Speech by Lim Guan Eng during the 4th Asia Economic Summit jointly organised by the Asia Society and Asian Strategy & Leadership Institute (ASLI) in JW Marriott Hotel, Hong Kong on Tuesday, 9th December 2008: 

Eight measures to transform Penang from a sweat shop to a smart shop and reinvent the economy for sustainable growth and prosperity  

The theme of the 4th Asia Economic Summit of “Reinventing Asian Economies for Sustainable Growth & Prosperity” is apt and timely following the global financial crisis that has threatened both the growth and prosperity of both developed country and emerging economies. There is also a need to reinvent as the conditions that made prosperity and growth possible either do not exist or are not applicable any more.

The most popular measures to counter the current recession includes an expansionary budget and government guarantees for financial institutions. However we need to look beyond the recession and be bold enough to undertake fundamental reforms and reinvent the economy to allow Asia is to continue enjoying sustainable growth and prosperity. Asia is too diverse to be presented in a singular case. So allow me to present the perspective of Penang, the problems, successes and failures of a middle income state.

Penang is a key trading post that successfully evolved into one of the largest electronics manufacturing hub in the world during the last century. Penang’s success from the 70s to the 80s made Penang the leading state in Malaysia with GDP per capita of RM 28,851, double that of Malaysia at RM 19,189 for 2008. Despite being the second smallest state in Malaysia and with a population of only 1.4 million, Penang’s exports alone amounted to 27% of Malaysia’s total exports.

There were five common characteristics of successful growth economies identified in “The Growth Report” by A. Michael Spence were:-

1. Openness to the global economy in knowledge and trade;
2. Macroeconomic stability;
3. A futuristic vision exemplified by high savings and investments;
4. Reliance on markets and prices to ensure efficient allocation of resources; and
5. A leadership committed towards growth and inclusion with a competent administration.

However failure to adhere to these five characteristics or mismanagement and abuse of powers caused Penang to stagnate since the final years of the 20th century. This economic lethargy and indecisive leadership resulted in an alarming drop in its position as a leading investment location of choice. Penang’s total investment dropped to No.5 amongst states in Malaysia to RM 4.77 billion in 2007.

The sense of drift and overwhelming yearning for change were some of the factors that contributed to the political tsunami of the March 8 general elections that swept the ruling BN coalition from power. Upon taking power, my new government quickly concluded that the previous economic strategy of relying on low-cost labour, easy availability of skilled labour, cheap land and efficient logistics either do not exist or were no longer sufficient to achieve rapid growth.

Penang was a middle-income tate trapped between the low-cost competitors in poor countries who are competitive in mature or sunset industries and high-wage innovators in rich countries who are competitive in new or sunrise industries. There was a need for a new holistic approach that links Penang’s unique logistic position, its scenic beauty, rich and cultural heritage, social harmony, even good food with our talented human resources and strong work ethic.

There was a need to reinvent our economic settings to fully utilize Penang’s knowledge workers - the energy, expertise and entrepreneurship of our people to transform Penang from a sweat-shop to a smart-shop. Eight key measures are necessary.

1. Institution building has been identified as the source of growth and there is a need to respect rule of law and good governance based on CAT(competency, accountability and transparency);

2. A sound education system promoting a culture of excellence that is relevant to the demands of industry and economy. Emphasis naturally centers on ICT and computer knowledge. To facilitate the creation of more computer literate knowledge workers, Penang has launched a new initiative to be the first wifi state in Malaysia where wireless services will be provided free and wimax at affordable rates in 2 years time;

3. A Civil society encompassing the triple transformation of political transformation to achieve political equality, respect for human rights, supremacy of people’s power and rule of law; economic transformation that provides equal opportunities and relies on the energy, expertise and enterprise of our human resources; ethical transformation that establishes integrity in public life, checks corruption and pursue socio-economic justice of an equitable share in the economy’s prosperity.

4. Encouraging creativity, innovation, research and development;

5. Establishing international benchmarks that makes development sustainable – where resources that are used today in a manner that are still available for our future generations. Penang was voted as the 10th most livable city in Asia amongst 254 cities throughout Asia;

6. Trusting in the ability of any state’s greatest resource – our human resources by investing in retraining and human development;

7. The need to reinvent government towards a government that works better but cost less. The explosion in the number of civil servants and public spending on the civil service without a corresponding rise in quality of services requires the adoption of best business practices. Such spending must be curbed not only to increase savings but ensure that the government gets back a return of a dollar for every dollar spent.

8. Adopting a public-private partnership model of a win-win formula where public interest is upheld without sacrificing the private sector’s necessity for profits. Open tenders and capping the private sector profits at a reasonable rate of return will ensure the protection of public interest without sacrificing efficiency and productivity.

Penang’s experiment in these 8 new measures have shown some success with the declining investments flow reversing to rise to RM 8 billion for the first 9 months of this year as compared to RM 4.77 billion for the whole of 2007. Making Penang a smart shop will go a long way towards transforming Penang an international city that is a location of choice for investors, a destination of choice for tourists and a habitat of choice for those who desire sustainable living.

* Lim Guan Eng, DAP Secretary-General & Penang Chief Minister