Malaysia: Reviving the dream of a national car

M Rokonuzzaman   | Published: July 10, 2018 21:38:33 | Updated: July 15, 2018 21:47:37


Dr. Mahathir stunned the world by being the Prime Minister of Malaysia at the age of 92. During his first term lasting from 1981 to 2003, he demonstrated bold leadership in driving the development of Malaysia. Starting from Petronas twin towers, to Proton, he undertook several mega projects making headlines across the world. Although many people have been visiting Malaysia's capital to get a glimpse of the silver shinning twin towers, the luster of Proton has faded from national pride to a sold-out private property. Proton Holdings Bhd., is the carmaker Mahathir started in 1983 during his first stint as premier. The privatisation of the company started in 2012, leading to the selling of 49.9 per cent stake to China's Geely in 2017. Such sell by the previous government is often termed as a political decision, as Proton was Dr. Mahathir's baby. Within a month of being installed as the prime minister, Dr. Mahathir said in the Nikkei conference in Tokyo, "Our ambition is to start another national car, perhaps with some help from Southeast Asia." The obvious question, is it a prudent decision to provide stimulus to Malaysia's economy struggling to exit from middle-income trap? Does it provide the path to Malaysia for entering into technology and innovation economy? Or, is it likely to repeat the loss making history of proton draining significant public resources? 

Since its birth, Proton kept faltering even after consuming billions of dollars in grants and subsidies. To protect Proton, Malaysians also paid far higher price than they should have for purchasing imported cars, as the government increased taxes on import. As a result, the national pride consumed significant public fund, forced Malaysians to buy relatively poorer home made cars, and pay high prices for imported quality cars. Such reality raises the question about the merit of such a national dream. It is worth of noting, to compete with national image building of Malaysia through car project, it is neighbour Indonesia which wasted billions in pursuing the project of developing national plane maker.

Well, it is understood that despite having good intension, Mahathir's baby Proton could not grow as a self growing, profitable national icon. Does it mean that the state leadership should not undertake such ambitious projects to expand national production capacity, particularly in high value added manufacturing? If the state does not lead, who should lead in uplifting countries through the production value chain, from raw material extraction, labour based replication to high value added manufacturing? These and other questions should be investigated in depth to draw lessons to figure out the role of state leadership in developing high-productive wealth creation opportunities in this globally connected competitive economy. 

In most of the developing and least developed countries, over the decades, there have been attempts by states to kick-start the development of industrial economy. But except a few, virtually no government has succeeded in creating the engine of wealth creation by pursuing industrial economy. For example, many countries pursued the import substitution strategy by giving diverse incentives. Notable ones are very high import taxes on finished products and low or negligible taxes on intermediary inputs and capital machinery. Such policies provided local import substitution producers an easy path of making profit by offering locally produced industrial products, often of poorer quality, at higher price than international level. And Proton is no exception. As taxes and duties on importing capital machinery are virtually zero in most of these countries, there has been virtually no attempt to create local R&D capacity for improving manufacturing efficiency. As a result, through the process of import substitution producers did not invest in developing local capacity of technology development and innovation to reduce their cost of production and increase the quality to make them globally competitive. Although such strategy opened the opportunity of producing industrial products locally, but the vital capability to keep them improving without help from outside have not been acquired. As claimed by Dr. Mahathir, although Proton's supply chain in Malaysia can make most or all of the parts required to build a car, the vital capability of improving underlying technologies further and innovating better components leading to higher quality cars at lower cost is missing. In the absence of this vital capability acquisition, such strategy of giving protection to import substitution producers has failed to harness potential benefits for these countries.

But if import substitution is taken out, what else is left for rapidly expanding industrial base? The answer could be Silicon Valley type start-up culture in turning ideas to multi-billion dollar businesses within a span of decade or so. And Dr. Mahathir also attempted to replicate such culture in Malaysia at Cyberjaya--a town with a science park as the core that forms a key part of the Multimedia Super Corridor in Malaysia. But unfortunately, despite having the aspiration and pumping of billions of dollar in developing infrastructure under the advice of globally reputed constancy houses, Malaysia is left with virtually no success.

In this globally connected, competitive economy acquiring the capability of just producing manufactured products is not sufficient to keep moving up the value chain of industrial economy. The core challenge is to acquire the capacity of research and development to keep improving the quality and reducing the cost of whatever is being produced. Having the ability better than competitors in innovating processes and products for offering higher quality products at lower cost than what competitors can offer in the international market is the key to succeed in the industrial economy.

There is no harm to have the dream of a national car project. But the dream should not stop here. The dream should not be limited to allocating public fund for giving contracts to foreign auto makers to set up production plant locally and providing conventional protections to create market for locally produced cars. Rather, the dream should expand to acquire the local capability of conducting research and development for endless development of underlying technologies and innovating better components at lower cost. Capturing such vital capacity around a national dream of a car company could lead the way of creating exit path of income growth traps. Focus should be on developing commercial performance centric R&D capacity development, making academic institutions also strong partners of industrial growth. Korea's success of developing self-growing industrial economy hinges on this vital capacity. Moreover, focus should be on developing the culture of pursing never ending journey to perfection.  

It may be noted that the genesis of Toyota was in the carpentry skill of Sakichi Toyoda, father of Kiichiro Toyoda. And mechanic Soichiro Honda's never ending fascination for perfection led to the creation of Honda.  It's good to see that Mr. Mahathir is dreaming of a national car project. But he should also take lesson from Proton, the loss making car company created by his government in the past. To realise the dream, Mr. Mahathir should rather focus on creating the national culture of perfection, and providing incentives for adding local value through research, development and innovation.

M Rokonuzzaman Ph.D is academic, researcher and activist on Technology, Innovation and Policy. Zaman.rokon.bd@gmail.com,

 

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