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Articles, Commentaries, Economics, The Edge

Kuala Lumpur – Still Best at Being Middling?

By Ooi Kee Beng

For THE EDGE, Kuala Lumpur, 26 March 2012

I am sitting at a dear friend’s apartment in Hong Kong’s Wanchai district, looking across to Kowloon. Well, that’s not totally correct. I can actually not see Kowloon at all. The mist is so dense that even the vessels floating in the straits are not really visible.

It is early spring, and the skies are overcast. But beneath this thick air, the streets are buzzing with life, and the deals in the offices and the businesses in the malls are steadily being done.

This is one of the most important business districts in the world. The Economic Intelligence Unit has just ranked Hong Kong the fourth most competitive city in the world—and Asia’s second after Singapore in third place.  (New York and London still lead globally, with Paris placed alongside Hong Kong).

I had in fact just arrived from Singapore and had just finished lecturing at a university here on the history of Malaysia—and of course necessarily also on the modern history of Southeast Asia. My mind is therefore filled with the infrastructural pattern for global trade found along the Asia Pacific coastline.

Hong Kong was for quite a while the claw that British mercantilism plunged into the Chinese Imperial belly to attach the ancient dragon into modern global trade. Since then, the two worlds have become entwined, and the Asian Century is now taking concrete shape.

All along the Pacific coast today, we see cities growing beyond comprehension. And if we look at EIU’s ranking for Overall Economic Strength, we get a glimpse of the future. The Chinese cities of Tianjin, Shenzhen and Dalian rank first, second and third respectively. Other Asia Pacific cities in the top ten on this list include Guangzhou, Shanghai, Tokyo, Chongqing and Beijing. Only New York (4) and Doha (5) are from outside the region. If we look at the next five cities down this list, we get Qingdao, Chengdu, Suzhou, Hangzhou, and then Singapore at No. 15. Hong Kong comes in at No. 20 along with Hanoi, with Taipei at No. 29.

To be sure, a ranking exercise should not be taken as Gospel truth, but a reputable one such as the EIU’s do highlight real trends. While the global future certainly looks more and more Chinese, most cities in the advanced world remain amazingly stable. Of the 20 most competitive cities, only Singapore, Hong Kong, Tokyo and Seoul (at No. 20) are not Western.

So where is Southeast Asia in all this? Well, among the top 60, only two countries appear—Singapore is way ahead at No. 3 while Kuala Lumpur is at No. 45. In EIU’s list of 120 cities, Kuala Lumpur beats Bangkok, which is at No. 61; Jakarta is at No. 81; Manila at No. 85; Hanoi at No. 104; Ho Chi Minh City at No. 109; Surabaya at No. 110; and Bandung at No. 114.

Putting Singapore aside then, Kuala Lumpur actually leads the bunch of ASEAN cities found in the middle group in this race. As such, it seems not too bad a result.

But let’s take a closer look at why it did not do better. Kuala Lumpur is placed at 10th for Financial Maturity, 28th for Environmental and Natural Hazards; and 35th for Global Appeal; it was ranked 44th for Economic Strength, 49th for Physical Capital and 46th for Human Capital; and did really badly where Institutional Effectiveness, and Social and Cultural Character are concerned.

Economic Strength weighs the most, matching the next two categories of Human Capital and Institutional Effectiveness. Together they command 60% of the computation. Financial Maturity, where the city fares best, carries only 10%.

This quick look at the detailed placing suggests strongly that it is in the heavy categories that Kuala Lumpur fared worst. What these figures tell us in the end is not anything surprising.

Economic Strength and Human Capital are closely linked by issues such as the huge income gap, weaknesses in the educational system, a persistent brain drain, and a shortfall in attracting the right foreign talents.

Institutional Effectiveness is concerned most heavily with issues such as “government effectiveness”, and “electoral process and pluralism”, and less weightily, with “local government fiscal autonomy”, “rule of law”, and “taxation”. Only in the last category would Malaysia have excelled. The country is thus in need of concerted reform.

Getting poor marks for Social and Cultural Character is the big surprise, but would have been due to the bad press generated by fervent religious bureaucrats and by ethnocentric politicians.

Now, let’s get back to the Asian Century. Kuala Lumpur once flew with second-tier geese such as Bangkok and Jakarta, just below high-flyers like Hong Kong, Seoul, Taipei and Singapore. Today, the latter are still flying high. The trouble for the second-tier is that although still second-tier, they are losing speed and running out of options. And at the same time, the East Asian skies are filling up with more and more geese, flying out of China and Vietnam.

In that crowded space, Kuala Lumpur will need to drop as much baggage and as quickly as possible if it is to stay in the air. It will have to streamline its government apparatus, encourage the rule of law, rejuvenate its educational system, and accept the pluralism that a modern economy requires.

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About Ooi Kee Beng

Dr OOI KEE BENG is the Executive Director of Penang Institute (George Town, Penang, Malaysia). He was born and raised in Penang, and was the Deputy Director of ISEAS - Yusof Ishak Institute (formerly the Institute of Southeast Asian Studies, ISEAS). He is the founder-editor of the Penang Monthly (published by Penang Institute), ISEAS Perspective (published by ISEAS) and ISSUES (published by Penang Institute). He is also editor of Trends in Southeast Asia, and a columnist for The Edge, Malaysia.

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