twentieth century brit hist 2003 white 222 42

NICHOLAS J. WHITE Liverpool John Moores University

The Survival, Revival andDecline of British EconomicInfluence in Malaysia, 195770

AbstractIndependence for Malaya in 1957 (and the enlargement of the federation to formMalaysia in 1963) did not have an immediately adverse effect upon Britisheconomic interests there. Indeed, Britain retained, and even revived, its hugecommercial, industrial, and financial presence in Commonwealth Southeast Asiawell into the 1960s. From the middle of that decade, however, British economicinfluence in Malaysia declined quite rapidly. The main focus of this article is toexamine three possible causes of this downturn: declining competitiveness on thepart of British manufactures; UK government policy towards private investmentand public expenditure overseas; and entrepreneurial weaknesses among theBritish agency houses in Malaysia.

Britains post-war decolonization strategy was predicated on the principlethat a significant degree of metropolitan influence would be preserved inthe successor states of the new Commonwealth. As John Darwin tells us,the later phases of British colonial policy were frequently geared . . . tomaking sure that the emerging state would be a useful and stable partnerfor Britain after independence. In the economic realm, development wasto be encouraged along lines compatible with British interests and incooperation with British overseas enterprises.1 Malayan independence in

Twentieth Century British History, Vol. 14, No. 3, 2003, pp. 222242 OUP 2003, all rights reserved

1 John Darwin, Britain and Decolonisation: the Retreat from Empire in the Post-War World(Basingstoke, 1988), 2989. Other studies which emphasize the centrality of maintaining Britishinfluence (both economic and strategic) through decolonization include Wm. Roger Louis andRonald Robinson, The Imperialism of Decolonisation, Journal of Imperial and CommonwealthHistory, 22 (1994), 462511; Tony Stockwell, Ending the British Empire: What Did They ThinkThey Were Doing?, Inaugural Lecture, Royal Holloway, University of London, 18 November

August 1957, as well as the creation of the Federation of Malaysia just oversix years later,2 appeared to provide a blueprint for the preservation ofcommercial and financial influence through the transfer of power tomoderate nationalists. Between 1957 and 1970, the anglophone TunkuAbdul Rahman led a cabinet composed of Malay aristocrats and Chinesebusiness leaders which chose to keep Malaysia within the Commonwealtheconomic bloc and did not tamper with established British investment.

Moreover, this article argues that not only did a substantial Britisheconomic presence survive the transfer of political power in Malaysia, butalso a significant revival of British economic sway can be identified in theimmediate post-colonial era. This latter phenomenon resulted from asuccessful UK export drive, growing dependence on the British market forMalaysias principal export, rubber, and new flows of British industrialinvestment into the Federation. From the mid-1960s, however, Britainscommercial and financial influence in Malaysia waned. The second half ofthis discussion considers how far this was the product of: (i) a lack ofcompetitiveness on the part of British manufactured goods; (ii) the policiesof the Wilson government; and (iii) a general loss of entrepreneurshipamong British firms operating in Malaysia.

Survival, Revival and Decline: An Outline

Britains dominant position as a supplier of private capital to Malaysiasurvived political decolonization. In October 1963, the British High Com-mission in Kuala Lumpur estimated that the total stock of assets controlledby British companies in the Malaysia territories was in the order of400500 million, of which at least 75 per cent was to be found in Malaya.3

The major concentration of that capital, about 200 million, was in rubberplantations, with British firms presiding over 1 million acres, or about 60per cent of Malayas total estate acreage. As late as 1972, the Confederation

1999; W. David McIntyre, The Admission of Small States to the Commonwealth, Journal ofImperial and Commonwealth History, 24 (1996), 24477; L. J. Butler, Winds of Change: Britain,Europe and the Commonwealth, 195961, in Brian Brivati and Harriet Jones (eds), FromReconstruction to Integration: Britain and Europe since 1945 (Leicester, 1993). P. J. Cain and A. G.Hopkins have argued that Britains gentlemanly capitalists liberated themselves from thesterling area in an attempt to take advantage of more remunerative economic opportunitiesemerging within the global growth triangle of Europe, North America, and Japan. Yet, they stillconcede that in moving with the nationalist tide, Britain hoped to benefit from informal tieswith the Commonwealth while simultaneously promoting sterlings wider, cosmopolitanrole. British Imperialism, 16882000 (Harlow, 2002), 620.

2 The Federation of Malaysia involved the fusion of the former crown colonies of Singapore,Sabah, and Sarawak with independent Malaya in September 1963. Singapore left the enlargedFederation in August 1965, and tends not to feature in this study.

3 Public Record Office, Kew, London (hereafter PRO), DO 187/19, minute by J. R. Cross,17 October 1963.

B R I T I S H E C O N O M I C I N F L U E N C E I N M A L AY S I A , 1 9 5 7 7 0 223

of British Industry (CBI) estimated that British interests continued tocontrol about two-thirds of total foreign capital in Malaysia.4

Such UK business dominance was assisted by Malaysias continuedmembership of the sterling area, which permitted a free flow of capital andremittances within the Commonwealth. Tan Siew Sin, Malay[si]as financeminister between 1959 and 1974, remained persistently loyal to the sterlingsystem. In 1967, Tan chastised those economic nationalists critical of theM$300 million (or 35 million) plus of dividend and interest paymentswhich flowed annually to the UK, arguing that the surest way to trigger offa flight of capital is to impose restrictions on capital outflow.5 As late asthe summer of 1966, and despite growing balance of payments difficultiesfor the UK economy, Tan was persuaded by the Bank of England not toswitch Malaysias sterling reserves into dollars so long as ThreadneedleStreet attempted to maintain the strength of the pound. Hence, Malaysiassterling balances continued to be worth nearly 300 million and remainedsecond in size only to those of Australia among Commonwealth countries.6

The 14 per cent devaluation of the pound in November 1967 did lead to anelement of diversification in Malaysias sterling reserves.7 Even so, it wasonly in June 1972, following the decision of Her Majestys Government(HMG) to allow sterling to float on world currency markets, that theMalaysian government took up the US dollar as the instrumental currencywhich would regulate the movement of its own currency. The preferencesaccorded by Malaysia to products of Commonwealth countries alsoweathered independence, and helped to maintain Britains position as thelargest supplier of Malaysias imports to the late 1960s.

Moreover, it is possible to discern an intensification of economic linksbetween Malaysia and the UK in the immediate post-colonial period.Following a decline in British exports to Southeast Asia on the wholeduring the later 1950s, the Macmillan government and the Federation ofBritish Industries (FBI) assembled a number of trade missions to the regionduring 1961. The result of this export drive, in the short term, at least, waspositive. In 1961, Britains share of imports improved from 21.5 per cent to22.6 per cent, the overall value of which exceeded M$500 million (roughly58 million) for the first time. The trade mission to the Federation was

4 Junid Saham, British Industrial Investment in Malaysia, 196371 (Kuala Lumpur, 1980), 14note 23.

5 PRO, FCO 24/162, speech to Alliance Youth reported in Economic Section, British HighCommission, Kuala Lumpur to the Far East and Pacific Department, Commonwealth Office,26 May 1967.

6 PRO, DO 189/597, Goldman, Treasury to Snelling, Commonwealth Relations Office(CRO), 5 August 1966; copy of report by E. P. Haslam (Bank of England) on a visit to KualaLumpur, 2324 August 1966.

7 Bank of England Archive, Threadneedle Street, London (hereafter BoE), OV 44/144, Noteby Haslam, 1 December 1967.

224 N I C H O L A S J . W H I T E

headed by Freddie Erroll, Minister of State at the Board of Trade, whorecommended that British industrial firms attach representatives directlyto the UK agency houses so that the technical know-how of the factoryrepresentative would complement the local market expertise of the tradingfirm. Certainly, the number of British factory representatives in KualaLumpur rose from less than a dozen in 1959 to over thirty at the beginningof 1962.8 In March 1963, the secretary of the Malayan CommercialAssociation in London could proudly report that nearly one-quarter ofthe Malayan market was still taken up by British importsa figure stilltwo and a half times that of Japan, the UKs nearest rival. Admittedly,lightweight motorcycles were facing stiff competition from Japan, butBritish cars maintained fifty per cent of the market.9 Britains position as theleading source for Malaysian imports was impressively maintained untilthe mid-1960s (see Figure 1).

Commercial relations within the new Commonwealth were alsostrengthened by Malayas increased dependence on the British market forits exports. With the massive reactivation of the synthetic rubber industryin the USA during and after the Korean War, Malayas rubber exportmarkets became more diversified, and Britain, with about 20 per cent of themarket, emerged as the Federations main buyer of plantation rubber by1958.10 Figure 2 illustrates that after Singapore, the UK was the principaldestination for direct exports from the peninsula to 1961, and given thatthe vast majority of Federation exports to Singapore were re-exportedto industrial markets, it is safe to assume that Britain was the leadingconsumer of Malayan commodities from the late 1950s to the early 1960s.

At the same time, UK agency houses and British multinational manu-facturers were channelling money into the first phase of Malaysianindustrialization. Pioneer industry legislation introduced in 1958 en-couraged factory development through tax holidays and modest tariffprotection. To defend long-established markets, British interestssuch asICI, Dunlop, and Shellwere the major investors in the Federationsimport-substitution industrialization (ISI). Table 1 suggests that Britainlagged behind Singapore as the principal promoter of ISI. A focus on thebook value of investments, however, is misleading. The initial entre intomanufacture often involved the British multinationals supplying servicingequipment, technical information, or machinery. Moreover, much of the

8 PRO, DO 189/219, note on Britains Trade with Malaya, c. July 1962; Inchcape Archives,Guildhall Library, London (hereafter IA), Ms 27260, Malcolm to Donald, 26 October 1961,enclosing text of speech by Erroll at Malayan Commercial Association lunch. Erroll waspromoted to the presidency of the Board of Trade on his return from Southeast Asia.

9 Bulletin of the Malayan Commercial Association, 31 March 1963.10 PRO, DO 35/9759, Brief for the Secretary of States Visit to Malaya. Rubber, c. January

1959.


industrial capital raised in the Federation and Singapore represented therecycling of profits from the British agency houses, direct investments byBritish-owned industrial companies in Singapore, and the raising of loansfrom the local branches of the British exchange banks. Additionally, themajority of funds from the tax-haven territories of the West Indies, plus the

FIGURE 1. Imports into West Malaysia (Federation of Malaya) by Britain and its principalindustrial competitors, 195871. Source: Malaysia Official Year Book, 196372 (Kuala Lumpur,196474).

FIGURE 2. Exports from West Malaysia (Federation of Malaya) to Britain and other principaldestinations, 195871. Source as for Figure 1.


White Commonwealth, were likely to have been controlled by British-based multinationals. It seems highly likely, therefore, that the vastmajority of investment in the Federations pioneer industries was British.11

Certainly, according to British official estimates, between 1961 and 1965some 80 per cent of private long-term capital inflow into Malaysia origin-ated in the UK.12

Nevertheless, this commercial and industrial revival was only brief. AsFigure 1 illustrates, Britains percentage share of West Malaysias importsdeclined rapidly from 1966, slumping to just 13.8 per cent (representing anoverall value of M$387.6 million) in 1969. There was a slight recovery of theUK market position in 1970. But, as Sir Michael Walker, the British HighCommissioner, confessed to the British business community in KualaLumpur, Malaysia is no longer a comfortable export market for Britishsuppliers.13 Indeed, Japan had now clearly overtaken the UK as Malaysiaslargest single source of manufactured goods. In actual fact, because of itsgrowing consumption of rubber, tin, iron ore, and timber, Japan had

Table 1Sources of called-up capital for pioneer industries in the Federation of Malaya, 1958 toJune 1962

M$ million Percentage of total

Singapore 19.6 28.4UK 16.0 23.2Federation of Malaya 13.0 18.9The Bahamas 5.0 7.3Hong Kong 4.3 6.2USA 3.6 5.2Australia 2.7 3.9Canada 1.8 2.6Japan 1.3 1.9Other 1.7 2.5

Source: Wheelwright, Industrialization in Malaysia, 478.

11 Saham, Industrial Investment, 267; E. L. Wheelwright, Industrialization in Malaysia(Melbourne, 1965), 478. For example, the initial paid-up capital in the Shell Refining Co.(Federation of Malaya) Ltd was raised by the Anglo-Dutch transnational transferring fundsfrom a Canadian subsidiary.

12 PRO, FCO 24/13, Brief no. M 25 for Commonwealth Secretary, c. January 1967.13 Cambridge University Library (hereafter CUL), Barlow papers, 58/786, copy of speech

to the British business community in Kuala Lumpur, 8 January 1971.


emerged as Malaysias main trading partner by 19656 (see Figure 2).Between 1964 and 1966 alone, UK purchases of the Malaysian rubber cropdramatically dropped from 118,501 to 99,193 tons, representing a fall involume of over 16 per cent, and, by 1966, the Soviet Union, with imports of211,183 tons, became Malaysias leading customer for rubber.14

Concurrently, their North American, European, and East Asian rivalswere eclipsing British industrial investments. Lim Swee Aun, MalaysiasMinister of Commerce and Industry, informed the Board of Trade Minister,Lord Rhodes, that in the twelve months before November 1966, US firmshad invested M$38 million (about 4.4 million) in Malaysian factories,compared with M$28 million (about 3.3 million) by British enterprises. Hewas particularly disappointed that the British Motor Corporation (BMC)had decided not to take up equity shares in the new plant which was to beset up in Selangor to assemble Austin and Morris cars. In contrast, Peugeotand Volkswagen had taken shares in their assembly plants. Lim believedthat investment opportunities had been missed in other fields too: aTaiwanese firm was producing formic acid in Malaysia and this wasdissolving ICIs local market. Japanese companies had invested in textilemills and were now making profits from the exports of those factories to theUK.15 In the first nine months of 1968, from nearly 100 projects submittedfor the consideration of the Federal Industrial Development Authority, theHigh Commission estimated that only four or five involved major Britishcapital participation.16 Why, then, was the revival of British economicinfluence not sustained in the second half of the 1960s?

A Decline in Industrial Competitiveness

One obvious explanation is a loss of international competitiveness on thepart of British manufactured goods. The problem here was long term. Asearly as 1953, the UK Trade Commissioner in Malaya reported on decliningmarket shares for British industrials which were being replaced in theFederation by low-priced German, Japanese, and American goods.17 By1960, Sir Stephen Luke, the UKs Senior Crown Agent, appreciated thatBritish industry had earned itself a bad reputation in the Far East andSoutheast Asia for haphazard deliveries, lackadaisical salesmanship and anoff-hand manner. In contrast, Japan was strongly promoting its exportswithin the old Co-Prosperity area; and there seems to be wide agreement

14 Singapore Chamber of Commerce Annual Report 1965 (Singapore, 1966), 87; SingaporeChamber of Commerce Annual Report 1966 (Singapore, 1967), 84.

15 PRO, DO 189/496, Note of Lord Rhodes Visit to Dr. Lim Swee Aun, 15 November 1966.16 PRO, FCO 24/39, Walker, Kuala Lumpur to Commonwealth Secretary, 25 September

1968.17 Bulletin of the Association of British Malaya, 25 August 1953.


that it is becoming highly competitive, in quality as well as price . . .particularly in electronics, textiles, cameras and lenses.18

But long-term international competition does not explain the suddendownturn in British exports to Malaysia after 1966. There would seem to besome correlation between the abolition of Commonwealth preference onmost British products in August 1966 and the UKs declining fortunes inthe Malaysian market. Catherine Schenk has challenged the notion thatimperial trade advantages feather-bedded British manufactures in thelast years of the Empire because, irrespective of preferential tariffs, Britishexporters found the colonies increasingly hard markets.19 Moreover, inthe Federation of Malaya less than one-third of British exports by valuewere covered by Commonwealth trade advantages. It is also possible toregard British multinationals as victims of their own industrial successes inMalaysia. The value of British consumer goods imports declined from 16.1million to 9.7 million (representing a drop from 25 per cent to 15 per centof total value) between 1962 and 1967. Yet, this partly reflected the fact thata wide range of goods, from alcoholic beverages to air-conditioners, wasnow manufactured in Malaysia by subsidiaries of UK-based secondaryindustries.20 Other factors that hardly helped British exporters to Malaysiaduring 1967 were the dock strike in the UK and the closure of the SuezCanal as a consequence of the ArabIsraeli war. Indeed, the British agencyhouses in Malaysia had been so much upset by delivery delays that theywere unable to pass on the benefits of sterlings devaluation to consumers.21

Nevertheless, in the calculations of British officials, the removal ofCommonwealth preference did impact upon about 20 per cent of Britishexports to Malaysia, and there was one sector, at least, where a clear-cut UKadvantage existed before the summer of 1966.22 This was the market formotor cars, where British manufacturers were protected by preferences onthe payment of registration tax. One of the largest importers of British carsinto Malaysia was a group of firms owned by a UK trading house, theBorneo Company Ltd (BCL). Executives from BCLs motor group certainlybelieved that Commonwealth preference underpinned the firms sales ofBritish automobiles; so much so, that fears were expressed as early as 1961that Britains possible entry into the European Economic Community(EEC) would presage the end of imperial preference and hence a significant

18 PRO, DO 189/359, Luke to Clutterbuck, CRO, 22 December 1960 enclosing note by Luke,4 May 1960.

19 C. R. Schenk, Decolonization and European Economic Integration: the Free Trade AreaNegotiations, 19568, Journal of Imperial and Commonwealth History, 24 (1996), 44463.

20 Saham, Industrial Investment, 97.21 PRO, FCO 24/35, enclosure in Falle, Kuala Lumpur to Moreton, Commonwealth Office,

24 November 1967.22 PRO, FCO 24/13, Brief no. M 25.


increase in the cost of BMC products.23 The ending of that discriminationin favour of British cars did indeed have a staggering effect: as theCommonwealth Office discovered, in the first six months of 1967, Britishsales of cars were down by as much as 55 per cent compared with the sameperiod in 1966.24 Japanese cars in the medium- and small-size ranges, manyof which were locally assembled from knocked-down packs, captured themarket. Japanese advantages in quality, price, and marketing now toldmercilessly against BMC automobiles.25 In the autumn of 1966, FreddieErroll, now elevated to the House of Lords and President of the LondonChamber of Commerce, led another UK trade mission to Malaysia andSingapore. The diagnosis for Britains export ills in the region was clear-cutfor the former Tory minister: the removal of Commonwealth prefer-ential treatment by the Malaysian Government had coincided with anaggressive Japanese trade thrust in this area.26

Official Economic Policy

The removal of Commonwealth preference, which exposed the lack ofcompetitiveness for certain British goods, was an angry Malaysian reactionat the UKs refusal to grant additional defence and development aid in1966. This was symptomatic of a series of measures by the Wilson govern-ment to deal with the UKs balance-of-payments deficit which culminatedin the devaluation of sterling in November 1967 and an acceleratedprogramme for the withdrawal of British troops from East of Suez. Inan attempt to restrict the alleged drain on productive domestic fundsthrough overseas investment, as well as aid the UKs balance of payments,the Finance Act of 1965 had earlier removed the Overseas TradingCorporation (OTC) tax concessions, while increasing corporation taxgenerally, to end excessive advantages for overseas investors and sorestrict capital outflow.

As Wilson explained to US President Lyndon Johnson in January 1968,cuts in overseas spending were designed to restore Britains economichealth, and hence eventually allow Albion to return to the world stage.27

23 IA, Ms 27189, minutes of Motor Group Committee Meeting, 25 August 1961.24 PRO, FCO 24/93, Brief no. 12 for Commonwealth Secretary.25 Saham, Industrial Investment, 978, 108 note 43. As early as 1962, BCLmanagers noted that

Japanese Toyota 700 class cars achieved an instant success in Penang chiefly due to themethod of selling . . . These cars are sold on a down payment of $850 on a car fully licensedand insured and ready for the road. IA, Ms 27189, Minutes of Motor Group Committee,8 December 1962.

26 The Times, 9 November 1966.27 Cited in Karl Hack, Defence and Decolonisation in Southeast Asia: Britain, Malaya and

Singapore, 194168 (Richmond, 2001), 286.


Yet, in attempting to resuscitate the domestic economy, the fiscal and finan-cial policies of the Wilson government eroded Britains economic influencein Malaysia. In the light of the Labour governments decision not to provideadditional grants and loans for the first all-Malaysia plan of 196670,the Tunkus regime turned to the USA, Japan, France, Belgium, and TheNetherlands for loans and lines of credit. These were often tied to thepurchase of goods from those countries, and the new aid-providers wereto be favoured in government purchases.28 As Leon Taylor, the economiccounsellor in the UKs High Commission, appreciated, existing Britishfacilities provided by the Export Credit Guarantees Department cannotcompete with the Japanese loan offer at a low rate of interest with veryextensive repayment dates and a moratorium.29

Subsequently came devaluation and the decision of January 1968 towithdraw British forces from Southeast Asia by 1971. The earlier agreementof July 1967 to run down bases and troop deployments by 1975 had alreadydented Britains prestige amongst top policy-makers in Kuala Lumpur.Sir Michael Walker was brusquely told by Mohamed Ghazalie Shafie,the Permanent Secretary at the Ministry of External Affairs, that whatinterested modern Britain was safety, security and mini-skirts . . . Oncewe [i.e. Britain] had gone we could never regain a similar position ofinfluence.30 George Thomson, Britains Commonwealth Secretary, hadthe unenviable task of breaking the further bad news in Malaysia andSingapore at the beginning of 1968. When he met with Malaysian cabinetministers on 7 January, a highly agitated Tan Siew Sin wondered whetherit might not become necessary for [Britain] to devalue again and whether[Malaysian ministers] should expect a further visit proposing an even moredrastic acceleration of our withdrawal.31 Having slept on the matter, theMinister of Finance grew even angrier. The following day he told Thomsonthat Britain was now proposing to abandon Malaysia and could not besurprised if in the interests of national survival the Malaysian Governmenttook measures which might damage British interests.32

As it turned out, there was to be no nationalization of British invest-ments or immediate running down of sterling balances. Yet, as the

28 PRO, DO 189/597, Walker to Snelling, 15 July 1966.29 PRO, DO 189/496, letter to Morris, Board of Trade, 25 November 1966.30 PRO, FCO 24/60, letter to Moreton, Commonwealth Office, 14 August 1967.31 PRO, FCO 24/89, telegram from Commonwealth Secretary to Prime Minister, 7 January

1968. One Commonwealth Office mandarin noted that devaluation produced an attitude ofdiscontent, loss of confidence and an undertone of bitterness towards Britain on the part ofthe Malaysian authorities. FCO 24/35, copy of note for the Commonwealth Secretary by Reed,28 November 1967.

32 PRO, FCO 24/92, note of conversation between the Commonwealth Secretary and theDeputy Prime Minister of Malaysia, 8 January 1968.


Commonwealth Office appreciated, sterling would remain on probationin Kuala Lumpur for some time.33 Moreover, in May 1968, Tun AbdulRazak, the deputy Prime Minister, embarked on a European tour to drumup aid for Malaysian development. Razak proposed that Malaysia be madean associate member of the EEC, and secured an extended line of creditin Paris as well as the prospect of increased Belgian private investment,encouraged by legislation. Economic links were also nurtured behind theiron curtain: during a fleeting visit to Moscow, the Tun was met by threeSoviet ministers and marvelled at the quantities of vodka which theymanaged to get him to drink in a comparatively short time.34 The USSR, aswe have seen, had emerged as Malaysias largest purchaser of rubber by thelate 1960s and, anxious to balance their trade with the country, the Sovietsstaged their first trade fair in Kuala Lumpur during September 1969,involving some twenty state trading corporations and displaying morethan 2000 items. At the same time, a high-level commercial delegationparleyed with Malaysian officials.35 As the editor of Malaysias Eastern Sunhad opined on 1 May 1968, Since Britain can hardly take care of herself, itis time Malaysia explores the wider world outside the British Common-wealth for friendship, trade, and technological assistance.

The government in Kuala Lumpur had sought to broaden the basis of itseconomic relations some time before 1968. From the late 1950s, trade andinvestment linkages with Japan, particularly, were seen as vitally importantby Malayan ministers as a means of stressing an Asian identity while alsoproviding industrial capital to absorb a rapidly growing workforce. On topof a preference for intra-Asian trade and investment, the Tunkus regimetook a number of measures which eroded the openness of the colonialexport economy and demonstrated its autonomy from established Britishinvestorssuch as the creation of a central bank and increases in incometax.36 A new breed of Malay economic nationalist was already on the risein the early 1960s, questioning both British and Malaysian Chinesedomination of the economy. Yet, the disappointments of 19668 intensifiedthe tendency for Malaysia to shift out of Britains economic orbit. Inter-estingly, the Anglo-scepticism of Mahathir Mohamad (who as MalaysiasPrime Minister after 1981 engineered a Buy British Last campaign and the

33 PRO, FCO 24/93, Brief no. 24 for the Commonwealth Secretary, January 1968.34 PRO, FCO 24/252, note by Johnston for Moreton, 2 May 1968; telegram from Paris, 9 May

1968; FCO 24/253, telegram from Brussels, 22 May 1968.35 PRO, FCO 24/491, copy of White, Kuala Lumpur to Gowers, Board of Trade, 17 October

1969. There were further forays into the communist bloc by Malaysian ministers during1970 resulting in trade and technical co-operation agreements with Poland and Romania.FCO24/1151, Walker to Douglas Home, 1 January 1971.

36 See Nicholas J. White, British Business Groups and the Early Years of MalaysianIndependence, 195765, Asia Pacific Business Review, 7 (2000), 1601, 1678.


local takeover of the premiere agency house, Guthries) can be dated from1966.37

The British military withdrawal also came to have a negative impacton the confidence of both actual and potential British investors inSoutheast Asia. Representations by British commercial, financial, andindustrial interests argued that the accelerated rundown would resultin a catastrophic drop in confidence.38 Lee Kuan Yew, the premier ofSingapore, pleaded the case for the agency houses and industrialcompanies in London with UK cabinet ministers. The only concession won,however, was an extension of the final deadline for withdrawal from 31March to 31 December 1971.39 To counter the suspicion in Malaysia thatBritain was less reliable as a trading power and a supranational bankerand liable to renege on her promises to her friends, Sir Michael Walkercalled for prompt and significant investment in Malaysia.40 A CBI missionhad visited Malaysia in August 1968. Yet, the only concrete project toemerge from these perusals was the local construction of tin dredgesby Rio Tinto Zinc.41 The captains of industry argued that far greaterBritish capital input would be stimulated by a guarantee againstexpropriation. Along the lines of existing programmes for Germany,USA, The Netherlands, Switzerland, and Japan, this might compensate forthe loss of confidence and political protection arising from Britainsmilitary retreat.42 Moreover, before 1965, OTC status had offset the con-siderable political risks of investing in a highly volatile region, while thedevaluation of sterling added another fairly strong disincentive to Britishcommercial investment in Singapore and Malaysia.43 More than ever,Kuala Lumpurs tragic ethnic riots of May 1969 appeared to emphasize thepotential for Malaysian political instability. But the Treasury, in the interestsof the UKs balance of payments, remained staunchly opposed to a politicalguarantee scheme for Malaysia and Singapore (or for anywhere else):The cardinal point is that we do not want to see any investment guaran-tee schemes at all . . . Any investment guarantee scheme . . . is an

37 Khoo Boo Teik, Paradoxes of Mahathirism: An Intellectual Biography of Mahathir Mohamad(Kuala Lumpur, 1995), 546, 90 note 15.

38 PRO, FCO 24/281, letters from Stafford Northcote, President, Malaysia-SingaporeCommercial Association to Thomson and Wilson, 5 and 12 January 1968.

39 PRO, PREM 13/2081.40 PRO, FCO 24/345, letter to Johnston, Foreign & Commonwealth Office, 7 October 1968.41 PRO, FCO 24/389.42 PRO, FCO 24/39, Note on a Discussion between the Secretary of State and Mr. R.

Grierson, Director of S. G. Warburg & Co. and Vice-chairman of the General Electric Co.,13 September 1968; OD 39/17, Representation to Sir Alan Dudley from CBI, 3 January 1968;Note of a Meeting Held with the CBI, 3 April 1968.

43 Financial Times, 8 May 1965; PRO, FCO 24/35, note by Scanlon for Blair, 20 November1967.


encouragement to overseas investment and we do not therefore encourageits genesis.44

The aid package drawn up in 1967 and 1968 as compensation formilitary withdrawal was partially motivated by a desire to safeguard ourown trading and investment interests. Malaysia was offered 25 millionover 5 years. And, at the insistence of the Prime Minister, British specialaid was dependent upon Malaysian good behaviour towards both UKinvestments and its own sterling balances, while at least 75 per cent ofthe compensatory funds were to be tied to the purchase of British goodsand services.45 The agency houses on the spot, however, voiced numerouscomplaints about the inflexible bureaucracy which often accompanied theaid programme and believed themselves at a disadvantage in the placing oforders vis--vis the Crown Agents.46 The trade figures for West Malaysia(Figure 1) also suggest that the post-1968 aid had a negligible effect onstimulating British imports to Southeast Asia.

The possible loss of British investment or trade in CommonwealthSoutheast Asia was of little actual consequence to the Wilson government.In Londons global view, British economic interests in Malaysia weremarginal by the late 1960s. Malaya was the Empires premiere dollar earnerin the 1940s and 1950s, but as the Foreign Office had pointed out at the endof Douglas Homes administration, the Malaysia territories were now indeficit [in terms of their foreign exchange contributions to the sterling area]and likely to remain so. The UKs need of the primary products of theregion had also become insignificant. About three-quarters of the UKsrubber imports did come from Southeast Asia (about three-quarters of thisin turn coming from Malaysia). But, natural rubber was increasingly beingreplaced by synthetic, and only about 5 per cent of Britains total tin importswere derived from the region, while imports of vegetable oils, rice, tea, andoil were all completely marginal.47 British investments (excluding oil,banking, and insurance) yielded under 6 per cent of the UKs total overseasinvestment revenue, while barely 3 per cent of Britains world trade wasconducted with Southeast Asia.48 At the same time, HMGs support for the

44 PRO, OD 39/19, copy of Littler, Treasury to Gowers, Board of Trade, 25 August 1969. Forsimilar reasons, the Treasury would not amend fiscal or exchange control policies in favour ofUK investors in Southeast Asia. See OD 39/17, note by Berkoff, 25 July 1968.

45 PRO, CAB 148/30, OPD (67) 27, 17 July 1967; CAB 148/35, OPD (68) 1, 26 January 1968;OD 39/20, copy of telegram from Commonwealth Office to Kuala Lumpur, 18 April 1968.

46 PRO, OD 39/21; OD 39/138.47 PRO, CAB 148/7, DO (O) (64) 59. British Policy towards South-East Asia. Memorandum

by the Foreign Office, 22 September 1964. Pessimism concerning the future of Malaysianrubber had set in within Whitehall from the mid-1950s, and the Board of Trade and Treasuryencouraged the development of synthetic production in the UK. See Nicholas J. White,Business, Government, and the End of Empire: Malaya, 194257 (Kuala Lumpur, 1996), 1905.

48 PRO, CAB 148/7, memorandum by FO.


creation of Malaysia, and the subsequent British military commitmentduring confrontation with Indonesia, were underpinned by geo-politicalrather than economic considerationsthat is, the desire to contain com-munism in Southeast Asia and a means of influencing US policy in theregion, while also maintaining the Commonwealth defence link withAustralia and New Zealand.49 The only British economic interest which theForeign Office thought worth highlighting in September 1964 was the needto ensure prosperity as a means of denying Southeast Asia to Beijing-backed communism.50 To underpin economic, and hence political, stabilityin the region, British officials had assigned Japanese trade and investmenta crucial role from the early 1950sfrequently at the expense of establishedUK commercial and financial interests.51 When Japans premier, SatoEisaku, visited Malaysia in September 1967, Sir Michael Walker believedthat closer Malayo-Japanese commercial links should be welcomed as afactor contributing towards Southeast Asian stability . . . Even though thiswill no doubt . . . lead to more severe competition in the future for our ownexports to [Malaysia].52 Hence, by the later 1960s, the British governmentwas more anxious to maintain stability than influence in Southeast Asia.

A Loss of Entrepreneurship

For Lee Kuan Yew, however, the decline of British economic power inSoutheast Asia did not primarily stem from the dead hand of government.In March 1967, the Singapore Prime Minister told Herbert Bowden,Britains Commonwealth Secretary, that British merchants no longerseemed adventurous and, as a result, the British position throughout thewhole region was weakening.53 This was an unfair judgement, since thereis plenty of evidence to suggest that British businesses in Southeast Asiaremained enterprising and remarkably efficacious throughout the Tunkuera. According to the calculations of economists at the University ofCambridge, the post-tax profitability of UK capital in Malaysia between1955 and 1964 was 19.8 per cent per annum, making the country the secondmost profitable destination for UK capital after West Germany.54

49 A. J. Stockwell, Malaysia: the Making of a Neo-Colony?, Journal of Imperial andCommonwealth History, 26 (1998), 13856; John Subritzky, Confronting Sukarno: British, American,Australian and New Zealand Diplomacy in the Malaysian-Indonesian Confrontation, 19615(Basingstoke, 2000), 12930.

50 PRO, CAB 148/7, memorandum by FO.51 Nicholas J. White, Britain and the Return of Japanese Economic Interests to South East

Asia after the Second World War, South East Asia Research, 6 (1998), 281307.52 PRO, FCO 24/247, despatch to Thomson, 4 October 1967.53 PRO, FCO 24/294, extract from record of meeting in Singapore, 3 March 1967.54 W. B. Reddaway, Effects of UK Direct Investment Overseas: Final Report (Cambridge, 1968),

cited in Saham, Industrial Investment, 2301.


The linchpins of colonial capitalism in Malaysia were the British agencyhouses. These trading companies or investment groups became central toMalaysian economic development because of their dual rolefirst, fromthe 1800s, as the agents for European manufacturers, shipping lines, andinsurance companies, and secondly, from the 1900s, as the managing agentsof investments in primary production, particularly rubber estates. In theseways, the agency houses linked British financiers and manufacturers withinvestment and trading opportunities in Southeast Asia. It might beexpected that the colonial denouement threatened the privileged positionof these long-established expatriate firms. However, the agency housesproved adept at reinventing themselves in the post-imperial era aspromoters of secondary industry in Malaysia while simultaneously trans-forming themselves from Southeast Asian merchants into multinationals,operating within the Pacific Rim as a whole.55 Considerable dynamism andadaptability was also exhibited in the traditional spheres of the agencyhouses: trading and investment management. A favourite complaint of UKmanufacturers was to claim that the salesmanship of the Anglo-Malaysianfirms lacked drive and initiative. But actually, the British investmentgroups were making rational business decisions through disengaging fromstagnating industrial Britain. When Sir Norman Kipping, Director-Generalof the FBI, visited Malaya in early 1959, he discovered that The oldestablished British merchant houses have an international spread ofagencies and many of them have found their foreign or continentalprincipals more competitive than their UK opposite numbers.56 Themanagers of BCL in Malaya and Singapore boasted of their great successpost-war in attracting new agencies, but this entailed a steady drift of ourbusiness away from the UK as the principal source of supply. The USA,Sweden, Switzerland, France, and Germany yielded the best new lines, andthe firm was seeking expanded links with Australia. Out of a sense ofpatriotic duty, the agency house was anxious to respond to HaroldMacmillans export drive of 19601 by developing new business with UKindustrialists. Yet, London was reassured that attractive aliens wouldnot be cold-shouldered. We give all visitors a cordial welcome, particu-larly those with fat franchises in their pockets!57

55 Saham, Industrial Investment, ch. 5; Nicholas J. White, The Diversification of ColonialCapitalism: British Agency Houses in Southeast Asia in the 1950s and 1960s in Ian G. Cook etal., (eds), Dynamic Asia: Business, Trade and Economic Development in Pacific Asia (Aldershot,1998). Geoffrey Joness Merchants to Multinationals: British Trading Firms in the Nineteenth andTwentieth Centuries (Oxford, 2000) stresses the resilience and success of British overseas tradinggroups into the late-twentieth century.

56 CBI records, Modern Records Centre, University of Warwick, Mss 200/F/3/D3/6/75,D/5527.

57 IA, Ms 27298, Donald, Singapore to Managing Director, London enclosing copy of


This was certainly the case with Japanese manufacturers, which wereincreasingly wooed by BCL during the 1960s. The firms motor groupwas impressed by the quality of vehicles on display at the Tokyo MotorShow of 1962, and thereafter a Japanese franchise for Malaya was activelysought, despite the inevitable negative reaction from the BMC.58 BCL alsosecured the agency to sell Sanyos electrical products throughout EastMalaysia.59 Moreover, with the growth of import substitution, the agencyhouses were busy picking up distribution rights for Malaysian manu-facturing companiesboth British and non-British controlled.60 Hence,while British goods were losing their allure in Southeast Asia, the Britishinvestment groups on the spot were able to maintain their central positionin the local economy as the leading importers and distributors of manu-factures. In the plantations, meanwhile, prudent policies of diversificationinto palm oil allowed large profits to be maintained while rubber pricesdeclined.61

At the same time, the agency houses strengthened their investmentnetworks through the formation of tightly controlled conglomerates.Following merdeka, political uncertainty, synthetic competition, and theconsequent undervaluation of estate assets made the smaller companiesin the rubber industry highly vulnerable to takeover from speculators.Hence, with the backing of the Bank of England, plantation managingagencies, such as Thomas Barlow & Brothers and the Rubber EstateAgency, amalgamated loosely controlled rubber firms into single holdingcompanies.62 In 1965, meanwhile, the vast majority of the Guthrie groupwas unified under a new holding company known as Guthrie CorporationLtd. A tighter degree of financial and directoral control over the plantationcompanies managed by Guthries was thus made possible under thechairmanship of Sir Eric Griffith-Jones.63 There were mergers of agency

Chaplin to Young, 14 November 1959; Young, Singapore to Simpson, London, 26 July,26 August, 19 and 22 September 1960.

58 IA, Ms 27189, minutes of Group Committee, 9 November and 8 December 1962,27 February and 2 November 1963.

59 IA, Ms 27280/4, General Manager, Kuching to the Managing Directors, London,24 November 1964; Pearson, Kuching to Heath, London, 20 January 1965.

60 Saham, Industrial Investment, 245.61 For example, the pearl of the Barlow plantation group, Highlands & Lowlands Para

Rubber, achieved record pre-tax profits of 2.71 million in 1970 because the high price of palmoil compensated for a dramatically falling rubber price. The contribution from rubber droppedfrom 1.22 million to 732,000, but palm oil nearly doubled its take to 1.71 million. The Times,20 May 1971.

62 PRO, DO 35/9730, note for Alport by Jasper, 25 February 1958; The Times, 20 June 1958;CUL, Barlow papers, 63/856, Tom to Sir John Barlow, 12 February and 12 March 1958; BoE,ADM 14/73, notes by Thompson-McCausland for Hawker, 26 September and 6 December1960.

63 BoE, ADM 14/82, note by Thompson-McCausland for the Governor and Deputy-Governor, 10 March 1965.


houses too. To prevent the European firms . . . dissapating [sic] theirenergies in competing against each other while the Chinese were makingconsiderable inroads, particularly in shipping agencies, Bousteads andBarlows merged their importexport businesses to form Boustead (1960)Ltd.64 In 1966, the two firms plantations were also brought together in theBarlow Boustead Estates Agency Ltd.

But this fancy financial footwork was also the Achilles heel of theinvestment groups, for rationalization belied a siege mentality, a funda-mental fear of sharing commercial power with Malaysians. Indeed, ifthere was a post-colonial British entrepreneurial failure in Malaysia, itmanifested itself in an inability to fully integrate with the Malaysianpolitical and economic elite after independence. Even where Malaysianparticipation was grudgingly accepted as necessary, the agency houseswould not surrender ultimate financial control in local subsidiaries. Forexample, when Griffith-Jones reorganized the Guthrie group during 1965,he informed L. P. Thompson-McCausland in the Bank of England that someMalaysianization would be required and must be put in hand soon. Itwas not his intention, however, to peddle out shares of the GuthrieCorporation in Malaysia. Rather, Guthriess new boss would grouptogether a separate unit of land and estates selected from several of theGuthrie rubber and oil palm companies, and turn this into a locallyregistered concern with a strong Malaysian element in the managementand on the board. And, even then, final control would still reside with theGuthrie Corporation in London because only 49 per cent of the Malaysianfirms shares would be offered locally.65 When Malaysian dignitaries wereappointed to the boards of local subsidiaries, they typically held very fewshares in contrast to their UK counterparts.66

Through a wide cultural gap, therefore, the agency houses foundthemselves politically isolated in their reluctance to engage in the emergingworld of crony capitalism, whereby the distinction between Malaysianpolitics and business became increasingly blurred. In 1963, for example,BCL had the opportunity to take a one-third share in a partnership withSabahs leading politicians to exploit forest reserves. However, the chanceto profit from the rapidly swelling market for timber in Japan and Hong

64 CUL, Barlow papers, 57/781, Sir John to Tom Barlow, 26 and 27 January 1960.65 BoE, ADM 14/82, note for the Governor and the Deputy Governor, 10 March 1965.66 Saham, Industrial Investment, 135, 142 note 37. This conservatism, combined with the

economic aspirations of the Malay electorate, only drove the Malaysian government toinstitute, after 1971, the New Economic Policy, which aimed to increase Malay and non-MalayMalaysian ownership in industry and commerce to 30 per cent and 40 per cent respectively,while overseas ownership would be reduced to a mere 30 per cent, and certain of the Britishinvestment groups, notably Sime Darby (in 1976) and Guthries (in 1981), were forced intocomplete local ownership and control.


Kong was eschewed by the London management on the grounds that Ourpolicy . . . is to have at least 50 per cent share in local ventures and to steerclear as far as possible from politics.67 Instead, Tun Mustapaha, SabahsChief Minister after 1967, turned to a group of Japanese firms whoseinterests he was promoting at the expense of UK businesses.68

Indeed, Japanese trading companies and manufacturing concerns weremore attuned to local political and business realities than their Britishcounterparts. Japanese interestsfor example, in steel productionestablished joint ventures with T. H. Tan, Secretary-General of the Alliance,president of the All-Malaysian Chinese Chambers of Commerce, a closepersonal friend of the Tunku, and one of the most powerful men in thecountry.69 Moreover, when the huge Malayawata Steel project at Peraiincorporated in 1967, 3 million one-dollar shares were offered exclusivelyto Malays and Malay interests. This meant that local shareholders,including the Malaysian government, held 57 per cent of the equitycapital.70 The Japanese firms involved in the Malayawata project alsorecognized the pressing need to appoint senior Malays as directors. RajaMohar, the chief Malay bureaucrat in the Ministry of Commerce andIndustry, was made chairman. Meanwhile, the leading Malay ultra, SyedJaafar Albar, the former UMNO Secretary-General who played a key rolein the expulsion of Singapore from Malaysia, was made executive directorand manager in Kuala Lumpur.71

British firms, in contrast, were reluctant even to open up managementpositions to Malaysians. Little over a year before Sarawaks incorporationinto Malaysia, BCLs management in London rejected the appointment of aChinese shipping manager on the Rejang river on the grounds that none ofthe other big commercial firms in Sarawak had local executives and it isgoing to be uphill going for a Chinese to tune into the old boy network atthe right level.72 On the mainland, meanwhile, the agency houses tookadvantage of laxness in the Federations Immigration Department in theearly 1960s to actually increase the number of young European planters onthe rubber estates. This was a tendency which the High Commission inKuala Lumpur branded as exceptional stupidity, since by the mid-1960s

67 IA, Ms 27295, Pearson to MacEwen, London, 19 June 1963 plus enclosures and reply fromStovold, 28 June 1963.

68 PRO, FCO 24/155, enclosure by Australian High Commission in Duncan, Kuala Lumpurto Mound, Commonwealth Office, 26 August 1968.

69 Desmond Tate, Power Builds the Nation: The National Electricity Board of the States of Malayaand its Predecessors, Vol. II. Transition and Fulfilment (Kuala Lumpur, 1991), 63, 174; T. H. Tan,The Prince and I (Singapore, 1979), ix.

70 Bulletin of the MalaysiaSingapore Commercial Association, 51, December 1967, 5.71 Straits Times Directory of Malaysia and Singapore 1969, 386.72 IA, Ms 27295, Stovold to Pearson, 3 May 1962.


an official committee was forcing the pace of Malaysianization in industryand commerce.73 As it turned out, the Malaysianization issue was solvedrelatively amicably through a set of informal agreements between thegovernment and the agency houses in which expatriate managers werepermitted to stay in a number of key posts. Even then, however, theBritish boards of the plantation companies remained sceptical concerningthe quality of Malaysian human resources. They tended to put Malay-sian managers in charge of much smaller units than their Europeancounterparts, clearly illustrating that the locals were still not fullytrusted.74

Hence, the entrepreneurial weakness of the leading British firms inpost-colonial Malaysia did not concern an inability to engage with therealities of the international economy or the demands of local industrial-ization, but, rather, represented a reluctance to embrace the possibilities ofa Commonwealth commercial and financial partnership. In this sense, thesmooth transition to independence, and the survival and brief revival ofBritish economic sway, was ultimately damaging since it encouraged theagency houses to continue to operate in time-honoured fashion. Thislingering of colonial cultures, and a general inability to fully comprehendthe political realities of the new Commonwealth in Southeast Asia, werealso exposed by British business reactions to the separation of Singaporefrom Malaysia in August 1965. Despite the political divorce, expatriatebankers, industrialists, and commercial firms lobbied for the retention ofthe joint currency and the creation of a common market between the islandrepublic and Malaya, Sarawak, and Sabah. Tan Siew Sin responded withthis telling statement: British businesses had not adjusted themselvesadequately to the new changed conditions and continued to regardMalaysia and Singapore as one unit economically as it was in the . . . daysof colonialism . . . Those days are gone . . . and the longer they cherishthis delusion, the more difficult will be the eventual and inevitablere-adjustment.75

73 PRO, DO 189/588, Bottomley, Kuala Lumpur to Moreton, Commonwealth Office,15 August 1966.

74 Arkib Negara Malaysia (Malaysian National Archives), Kuala Lumpur, Traill papers, SP95/B/15, draft letter from Harry Traill to Sir Claude Fenner, Rubber Growers Associationspecial representative in Malaysia, c. September 1971. Traill was a long-serving British planter,who had taken Malaysian citizenship after merdeka.

75 PRO, DO 189/422, speech in the Malaysian Lower House, 22 August 1966, reported intelegram from Kuala Lumpur to Commonwealth Office, 23 August 1966.


Conclusion

Darwin has argued that the British dream of upholding economic influencethrough constitutional change in the EmpireCommonwealth wasshattered by a number of factors during the 1960s: the reduction of sterlingbalances and the loss of British control over Commonwealth currencies;an emphasis on local manufacture, as well as the extension of stateintervention in post-colonial economies; the emergence of more generousinternational lending agencies; and the decline of British industrialperformance, compounded by the loss of privileged access to ex-colonialmarkets. These tendencies were exacerbated at the end of the decade byBritains financial troubles, with the retraction of Albions global militaryrole as the dramatic denouement.76

This article does not demur fundamentally from Darwins inter-pretation, but in the Malaysian case a number of modifications can be madeto his model. First, the British experience in post-colonial Southeast Asiawas not necessarily a sad and sorry tale of continuous economic decline.Nor did the Commonwealth economic experience witness the swiftsupplanting of UK commercial and financial interests by either indigenousor other endogenous competitors. Rather, the increase in British imports toMalaya during the early 1960s and the successes of UK industrialists andagency houses in import substitution suggest a revival of British economicleverage. Moreover, however badly the British economy may have fared ata macro-level, the ex-colonial firms on the spot maintained their positionsto the 1970s as the leading importers and distributors of manufacturedgoods, and producers of raw materials, while, at the same time, theyemerged as key promoters of secondary industry. This phenomenon wasclearly aided by the fact that the Malaysian government chose a develop-ment strategy which in the main eschewed state control of industry, andremained remarkably committed to sterling until the 1970s.

Even so, we have also observed that Britains commercial and financialrenaissance in post-colonial Malaysia lacked firm foundations. Entre-preneurial inertia amongst the agency houses was evident, particularly inthe political and social spheres from independence onwards. Fearing a lossof financial and managerial control to local interests, and continuing toexhibit an alarming degree of prejudice towards Southeast Asians, Britishfirms did not develop a full Commonwealth partnership with Malaysianentrepreneurs and/or politicians. Here was a tendency which would proveincreasingly damaging once a more radical economic nationalism emergedin the later 1960s. Conservatism on the part of the long-established firmsintersected with two other variables to induce a sharp decline in British

76 Darwin, Britain and Decolonisation, 3006.


economic influence by the end of the 1960s. The loss of manufacturingcompetitiveness was brutally confirmed when Commonwealth preferencewas withdrawn in Malaysia. This, in turn, was a consequence of thepolicies of the Wilson government which attempted to redirect UKoverseas investment (both public and private) towards the regeneration ofmetropolitan Britain.


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