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Do institutions matter?

June 20, 2012

Without solid platforms and institutional support, even the smartest, most motivated people may be left to languish and waste their God given talent.


By Chris Tan

In recent weeks, I gained a label as the new “Africa guy” in the team. A trip to Nairobi in April at the invitation of the World Bank to address the 1st African Summit on Science, Technology and Innovation (STI) Policy, was quickly followed by another quick pop-in to Dar Es Salaam in early May, at the behest of the Tanzanian President’s Planning Commission.

Besides strengthening my already intimate knowledge of the KLIA, those visits gave a sobering reminder about the purpose for our struggle, and the nature of the challenges we are to overcome.

Most of all, a trip to these East African capitals is like journeying in a time machine to Malaysian days long past. The streets of the city bring me back to the Penang of decades ago.

This is an observation that is not lost upon their current crop of national leaders – contrast their development goal “to become a middle income economy by 2025”, with ours “to become a high income economy (five years earlier) by 2020”.

And to think – they gained independence in 1961 – which makes Malaysia not that much older.

In people management philosophy, we talk about “performance issues” arising either for motivational or capability reasons. But neither seems to apply in the case of this region.

The people I met were clearly smart, and were clearly motivated – and I met lots of them. Something else is missing in the formula – and my money’s on the institutions that support them.

When the late Tun Lim Chong Eu had the free port rug pulled out from under his feet after the fateful 1969 elections, he dreamt up the Free Trade Zone (FTZ) concept, and he designated the area surrounding the airport as its first manifestation.

The Penang Development Corporation (PDC) that was entrusted with the FTZ’s development grew eventually to be the premier industrial park developer in these parts. The output of this institution was a ready-made base of operations for aspiring MNCs to quickly set up shop.

For sample, Intel Corporation, my alma mater, was founded in 1968 in Santa Clara, California. By 1971, they were operating in Bayan Lepas.

The Malaysian Industrial Development Agency (MIDA) as it was then known, was established in 1973 to provide one stop / full service investor support for the hordes of foreign manufacturers seeking to take advantage of the FTZ’s vast suite of offerings.

MIDA quickly established itself as the model investment promotion agency for the developing world.

The explosive growth in Penang, spurred on by the initial successes of the FTZ program did eventually find itself in danger of being constrained by logistics and connectivity issues. These would hamper not only the flow of goods and services, but also the highly educated workers that formed the main appeal to the MNCs.

The Penang Bridge, completed in 1985 to connect the island of Penang with mainland Province Wellesley, quickly overcame those issues. Not only did it ensure the continuing prosperity of the island based activities, it also enabled investors to overcome their hesitation over mainland investments.

Perai, Mak Mandin, Bukit Tengah, Bukit Minyak are lasting testaments to the wisdom of that investment in the bridge.

Big role of the educational institutions

With the building of the 2nd Penang Bridge now, developers have also flocked to the “Deep South” of the island centred around Batu Maung. The area around Batu Kawan where the new bridge will terminate from the mainland will see 6,000 acres transformed into prime real estate.

The Northern Corridor Economic Region (NCER) program was launched in 2007 to expand the footprint of Penang’s manufacturing juggernaut, and to distribute the economic spinoffs to Kedah, Perlis, and (Northern) Perak.

As we speak, the organisation instituted to give effect to the NCER Masterplan, the NCIA, is busily chugging along at its offices in Penang and Alor Setar despite the events of March 2008.

Government institutions were not solely responsible for the successful development of Penang’s high technology manufacturing industry though. Educational institutions and their human outputs were always the main consideration in foreign investor decision making.

The Government-Academia-Industry “triple helix” was always present via the long-time presence of USM in Penang, and the engineering schools of UM/UKM etc.

Significantly, the Penang Skills Development Centre (PSDC), an icon in the technical education community, is universally acknowledged as the key factor underpinning Penang’s FTZ successes (besides the establishment of the FTZ itself, of course).

The PSDC having graduated thousands of well trained employees for investors in Penang is perhaps the most focused and productive NGO in Malaysia now.

So, if I had to advise my new Tanzanian friends on which area to focus on to drive their own economic transformation, I only have to look back at my hometown and point.

Look at our institutions. They were created by purposeful people with clear objectives. Without solid platforms and institutional support, even the smartest, most motivated people may be left to languish and waste their God given talent.

Penang today is a testimony that its leaders from the early days, had set the state on the right path. After seeing what I’ve seen in my travels, I’m particularly glad to play a part in Penang’s transformation journey in realizing her full potential.

Chris Tan is the the Electronics and Electrical NKEA Director of Pemandu (Performance Management & Delivery Unit), Prime Minister’s Department.


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