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NICHOLAS J.

WHITE

Liverpool John Moores University

The Survival, Revival and


Decline of British Economic
Influence in Malaysia, 195770

Abstract
Independence for Malaya in 1957 (and the enlargement of the federation to form
Malaysia in 1963) did not have an immediately adverse effect upon British
economic interests there. Indeed, Britain retained, and even revived, its huge
commercial, industrial, and financial presence in Commonwealth Southeast Asia
well into the 1960s. From the middle of that decade, however, British economic
influence in Malaysia declined quite rapidly. The main focus of this article is to
examine three possible causes of this downturn: declining competitiveness on the
part of British manufactures; UK government policy towards private investment
and public expenditure overseas; and entrepreneurial weaknesses among the
British agency houses in Malaysia.

Britains post-war decolonization strategy was predicated on the principle


that a significant degree of metropolitan influence would be preserved in
the successor states of the new Commonwealth. As John Darwin tells us,
the later phases of British colonial policy were frequently geared . . . to
making sure that the emerging state would be a useful and stable partner
for Britain after independence. In the economic realm, development was
to be encouraged along lines compatible with British interests and in
cooperation with British overseas enterprises.1 Malayan independence in
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 British
influence (both economic and strategic) through decolonization include Wm. Roger Louis and
Ronald Robinson, The Imperialism of Decolonisation, Journal of Imperial and Commonwealth
History, 22 (1994), 462511; Tony Stockwell, Ending the British Empire: What Did They Think
They Were Doing?, Inaugural Lecture, Royal Holloway, University of London, 18 November

Twentieth Century British History, Vol. 14, No. 3, 2003, pp. 222242

OUP 2003, all rights reserved

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August 1957, as well as the creation of the Federation of Malaysia just over
six years later,2 appeared to provide a blueprint for the preservation of
commercial and financial influence through the transfer of power to
moderate nationalists. Between 1957 and 1970, the anglophone Tunku
Abdul Rahman led a cabinet composed of Malay aristocrats and Chinese
business leaders which chose to keep Malaysia within the Commonwealth
economic bloc and did not tamper with established British investment.
Moreover, this article argues that not only did a substantial British
economic presence survive the transfer of political power in Malaysia, but
also a significant revival of British economic sway can be identified in the
immediate post-colonial era. This latter phenomenon resulted from a
successful UK export drive, growing dependence on the British market for
Malaysias principal export, rubber, and new flows of British industrial
investment into the Federation. From the mid-1960s, however, Britains
commercial and financial influence in Malaysia waned. The second half of
this discussion considers how far this was the product of: (i) a lack of
competitiveness on the part of British manufactured goods; (ii) the policies
of the Wilson government; and (iii) a general loss of entrepreneurship
among British firms operating in Malaysia.

Survival, Revival and Decline: An Outline


Britains dominant position as a supplier of private capital to Malaysia
survived political decolonization. In October 1963, the British High Commission in Kuala Lumpur estimated that the total stock of assets controlled
by British companies in the Malaysia territories was in the order of
400500 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 rubber
plantations, with British firms presiding over 1 million acres, or about 60
per 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 of
Imperial 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), From
Reconstruction 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 the
sterling area in an attempt to take advantage of more remunerative economic opportunities
emerging within the global growth triangle of Europe, North America, and Japan. Yet, they still
concede that in moving with the nationalist tide, Britain hoped to benefit from informal ties
with the Commonwealth while simultaneously promoting sterlings wider, cosmopolitan
role. 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 enlarged
Federation 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.

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NICHOLAS J. WHITE

of British Industry (CBI) estimated that British interests continued to


control about two-thirds of total foreign capital in Malaysia.4
Such UK business dominance was assisted by Malaysias continued
membership of the sterling area, which permitted a free flow of capital and
remittances within the Commonwealth. Tan Siew Sin, Malay[si]as finance
minister between 1959 and 1974, remained persistently loyal to the sterling
system. In 1967, Tan chastised those economic nationalists critical of the
M$300 million (or 35 million) plus of dividend and interest payments
which flowed annually to the UK, arguing that the surest way to trigger off
a flight of capital is to impose restrictions on capital outflow.5 As late as
the summer of 1966, and despite growing balance of payments difficulties
for the UK economy, Tan was persuaded by the Bank of England not to
switch Malaysias sterling reserves into dollars so long as Threadneedle
Street attempted to maintain the strength of the pound. Hence, Malaysias
sterling balances continued to be worth nearly 300 million and remained
second 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 an
element of diversification in Malaysias sterling reserves.7 Even so, it was
only in June 1972, following the decision of Her Majestys Government
(HMG) to allow sterling to float on world currency markets, that the
Malaysian government took up the US dollar as the instrumental currency
which would regulate the movement of its own currency. The preferences
accorded by Malaysia to products of Commonwealth countries also
weathered independence, and helped to maintain Britains position as the
largest supplier of Malaysias imports to the late 1960s.
Moreover, it is possible to discern an intensification of economic links
between Malaysia and the UK in the immediate post-colonial period.
Following a decline in British exports to Southeast Asia on the whole
during the later 1950s, the Macmillan government and the Federation of
British Industries (FBI) assembled a number of trade missions to the region
during 1961. The result of this export drive, in the short term, at least, was
positive. In 1961, Britains share of imports improved from 21.5 per cent to
22.6 per cent, the overall value of which exceeded M$500 million (roughly
58 million) for the first time. The trade mission to the Federation was
4
Junid Saham, British Industrial Investment in Malaysia, 196371 (Kuala Lumpur, 1980), 14
note 23.
5
PRO, FCO 24/162, speech to Alliance Youth reported in Economic Section, British High
Commission, 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 Kuala
Lumpur, 2324 August 1966.
7
Bank of England Archive, Threadneedle Street, London (hereafter BoE), OV 44/144, Note
by Haslam, 1 December 1967.

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headed by Freddie Erroll, Minister of State at the Board of Trade, who


recommended that British industrial firms attach representatives directly
to the UK agency houses so that the technical know-how of the factory
representative would complement the local market expertise of the trading
firm. Certainly, the number of British factory representatives in Kuala
Lumpur rose from less than a dozen in 1959 to over thirty at the beginning
of 1962.8 In March 1963, the secretary of the Malayan Commercial
Association in London could proudly report that nearly one-quarter of
the Malayan market was still taken up by British importsa figure still
two and a half times that of Japan, the UKs nearest rival. Admittedly,
lightweight motorcycles were facing stiff competition from Japan, but
British cars maintained fifty per cent of the market.9 Britains position as the
leading source for Malaysian imports was impressively maintained until
the mid-1960s (see Figure 1).
Commercial relations within the new Commonwealth were also
strengthened by Malayas increased dependence on the British market for
its exports. With the massive reactivation of the synthetic rubber industry
in the USA during and after the Korean War, Malayas rubber export
markets became more diversified, and Britain, with about 20 per cent of the
market, emerged as the Federations main buyer of plantation rubber by
1958.10 Figure 2 illustrates that after Singapore, the UK was the principal
destination for direct exports from the peninsula to 1961, and given that
the vast majority of Federation exports to Singapore were re-exported
to industrial markets, it is safe to assume that Britain was the leading
consumer of Malayan commodities from the late 1950s to the early 1960s.
At the same time, UK agency houses and British multinational manufacturers were channelling money into the first phase of Malaysian
industrialization. Pioneer industry legislation introduced in 1958 encouraged factory development through tax holidays and modest tariff
protection. To defend long-established markets, British interestssuch as
ICI, Dunlop, and Shellwere the major investors in the Federations
import-substitution industrialization (ISI). Table 1 suggests that Britain
lagged behind Singapore as the principal promoter of ISI. A focus on the
book value of investments, however, is misleading. The initial entre into
manufacture often involved the British multinationals supplying servicing
equipment, 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 was
promoted 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.

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

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

industrial capital raised in the Federation and Singapore represented the


recycling of profits from the British agency houses, direct investments by
British-owned industrial companies in Singapore, and the raising of loans
from the local branches of the British exchange banks. Additionally, the
majority of funds from the tax-haven territories of the West Indies, plus the

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

Singapore
UK
Federation of Malaya
The Bahamas
Hong Kong
USA
Australia
Canada
Japan
Other

M$ million

Percentage of total

19.6
16.0
13.0
5.0
4.3
3.6
2.7
1.8
1.3
1.7

28.4
23.2
18.9
7.3
6.2
5.2
3.9
2.6
1.9
2.5

Source: Wheelwright, Industrialization in Malaysia, 478.

White Commonwealth, were likely to have been controlled by Britishbased multinationals. It seems highly likely, therefore, that the vast
majority of investment in the Federations pioneer industries was British.11
Certainly, according to British official estimates, between 1961 and 1965
some 80 per cent of private long-term capital inflow into Malaysia originated in the UK.12
Nevertheless, this commercial and industrial revival was only brief. As
Figure 1 illustrates, Britains percentage share of West Malaysias imports
declined rapidly from 1966, slumping to just 13.8 per cent (representing an
overall value of M$387.6 million) in 1969. There was a slight recovery of the
UK market position in 1970. But, as Sir Michael Walker, the British High
Commissioner, confessed to the British business community in Kuala
Lumpur, Malaysia is no longer a comfortable export market for British
suppliers.13 Indeed, Japan had now clearly overtaken the UK as Malaysias
largest single source of manufactured goods. In actual fact, because of its
growing consumption of rubber, tin, iron ore, and timber, Japan had
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 funds
from 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.

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emerged as Malaysias main trading partner by 19656 (see Figure 2).


Between 1964 and 1966 alone, UK purchases of the Malaysian rubber crop
dramatically dropped from 118,501 to 99,193 tons, representing a fall in
volume of over 16 per cent, and, by 1966, the Soviet Union, with imports of
211,183 tons, became Malaysias leading customer for rubber.14
Concurrently, their North American, European, and East Asian rivals
were eclipsing British industrial investments. Lim Swee Aun, Malaysias
Minister of Commerce and Industry, informed the Board of Trade Minister,
Lord Rhodes, that in the twelve months before November 1966, US firms
had invested M$38 million (about 4.4 million) in Malaysian factories,
compared with M$28 million (about 3.3 million) by British enterprises. He
was particularly disappointed that the British Motor Corporation (BMC)
had decided not to take up equity shares in the new plant which was to be
set up in Selangor to assemble Austin and Morris cars. In contrast, Peugeot
and Volkswagen had taken shares in their assembly plants. Lim believed
that investment opportunities had been missed in other fields too: a
Taiwanese firm was producing formic acid in Malaysia and this was
dissolving ICIs local market. Japanese companies had invested in textile
mills and were now making profits from the exports of those factories to the
UK.15 In the first nine months of 1968, from nearly 100 projects submitted
for the consideration of the Federal Industrial Development Authority, the
High Commission estimated that only four or five involved major British
capital participation.16 Why, then, was the revival of British economic
influence not sustained in the second half of the 1960s?

A Decline in Industrial Competitiveness


One obvious explanation is a loss of international competitiveness on the
part of British manufactured goods. The problem here was long term. As
early as 1953, the UK Trade Commissioner in Malaya reported on declining
market shares for British industrials which were being replaced in the
Federation by low-priced German, Japanese, and American goods.17 By
1960, Sir Stephen Luke, the UKs Senior Crown Agent, appreciated that
British industry had earned itself a bad reputation in the Far East and
Southeast Asia for haphazard deliveries, lackadaisical salesmanship and an
off-hand manner. In contrast, Japan was strongly promoting its exports
within the old Co-Prosperity area; and there seems to be wide agreement
14
Singapore Chamber of Commerce Annual Report 1965 (Singapore, 1966), 87; Singapore
Chamber 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.

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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 sudden
downturn in British exports to Malaysia after 1966. There would seem to be
some correlation between the abolition of Commonwealth preference on
most British products in August 1966 and the UKs declining fortunes in
the Malaysian market. Catherine Schenk has challenged the notion that
imperial trade advantages feather-bedded British manufactures in the
last years of the Empire because, irrespective of preferential tariffs, British
exporters found the colonies increasingly hard markets.19 Moreover, in
the Federation of Malaya less than one-third of British exports by value
were covered by Commonwealth trade advantages. It is also possible to
regard British multinationals as victims of their own industrial successes in
Malaysia. The value of British consumer goods imports declined from 16.1
million to 9.7 million (representing a drop from 25 per cent to 15 per cent
of total value) between 1962 and 1967. Yet, this partly reflected the fact that
a wide range of goods, from alcoholic beverages to air-conditioners, was
now manufactured in Malaysia by subsidiaries of UK-based secondary
industries.20 Other factors that hardly helped British exporters to Malaysia
during 1967 were the dock strike in the UK and the closure of the Suez
Canal as a consequence of the ArabIsraeli war. Indeed, the British agency
houses in Malaysia had been so much upset by delivery delays that they
were unable to pass on the benefits of sterlings devaluation to consumers.21
Nevertheless, in the calculations of British officials, the removal of
Commonwealth preference did impact upon about 20 per cent of British
exports to Malaysia, and there was one sector, at least, where a clear-cut UK
advantage existed before the summer of 1966.22 This was the market for
motor cars, where British manufacturers were protected by preferences on
the payment of registration tax. One of the largest importers of British cars
into Malaysia was a group of firms owned by a UK trading house, the
Borneo Company Ltd (BCL). Executives from BCLs motor group certainly
believed that Commonwealth preference underpinned the firms sales of
British automobiles; so much so, that fears were expressed as early as 1961
that 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 Area
Negotiations, 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.

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increase in the cost of BMC products.23 The ending of that discrimination


in favour of British cars did indeed have a staggering effect: as the
Commonwealth Office discovered, in the first six months of 1967, British
sales of cars were down by as much as 55 per cent compared with the same
period in 1966.24 Japanese cars in the medium- and small-size ranges, many
of which were locally assembled from knocked-down packs, captured the
market. Japanese advantages in quality, price, and marketing now told
mercilessly against BMC automobiles.25 In the autumn of 1966, Freddie
Erroll, now elevated to the House of Lords and President of the London
Chamber of Commerce, led another UK trade mission to Malaysia and
Singapore. The diagnosis for Britains export ills in the region was clear-cut
for the former Tory minister: the removal of Commonwealth preferential treatment by the Malaysian Government had coincided with an
aggressive Japanese trade thrust in this area.26

Official Economic Policy


The removal of Commonwealth preference, which exposed the lack of
competitiveness for certain British goods, was an angry Malaysian reaction
at the UKs refusal to grant additional defence and development aid in
1966. This was symptomatic of a series of measures by the Wilson government to deal with the UKs balance-of-payments deficit which culminated
in the devaluation of sterling in November 1967 and an accelerated
programme for the withdrawal of British troops from East of Suez. In
an attempt to restrict the alleged drain on productive domestic funds
through overseas investment, as well as aid the UKs balance of payments,
the Finance Act of 1965 had earlier removed the Overseas Trading
Corporation (OTC) tax concessions, while increasing corporation tax
generally, to end excessive advantages for overseas investors and so
restrict capital outflow.
As Wilson explained to US President Lyndon Johnson in January 1968,
cuts in overseas spending were designed to restore Britains economic
health, 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.


PRO, FCO 24/93, Brief no. 12 for Commonwealth Secretary.
25
Saham, Industrial Investment, 978, 108 note 43. As early as 1962, BCL managers noted that
Japanese Toyota 700 class cars achieved an instant success in Penang chiefly due to the
method of selling . . . These cars are sold on a down payment of $850 on a car fully licensed
and 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.
24

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Yet, in attempting to resuscitate the domestic economy, the fiscal and financial policies of the Wilson government eroded Britains economic influence
in Malaysia. In the light of the Labour governments decision not to provide
additional grants and loans for the first all-Malaysia plan of 196670,
the Tunkus regime turned to the USA, Japan, France, Belgium, and The
Netherlands for loans and lines of credit. These were often tied to the
purchase of goods from those countries, and the new aid-providers were
to be favoured in government purchases.28 As Leon Taylor, the economic
counsellor in the UKs High Commission, appreciated, existing British
facilities provided by the Export Credit Guarantees Department cannot
compete with the Japanese loan offer at a low rate of interest with very
extensive repayment dates and a moratorium.29
Subsequently came devaluation and the decision of January 1968 to
withdraw British forces from Southeast Asia by 1971. The earlier agreement
of July 1967 to run down bases and troop deployments by 1975 had already
dented 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 what
interested modern Britain was safety, security and mini-skirts . . . Once
we [i.e. Britain] had gone we could never regain a similar position of
influence.30 George Thomson, Britains Commonwealth Secretary, had
the unenviable task of breaking the further bad news in Malaysia and
Singapore at the beginning of 1968. When he met with Malaysian cabinet
ministers on 7 January, a highly agitated Tan Siew Sin wondered whether
it might not become necessary for [Britain] to devalue again and whether
[Malaysian ministers] should expect a further visit proposing an even more
drastic acceleration of our withdrawal.31 Having slept on the matter, the
Minister of Finance grew even angrier. The following day he told Thomson
that Britain was now proposing to abandon Malaysia and could not be
surprised if in the interests of national survival the Malaysian Government
took measures which might damage British interests.32
As it turned out, there was to be no nationalization of British investments or immediate running down of sterling balances. Yet, as the

28

PRO, DO 189/597, Walker to Snelling, 15 July 1966.


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 of
discontent, loss of confidence and an undertone of bitterness towards Britain on the part of
the 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 the
Deputy Prime Minister of Malaysia, 8 January 1968.
29

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NICHOLAS J. WHITE

Commonwealth Office appreciated, sterling would remain on probation


in Kuala Lumpur for some time.33 Moreover, in May 1968, Tun Abdul
Razak, the deputy Prime Minister, embarked on a European tour to drum
up aid for Malaysian development. Razak proposed that Malaysia be made
an associate member of the EEC, and secured an extended line of credit
in Paris as well as the prospect of increased Belgian private investment,
encouraged by legislation. Economic links were also nurtured behind the
iron curtain: during a fleeting visit to Moscow, the Tun was met by three
Soviet ministers and marvelled at the quantities of vodka which they
managed to get him to drink in a comparatively short time.34 The USSR, as
we have seen, had emerged as Malaysias largest purchaser of rubber by the
late 1960s and, anxious to balance their trade with the country, the Soviets
staged their first trade fair in Kuala Lumpur during September 1969,
involving some twenty state trading corporations and displaying more
than 2000 items. At the same time, a high-level commercial delegation
parleyed with Malaysian officials.35 As the editor of Malaysias Eastern Sun
had opined on 1 May 1968, Since Britain can hardly take care of herself, it
is time Malaysia explores the wider world outside the British Commonwealth for friendship, trade, and technological assistance.
The government in Kuala Lumpur had sought to broaden the basis of its
economic relations some time before 1968. From the late 1950s, trade and
investment linkages with Japan, particularly, were seen as vitally important
by Malayan ministers as a means of stressing an Asian identity while also
providing industrial capital to absorb a rapidly growing workforce. On top
of a preference for intra-Asian trade and investment, the Tunkus regime
took a number of measures which eroded the openness of the colonial
export economy and demonstrated its autonomy from established British
investorssuch as the creation of a central bank and increases in income
tax.36 A new breed of Malay economic nationalist was already on the rise
in the early 1960s, questioning both British and Malaysian Chinese
domination of the economy. Yet, the disappointments of 19668 intensified
the tendency for Malaysia to shift out of Britains economic orbit. Interestingly, the Anglo-scepticism of Mahathir Mohamad (who as Malaysias
Prime 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.
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 during
1970 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 Malaysian
Independence, 195765, Asia Pacific Business Review, 7 (2000), 1601, 1678.
34

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local takeover of the premiere agency house, Guthries) can be dated from
1966.37
The British military withdrawal also came to have a negative impact
on the confidence of both actual and potential British investors in
Southeast Asia. Representations by British commercial, financial, and
industrial interests argued that the accelerated rundown would result
in a catastrophic drop in confidence.38 Lee Kuan Yew, the premier of
Singapore, pleaded the case for the agency houses and industrial
companies in London with UK cabinet ministers. The only concession won,
however, was an extension of the final deadline for withdrawal from 31
March to 31 December 1971.39 To counter the suspicion in Malaysia that
Britain was less reliable as a trading power and a supranational banker
and liable to renege on her promises to her friends, Sir Michael Walker
called for prompt and significant investment in Malaysia.40 A CBI mission
had visited Malaysia in August 1968. Yet, the only concrete project to
emerge from these perusals was the local construction of tin dredges
by Rio Tinto Zinc.41 The captains of industry argued that far greater
British capital input would be stimulated by a guarantee against
expropriation. Along the lines of existing programmes for Germany,
USA, The Netherlands, Switzerland, and Japan, this might compensate for
the loss of confidence and political protection arising from Britains
military retreat.42 Moreover, before 1965, OTC status had offset the considerable political risks of investing in a highly volatile region, while the
devaluation of sterling added another fairly strong disincentive to British
commercial investment in Singapore and Malaysia.43 More than ever,
Kuala Lumpurs tragic ethnic riots of May 1969 appeared to emphasize the
potential for Malaysian political instability. But the Treasury, in the interests
of the UKs balance of payments, remained staunchly opposed to a political
guarantee scheme for Malaysia and Singapore (or for anywhere else):
The cardinal point is that we do not want to see any investment guarantee 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-Singapore
Commercial 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 November
1967.

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NICHOLAS J. WHITE

encouragement to overseas investment and we do not therefore encourage


its genesis.44
The aid package drawn up in 1967 and 1968 as compensation for
military withdrawal was partially motivated by a desire to safeguard our
own trading and investment interests. Malaysia was offered 25 million
over 5 years. And, at the insistence of the Prime Minister, British special
aid was dependent upon Malaysian good behaviour towards both UK
investments and its own sterling balances, while at least 75 per cent of
the compensatory funds were to be tied to the purchase of British goods
and services.45 The agency houses on the spot, however, voiced numerous
complaints about the inflexible bureaucracy which often accompanied the
aid programme and believed themselves at a disadvantage in the placing of
orders 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 on
stimulating British imports to Southeast Asia.
The possible loss of British investment or trade in Commonwealth
Southeast Asia was of little actual consequence to the Wilson government.
In Londons global view, British economic interests in Malaysia were
marginal by the late 1960s. Malaya was the Empires premiere dollar earner
in the 1940s and 1950s, but as the Foreign Office had pointed out at the end
of Douglas Homes administration, the Malaysia territories were now in
deficit [in terms of their foreign exchange contributions to the sterling area]
and likely to remain so. The UKs need of the primary products of the
region had also become insignificant. About three-quarters of the UKs
rubber imports did come from Southeast Asia (about three-quarters of this
in turn coming from Malaysia). But, natural rubber was increasingly being
replaced by synthetic, and only about 5 per cent of Britains total tin imports
were derived from the region, while imports of vegetable oils, rice, tea, and
oil were all completely marginal.47 British investments (excluding oil,
banking, and insurance) yielded under 6 per cent of the UKs total overseas
investment revenue, while barely 3 per cent of Britains world trade was
conducted 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. For
similar reasons, the Treasury would not amend fiscal or exchange control policies in favour of
UK 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 Malaysian
rubber had set in within Whitehall from the mid-1950s, and the Board of Trade and Treasury
encouraged 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.

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creation of Malaysia, and the subsequent British military commitment


during confrontation with Indonesia, were underpinned by geo-political
rather than economic considerationsthat is, the desire to contain communism in Southeast Asia and a means of influencing US policy in the
region, while also maintaining the Commonwealth defence link with
Australia and New Zealand.49 The only British economic interest which the
Foreign Office thought worth highlighting in September 1964 was the need
to ensure prosperity as a means of denying Southeast Asia to Beijingbacked communism.50 To underpin economic, and hence political, stability
in the region, British officials had assigned Japanese trade and investment
a crucial role from the early 1950sfrequently at the expense of established
UK commercial and financial interests.51 When Japans premier, Sato
Eisaku, visited Malaysia in September 1967, Sir Michael Walker believed
that closer Malayo-Japanese commercial links should be welcomed as a
factor contributing towards Southeast Asian stability . . . Even though this
will no doubt . . . lead to more severe competition in the future for our own
exports to [Malaysia].52 Hence, by the later 1960s, the British government
was 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 in
Southeast 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 longer
seemed adventurous and, as a result, the British position throughout the
whole region was weakening.53 This was an unfair judgement, since there
is plenty of evidence to suggest that British businesses in Southeast Asia
remained enterprising and remarkably efficacious throughout the Tunku
era. According to the calculations of economists at the University of
Cambridge, the post-tax profitability of UK capital in Malaysia between
1955 and 1964 was 19.8 per cent per annum, making the country the second
most profitable destination for UK capital after West Germany.54
49
A. J. Stockwell, Malaysia: the Making of a Neo-Colony?, Journal of Imperial and
Commonwealth 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.

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The linchpins of colonial capitalism in Malaysia were the British agency


houses. These trading companies or investment groups became central to
Malaysian economic development because of their dual rolefirst, from
the 1800s, as the agents for European manufacturers, shipping lines, and
insurance companies, and secondly, from the 1900s, as the managing agents
of investments in primary production, particularly rubber estates. In these
ways, the agency houses linked British financiers and manufacturers with
investment and trading opportunities in Southeast Asia. It might be
expected that the colonial denouement threatened the privileged position
of these long-established expatriate firms. However, the agency houses
proved adept at reinventing themselves in the post-imperial era as
promoters of secondary industry in Malaysia while simultaneously transforming themselves from Southeast Asian merchants into multinationals,
operating within the Pacific Rim as a whole.55 Considerable dynamism and
adaptability was also exhibited in the traditional spheres of the agency
houses: trading and investment management. A favourite complaint of UK
manufacturers was to claim that the salesmanship of the Anglo-Malaysian
firms lacked drive and initiative. But actually, the British investment
groups were making rational business decisions through disengaging from
stagnating industrial Britain. When Sir Norman Kipping, Director-General
of the FBI, visited Malaya in early 1959, he discovered that The old
established British merchant houses have an international spread of
agencies and many of them have found their foreign or continental
principals more competitive than their UK opposite numbers.56 The
managers of BCL in Malaya and Singapore boasted of their great success
post-war in attracting new agencies, but this entailed a steady drift of our
business away from the UK as the principal source of supply. The USA,
Sweden, Switzerland, France, and Germany yielded the best new lines, and
the firm was seeking expanded links with Australia. Out of a sense of
patriotic duty, the agency house was anxious to respond to Harold
Macmillans export drive of 19601 by developing new business with UK
industrialists. Yet, London was reassured that attractive aliens would
not be cold-shouldered. We give all visitors a cordial welcome, particularly those with fat franchises in their pockets!57

55

Saham, Industrial Investment, ch. 5; Nicholas J. White, The Diversification of Colonial


Capitalism: British Agency Houses in Southeast Asia in the 1950s and 1960s in Ian G. Cook et
al., (eds), Dynamic Asia: Business, Trade and Economic Development in Pacific Asia (Aldershot,
1998). Geoffrey Joness Merchants to Multinationals: British Trading Firms in the Nineteenth and
Twentieth Centuries (Oxford, 2000) stresses the resilience and success of British overseas trading
groups 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

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This was certainly the case with Japanese manufacturers, which were
increasingly wooed by BCL during the 1960s. The firms motor group
was impressed by the quality of vehicles on display at the Tokyo Motor
Show of 1962, and thereafter a Japanese franchise for Malaya was actively
sought, despite the inevitable negative reaction from the BMC.58 BCL also
secured the agency to sell Sanyos electrical products throughout East
Malaysia.59 Moreover, with the growth of import substitution, the agency
houses were busy picking up distribution rights for Malaysian manufacturing companiesboth British and non-British controlled.60 Hence,
while British goods were losing their allure in Southeast Asia, the British
investment groups on the spot were able to maintain their central position
in the local economy as the leading importers and distributors of manufactures. In the plantations, meanwhile, prudent policies of diversification
into palm oil allowed large profits to be maintained while rubber prices
declined.61
At the same time, the agency houses strengthened their investment
networks through the formation of tightly controlled conglomerates.
Following merdeka, political uncertainty, synthetic competition, and the
consequent undervaluation of estate assets made the smaller companies
in the rubber industry highly vulnerable to takeover from speculators.
Hence, with the backing of the Bank of England, plantation managing
agencies, such as Thomas Barlow & Brothers and the Rubber Estate
Agency, amalgamated loosely controlled rubber firms into single holding
companies.62 In 1965, meanwhile, the vast majority of the Guthrie group
was unified under a new holding company known as Guthrie Corporation
Ltd. A tighter degree of financial and directoral control over the plantation
companies managed by Guthries was thus made possible under the
chairmanship 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 palm
oil compensated for a dramatically falling rubber price. The contribution from rubber dropped
from 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 December
1960.
63
BoE, ADM 14/82, note by Thompson-McCausland for the Governor and DeputyGovernor, 10 March 1965.

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houses too. To prevent the European firms . . . dissapating [sic] their


energies in competing against each other while the Chinese were making
considerable inroads, particularly in shipping agencies, Bousteads and
Barlows merged their importexport businesses to form Boustead (1960)
Ltd.64 In 1966, the two firms plantations were also brought together in the
Barlow Boustead Estates Agency Ltd.
But this fancy financial footwork was also the Achilles heel of the
investment groups, for rationalization belied a siege mentality, a fundamental fear of sharing commercial power with Malaysians. Indeed, if
there was a post-colonial British entrepreneurial failure in Malaysia, it
manifested itself in an inability to fully integrate with the Malaysian
political and economic elite after independence. Even where Malaysian
participation was grudgingly accepted as necessary, the agency houses
would not surrender ultimate financial control in local subsidiaries. For
example, when Griffith-Jones reorganized the Guthrie group during 1965,
he informed L. P. Thompson-McCausland in the Bank of England that some
Malaysianization would be required and must be put in hand soon. It
was not his intention, however, to peddle out shares of the Guthrie
Corporation in Malaysia. Rather, Guthriess new boss would group
together a separate unit of land and estates selected from several of the
Guthrie rubber and oil palm companies, and turn this into a locally
registered concern with a strong Malaysian element in the management
and on the board. And, even then, final control would still reside with the
Guthrie Corporation in London because only 49 per cent of the Malaysian
firms shares would be offered locally.65 When Malaysian dignitaries were
appointed to the boards of local subsidiaries, they typically held very few
shares in contrast to their UK counterparts.66
Through a wide cultural gap, therefore, the agency houses found
themselves politically isolated in their reluctance to engage in the emerging
world of crony capitalism, whereby the distinction between Malaysian
politics and business became increasingly blurred. In 1963, for example,
BCL had the opportunity to take a one-third share in a partnership with
Sabahs leading politicians to exploit forest reserves. However, the chance
to 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.
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 to
institute, after 1971, the New Economic Policy, which aimed to increase Malay and non-Malay
Malaysian 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 British
investment groups, notably Sime Darby (in 1976) and Guthries (in 1981), were forced into
complete local ownership and control.
65

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Kong was eschewed by the London management on the grounds that Our
policy . . . is to have at least 50 per cent share in local ventures and to steer
clear as far as possible from politics.67 Instead, Tun Mustapaha, Sabahs
Chief Minister after 1967, turned to a group of Japanese firms whose
interests he was promoting at the expense of UK businesses.68
Indeed, Japanese trading companies and manufacturing concerns were
more attuned to local political and business realities than their British
counterparts. Japanese interestsfor example, in steel production
established joint ventures with T. H. Tan, Secretary-General of the Alliance,
president of the All-Malaysian Chinese Chambers of Commerce, a close
personal friend of the Tunku, and one of the most powerful men in the
country.69 Moreover, when the huge Malayawata Steel project at Perai
incorporated in 1967, 3 million one-dollar shares were offered exclusively
to Malays and Malay interests. This meant that local shareholders,
including the Malaysian government, held 57 per cent of the equity
capital.70 The Japanese firms involved in the Malayawata project also
recognized the pressing need to appoint senior Malays as directors. Raja
Mohar, the chief Malay bureaucrat in the Ministry of Commerce and
Industry, was made chairman. Meanwhile, the leading Malay ultra, Syed
Jaafar Albar, the former UMNO Secretary-General who played a key role
in the expulsion of Singapore from Malaysia, was made executive director
and manager in Kuala Lumpur.71
British firms, in contrast, were reluctant even to open up management
positions to Malaysians. Little over a year before Sarawaks incorporation
into Malaysia, BCLs management in London rejected the appointment of a
Chinese shipping manager on the Rejang river on the grounds that none of
the other big commercial firms in Sarawak had local executives and it is
going to be uphill going for a Chinese to tune into the old boy network at
the right level.72 On the mainland, meanwhile, the agency houses took
advantage of laxness in the Federations Immigration Department in the
early 1960s to actually increase the number of young European planters on
the rubber estates. This was a tendency which the High Commission in
Kuala 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 from
Stovold, 28 June 1963.
68
PRO, FCO 24/155, enclosure by Australian High Commission in Duncan, Kuala Lumpur
to Mound, Commonwealth Office, 26 August 1968.
69
Desmond Tate, Power Builds the Nation: The National Electricity Board of the States of Malaya
and 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.

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NICHOLAS J. WHITE

an official committee was forcing the pace of Malaysianization in industry


and commerce.73 As it turned out, the Malaysianization issue was solved
relatively amicably through a set of informal agreements between the
government and the agency houses in which expatriate managers were
permitted to stay in a number of key posts. Even then, however, the
British boards of the plantation companies remained sceptical concerning
the quality of Malaysian human resources. They tended to put Malaysian managers in charge of much smaller units than their European
counterparts, clearly illustrating that the locals were still not fully
trusted.74
Hence, the entrepreneurial weakness of the leading British firms in
post-colonial Malaysia did not concern an inability to engage with the
realities of the international economy or the demands of local industrialization, but, rather, represented a reluctance to embrace the possibilities of
a Commonwealth commercial and financial partnership. In this sense, the
smooth transition to independence, and the survival and brief revival of
British economic sway, was ultimately damaging since it encouraged the
agency houses to continue to operate in time-honoured fashion. This
lingering of colonial cultures, and a general inability to fully comprehend
the political realities of the new Commonwealth in Southeast Asia, were
also exposed by British business reactions to the separation of Singapore
from Malaysia in August 1965. Despite the political divorce, expatriate
bankers, industrialists, and commercial firms lobbied for the retention of
the joint currency and the creation of a common market between the island
republic and Malaya, Sarawak, and Sabah. Tan Siew Sin responded with
this telling statement: British businesses had not adjusted themselves
adequately to the new changed conditions and continued to regard
Malaysia and Singapore as one unit economically as it was in the . . . days
of colonialism . . . Those days are gone . . . and the longer they cherish
this delusion, the more difficult will be the eventual and inevitable
re-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, SP
95/B/15, draft letter from Harry Traill to Sir Claude Fenner, Rubber Growers Association
special 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 in
telegram from Kuala Lumpur to Commonwealth Office, 23 August 1966.

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Conclusion
Darwin has argued that the British dream of upholding economic influence
through constitutional change in the EmpireCommonwealth was
shattered by a number of factors during the 1960s: the reduction of sterling
balances and the loss of British control over Commonwealth currencies;
an emphasis on local manufacture, as well as the extension of state
intervention in post-colonial economies; the emergence of more generous
international lending agencies; and the decline of British industrial
performance, compounded by the loss of privileged access to ex-colonial
markets. These tendencies were exacerbated at the end of the decade by
Britains financial troubles, with the retraction of Albions global military
role as the dramatic denouement.76
This article does not demur fundamentally from Darwins interpretation, but in the Malaysian case a number of modifications can be made
to his model. First, the British experience in post-colonial Southeast Asia
was not necessarily a sad and sorry tale of continuous economic decline.
Nor did the Commonwealth economic experience witness the swift
supplanting of UK commercial and financial interests by either indigenous
or other endogenous competitors. Rather, the increase in British imports to
Malaya during the early 1960s and the successes of UK industrialists and
agency houses in import substitution suggest a revival of British economic
leverage. Moreover, however badly the British economy may have fared at
a macro-level, the ex-colonial firms on the spot maintained their positions
to the 1970s as the leading importers and distributors of manufactured
goods, and producers of raw materials, while, at the same time, they
emerged as key promoters of secondary industry. This phenomenon was
clearly aided by the fact that the Malaysian government chose a development strategy which in the main eschewed state control of industry, and
remained remarkably committed to sterling until the 1970s.
Even so, we have also observed that Britains commercial and financial
renaissance in post-colonial Malaysia lacked firm foundations. Entrepreneurial inertia amongst the agency houses was evident, particularly in
the political and social spheres from independence onwards. Fearing a loss
of financial and managerial control to local interests, and continuing to
exhibit an alarming degree of prejudice towards Southeast Asians, British
firms did not develop a full Commonwealth partnership with Malaysian
entrepreneurs and/or politicians. Here was a tendency which would prove
increasingly damaging once a more radical economic nationalism emerged
in the later 1960s. Conservatism on the part of the long-established firms
intersected with two other variables to induce a sharp decline in British
76

Darwin, Britain and Decolonisation, 3006.

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NICHOLAS J. WHITE

economic influence by the end of the 1960s. The loss of manufacturing


competitiveness was brutally confirmed when Commonwealth preference
was withdrawn in Malaysia. This, in turn, was a consequence of the
policies of the Wilson government which attempted to redirect UK
overseas investment (both public and private) towards the regeneration of
metropolitan Britain.