POLICY SHIFTS AND SINGAPORE'S “DEMONSTRATION EFFECT”

The recent foreign investment boom in Malaysia and Thailand has brought the economies of the ASEAN-3 much closer together, at least in their openness to foreign investments and in their reliance on MNCs as agents of export-led development. All three countries now welcome foreign companies and offer a roughly similar range of tax incentives and other privileges. In Malaysia's case, the policy changes of 1986, after the shock of the 1985-86 recession, were a major factor. The main change was to allow MNCs 100 percent ownership of their subsidiaries, which led to a deluge of foreign investments. In the case of Thailand, the boom appears to be the result of active promotion at a time when Japanese companies were increasingly looking for low-cost offshore production bases. Of the ASEAN-3, Thailand has been the biggest beneficiary of the recent outflow of investments from not only Japan but also the United States, Europe and the NIEs, in particular Taiwan.

There is also evidence that Singapore's earlier experience with an MNC led policy played a part in the convergence of the ASEAN-3's strategies. In fact, this was a factor behind the policy shifts by the Malaysian and Thai authorities who had to look for new engines of growth and new ways to diversify their economies. By the mid-1980s, the benefits of Singapore's policy of playing host to MNCs were unambiguous. It had rapidly acquired the latest technology and a capability to produce up- to-date and high-value products and services. For two decades its economic performance surpassed that of Malaysia and Thailand which had adopted inward-looking policies that relied on their own resources and inputs. In other words, Singapore's policy had a “demonstration effect”: it proved that a dependency on MNCs did not result in a one way outflow of benefits to foreign agents but instead led to benefits that were mutual and considerable. It also showed that through MNCs, a developing country could readily plug into world markets, tap managerial and technical expertise, and have access to foreign capital.