n d u s t r i e s producing m a t e r i a l s f o r the c o n s t r u c t i o n i n d u s t r y ( J o i n e r i e s , and the S t r u c t u r a l Clay and Concrete Products i n d u s t r i e s ) . (3) In a d d i t i o n / a l l firms w i t h Pioneer Status were i n c l u d e d , even though some of them belong t o i n d u s t r i e s which were not otherwise covered. I n d u s t r i e s not covered f a l l , on the whole, i n t o two main cate-g o r i e s — m o s t of the consumers' goods i n d u s t r i e s (Food, T e x t i l e s , C l o t h i n g , F u r n i t u r e , etc.) and the " s e r v i c e " i n d u s t r i e s ( s m a l l or contract Rice M i l l s ; General Engineering and Machinery R e p a i r s , Motor V e h i c l e s R e p a i r s ) . In most of these, average output per establishment i s low, and t h e r e f o r e t h e i r i n c l u s i o n would have meant an increase i n the number of r e p o r t i n g establishments out of a l l p r o p o r t i o n t o the i n c r e a s e i n coverage measured i n terms of value of s a l e s or employment. F a . n a l l y 5 n o attempt was made t o i n c l u d e Estate Manufacturing a c t i v i t y - 109 -( i . e . p r o c e s s i n g of primary products l i k e rubber and palm o i l on estates are excluded). The 1603 establishments i n c l u d e d i n the i960 survey (although they represented only 33 per cent of the t o t a l number of o f f E s t a t e estab-lishments covered i n the 1959 census) accounted i n 1959 f o r 8k per cent of gross value of s a l e s , 72 per cent of net value of output, 70 per cent of f u l l - t i m e year-end p a i d employment and 71 per cent of s a l a r i e s and wages p a i d during the year. I n 19^ 3, the T o t a l S e l e c t e d I n d u s t r i e s and Establishments covered annually represented 29 per cent of the Census t o t a l , but accounted f o r Qk per cent of s a l e s , 78 per cent of net value of output, 73 per cent of p a i d f u l l - t i m e employees, and 75 per cent of s a l a r i e s and wages p a i d . Since most of our a n a l y s i s w i l l be based on data obtained from the annual Survey of Manufacturing I n d u s t r i e s , the term Manufacturing I n d u s t r i e s w i l l be used throughout the r e s t of t h i s theses t o describe the manufacturing i n d u s t r i e s covered i n the annual Surveys. Whenever reference i s made t o a l l Manufacturing I n d u s t r i e s covered by the two Censuses t h i s w i l l be e x p l i c i t l y s t a t e d . I t i s a l s o important-to note t h a t each year, a f t e r the Report on the Survey has been p u b l i s h e d , a r e v i s i o n of the data has been found necessary. Throughout t h i s e x e r c i s e r e v i s e d data i s used f o r the years 1959, I960, 1961, and 1962. I t should f u r t h e r be noted t h a t i n 1962 as a r e s u l t of the i n d u s t r i a l d i r e c t o r y compiled by the S t a t i s t i c s Department, the ex i s t e n c e of a l a r g e number of s m a l l e r establishments' came t o be known, and coverage was extended t o i n c l u d e these newly discovered establishments. For t h i s reason, f o r the year 1962 there are two sets of d ata—one comparable w i t h the data f o r 1959, I960, and 1961 a n d — t h e other comparable w i t h 1963. The f i r s t set of data w i l l be i n d i c a t e d by s t a t i n g 1962 (old) and the l a t t e r w i l l be i n d i c a t e d by 1962 (new). APPENDIX I I D e f i n i t i o n s D e f i n i t i o n of Manufacturing The d e f i n i t i o n of manufacturing i s given by the Federation of Malaya I n d u s t r i a l C l a s s i f i c a t i o n 1963. This d e f i n i t i o n f o l l o w s t h a t of the I n t e r n a t i o n a l Standard I n d u s t r i a l C l a s s i f i c a t i o n of A l l Economic A c t i v i t i e s (I.S.I.C.) p u b l i s h e d by the S t a t i s t i c a l O f f i c e of the United Nations. The term Manufacturinghas been defined as: The mechanical or chemical t r a n s f o r m a t i o n of i n o r g a n i c or organic substances i n t o new products, whether the work i s done by power-dr i v e n machines or by hand, i n a f a c t o r y or i n the worker's home, and whether s o l d at wholesale or r e t a i l . The assembly of component pa r t s i s i n c l u d e d (unless the a c t i v i t y i s more a p p r o p r i a t e l y c l a s s i -f i e d t o C o n s t r u c t i o n ) . Establishments p r i m a r i l y engaged i n r e p a i r work are i n c l u d e d , and c l a s s i f i e d according t o the type p f product r e p a i r e d . The i n c l u s i o n of p r o c e s s i n g and r e p a i r operations would be r e f l e c -t e d i n a wider i n d u s t r i a l base than t h a t i m p l i e d by the o r d i n a r y usage of the term "manufacturing". Primary and Secondary Manufacturing No p r e c i s e d e f i n i t i o n of Primary Manufacturing and Secondary Manufacturing has been attempted by the S t a t i s t i c a l O f f i c e of the U n i t e d Nations. For t h i s reason there i s no standard i n t e r n a t i o n a l l y accepted d e f i n i t i o n of Primary Manufacturing I n d u s t r i e s and Secondary Manufacturing I n d u s t r i e s . D.H. F u l l e r t o n and H.A. Hampson i n t h e i r volume on Canadian Secondary Manufacturing Industry w r i t t e n f o r the Royal Commission on Canada's Economic Prospects make a d i s t i n c t i o n between Primary and Secondary Manu-f a c t u r i n g I n d u s t r i e s . ^ T h e i r main reason f o r making t h i s d i s t i n c t i o n i s D.H. F u l l e r t o n and H.A. Hampson, Canadian Secondary Manufacturing  Industry (Ottawa: Queens' P r i n t e r ) , 1957. - I l l -t h a t some manufacturing e n t e r p r i s e s are so c l o s e l y r e l a t e d t o the Primary Sector I n d u s t r i e s that supply t h e i r raw m a t e r i a l s t h a t they are i n e f f e c t extensions of the Primary Sector of the economy, and t h e r e f o r e conceptually d i f f e r e n t from the r e s t of the Manufacturing I n d u s t r i e s . The former may he c l a s s i f i e d as Primary Manufacturing I n d u s t r i e s and the l a t t e r may be c l a s s i -f i e d as Secondary Manufacturing I n d u s t r i e s . But F u l l e r t o n and Hampson d i d not attempt a p r e c i s e d e f i n i t i o n of Primary Manufacturing and Secondary Manufacturing. They merely noted w i t h regard t o Canada t h a t Primary Manu-f a c t u r i n g I n d u s t r i e s begin w i t h resource, t e c h n i c a l and other competitive advantages; g e n e r a l l y have ready access t o world market; w i t h few exceptions have l i t t l e or no t a r i f f p r o t e c t i o n ; depend f o r p r o s p e r i t y upon the s t r e n g t h of i n t e r n a t i o n a l demand f o r t h e i r products; and u s u a l l y operate a t , or near, the resource on which they are based. Secondary manufacturing, on the other hand, was noted as, g e n e r a l l y having no pronounced n a t u r a l cost advantages ( f r e q u e n t l y being at a p o s i t i v e disadvantage r e l a t i v e t o t h e i r main competitors); having as main sa l e s o u t l e t s the comparatively s m a l l and s c a t t e r e d (although r a p i d l y growing) domestic market i n which they are confronted w i t h considerable import competition; being c h a r a c t e r i s e d by a high degree of p r o c e s s i n g ; being l o c a t e d c l o s e t o the centre of t h e i r markets; and depending f o r p r o s p e r i t y upon a degree of p r o t e c t i o n and the s t r e n g t h of domestic demand. Pr o f e s s o r J.H. Dales i n an unpublished note w r i t t e n i n 1962 r i g h t l y commented:"^ In the Royal Commission study e n t i t l e d Canadian Secondary Manufacturing Industry the d e f i n i t i o n of Primary Manufacturing i s so loose and impress-i o n i s t i c as t o be almost u s e l e s s , and the l i s t of Primary Manufacturing 1 John H. Dales. "A Suggested D e f i n i t i o n of Primary Manufacturing " (Unpublished note, U n i v e r s i t y of Toronto), I962. - 112 -i n d u s t r i e s given i n the appendix of the study must he considered l a r g e l y a r b i t r a r y . P r o f e s s o r Dales goes on t o define Primary Manufacturing i n d u s t r i e s as f o l l o w s : Primary Manufacturing i n d u s t r i e s are i n d u s t r i e s engaged i n the process-i n g of domestic n a t u r a l products ( i n l u d i n g h y d r o e l e c t r i c i t y as a n a t u r a l product) up t o the p o i n t where the output of the i n d u s t r y i s economically t r a n s p o r t a b l e over long d i s t a n c e s . Two c o r o l l a r i e s o f t h i s d e f i n i t i o n t h a t help t o s p e c i f y the a c t u a l l i s t of such industries are as f o l l o w s . Primary Manufacturing i n d u s t r i e s must necessary be: (a) l o c a t e d at the s i t e of the n a t u r a l product or at a "break-o f f -bulk" p o i n t along t r a n s p o r t systems l e a d i n g from the s i t e ; and (b) based e x c l u s i v e l y , or n e a r l y so, on l o c a l s u p p l i e s of the n a t u r a l product i n v o l v e d , i . e . , on n a t u r a l products t h a t do not enter i n t o i n t e r r e g i o n a l or i n t e r n a t i o n a l trade i n any s i g -. n i f i c a n t volume. This d e f i n i t i o n makes comparisons of Primary Manufacturing p o s s i b l e between cou n t r i e s and between times, because i t i s so worded th a t no i n d u s t r y c l a s s i f i e d as Primary i n one country could be c l a s s i f i e d as secondary i n an-other; nor ( b a r r i n g some major t e c h n o l o g i c a l change w i t h i n the i n d u s t r y ) could an i n d u s t r y c l a s s i f i e d as Primary at one time be c l a s s i f i e d as secondary at another. The Dominion Bureau of S t a t i s t i c s has suggested another d e f i n i t i o n : Primary manufacturing i n d u s t r i e s are those manufacturing i n d u s t r i e s -as- having as t h e i r p r i n c i p a l commodity i n p u t s , the products of Can-adian primary i n d u s t r i e s ( i . e . A g r i c u l t u r e , F o r e s t r y , F i s h i n g , Trapping and M i n i n g ) . The remaining manufacturing i n d u s t r i e s are c l a s s i f i e d as Secondary. The great advantage of t h i s d e f i n i t i o n i s t h a t . i t i n v o l v e s the a p p l i c a t i o n o f a s i n g l e c r i t e r i o n , i . e . does the value of m a t e r i a l inputs J~ i C e n t r a l C l a s s i f i c a t i o n S t a f f , Dominion Bureau of S t a t i s t i c s , "Primary and Secondary Manufacturing i n Canada." (A paper d i s t r i b u t e d w i t h i n the Bureau f o r d i s c u s s i o n o n l y ) , November, 1964. - 113 -obtained from the primary s e c t o r of the r e l e v a n t country's economy amount t o 50 per cent or more of the t o t a l value of m a t e r i a l inputs i n t o the manu-f a c t u r i n g i n d u s t r y ? This proposal f o l l o w s the u n d e r l y i n g assumption t h a t the primary manufacturing i n d u s t r i e s are extensions of the primary s e c t o r . But the disadvantage i s t h a t a manufacturing i n d u s t r y c l a s s i f i e d as "primary" i n one country may be c l a s s i f i e d as "secondary" i n another. S i n c e , f o r purposes of t h i s t h e s i s , an i n t e r n a t i o n a l l y a p p l i c -able d e f i n i t i o n of primary and secondary manufacturing i s d e s i r a b l e , P r o f e s s o r Dale's d e f i n i t i o n i s used. In any case, only one of the manufacturing Ind-u s t r i e s c l a s s i f i e d as secondary i n t h i s t h e s i s would have been a f f e c t e d , i f the d e f i n i t i o n suggested by the Dominion Bureau of S t a t i s t i c s has been a p p l i e d . Coconut O i l R e f i n e r i e s would then have been c l a s s i f i e d as Primary because more than 50 per cent of the t o t a l value of m a t e r i a l inputs of t h i s i n d u s t r y i s obtained from the primary s e c t o r of the Malayan economy. But since crude coconut o i l i s i n t e r n a t i o n a l l y t r a d e d , under Dale's d e f i n i t i o n , Coconut O i l R e f i n e r i e s must be c l a s s i f i e d as a secondary manufacturing i n d u s t r y . Establishment This may be e i t h e r ( l ) a s i n g l e and e n t i r e geographic u n i t i n which manufacturing i s the major a c t i v i t y ; or (2) i n the case of a s i n g l e and e n t i r e geographical u n i t i n which manufacturing i s only a minor a c t i v i t y , t h a t s e c t i o n of the u n i t which i s devoted t o manufacturing a c t i v i t y . Gross Value of Sales Value of s a l e s or shipment?, during the calendar y e a r , of prod-ucts manufactured i n the r e p o r t i n g establishments; plus amounts r e c e i v e d f o r r e p a i r s , s e r v i c e s or other work done on m a t e r i a l s owned by others. (Export duties and e x c i s e taxes p a i d on s a l e s are excluded) 114 -Gross Value of Purchases Value of a l l m a t e r i a l s and s u p p l i e s purchased during the c a l e n -dar year f o r use i n production at the r e p o r t i n g establishments, i n c l u d i n g f u e l , e l e c t r i c i t y , and the cost of work done by other establishments on m a t e r i a l s owned by the r e p o r t i n g establishments. (Taxes and duties p a i d on s u p p l i e s are included.) Net Value of Output The gross value of s a l e s f o r the y e a r , l e s s gross value of purchases f o r the y e a r , plus the value of inventory increases during the year. (Decreases i n inventory are subtracted) Employees They i n c l u d e a l l categories of p a i d workers. Unpaid Workers They are working p r o p r i e t o r s , working partners and unpaid f a m i l y workers. Unpaid Family Workers Members of the owners' f a m i l i e s , t o whom r e g u l a r wages•are not p a i d , I f f a m i l y members are drawing r e g u l a r allowances and mailing c o n t r i b u t i o n s t o Employee's Provident Fund, they are supposed t o be i n -cluded as employees. Wages P a i d The value of money payments, i n c l u d i n g bonuses, cash food allowances e t c . , made t o a l l p a i d workers during the calendar year. The employees' c o n t r i b u t i o n t o Employees* Provident Fund i s i n c l u d e d (but the - 115 -employers' c o n t r i b u t i o n i s excluded). Allowances t o working p r o p r i e t o r s , working p a r t n e r s , and unpaid f a m i l y workers are not in c l u d e d . Part-Time Workers Employees or unpaid workers working l e s s than a six-hour day or l e s s than 20 days a month. (In the 1959 Census no d e f i n i t i o n of p a r t -time workers was given, and some of the workers c l a s s i f i e d as part-time workers were i n f a c t f u l l - t i m e workers. But, f o r i n d u s t r i e s and estab-lishments covered i n the annual Survey o f Manufacturing I n d u s t r i e s , the data has been r e v i s e d t o make t h i s d e f i n i t i o n of part-time workers a p p l i c a b l e ) . 

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