Thursday, July 2, 2015

Globalization, urbanization and digital tsunami: Malaysia swimming or drowning?

(全球化 城市化 数码海啸 大马是游泳或溺水 )


Francis Bacon (1561 – 1626), an English philosopher and Father of Scientific Revolution claimed three inventions had changed the world. First is printing, which he considered as “humanist scholarship of Renaissance” that enable pamphlets and writing of Reformation. Second is gun power that ended chivalry, changed warfare and thus developed new form of state. Third is compass, which enables worldwide geographical exploration and discovery for the likes of Columbus and Vasco da Gama. Of course these European exploration subsequently resulted in colonization of so called “new world” includes Malaya.

Perhaps, in the future, invention of Doraemon’s “Anywhere Door” (Dokodemo Door in Japanese) will greatly changes logistic system, reduces traffic jam and subsequently affecting almost all aspects of social-economy. Now, three phenomena have been changing the world, especially to developing countries like Malaysia. They are economic globalization, digitalization (proxy by “information, technology and communication” or ICT development) and urbanization.

Globalization – usually comes together with liberalization – opens up trade and investment opportunities. Globalization is not a new thing but the latest New Silk Roads proposed by China may change the world economy and therefore worth global attention. Together with rapid ICT development, global online business of Aliaba/Tao Bao and Xiaomi can revolutionize way of doing business. Both of these future global changes involve China. Indeed, the Francis Bacon’s “three inventions that changed the world” – printing, gun power and compass – also originated from China. On localized aspect, continuous urbanization poses both benefits and threats to Malaysian social economy.

Trend and Comparison
In his paper in Applied Economics journal Vol.38 (10), Axel Dreher created an “Index of Globalization” with sub-index on economic, social and political globalization. Subsequently, these indexes are continuously updated by his Swiss Federal Institute of Technology, Zurich, Switzerland and been used as indicator for level of globalization. Based on Figure 1, Malaysia’s economic globalization sharply increased in the three years of 2009, 2010 and 2011. Urbanization is a consistent process while ICT development is rapidly improving. However, how does Malaysia’s progress compares to other countries?

Let divided “other countries” into three groups of selected (a) ASEAN countries, (b) developed countries, and (c) Brazil, Russia, India, China and South Africa (collectively known as BRICS countries). The first group (ASEAN) reflects our progress relatives to our neighboring countries. The second group (developed countries) reflects our benchmark where we want to be among them. The third group (BRICS) is considered as “super-stars developing economies” just like the “Asian Tigers” where Malaysia was once called. Comparisons with these three groups are shown in Figure 2 to Figure 4 respectively.


Figure 1: Malaysia’s “Triple-Tsunami” Progress
(Source: “EGI” from Swiss Federal Institute of Technology; “urbanization” is percentage of urban population from World Bank; “IDI” from International Telecommunication Union, ITU)
(EGI = Economic Globalization Index; U = urbanization ratio; IDI = ICT Development Index)

Among our neighbors, it is very clear that Malaysia’s development in all three aspects of economic globalization, urbanization and digitalization is better than all selected major ASEAN countries except Singapore. Figure 2 shows Malaysia (dotted line) cover-up all other countries except Singapore.

Figure 2: “Triple-Tsunami”: Selected ASEAN Countries


Figure 3: “Triple-Tsunami”: Selected Developed Countries

Figure 4: “Triple-Tsunami”: BRICS Countries

Surprisingly, Malaysia level of economic globalization is higher than selected developed countries (Figure 3) and BRICS countries (Figure 4). Information, communication and telecommunication (ICT) development as proxy for digitalization is a relative weakness for Malaysia. South Korea, the world second best ranked in ICT Development Index is far ahead of Malaysia. Nonetheless, higher rank in ICT development aspect does not necessary good. Example, in United Kingdom, its citizens have been heavily criticizing their government for over-liberalized ICT sector until selling and allowing foreign entities controlling major ICT companies and technology there. On the other hand, China gave strong challenges to United States in online businesses; most glaring example is Alibaba/Tau Bao group. Perhaps, it is due to China’s relative uniqueness in term of high domestic population and very low cost of production. Other countries include Malaysia did not enjoy that uniqueness, thus have to fully utilize the benefit of these triple-tsunami factors. Malaysia also moderately urbanized. Comparing to developed countries, Malaysia still lags behind but better than China, India and South Africa. This implies big room for further urbanization which is currently concentrated on Klang Valley (mega cities such as Kuala Lumpur and Petaling Jaya) and few capitals of certain state like Johor Baharu, Ipoh, Penang city center and Kuching.

Globalization China through New Silk Roads
Globalization intensifies movement of goods and services as well as capital. This resulted in changes in method and location of productions as well as intensity of international trade. Few decades ago, China has been single out by United States for its “anti-globalization” and “anti-trade” policies. However, when China liberalizes their economy and export began to growth strongly, the American and European started to violate the free trade spirit promoted by them. New tariffs and concerns were hurdled against China as well as South Korea. Thus, is free trade just a game? Is that we play by its rule if it can benefit us and quit the game if otherwise? Regardless of the answer, globalization is an unstoppable process and it can be good (opportunities) or bad (threat) to any countries include Malaysia.

To the surprise of the world, coming decades of economic globalization could be leaded by China after the announcement of “One Belt, One Road” big plan by China’s President Xi Jinping in 2013. The “one road” is actually not only one but covers land road, railways, sea and air, which together also known as the “New Silk Roads”.

A simple Google Image of “New Silk Roads” will show the Economic Belt involving physical roads or railways through northern China to Middle East before links to Moscow and Europe (Turkey, Rotterdam and Venice). According to United Nation Comtrade’s database, Malaysia’s main export and import destinations in 2013 are Singapore, China, Japan, United States and Thailand. Besides China, other nations are out of this Economic Belt Silk Road. Perhaps, the most likely affected European trading countries are Netherland, Germany, France and Italy but their volumes of trades are not that much as compare to our top five trading destinations.

It is the Maritime Silk Road that may give biggest impact to us. Will it be opportunity or threat? It depend on an extraordinary bold move – create a “Ma-Thai Canal” together with Thailand just like the “Suez Canal”. The Maritime Silk Road will benefit Singapore much more than Malaysian ports. The “Ma-Thai Canal” that cut through border of Malaysia-Thailand significantly reduces shipping time and cost. Thus, Malaysia (and Thailand) can position themselves to get significant benefit from any success of China economy or the New Silk Road.

Some historical information will be scary to Malaysia. It is believed that a Thai Canal at Kra Isthmus (the narrowest part of the peninsular in Southern Thailand border) has been proposed as early as 1677 by Thai King Narai. This idea has recently re-surfaced with variety of location inside Thailand being proposed for feasibility study. The latest in 2015, China-Thailand collaboration is proposed. What will happen to Malaysia’s economy, especially port and shipping industries if Thailand go alone or in cooperation with China? Thai Canal cooperation seems suit China’s New Silk Roads plan very well too. Imagine we jump into the partnership with Thailand (or even include China) for a win-win situation. Our northern ports along this canal will be busier than Singapore port, which is impossible for us to achieve now. Then, we can swim happily in the wave of globalization.

Summary
Malaysia is somewhat less than developed countries (include Singapore) but more than ASEAN and majority of BRICS countries in the process of globalization-digitalization-urbanization. On economic globalization, some see it as new form of colonization but some see it as a big window of business opportunities. Now China has its Maritime Silk Road plan. Singapore has superior strength in its entreport and service sectors. Thailand seems renewed its intention to create a maritime canal. Thus, Malaysia needs to act fast to ensure at least we can still float in economic globalization wave.

[Chinese version published at Nanyang Press, 11th May 2015. Available online at http://www.nanyang.com/node/699914. This English version may be slightly different from the Chinese online/printed newspaper version]

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