In my last three articles in The Edge, I decided to try to do something quite different. Having been given the opportunity to write a monthly column for The Edge since 2013, I thought I would try a format that I had not yet seen. Namely, I wanted to write fictional op-eds. What I was trying to do with those fictional op-eds — and I need to really record my deepest thanks to The Edge for giving them a shot — was to illustrate some ideas from economic development that are fairly common in many developing countries and, more importantly, the trade-offs surrounding the implementation of those ideas.
In the first article (The hand-stitched nation, Issue 1590, Sept 1, 2025), I wanted to dissect this idea of comparative advantage a bit more. And if there is one idea that has been probably the most misunderstood and done the most widespread damage to developing countries, it is this notion of comparative advantage. Comparative advantage says countries or firms or people should produce what is of the lowest opportunity cost to them and use that to trade for other goods and services. There is nothing fundamentally wrong with this as long as we understand a very important idea — if we treat comparative advantage as “static” and innate, then low-income countries will always produce low-cost goods, especially commodities, and high-income countries will always get the higher value-added stuff.
The lesson from history is that countries progress by treating comparative advantage as dynamic, allowing them to dismantle existing industries and move to new ones. After all, there is absolutely no reason why “shipbuilding” should be a natural comparative advantage in South Korea when it was kick-started in the 1960s. Countries grow by breaking comparative advantage. But the idea of comparative advantage has been butchered by rich countries to keep themselves producing the best stuff and poorer countries the stuff that the rich countries themselves do not want to produce.
In the second article (The hand-stitched nation — part 2, Issue 1596, Oct 13, 2025), I moved to this idea of moving up the value chain via foreign direct investment (FDI). This is a common strategy and necessary at different points of economic development. Indeed, it can be super handy if a country lacks the necessary financial capital to seed new industries or the domestic demand required for some domestic entrepreneur to found a company in a given space. Malaysia is a country that has benefited from FDI over the years with our most famous example being Intel’s entry into Penang in the 1970s that launched our electronics industry.
Thus, FDI is not altogether bad. It can help to “break” comparative advantage by industry as I tried to show when the nation of Ekonomi moved from stitching basketballs to developing a chemicals industry. The danger of FDI, however, is twofold. First, for many developing countries, the FDI they receive is still ultimately a manifestation of comparative advantage, which is typically low-cost labour. And if lower costs become your “moat”, then firms in the economy have to always compete on costs, which keeps wages low. Second, being overly dependent on FDI leaves countries vulnerable to the whims and fancies of management teams in foreign countries. True, once investments are made in a given country, it is not always easy to just uproot and leave. But that decision to leave is not made by that developing country; rather, it is usually made in a meeting somewhere else, likely in a richer country. Thus, even a focus on FDI must be dynamic. We cannot keep having FDI as key performance indicators for ministries as we become a wealthier nation.
In the third article (The hand-stitched nation — finale, Issue 1599, Nov 3, 2025), I wanted to discuss this idea of relying on local private capital to drive economic development. In principle, a really strong and robust private sector is critical for any thriving economy. The issue, however, is that many make the assumption that because a given firm is “private”, it is therefore strong and robust. A corollary of this is that those who make that assumption also typically assume that because the public sector is involved in something means that that “something” is automatically neither strong nor robust. This is a very Washington Consensus kind of view, which is pretty outdated in development thinking, but not necessarily among the public and the media (and dare I say it, sometimes even in this newspaper).
So, we should not make the mistake of believing that it is the word “private”, in the phrase “strong and robust private sector”, that really matters as opposed to “strong and robust”. A weak private sector leads to a weak economy, “private” or otherwise. And, for the record, before I sound like a Leninist and an apologist for the state (which I can imagine some might assume because I work where I work), I believe the same is true of the “public” sector and state-owned enterprises. SOEs can be weak and they can be strong. But my point is to focus on the “weak” and the “strong” rather than the “SO” in SOE.
And, it is 100% true that SOEs can be corrupt and unproductive and all those things. We are in Malaysia and we had 1Malaysia Development Bhd (1MDB). We know this all too well. But so can private companies. Governments do not have a monopoly on corruption and low productivity. What we really should be worried about when it comes to having a thriving market economy are things like anti-competitive behaviours (say cartels), rent-seeking, corruption and lobbying (which, if you really think about it, is a form of legalised corruption), all of which can happen in private-owned and state-owned companies.
A recent hot button topic has been the issue of government-linked investment companies (GLICs) and government-linked companies (GLCs) crowding out “private” capital. I do not deny that there have been weird SOEs that started, for instance, catering businesses. But, let me ask a related question. Why shouldn’t we ask the same question of “private” capital? The Sherman Antitrust Act broke up Standard Oil, a private American company and monopoly led by John D Rockefeller, in 1911. Private companies, too, can behave like monopolists and crowd out other private capital. The largest technology companies in the US are certainly examples of such behaviour.
In Malaysia, we know of many private companies that have historically received all kinds of rents and licences and permits, and they lobby the government for everything (let’s not pretend that the private business and government relationships do not exist). Does this mean our economy will be better if such monopolistic private capital reigns over the economy, simply because they are technically “private”? Does this mean they do not crowd out other private firms? I would argue that we should focus less on ownership per se (personally, I think private versus public is typically overly ideological) and more on behaviour.
We should punish bad behaviour regardless of ownership, rather than clamp down on companies just because of who their parents are, private or public. What we need to reward is competitive entrepreneurship and innovative risk-taking. And even then, while it is important for companies to be rewarded for these things, we have to consider, at a societal level and a market level, when they become monopolistic. Is it necessarily true that even if companies earned their monopoly via innovation that they deserve to crowd out new entrants till eternity?
Finally, after having written these three pieces of fiction, I would like to say that I would like to do more but, man, fiction writing is difficult. Far more difficult than the regular articles I write for The Edge, at least for me. Figuring out dialogue, making characters seem relatively believable, doing more “showing” instead of “telling”, trying to be more descriptive of scenes; I have all the respect in the world for writers of fiction.