Sun setting on Penang’s factories?

By Zairil Khir Johari | May 30, 2012
The Malaysian Insider

MAY 30 — With the general election closing in, the Penang Barisan Nasional (BN) leadership is certainly not short on promises.

Having recently assumed the hot seat, newly-minted state BN chairman Teng Chang Yeow has been eagerly peddling the coalition’s “alternative blueprint” for Penang, an election manifesto that includes a plan to restore free port status to the island while turning it into an international tourism hub, along with plans for an international financial centre, innovation park and aquaculture hub in mainland Seberang Perai.

And then, as if to prove that his fancy labelling actually carries some philosophical substance, he goes to great lengths to explain his vision of a post-industrial future for Penang, where he promises to transform the services sector into an engine of growth as a replacement to the manufacturing industry.

This is needed because, in his words, “the manufacturing sector has reached its peak in Penang. We have to look into other engines of growth.” He further adds that the state can no longer be dependent on manufacturing as there is a shortage of land, while acknowledging that the sector had helped build a strong foundation for Penang’s economy in the 1960s and 70s.

Other state BN leaders have echoed similar views, with Penang MCA adviser Datuk Koay Kar Huah opining that Penang is “oversaturated with manufacturing activities and it is time to consider other industries to stimulate its economy.”

I find this notion that manufacturing has reached a sunset stage, and thus should be replaced by service-based industries, an extremely flawed one.

The fact is that it is impossible to divorce production from knowledge because the best way to learn how to make something is to actually make it, as the Japanese, Koreans and Taiwanese have proven. Once we are able to make it, we can then move on to innovating, adding value to the product, financing it, marketing it and finally consuming it. In other words, services spanning research, design, engineering, legal, financial and sales are in fact complementary offshoots of manufacturing, and should not be seen as its putative replacement.

As leading Cambridge economist Ha-Joo Chang points out, high-income knowledge economies that appear to be services-based are in fact highly industrialised economies. Citing Switzerland and Singapore as prime examples, he notes that the two countries rank second and third in the world in terms of manufacturing value-add per capita, behind only the industrial machine known as Japan.

At the end of the day, no other industry is capable of generating the same multiplier effect, both in terms of jobs and support services, as manufacturing. It is precisely for this reason that the Obama administration is now on a huge manufacturing drive in a bid to reinvigorate the sputtering American domestic economy. As former General Motors vice chairman Bob Lutz says, “Making things makes money.”

What Teng and company are in fact trying to articulate is the concept of de-industrialisation in the context of a knowledge-based, post-industrial economy. The proposition they are putting forward is that the good old days of industry are gone and that future jobs will require working with our brains and not with our hands.

Taken at face value, such a premise may appear to make sense. However, further examination exposes a shallow and superficial logic. Firstly, would not better brains make our hands more efficient and result in better quality products?

Secondly, as the world progresses, would it not also be natural that consumption of technological goods will increase exponentially? As a result, more rather than less manufacturing will be needed to keep up with growing demand.

The key, therefore, is not in ditching manufacturing in favour of services but actually in seeking ways to create depth and specialisation, as well as to encourage higher productivity and use of technology in manufacturing.

Penang, with an established manufacturing base, must now seek not so much to broaden its range of products but to deepen its value chain. In other words, it is more about how we produce rather than what we produce.

It is naïve to argue that manufacturing has peaked. One only has to look at how the once-mighty British economy has declined to see how de-industrialisation has resulted in post-industrial decay, loss of productivity, high unemployment, rising inequality and the displacement of an entire generation.

The truth is, manufacturing holds even more potential than it did a few decades ago. Far from putting it on the backburner, efforts should be invested 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.

So, is the manufacturing industry in Penang headed for a sunset? To the contrary, I think a new dawn has just arrived.

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Zairil Khir Johari is a chocolate purveyor, chicken rice enthusiast and noodle lover. When he’s not preoccupied with any of the above, he is also a politician.