WHITE
Abstract
Independence for Malaya in 1957 (and the enlargement of the federation to form
Malaysia in 1963) did not have an immediately adverse effect upon British
economic interests there. Indeed, Britain retained, and even revived, its huge
commercial, industrial, and financial presence in Commonwealth Southeast Asia
well into the 1960s. From the middle of that decade, however, British economic
influence in Malaysia declined quite rapidly. The main focus of this article is to
examine three possible causes of this downturn: declining competitiveness on the
part of British manufactures; UK government policy towards private investment
and public expenditure overseas; and entrepreneurial weaknesses among the
British agency houses in Malaysia.
Twentieth Century British History, Vol. 14, No. 3, 2003, pp. 222242
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August 1957, as well as the creation of the Federation of Malaysia just over
six years later,2 appeared to provide a blueprint for the preservation of
commercial and financial influence through the transfer of power to
moderate nationalists. Between 1957 and 1970, the anglophone Tunku
Abdul Rahman led a cabinet composed of Malay aristocrats and Chinese
business leaders which chose to keep Malaysia within the Commonwealth
economic bloc and did not tamper with established British investment.
Moreover, this article argues that not only did a substantial British
economic presence survive the transfer of political power in Malaysia, but
also a significant revival of British economic sway can be identified in the
immediate post-colonial era. This latter phenomenon resulted from a
successful UK export drive, growing dependence on the British market for
Malaysias principal export, rubber, and new flows of British industrial
investment into the Federation. From the mid-1960s, however, Britains
commercial and financial influence in Malaysia waned. The second half of
this discussion considers how far this was the product of: (i) a lack of
competitiveness on the part of British manufactured goods; (ii) the policies
of the Wilson government; and (iii) a general loss of entrepreneurship
among British firms operating in Malaysia.
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NICHOLAS J. WHITE
FIGURE 1. Imports into West Malaysia (Federation of Malaya) by Britain and its principal
industrial competitors, 195871. Source: Malaysia Official Year Book, 196372 (Kuala Lumpur,
196474).
FIGURE 2. Exports from West Malaysia (Federation of Malaya) to Britain and other principal
destinations, 195871. Source as for Figure 1.
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Table 1
Sources of called-up capital for pioneer industries in the Federation of Malaya, 1958 to
June 1962
Singapore
UK
Federation of Malaya
The Bahamas
Hong Kong
USA
Australia
Canada
Japan
Other
M$ million
Percentage of total
19.6
16.0
13.0
5.0
4.3
3.6
2.7
1.8
1.3
1.7
28.4
23.2
18.9
7.3
6.2
5.2
3.9
2.6
1.9
2.5
White Commonwealth, were likely to have been controlled by Britishbased multinationals. It seems highly likely, therefore, that the vast
majority of investment in the Federations pioneer industries was British.11
Certainly, according to British official estimates, between 1961 and 1965
some 80 per cent of private long-term capital inflow into Malaysia originated in the UK.12
Nevertheless, this commercial and industrial revival was only brief. As
Figure 1 illustrates, Britains percentage share of West Malaysias imports
declined rapidly from 1966, slumping to just 13.8 per cent (representing an
overall value of M$387.6 million) in 1969. There was a slight recovery of the
UK market position in 1970. But, as Sir Michael Walker, the British High
Commissioner, confessed to the British business community in Kuala
Lumpur, Malaysia is no longer a comfortable export market for British
suppliers.13 Indeed, Japan had now clearly overtaken the UK as Malaysias
largest single source of manufactured goods. In actual fact, because of its
growing consumption of rubber, tin, iron ore, and timber, Japan had
11
Saham, Industrial Investment, 267; E. L. Wheelwright, Industrialization in Malaysia
(Melbourne, 1965), 478. For example, the initial paid-up capital in the Shell Refining Co.
(Federation of Malaya) Ltd was raised by the Anglo-Dutch transnational transferring funds
from a Canadian subsidiary.
12
PRO, FCO 24/13, Brief no. M 25 for Commonwealth Secretary, c. January 1967.
13
Cambridge University Library (hereafter CUL), Barlow papers, 58/786, copy of speech
to the British business community in Kuala Lumpur, 8 January 1971.
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18
PRO, DO 189/359, Luke to Clutterbuck, CRO, 22 December 1960 enclosing note by Luke,
4 May 1960.
19
C. R. Schenk, Decolonization and European Economic Integration: the Free Trade Area
Negotiations, 19568, Journal of Imperial and Commonwealth History, 24 (1996), 44463.
20
Saham, Industrial Investment, 97.
21
PRO, FCO 24/35, enclosure in Falle, Kuala Lumpur to Moreton, Commonwealth Office,
24 November 1967.
22
PRO, FCO 24/13, Brief no. M 25.
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NICHOLAS J. WHITE
23
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Yet, in attempting to resuscitate the domestic economy, the fiscal and financial policies of the Wilson government eroded Britains economic influence
in Malaysia. In the light of the Labour governments decision not to provide
additional grants and loans for the first all-Malaysia plan of 196670,
the Tunkus regime turned to the USA, Japan, France, Belgium, and The
Netherlands for loans and lines of credit. These were often tied to the
purchase of goods from those countries, and the new aid-providers were
to be favoured in government purchases.28 As Leon Taylor, the economic
counsellor in the UKs High Commission, appreciated, existing British
facilities provided by the Export Credit Guarantees Department cannot
compete with the Japanese loan offer at a low rate of interest with very
extensive repayment dates and a moratorium.29
Subsequently came devaluation and the decision of January 1968 to
withdraw British forces from Southeast Asia by 1971. The earlier agreement
of July 1967 to run down bases and troop deployments by 1975 had already
dented Britains prestige amongst top policy-makers in Kuala Lumpur.
Sir Michael Walker was brusquely told by Mohamed Ghazalie Shafie,
the Permanent Secretary at the Ministry of External Affairs, that what
interested modern Britain was safety, security and mini-skirts . . . Once
we [i.e. Britain] had gone we could never regain a similar position of
influence.30 George Thomson, Britains Commonwealth Secretary, had
the unenviable task of breaking the further bad news in Malaysia and
Singapore at the beginning of 1968. When he met with Malaysian cabinet
ministers on 7 January, a highly agitated Tan Siew Sin wondered whether
it might not become necessary for [Britain] to devalue again and whether
[Malaysian ministers] should expect a further visit proposing an even more
drastic acceleration of our withdrawal.31 Having slept on the matter, the
Minister of Finance grew even angrier. The following day he told Thomson
that Britain was now proposing to abandon Malaysia and could not be
surprised if in the interests of national survival the Malaysian Government
took measures which might damage British interests.32
As it turned out, there was to be no nationalization of British investments or immediate running down of sterling balances. Yet, as the
28
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NICHOLAS J. WHITE
33
PRO, FCO 24/93, Brief no. 24 for the Commonwealth Secretary, January 1968.
PRO, FCO 24/252, note by Johnston for Moreton, 2 May 1968; telegram from Paris, 9 May
1968; FCO 24/253, telegram from Brussels, 22 May 1968.
35
PRO, FCO 24/491, copy of White, Kuala Lumpur to Gowers, Board of Trade, 17 October
1969. There were further forays into the communist bloc by Malaysian ministers during
1970 resulting in trade and technical co-operation agreements with Poland and Romania.
FCO24/1151, Walker to Douglas Home, 1 January 1971.
36
See Nicholas J. White, British Business Groups and the Early Years of Malaysian
Independence, 195765, Asia Pacific Business Review, 7 (2000), 1601, 1678.
34
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local takeover of the premiere agency house, Guthries) can be dated from
1966.37
The British military withdrawal also came to have a negative impact
on the confidence of both actual and potential British investors in
Southeast Asia. Representations by British commercial, financial, and
industrial interests argued that the accelerated rundown would result
in a catastrophic drop in confidence.38 Lee Kuan Yew, the premier of
Singapore, pleaded the case for the agency houses and industrial
companies in London with UK cabinet ministers. The only concession won,
however, was an extension of the final deadline for withdrawal from 31
March to 31 December 1971.39 To counter the suspicion in Malaysia that
Britain was less reliable as a trading power and a supranational banker
and liable to renege on her promises to her friends, Sir Michael Walker
called for prompt and significant investment in Malaysia.40 A CBI mission
had visited Malaysia in August 1968. Yet, the only concrete project to
emerge from these perusals was the local construction of tin dredges
by Rio Tinto Zinc.41 The captains of industry argued that far greater
British capital input would be stimulated by a guarantee against
expropriation. Along the lines of existing programmes for Germany,
USA, The Netherlands, Switzerland, and Japan, this might compensate for
the loss of confidence and political protection arising from Britains
military retreat.42 Moreover, before 1965, OTC status had offset the considerable political risks of investing in a highly volatile region, while the
devaluation of sterling added another fairly strong disincentive to British
commercial investment in Singapore and Malaysia.43 More than ever,
Kuala Lumpurs tragic ethnic riots of May 1969 appeared to emphasize the
potential for Malaysian political instability. But the Treasury, in the interests
of the UKs balance of payments, remained staunchly opposed to a political
guarantee scheme for Malaysia and Singapore (or for anywhere else):
The cardinal point is that we do not want to see any investment guarantee schemes at all . . . Any investment guarantee scheme . . . is an
37
Khoo Boo Teik, Paradoxes of Mahathirism: An Intellectual Biography of Mahathir Mohamad
(Kuala Lumpur, 1995), 546, 90 note 15.
38
PRO, FCO 24/281, letters from Stafford Northcote, President, Malaysia-Singapore
Commercial Association to Thomson and Wilson, 5 and 12 January 1968.
39
PRO, PREM 13/2081.
40
PRO, FCO 24/345, letter to Johnston, Foreign & Commonwealth Office, 7 October 1968.
41
PRO, FCO 24/389.
42
PRO, FCO 24/39, Note on a Discussion between the Secretary of State and Mr. R.
Grierson, Director of S. G. Warburg & Co. and Vice-chairman of the General Electric Co.,
13 September 1968; OD 39/17, Representation to Sir Alan Dudley from CBI, 3 January 1968;
Note of a Meeting Held with the CBI, 3 April 1968.
43
Financial Times, 8 May 1965; PRO, FCO 24/35, note by Scanlon for Blair, 20 November
1967.
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NICHOLAS J. WHITE
44
PRO, OD 39/19, copy of Littler, Treasury to Gowers, Board of Trade, 25 August 1969. For
similar reasons, the Treasury would not amend fiscal or exchange control policies in favour of
UK investors in Southeast Asia. See OD 39/17, note by Berkoff, 25 July 1968.
45
PRO, CAB 148/30, OPD (67) 27, 17 July 1967; CAB 148/35, OPD (68) 1, 26 January 1968;
OD 39/20, copy of telegram from Commonwealth Office to Kuala Lumpur, 18 April 1968.
46
PRO, OD 39/21; OD 39/138.
47
PRO, CAB 148/7, DO (O) (64) 59. British Policy towards South-East Asia. Memorandum
by the Foreign Office, 22 September 1964. Pessimism concerning the future of Malaysian
rubber had set in within Whitehall from the mid-1950s, and the Board of Trade and Treasury
encouraged the development of synthetic production in the UK. See Nicholas J. White,
Business, Government, and the End of Empire: Malaya, 194257 (Kuala Lumpur, 1996), 1905.
48
PRO, CAB 148/7, memorandum by FO.
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A Loss of Entrepreneurship
For Lee Kuan Yew, however, the decline of British economic power in
Southeast Asia did not primarily stem from the dead hand of government.
In March 1967, the Singapore Prime Minister told Herbert Bowden,
Britains Commonwealth Secretary, that British merchants no longer
seemed adventurous and, as a result, the British position throughout the
whole region was weakening.53 This was an unfair judgement, since there
is plenty of evidence to suggest that British businesses in Southeast Asia
remained enterprising and remarkably efficacious throughout the Tunku
era. According to the calculations of economists at the University of
Cambridge, the post-tax profitability of UK capital in Malaysia between
1955 and 1964 was 19.8 per cent per annum, making the country the second
most profitable destination for UK capital after West Germany.54
49
A. J. Stockwell, Malaysia: the Making of a Neo-Colony?, Journal of Imperial and
Commonwealth History, 26 (1998), 13856; John Subritzky, Confronting Sukarno: British, American,
Australian and New Zealand Diplomacy in the Malaysian-Indonesian Confrontation, 19615
(Basingstoke, 2000), 12930.
50
PRO, CAB 148/7, memorandum by FO.
51
Nicholas J. White, Britain and the Return of Japanese Economic Interests to South East
Asia after the Second World War, South East Asia Research, 6 (1998), 281307.
52
PRO, FCO 24/247, despatch to Thomson, 4 October 1967.
53
PRO, FCO 24/294, extract from record of meeting in Singapore, 3 March 1967.
54
W. B. Reddaway, Effects of UK Direct Investment Overseas: Final Report (Cambridge, 1968),
cited in Saham, Industrial Investment, 2301.
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NICHOLAS J. WHITE
55
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This was certainly the case with Japanese manufacturers, which were
increasingly wooed by BCL during the 1960s. The firms motor group
was impressed by the quality of vehicles on display at the Tokyo Motor
Show of 1962, and thereafter a Japanese franchise for Malaya was actively
sought, despite the inevitable negative reaction from the BMC.58 BCL also
secured the agency to sell Sanyos electrical products throughout East
Malaysia.59 Moreover, with the growth of import substitution, the agency
houses were busy picking up distribution rights for Malaysian manufacturing companiesboth British and non-British controlled.60 Hence,
while British goods were losing their allure in Southeast Asia, the British
investment groups on the spot were able to maintain their central position
in the local economy as the leading importers and distributors of manufactures. In the plantations, meanwhile, prudent policies of diversification
into palm oil allowed large profits to be maintained while rubber prices
declined.61
At the same time, the agency houses strengthened their investment
networks through the formation of tightly controlled conglomerates.
Following merdeka, political uncertainty, synthetic competition, and the
consequent undervaluation of estate assets made the smaller companies
in the rubber industry highly vulnerable to takeover from speculators.
Hence, with the backing of the Bank of England, plantation managing
agencies, such as Thomas Barlow & Brothers and the Rubber Estate
Agency, amalgamated loosely controlled rubber firms into single holding
companies.62 In 1965, meanwhile, the vast majority of the Guthrie group
was unified under a new holding company known as Guthrie Corporation
Ltd. A tighter degree of financial and directoral control over the plantation
companies managed by Guthries was thus made possible under the
chairmanship of Sir Eric Griffith-Jones.63 There were mergers of agency
Chaplin to Young, 14 November 1959; Young, Singapore to Simpson, London, 26 July,
26 August, 19 and 22 September 1960.
58
IA, Ms 27189, minutes of Group Committee, 9 November and 8 December 1962,
27 February and 2 November 1963.
59
IA, Ms 27280/4, General Manager, Kuching to the Managing Directors, London,
24 November 1964; Pearson, Kuching to Heath, London, 20 January 1965.
60
Saham, Industrial Investment, 245.
61
For example, the pearl of the Barlow plantation group, Highlands & Lowlands Para
Rubber, achieved record pre-tax profits of 2.71 million in 1970 because the high price of palm
oil compensated for a dramatically falling rubber price. The contribution from rubber dropped
from 1.22 million to 732,000, but palm oil nearly doubled its take to 1.71 million. The Times,
20 May 1971.
62
PRO, DO 35/9730, note for Alport by Jasper, 25 February 1958; The Times, 20 June 1958;
CUL, Barlow papers, 63/856, Tom to Sir John Barlow, 12 February and 12 March 1958; BoE,
ADM 14/73, notes by Thompson-McCausland for Hawker, 26 September and 6 December
1960.
63
BoE, ADM 14/82, note by Thompson-McCausland for the Governor and DeputyGovernor, 10 March 1965.
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NICHOLAS J. WHITE
64
CUL, Barlow papers, 57/781, Sir John to Tom Barlow, 26 and 27 January 1960.
BoE, ADM 14/82, note for the Governor and the Deputy Governor, 10 March 1965.
66
Saham, Industrial Investment, 135, 142 note 37. This conservatism, combined with the
economic aspirations of the Malay electorate, only drove the Malaysian government to
institute, after 1971, the New Economic Policy, which aimed to increase Malay and non-Malay
Malaysian ownership in industry and commerce to 30 per cent and 40 per cent respectively,
while overseas ownership would be reduced to a mere 30 per cent, and certain of the British
investment groups, notably Sime Darby (in 1976) and Guthries (in 1981), were forced into
complete local ownership and control.
65
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Kong was eschewed by the London management on the grounds that Our
policy . . . is to have at least 50 per cent share in local ventures and to steer
clear as far as possible from politics.67 Instead, Tun Mustapaha, Sabahs
Chief Minister after 1967, turned to a group of Japanese firms whose
interests he was promoting at the expense of UK businesses.68
Indeed, Japanese trading companies and manufacturing concerns were
more attuned to local political and business realities than their British
counterparts. Japanese interestsfor example, in steel production
established joint ventures with T. H. Tan, Secretary-General of the Alliance,
president of the All-Malaysian Chinese Chambers of Commerce, a close
personal friend of the Tunku, and one of the most powerful men in the
country.69 Moreover, when the huge Malayawata Steel project at Perai
incorporated in 1967, 3 million one-dollar shares were offered exclusively
to Malays and Malay interests. This meant that local shareholders,
including the Malaysian government, held 57 per cent of the equity
capital.70 The Japanese firms involved in the Malayawata project also
recognized the pressing need to appoint senior Malays as directors. Raja
Mohar, the chief Malay bureaucrat in the Ministry of Commerce and
Industry, was made chairman. Meanwhile, the leading Malay ultra, Syed
Jaafar Albar, the former UMNO Secretary-General who played a key role
in the expulsion of Singapore from Malaysia, was made executive director
and manager in Kuala Lumpur.71
British firms, in contrast, were reluctant even to open up management
positions to Malaysians. Little over a year before Sarawaks incorporation
into Malaysia, BCLs management in London rejected the appointment of a
Chinese shipping manager on the Rejang river on the grounds that none of
the other big commercial firms in Sarawak had local executives and it is
going to be uphill going for a Chinese to tune into the old boy network at
the right level.72 On the mainland, meanwhile, the agency houses took
advantage of laxness in the Federations Immigration Department in the
early 1960s to actually increase the number of young European planters on
the rubber estates. This was a tendency which the High Commission in
Kuala Lumpur branded as exceptional stupidity, since by the mid-1960s
67
IA, Ms 27295, Pearson to MacEwen, London, 19 June 1963 plus enclosures and reply from
Stovold, 28 June 1963.
68
PRO, FCO 24/155, enclosure by Australian High Commission in Duncan, Kuala Lumpur
to Mound, Commonwealth Office, 26 August 1968.
69
Desmond Tate, Power Builds the Nation: The National Electricity Board of the States of Malaya
and its Predecessors, Vol. II. Transition and Fulfilment (Kuala Lumpur, 1991), 63, 174; T. H. Tan,
The Prince and I (Singapore, 1979), ix.
70
Bulletin of the MalaysiaSingapore Commercial Association, 51, December 1967, 5.
71
Straits Times Directory of Malaysia and Singapore 1969, 386.
72
IA, Ms 27295, Stovold to Pearson, 3 May 1962.
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NICHOLAS J. WHITE
73
PRO, DO 189/588, Bottomley, Kuala Lumpur to Moreton, Commonwealth Office,
15 August 1966.
74
Arkib Negara Malaysia (Malaysian National Archives), Kuala Lumpur, Traill papers, SP
95/B/15, draft letter from Harry Traill to Sir Claude Fenner, Rubber Growers Association
special representative in Malaysia, c. September 1971. Traill was a long-serving British planter,
who had taken Malaysian citizenship after merdeka.
75
PRO, DO 189/422, speech in the Malaysian Lower House, 22 August 1966, reported in
telegram from Kuala Lumpur to Commonwealth Office, 23 August 1966.
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Conclusion
Darwin has argued that the British dream of upholding economic influence
through constitutional change in the EmpireCommonwealth was
shattered by a number of factors during the 1960s: the reduction of sterling
balances and the loss of British control over Commonwealth currencies;
an emphasis on local manufacture, as well as the extension of state
intervention in post-colonial economies; the emergence of more generous
international lending agencies; and the decline of British industrial
performance, compounded by the loss of privileged access to ex-colonial
markets. These tendencies were exacerbated at the end of the decade by
Britains financial troubles, with the retraction of Albions global military
role as the dramatic denouement.76
This article does not demur fundamentally from Darwins interpretation, but in the Malaysian case a number of modifications can be made
to his model. First, the British experience in post-colonial Southeast Asia
was not necessarily a sad and sorry tale of continuous economic decline.
Nor did the Commonwealth economic experience witness the swift
supplanting of UK commercial and financial interests by either indigenous
or other endogenous competitors. Rather, the increase in British imports to
Malaya during the early 1960s and the successes of UK industrialists and
agency houses in import substitution suggest a revival of British economic
leverage. Moreover, however badly the British economy may have fared at
a macro-level, the ex-colonial firms on the spot maintained their positions
to the 1970s as the leading importers and distributors of manufactured
goods, and producers of raw materials, while, at the same time, they
emerged as key promoters of secondary industry. This phenomenon was
clearly aided by the fact that the Malaysian government chose a development strategy which in the main eschewed state control of industry, and
remained remarkably committed to sterling until the 1970s.
Even so, we have also observed that Britains commercial and financial
renaissance in post-colonial Malaysia lacked firm foundations. Entrepreneurial inertia amongst the agency houses was evident, particularly in
the political and social spheres from independence onwards. Fearing a loss
of financial and managerial control to local interests, and continuing to
exhibit an alarming degree of prejudice towards Southeast Asians, British
firms did not develop a full Commonwealth partnership with Malaysian
entrepreneurs and/or politicians. Here was a tendency which would prove
increasingly damaging once a more radical economic nationalism emerged
in the later 1960s. Conservatism on the part of the long-established firms
intersected with two other variables to induce a sharp decline in British
76
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