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Challenges and opportunities: awakening domestic creative entrepreneurship

Written by Carmelo Ferlito, Senior Fellow of IDEAS

The Malaysian economy is under stress, no doubt about it. The latest statistics showed that the GDP grew at the slowest pace in a decade, 4.7%. Although the economy is in trouble due to external factors, such as the US-China trade war and the CoViD-19 outbreak, the data should open a question on the fundamentals of the country’s economic structure. The recent political crisis has added uncertainty in an already challenging scenario, but, while external factors are heavily weighing on economic performances, we cannot put all the blame on them. I believe that a serious reflection on the present status of the economy can help us in turning challenges into opportunities.

First, both the trade-war and the coronavirus have shown us the important role played by China in the global supply chain. While it is unrealistic to think that Malaysia – or Southeast Asia – could replace China overnight, a serious thought about the open opportunities presented by the current scenario would not be useless. However, I think that such reflection needs to be made also by looking at some important fundamental data of the Malaysian economy: the role of the manufacturing sector and the weight of private investment in the Malaysian GDP.

If we look at the composition of Malaysia’s GDP by sector, we discover that services represent 58.6% of it, while manufacturing is at 22.1%, followed by agriculture (6.6%), mining (7.1%) and construction (4.5%). The expenditure side, instead, shows us that the GDP is driven by private consumption (around 58%), while private investment represents around 20% of it.

When we claim that this moment of difficulty can be turned into an opportunity by rethinking the role of Malaysia in the global supply chain, we implicitly see in such an opportunity also the possibility for a growing weight of private investment in the GDP composition and, at the same time, the opportunity for a growth of the manufacturing sector. As reported in a recent statement by Dr Ong Kian Ming, former deputy minister of international trade and industry, manufacturing is a key driver for productivity, jobs and international trade.

It goes without saying that the manufacturing sector grows hand-in-hand with an increasing role for private investment. But such a change, in my opinion, calls for two more related “revolutions”: first of all, when we think about increasing investment we often turn to the role of FDIs, however, I believe it is now the time to mobilise domestic resources. To call for increased domestic investment, however, means to call for a major turn towards an entrepreneurial mindset.

I think, in fact, that we can distinguish among two types of entrepreneurship. According to Israel M. Kirzner, entrepreneurs are individuals alert to previously unexploited profit opportunities; such a definition can include speculative entrepreneurship – the ability to sell dear what was bought cheap thanks to the ability to identify the right conditions of time and space. However, what is needed in order to increase private investment and to turn them into manufacturing is a different kind of entrepreneurship, the one described by Joseph A. Schumpeter and associated with disruptive innovations and the process the he labelled “creative destruction”; the Austrian economist identified five types of innovation: new products, new methods of production, the discovery of new raw materials or sources for them, the discovery of new markets and the reorganization of an industry.

I think that Southeast Asia – Malaysia included – played very well in the realm of Kirznerian entrepreneurship, while is still lacking behind from a Schumpeterian perspective. This is consistent with the early stages of development, which are focused on creating the environment for attracting foreign investment; but during these stages, while opportunities do arise, the creative forces of economic development remain elsewhere. It is time to awaken these domestic forces.

From this perspective I believe there are no easy solutions. While an adequate institutional framework, incentives and a business-friendly environment can play an important role, most probably, the real disruptive action can only be taken at the level of the education system. Going against the flow, I think that an entrepreneurial mentality can be better nurtured with a humanistic oriented education rather than a technical one. Creativity, a thirst for something new, for exploring new paths and to create new opportunities are most probably awaken by the passionate study of history, philosophy, geography, literature, rather than engineering and math.

To conclude, a very contingent problem – the present economic difficulties – can be turned into opportunities if we start a reflection which embraces the complexities of the economic reality, realizing that it is the moment for a radical turn in the structure of the national economy and that such a turn can be better awaken by investing in a different type of education which can shape the creative entrepreneurs of the future.

2020-03-20T14:40:59+08:00 20th March 2020|Opinion|Comments Off on Challenges and opportunities: awakening domestic creative entrepreneurship