Economic Change in East Malaysia

Since the first traveller’s account in the sixteenth century, Borneo has held a particular mystique for westerners. This island of head-hunters and noble savages promised wealth, adventure and later missionary challenge to an array of Europeans. It lay off the beaten track, however, for most European adventurers and it was only in the early nineteenth century that interest in the island was rekindled. Two factors were responsible for this reawakened interest. The first was the increased importance of trade with China, especially after the ending of the opium wars, and the establishment of Singapore and later Hong Kong, which helped channel trade and shipping along the South China seaways. The strategic significance of the north-west coast of Borneo was not lost on the British and the Dutch. The second factor was the declining power and influence of Brunei which had been the paramount power on the island. Brunei’s decline (and the decline of the indigenous powers) presented opportunities for independent adventurers and traders on the lookout for new trading ventures and the strategically placed ports which could serve the new English trade with China.¹ After the 1840s, Borneo was also seen as a source of valuable minerals and as a promising market for manufactured goods. The adventurers who ventured into the power vacuum created a scramble for Borneo which led to the creation of two new political entities on the island, Sabah and Sarawak, which developed completely independently of each other.

The history of settlement in East Malaysia can best be understood within the framework of the physical environment of the region. The heavy and uniform rainfall gave rise to a multiplicity of rivers which in turn set the original pattern of settlement in the country. The large rivers are vital arteries of communication and their watersheds represent tribal and economic boundaries. Sabah has an extensive system of rivers which can be divided into three main groups. The first group comprises the long east coast rivers which flow from the interior into the Sulu sea; the second group consists of short west coast rivers that flow into the South China Sea with sources in the Crocker Range and the third group includes the short streams of the south-east coast which flow into the Celebes Sea. The major rivers are the Kinabatangan, Segama, Sugut, Paitan and Labuk and their tributaries. The Kinabatangan was navigable for steam launches drawing up to 2 metres as far as the mouth of the Lokan tributary some 193 km from the sea and for smaller launches as far as Tangkulang. The west coast rivers are short, swift, mainly unnavigable and therefore less important as channels of communication. The Papar River, though navigable for boats for about 48 km, is obstructed at its mouth by a bar. The Padas is the longest river on the west coast and the most important, being navigable for small launches as far as Beaufort, 96.5 km from the sea. Rivers in the south-eastern part of the state are likewise short.

As noted previously, the establishment of specialised politico-administrative units, Sabah and Sarawak, whose existence was underpinned ultimately by the power of Britain, linked them with the expanding colonial empire and integrated them into the world trading system. Both these territories had precisely delineated boundaries (obtained either through war or by treaty) together with institutional structures to oversee various aspects of government, including law and order, land, taxation, currency, trade and so on. The economic rationale underlying the acquisition of the territories was very important and hinged upon the exploitation of three main resources - minerals, land and forest products - and their role in the trade of the region.

In the socio-economic transformation of the two territories, provision of bureaucratic and economic frameworks formed the most significant of the services provided by the two administrations. One, as discussed in Chapter 1, was the enforcement of law and order and the assurance of security. Another was an effective legal and administrative system that included the formulation of a western-type land tenure system which replaced traditional systems of landholding. As discussed in Chapter 3, legislation and a licensing system were also introduced to deal with mining, forest resource utilisation and the mobilisation of other resources in the states. A third was a sound financial system. Both governments linked the two territories’ currency to the Straits dollar and ultimately to sterling, which provided the stability needed for currency exchange, and they also facilitated banking and insurance facilities. Two key elements of economic management however, were the provision of infrastructure, especially transport, and the organisation of labour, both of which are the focus of discussion of this chapter.

By 1940 Sabah and Sarawak’s economies were part of the global commercial system and subject to major cyclical and political trends. Administratively, the two states were now closer to British Malaya and both governments were open to adopting ideas on administration, the economy and technological advances introduced in Malaya. In fact, in Sarawak, a constitution was proclaimed in 1941, which brought the state’s administrative system closer to that pursued in other British territories. Plans were also afoot for greater control by Britain in Sarawak’s internal affairs. However, before these plans could be implemented, the Japanese commenced their invasion of Southeast Asia in late 1941.

The idea of a merger between Sabah and Sarawak was not new, having been broached on a number of previous occasions by various officials. After the Second World War, when the British Government took control to oversee the task of rebuilding the states, the two territories were grouped with Brunei to form the British Borneo Territories. The main objective in grouping the three states was to promote economic and administrative co-operation and encourage economic integration. There was also talk of a merger between the Borneo territories and Malaya, alongside calls for some form of a Bornean federation.¹ The actual process of negotiation for federation between Malaya, Sarawak, Sabah, Brunei and Singapore was speeded up because of the political-strategic situation existing in the region around 1960. In that year, the Federation of Malaya declared an official end to the twelve-year Emergency but the spectre of communism was still dominant in the thinking of the Malayan leaders. Singapore, which had been given internal self-government in 1959, also desired merger for both political and economic reasons. Additionally the broadening of the grouping to include the British Borneo territories would enable the combined total of bumiputera (Malay and indigenous people) to have numerical superiority over the Chinese population.

The establishment of the Federation of Malaysia brought together economies at different levels of development - the staple port of Singapore, the relatively advanced resource economy of Malaya; and the less developed territories of Sabah and Sarawak, which were expected to receive a stimulus from membership in the larger grouping. In anticipation of the formation of Malaysia, a World Bank mission submitted a report on the economic aspects of the federation.¹ This mission endorsed the thrust of post-colonial Malayan industrialisation policy.² It also urged that a Tariff Advisory Board be established to work out a common external tariff after the formation of Malaysia. Additionally, the mission recommended the setting up of a new body specifically for industrial promotion. In the area of coordinated development planning, an integrated Five Year Plan was devised to begin from 1996. Existing institutions comprising planning bodies and the Central Bank in Malaya were to form the basis for coordinated planning at the Federal level.³