Beggar thy neighbour!

Article written from the perspective of a Malaysian, published in Malaysia's The Sun, in connection with Senior Minister's Lee Kuan Yew's visit to Kuala Lumpur on Oct 2000. Note that estimates of potential economic value will not pass muster with my ex-BCG colleagues - they were finger-in-the-sky numbers for purposes of drawing attention to the magnitude of potential gains.

In our dealings with trade and economic issues with our ASEAN neighbours, our official response towards questions about potential intra-ASEAN competition has been "prosper, not beggar, thy neighbour". The theory is that the economic advancement of a particular country would benefit the economy of its neighbours as increased economic activity translates into higher demand for goods and services from neighbouring countries.

Indeed, this phrase at a basic level forms the underpinnings of the World Trade Organisation and the free trade movement. And judging by the number of times Prime Minister Dr. Mahathir has used this phrase in the media, it appears to be a central tenet of our official trade policy.

Except of course when it comes to Singapore and Malaysia's trade relations. In many aspects of the trade relations between the two countries, the converse seems to be at work - "beggar, not prosper, thy neighbour". So in many spheres, Malaysia and Singapore apparently compete head on. Both Malaysia and Singapore profess to being the Asia's leading centre for shipping, finance, education, air transport, shopping, tourism… the list goes on.

So we have comparisons made between KLIA vs Changi Airport, Westport and Tanjung Pelepas vs Tanjung Pagar Port Terminal, KLCC vs Raffles Place, MSC vs Suntec City, MAS vs SIA, Mesdaq vs Sesdaq, and for the shoppers among us, Bukit Bintang vs Orchard Road.

Why do we not apply the same prosper thy neighbour policy to Singapore? Historical baggage (and being reminded of it by Lee Kuan Yew in The Singapore Story) does not help. Maybe envy too, after all, didn't Malaysia have all the resources whilst Singapore had none, yet Singapore has already achieved developed nation status, whereas we're still wondering whether we'll make it by 2020? Add to this the need to appeal to domestic voters, the other turns out to be a great bogeyman. And it's easy isn't it to mask our own weaknesses by attributing Singapore's success to its alleged kiasuness (good heavens, we're not like that at all). So no wonder we get ensnared into issues such as the CIQ facilities for Malaysian customs, impasse over renewal of water supply agreements, delay of privatisation of Malayan Railway because of impasse on status of its land bank in Singapore.

More than we care to admit, however, Malaysia and Singapore's economies are highly interdependent. Singaporean companies are one of our largest foreign direct investors, our stockmarket feels the non-participation of Singapore's retail investors, our land prices are dependent on demand from Singapore.

But more importantly, by not cooperating, both countries leave untapped a tremendous amount of potential economic value, value that can only be generated through cooperation (at first cut, we are foregoing at least RM 250 billion in potential economic value, maybe more - see table)

Let's take an example. It's fairly undisputed that Singapore has the world's busiest port. It has the world's most advanced cargo handling and port management facilities, where goods are cleared even before they arrive at the port. It's positioning itself to become the Asia's logistics hub.

A beggar thy neighbour trade policy will provoke the following knee-jerk reaction " Dammit, they're becoming the leader in shipping. All our cargo is going through their ports, and we're losing valuable foreign exchange. We must build new ports to counter this threat, and we must force Malaysian shippers to use Malaysian ports to make them economically viable"

You will notice that this reaction pervades our transport policy, and therein lies the rationale for the existence of Tanjung Pelepas and Westport.

A smarter way to approach this issue is to say. "OK, granted. Singapore is the world leader in shipping and port management. We could try to compete with them but it's not easy to beat them at their own game. But you know what? We could position ourselves to benefit from their leadership in shipping and port management. They lack land for warehousing facilities, as land in Singapore is scarce. What if we were to provide warehousing facilities for Singapore ports? After all we have plentiful land in just across the border in Gelang Patah." Potential economic gain: RM20 billion.

"Hmmmm. Why stick at warehousing? Let's be really creative with this. Oh yeah, there's a railway track that goes all the way from Thailand to just 100 meters away from Singapore's Tanjong Pagar Port Terminal. Let's take advantage of Singapore's leading position as the transhipment hub of Asia to transport goods to and from Tanjong Pagar all the way up to Thailand. If it makes economic sense for Thai shippers, then we will have a great business charging for use of our railway services ". Potential economic gain: RM 20 billion

" Why stop at railways and warehousing? Let's develop a special free trade zone in Gelang Patah where goods are free to move between Gelang Patah in Johor and Tuas in Singapore without any customs, and people are free to move without any passports (do this by relocating current Second Link immigration checkpoints 5 miles further North on the highway) Why? So that goods can be warehoused in Gelang Patah without any worries about custom or immigration delays. Oh, whilst we're at it, there's a whole bunch of multinational electronics factories based in Tuas near the Singapore border that would love to take advantage of our vast land area and large labour pool to build new factories there. Especially if there were no border controls. More jobs, more foreign investment, more economic growth." Potential economic gain: RM20 billion.

These are not the only areas where Malaysia and Singapore together can create tremendous economic value where previously there were none. The development of high speed commuter railways from Malaysia to Singapore will enable Malaysia to attract many foreign professionals currently working in Singapore (they number 1 million people) to reside in Malaysia, increasing demand for residential properties and goods and services here. The increase of direct flights from Singapore to popular recreational destinations in Malaysia will enable the expatriate population in Singapore to spend week-end tourism dollars in Malaysia, boosting our tourism industry and foreign exchange. The list goes on (please see accompanying table http://www.geocities.com/malek_ali/beggar2.html).

If one were to hazard a guess as to the economic value of a prosper thy neighbour policy, this could amount to well in excess of RM250 billion to be shared between Singapore and Malaysia. Not a bad sum just for being good neighbours.