up to five times as many workers as were needed. This failure has been blamed
on enduring workplace conflict and mistrust which resulted in undisciplined
labour with high absenteeism requiring higher employment to compensate for
low labour productivity while maintaining output levels (Clark, 2007:363).
The case study of Malaysia between 1971 and 1990 shows how respond-
ing to market incentives may leave a free-market economy stuck with low
levels of technological competence. Here GDP grew by an annual average of
6.7 per cent, with the share of manufacturing in GDP increasing at the
expense of mining and agriculture. Early exports were concentrated in
processed natural resources such as rubber, tin and palm oil. The growth of
non-traditional manufactured exports started in the 1980s with the entry of
US electronics firms. The share of manufactures in total exports rose from 12
per cent in 1970 to 71 per cent in 1993, when they reached $34 billion (Lall,
1995a). There was long a concern about the learning associated with this
‘technological transformation’. Malaysia’s export of electrical and electronic
products after the mid-1970s contrasted with the more typical export focus
on garments, footwear and toys in other developing countries. By the 1990s
Malaysia was the world’s largest exporter of semi-conductors and among the
largest exporters of disk drives, telecommunications equipment, audio
equipment, calculators and colour televisions. Production, however, was
very labour-intensive and based around the manual assembly of imported
components,so it was less ‘high-tech’ than at first appeared. The sector was
based more on low wages than high skills and was heavily dependent on
imported components and technology from parent companies in South Korea
and Japan. This meant that net exports (subtracting those necessary imports)
were much less impressive than the headline figures suggested (Lall, 1995b).
This was labelled by Kunio (1988) as ‘Ersatz (or fake) capitalism’. What
appeared to be successful upgrading into new and higher technological
production masked a profound technological dependency on foreign firms
(see Chapter 13 on the Dependency School) and generated few benefits to the
host economy.
By comparison in South Korea there was a deeper and longer process of
industrial learning. This case study illustrates a dramatically successful process
of state-led industrialization and upgrading. Exports of electronics from South
Korea increased from US$2.0 billion in 1980 to US$20 billion in 1991. The
electronics industry in South Korea had its origins in the late 1950s with the
production of simple vacuum tube radios and the 1960s as US multinational
corporations (MNCs) set up wholly-owned factories to assemble semiconduc-
tors using cheap local labour. The industry quickly (and unlike those in
Malaysia) moved to joint ventures with Japanese firms that, crucially, included
technical assistance. Matsushita and Sanyo provided general technical assis-
tance to Samsung and Goldstar after 1961 to produce transistor radios.
Samsung sent 106 Korean workers to Japan for training in electronics produc-
tion. During the early 1970s Goldstar and Samsung acquired technology
through subcontracting arrangements with Japanese firms and also by licensing
106 Sources of Growth in the Modern World Economy since 1950