One World, Ready Or Not Chapter 5

1. One World, Ready Or NotChapter 5 “WAWASAN 2020”

2. Introduction • Wawasan 2020 • A Malaysian economic vision where the country will be entirely self- sufficient by the year 2020 • Rapid growth- 7% • 4x per capita income by 2020 • Government fostered homegrown industries • “The people will be psychologically subservient to none” - PM Mahatir Mohamad (p85) • Focus of Chapter • What is the relationship between national governments and multinational corporations that act within their borders?

3. Relationship between Government and Corporations • Political Bargaining: • “When a multinational corporation seeks to shift production to low-wage labor markets, a process of political bargaining ensues with the governments competing for the new factories. Concessions are offered, deals are made, investment follows.” –pg 81 • The Power Relationship: • “A corporation’s power is naturally strongest if it is dealing with a small, very poor country, desperate for industrial development.” –pg 81 • This relates to “Wawasan 2020” Grieder uses Motorola’s investment in Malaysia throughout this chapter to talk about this phenomenon.

4. “…commerce is able to leap across the deepest social and economic divisions, bringing advanced production systems to primitive economies, disturbing ancient cultures with startling elements of modernity.” –pg 81 “If a country manages to graduate from low-wage status and establish a self-sustaining industrial base, its achievement may become permanent. The very process of moving up also threatens to drive away the global investors.” –pg 81 Conflict exists between what the multi-national corporation wants and what is good for the country in which it invested. Cultural Disruption VS Industrial Growth

5. Global Jobs Auction • “The irregular political leverage that commerce first employed in the weak countries is now being applied to the wealthy and powerful as well, especially the United States.” –pg 82 • Grieder uses the automobile industry to show this later in the chapter. • “If a poor country like Malaysia grants public favors to capital in exchange for scarce jobs, then so will Ohio or Alabama.” –pg 82

6. Malaysia • Previously agriculturally based country • “…rural villages where destiny was defined as helping peasant fathers and husbands harvest the rice and palm oil.” –pg 84 • Kuala Lumpur • The biggest city is experiencing growing changes • “By the river, the old central market hall had been renovated into artisans’ stalls and tourist boutiques, with a U.S. fast food franchise nearby that sold “Prosperity Burgers.” –pg 85

7. Introduction of Western Culture • Motorola • “The spectacle of cultural transformation at Motorola was quite routine—three times a day, seven days a week—but it conveyed the high human drama of globalization: a fantastic leap across time and place, an exchange that banal and revolutionary, vaguely imperial and exploitative, yet also profoundly liberating.” – pg 83 • “In the longer sweep of history, the social intrusions of modern technology might be as meaningful as the economic upheavals.”- pg 83

8. Road to Industrial Growth • Defusing the “multi-racial” time bomb…”- pg 86 • 61% Bumiputras, the natives – agriculture and fishing • 30% Chinese – merchants, “Jews of Asia” • 9% Indian, mostly Tamils – commodity production or petty civil servants • Multi-ethnic political coalition in early 1970’s • Bumiputras’s economic assets increased from 2% in ’60’s to 20% in 1990. • Common poverty down from 49% to 16% • Social Reforms • Following footsteps of Japan

9. Prosperity in Malaysia • Primary cause was the decision by American semi-conductor businesses to move operations to Malaysia • US and Japanese electronics exports from Malaysia employed over 150,000 people –pg 88 • Malaysia was hoping that this FDI would transfer technology to domestic firms and create a lasting infrastructure • To what degree is this technology transfer evident?

10. Technology Transfer • Malaysia’s main goal is to build a stable infrastructure to support domestic firms by reaping the benefits of MNCs • “There is inadequate development of indigenous technology” -PM Mahathir -pg 88 • “Despite Malaysia’s brave claims of nationhood, its economy appeared to be trapped in the middle- not fully self sufficient yet compelled to compete downward with the new low wage entrants from below” -Greider -pg 89 • Not fully realizing transfer of technology and the benefits of FDI (Principle of Wawasan 2020)

11. Semiconductor Industry Overview • Malaysia is one of many countries playing a role in the industry -pg 90 • Scotland, U.S. (California), Texas, S. Korea, Taiwan, Indonesia and Thailand • This had a diversifying effect for the companies, hedging against exchange rate risk while establishing a higher market share • These countries were used by competitors to establish areas of low wage automated production, while keeping the best technology at home

12. Semiconductor Industry and Big Government • Used the US federal government to open the protectionist Japanese markets in the 1980’s • Attempted to improve the domestic electronics industry with hopes of being more competitive abroad • Sematech research consortium was created • 1986- US govt. guaranteed a market share for the US industry in order to detract from the global dominance of Japan

13. Semiconductor Industry • Shifting employment • Between 1982 and 1991 American jobs decreased 37% from 290,000 to 184,000 but overall workforce was increasing –pg 92 • More production was being shifted abroad to places such as China and Malaysia • Rationale was that companies would be strengthened and US exports would increase but in reality, trade deficits were increasing • The developing countries surpluses to the US added together equaled the surplus of Japan to the US • Incentives were offered by developing countries to the companies in order to secure FDI

14. Investment Incentives in Malaysia • Tax breaks –pg 91 • “pioneer status” for five to ten years exempted companies from taxation, import duties, and secured other state subsidies • Union busting –pg 92 • Governmental guarantee that electronics workers would be prohibited from organizing independent unions • AFL-CIO pressured the labor minister into a contract but after US threatened PM, the contract was rescinded and the labor minister retired

15. US State Subsidies • Examples of economic development aka. bidding wars in the US -pg 94 • Alabama & Mercedez Benz: $300 million in tax breaks or $200,000 per job in • Ohio & Honda: $16 million in incentives in 1982 • Kentucky & Toyota: $125 million in 1988 • Tennessee & Nissan: $11,000 per job in 1980 • S. Carolina & BMW: $79,000 per job • Kentucky & Canadian Steel: $350,000 per job!! • The goal of the states is to become a dominant market for industry in the future, but is it worth the cost?

16. Corporations in the US • Corporate Retention aka. Blackmail -pg 95 • Corporate sentiment “If you don’t subsidize us, we will leave” • Eg. Owens-corning in Ohio took over $90 million to stay • Eg. Virginia gave IBM $165 million to reopen an closed plant • How is this blackmail possible? • Global scarcity of jobs and an overabundance of labor • It began to spread to other industries that realized that the government and states were vulnerable to this type of bargaining

17. Corporations in the US • Tax evasion • IBM- Claimed to investors that profits were made in the US but claimed to the IRS that nothing was made in the US- reduces tax liability • Foreign nationals- evaded 1/2 of their taxes in the US through evasive accounting valued at $30 billion in 1990 • Tax havens- Caman Islands • Growing trend of taking subsidies at the expense of taxpayers and avoiding taxes as much as possible

18. Worker Demographics • Young inexperienced literate women approx age 17-30, lacking status or self awareness to speak for themselves –pg 98 • Young women are not likely to advance • “sense of discipline that women have acquired through subjection to patriarchal domination in the household” –Henderson –pg 99 • There is no better alternative for these women other than to work for these corporations

19. Global Workforce • Malaysia’s comparative advantage is low wage labor • As other countries developed, they too had sources of cheap labor, even cheaper than Malaysia • eg. Indian engineers • The continuous cycle of transferring production facilities to other countries • The main issue for Malaysia is, will they acquire the technology and infrastructure necessary to prevail in the future or will they be forced to rely on MNCs?

20. NOTES Bidding Wars Mark Waterhouse BMW Taxes IBM’s tax avoidances… Foreign firms tax avoidance… Nissan Tax Penalty Studies in International Taxation Wall Street Journal BMW Wages The Globalization of High Technology Foreign Economic Trends: Malaysia Tallest Building Growth Statistics and Projections Mahathir Speech UN Human Development Report Mahathir Speech Chandra Muzaffar Financial Times Mahathir, "The Way Forward“ Crude Oil of the Information Age Employment in Semiconductors... Japan's Trade Surplus with the U.S. AFL-CIO Details on Alabama-Daimler deal Daimler's Vietnam Plant Ford-Jaguar threat