Notes from the Field

Malaysia, Like China and India, Depends on Local Officials for Better Business Environment

May 9, 2012

In January, I took a break from research for the just-released Malaysia Business Environment Index (BEI), which measures perceptions of district-level firms on their business environments, to get a broader perspective from two other rapidly growing Asian nations: China and India.

I led a group of graduate business students from Monash University Sunway Campus in Malaysia to China and India for a 17-day field trip, which provided an up-close opportunity to compare the outcomes of the economic development models of the two big emerging economies. We visited government-run and private-run business parks and met with managers of leading companies in both countries. While I was eager to get a feel of what the two economies had achieved, in the back of my mind I was wondering how these two fast-growing countries dealt with the common public policy issues we had been investigating in Malaysia – such as crime and security, government’s proactivity, and business development services. As expected, it was truly a great learning experience, but it also strengthened my belief that local governance is critical in shaping the local business environment.

Based on our visits to Hefei, in central China, and Suzhou, Hangzhou, and Shanghai on the east coast, we came away with the impression that Chinese local officials behave a lot like entrepreneurs. The municipal government leaders we met with behaved like businessmen. They were more well-versed in economic development models and strategy than stereotypical government officers concerned primarily with laws and regulations. The Chinese local governments not only provide basic public amenities and business development services, but also actively participate in running businesses themselves. (The major contribution to GDP by the government-controlled enterprises is a sign of how much government-run businesses contribute to the nation’s overall economy: according to a 2009 report published by the Australian National University, state-owned enterprises made up half of the largest 500 manufacturing firms and 61 percent of the top 500 service firms in China.) While the role of government-controlled enterprises remains controversial, I found that the Chinese local governments are eager to make their cities attractive places for investors by providing quality public services. Their efforts in cleaning up the cities are commendable.

In contrast to the BEI findings, some local authorities do not seem to show the same level of enthusiasm in providing some basic services in Malaysia: 15 percent of firms reported that road quality is a major obstacle to doing business, while 12 percent of firms cited water supply as a major obstacle. Given the relatively advanced development of Malaysia, it’s surprising that the infrastructure in many districts is still unsatisfactory.

In fact, “clean” was not a term used at all to describe Chinese cities 20 years ago. Those who have not visited China since the beginning of the reforms would have a hard time recognizing major cities today. In Hangzhou, for example, we saw road-cleaning trucks sprinkling water and washing busy roads at odd hours, and in Suzhou, a water city also known as the “Venice of the Orient,” we saw a woman picking up trash while rowing a boat along the narrow canals. The city cleaning services were certainly well provided.

In India, we visited Delhi in the north and Bangalore in the south, and talked to managers of several leading companies in each city. Both Delhi and Bangalore are iconic Indian cities, but they provided very different impressions. While poverty and security are major public issues in India, it appears that Bangalore is more successful in re-settling the homeless and providing security to its residents, especially women. In Delhi, poverty is much more visible, with families living under flyovers without basic utilities and sanitation. Moreover, we were informed that some women were deterred from joining the work force because of the threat of crime. If our trip only covered Delhi, we would have had more serious doubts about the ability of India to sustain its current pace of economic development. Fortunately, our experience in Bangalore restored some of our confidence about the prospects for India’s economy.

Comparing cities on the basis of such a short visit and using first impressions to make generalizations is not scientific. But recalling the pro-active image of the city and township officials in China and the contrast between Delhi and Bangalore, we are tempted to conclude that local officials can make a significant difference if they are empowered to play a pro-active role. Providing important services such as homes to the homeless, waste management, and security to woman workers is a very basic responsibility of local authorities. Malaysia’s business environment is the product of collaboration between governments at all levels, but local governments are crucial to problem diagnosis, law enforcement, and policy implementation. How they perform their duties have a direct impact on local business-friendliness. The high corruption incidence and high crime rate in some districts as revealed in the BEI suggest that the local authorities are actually the source of unfriendly business environment. If the local officials take a proactive role to combat corruption and crime, the local environment would have substantial improvement. In Malaysia, the federal government has more influence on local resources but the district governments are at the forefront of understanding the difficulties in implementing policies as well as the concern and the constraints that bind local development. With local knowledge, local authorities are in a position to diagnose the problems and prepare innovative solutions. Their proactive role in managing local affairs is indispensable.

Jane Terpstra Tong is a faculty member at Monash University Sunway Campus in Malaysia, and co-author of the Malaysia Business Environment Index 2012. She can be reached at jane.tong@monash.edu. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

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