Media statement by Zairil Khir Johari in George Town on Friday, 1^st June 2012:

Penang will end up in post-industrial ruin if BN's strategy to replace manufacturing materialises

I am deeply intrigued by newly-minted Penang Barisan Nasional chairman Teng Chang Yeow's statement on how "the manufacturing sector has reached its peak in Penang".

In unveiling the coalition's manifesto for Penang, Teng talks about transforming the services sector into an engine of growth as a replacement to the manufacturing industry, which he says the state can no longer be dependent on.

Other state BN leaders echo similar views, such as Penang MCA adviser Datuk Koay Kar Huah who is quoted in a report titled "MCA: Too many factories" in The Star on 27 May 2012 as saying that Penang is "oversaturated with manufacturing activities and it is time to consider other industries to stimulate its economy."

This premise of replacing manufacturing with services is a flawed one.

Leading economists have pointed out that what we understand to be high-income knowledge economies are in fact highly industrialised economies. For example, Switzerland and Singapore, two ostensibly service-based economies, actually rank second and third in the world in terms of manufacturing value-add per capita. The top in the world is of course Japan.

The truth is that Switzerland and Singapore have been able to cultivate a thriving services industry because of their solid manufacturing base. After all, it is only when we are able to produce something that we can start innovating and adding value to the product. In other words, services like research, design, engineering, legal, financial and sales are actually complementary offshoots of manufacturing and should not be seen as a replacement.

Teng and his BN cohorts are trying to sound clever by articulating the need for de-industrialisation in the context of a knowledge-based, post-industrial economy. However, they are terribly mistaken if they think that such a strategy is optimal for Penang.

Let us not forget that Britain underwent one of the greatest de-industrialisation exercises in post-war Europe. Manufacturing went from commanding a third of British national income in the 1970s to about a tenth today. The result, as we now see with the sluggish British economy, has been massive loss of productivity, high unemployment, rising inequality and the displacement of an entire generation. Where is the proverbial high-income knowledge economy that was promised?

It is undeniable that as the world progresses, the consumption of technological goods will also increase. As a result, more rather than less manufacturing will be needed to keep up with growing demand. How then can anyone advocate reducing manufacturing when we should be trying to develop it further?

Instead of putting manufacturing on the backburner, the strategy should be to capitalise on Penang's established manufacturing base and investing efforts into enhancing the use of technology and automation, increasing production capacity and training the required human talent. Value-added growth in manufacturing will eventually result in value-added services and correspondingly, higher-paying jobs.

No other industry is capable of generating the same multiplier effect, both in terms of jobs and support services, as manufacturing. It is critical that we recognise this. Any strategy to replace manufacturing will only land Penang in post-industrial ruin.

* Zairil Khir Johari, Political Secretary to DAP Secretary-General Lim Guan Eng