Unintended consequences: Social policy, state institutions and the 'stalling' of the Malaysian industrialization project

Jeffrey Henderson, Richard Phillips

Research output: Contribution to journalArticlepeer-review


This paper examines the relation of particular forms of social and labour market policy to economic development. Taking the history of Malaysian industrialization as its empirical case, the paper assesses the unintended consequences of redistribution policy, on the one hand, and migration policy, on the other, for the limited upgrading of the country's electronics industry. It argues that, while the former has been central to social harmony in Malaysia's multi-racial society, it has contributed to the underdevelopment of small and medium-sized firms capable of linking with the TNCs on the basis of knowledge-intensive and higher value-added operations. Migration policy, on the other hand, has allowed manufacturers to have continued access to supplies of low-cost, lower-skilled labour that have released the pressures that would otherwise have been there for technological and skill upgrading in the electronics industry. Only in Penang, where regional state institutions have intervened to encourage SME upgrading, has the national picture been moderated. Malaysia's industrialization project emerged at time when export competition in manufactured commodities was less intense than it is now. Largely as a result of federal government priorities and for other reasons explored in the paper, advantage was not taken of this 'window of opportunity'. As a consequence, the country's industrialization project - exemplified by its electronics industry - is now 'stalling' in the sense that it remains locked into low- to medium-technology operations. With the rise of China as a manufacturing exporter, this is a dangerous situation for a country's principal industry to be in.
Original languageEnglish
Pages (from-to)78-102
Number of pages24
JournalEconomy and Society
Issue number1
Publication statusPublished - Feb 2007


  • Economic development
  • Industrialization
  • Labour markets
  • Malaysia
  • Migration
  • Social policy
  • State institutions

Research Beacons, Institutes and Platforms

  • Global Development Institute


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