Dr Toh Kin Woon talks about the economy, the succession plan in Gerakan and the coming general election in this second part of the 90-minute question-and-answer session with the Penang state executive councillor.

Malaysiakini: Give that you're an economist, how do you see things playing out for Malaysia and for Penang in the next five to 10 years. Are we facing a potential crisis given that oil is running out?

Toh: We have been able to sustain economic growth because there's no denying over the years we have built up mass manufacturing capabilities and because we are well-endowed in natural resources.

We have actually built up manufacturing capabilities particularly in electronics and we still have access to huge markets like the United States. So we have been able to sustain. But now with emergence of China, with the emergence of Vietnam, the competition is very stiff.

I think the reason why we have succeeded is we have the advantage of being an early starter under very favourable initial conditions. At that time, when we launched into manufacturing ... there wasn't China to compete with. There wasn't India. The whole of Eastern Europe (was not our competitors).

So we had that kind of advantage. But now after 30 years, I think we did not do certain things that Taiwan did, for example. They have actually built up tremendous research and development capabilities (through its Industrial Technology Research Institute). We are talking about a few hundred million US dollars in terms of revenues (from ITRI). Five thousand scientists, of whom 800 have PhDs from some of the top universities in the world - that kind of thing.

Unfortunately, we do not have the equivalent in terms of electronics in Malaysia. I think one of the major constraints is that our human resources have not been developed to the level that is deemed desirable by multinationals.

We were very successful in terms of assembly, in terms of testing, maybe in some designing. But now we are no longer competitive in these operations, and some of these operations have already been relocated.

If you talk to people in the industry, they said they want to keep some of it (research and development facilities) here. But they always come up with the constraints of getting good design engineers. I think that's got to do with our education. I think it is a very critical issue, which unless we resolve quickly, might erode our competitiveness even further in the years to come.

Don't forget China's resources will be developed to higher levels and further. It's likewise with Vietnam. Of course, India, which is already rich with human resources and Thailand too, even Indonesia.

I think that is our major concerns, primarily because commodity prices can't be sustained at high levels for a very long time. Oil will certainly be depleted soon.

What about Penang itself?

Penang - we are a resource-poor state. We have been successful in manufacturing, but I think that the same problems that I've mentioned will beset Penang as well.

We are trying now to identify new sources of (revenue) by looking at new products and new processes. We are looking into services especially tourism. Some success have been achieved. To sustain the tempo of development, I think the same problem crops up. We don't have a huge pool of design engineering skills, the hospitality skills, and so forth.

So I think major reforms in the country's education system are quite important and I think that affects Penang as well.

Are the powers-that-be share the kind of concerns that you have expressed - that something needs to be done about this?

I'm not sure.

You don't think so?

The fact that they have this master plan ... to develop top universities in the world maybe is indirectly saying they recognise the problem. But whether they're doing it the right way ... I think ultimately the race-based (policies), if they (government) are not able to depart from it radically, I doubt it very much that one can make headway, if you ask me.

Does the economic situation affects race relations? In the early 1990s, before the Asian financial crisis, things were looking up for race relations. Mahathir announced the Bangsa Malaysia concept, then the crisis struck...

It has something to do with racial relations because when you have a pie expanding and expanding rapidly - even within a capitalist framework (and) when the institution is systemically unequal - you still have trickling down and the lower strata getting some of the improvements.

It cannot be denied that for the last couple of years, for the urban (poor), they have been facing a lot of economic problems.

Maybe a lot of the Felda settlers may not have it so difficult now because of the favourable commodity prices. But for how long this will last? I'm not sure.

For the urban (poor), the cost (of living) have gone up. I think their real wages have actually come down.

The problem is that people do not see this as a class thing. They see this along ethnic lines. When they look around and say, 'oh, the Chinese are getting better off and we are getting worse off'...

So I'm worried that there can be a danger for ethnic relations being worsened. The finger can get pointed in the wrong direction, which can very well happen.

At the same time, it is now pretty obvious the top and middle strata are more multiethnic than 1969. It was pretty obvious in 1969, you couldn't see any rich successful bumiputera businessmen, whereas now you do.

You can say this is a success of the NEP, if you like. But still, there is this danger (for ethnic clashes to re-emerge).

Your prediction for the next general election?

What sense?

Well, in terms how well the parties will do...

Well, there's a lot of speculation that in the urban seats, the non-Malay-based parties within the Barisan Nasional - MCA and Gerakan - would lose some seats. Maybe that is true, but to what extent they will lose, I am not sure.

You see, elections are funny things. Certainly in our country it is. You may predict that the certain parties are going to take a beating, but the results may be otherwise.

(The BN has the) organisation, the money, (it) controls the media, et cetera. I mean, for all the predictions, MCA and Gerakan will do worse. For sure, they will do worse because 2004 was just too good to be repeated.

But how worse, I don't know. Certainly there are a lot of issues for the opposition parties to exploit. Certainly there are a lot of things they can say against the ruling coalition. But whether the opposition can get their act together, whether they can come together, is another big issue.

How will Gerakan face off dissatisfaction with the faltering economy. A recent national survey showed that the Chinese community is not happy.

That would be a big factor if that is true. I think in the past, they continue to support Barisan Nasional, especially Gerakan, on the strength of the economy. If indeed the general feeling is that the economy is not performing well and they are actually feeling worse off, I think then the negative reaction would be bad.

I think the key question is whether there is an alternative and whether the alternative has got some implied policies that would lead them to a better performing economy.

I think the problem is that there is not enough opportunity for trickling down. Essentially, it (the economy) is MNC (multinational companies) generated and driven. A lot of the profits are being repatriated overseas. Now obviously the multiplier effect has been weakened because of the leakage.

So I think the trickling down may not be strong, which is also why many feel they are not benefiting whatever growth they have successfully generated.

If true then I think it is a matter that Barisan Nasional and Gerakan would have to take note.

DAP is looking to capture Penang by appealing to voters to vote for them in the state seats as well as the parliamentary ones. Do you think this is a real threat to Gerakan?

I think it is too early to say. I wouldn't know what the reaction is so far - to be honest with you. So I wouldn't comment.

Would the NCER (the Northern Corridor Economic Region development project that involves Penang, Kedah, Perlis, Perak) appeal to voters?

Somehow I think people are usually impressed with huge infrastructure projects. The second bridge is definitely going to be on. They are doing the design work, the piling has been done, the launch has been done.

When they talk about (former Penang chief Minister Dr Lim Chong Eu's) time, they always talk about Chong Eu having built the bridge and Komtar - almost two icons of Chong Eu's era.

Now with the second bridge coming on, and the monorail, and widening of the Penang bridge and the development of the Butterworth bus terminal - with a few big infrastructure projects, it may create the impression that construction activities are going to be revived that there would be a tremendous multiplying effect rising out of construction. So it may help to regain some support.

So far how is the reaction to the projects?

I don't know. I think it is too early to know the reaction. As I said, I suspect there may be some positive response but to what extend, I'm not sure.

Do Penangites have sentiments for Chong Eu's era?

Chong Eu's ( left ) achievements will be used as a benchmark. During his time, manufacturing was started on a big scale. He was able to bring in a lot of manufacturing investments. Then there were a couple of big infrastructure projects, some technological transfer. And I think what was most impressive was he brought unemployment from a high double digit to a very low figure.

I think that itself was a very impressive achievement. I think this became a benchmark to measure Tsu Koon's performance and might still be used as a benchmark to measure the performance of future chief ministers.

What are the qualities of the future chief ministers?

I don't think I want to comment on that. I don't think that would be a good question to answer.

Is there talk within Gerakan with what's going to happen with Koh Tsu Koon?

Tsu Koon, I think, is toying with the option of either staying or going to federal...

That we all know...

So what do you want...

We would like to know your insights on what the thinking is right now as to what is going to happen.

As I said, I'm not very much within the inner circle so I wouldn't know what is the latest thinking. But if I read it correctly, I think he (Tsu Koon) would like very much to come to the centre (the federal government) given the fact that he is now the acting president and hopefully would be confirmed as the president in next (party) election.

I think he feels that he would be better able to discharge his duties as national president by being in the centre, by being a member of the cabinet and being a member of the top-most decision-making body within the country. He would be better able to explain national policy to party members. He thinks he would better represent the party by giving the input to the national decision-making body.

So I think that would be his desire, but I don't know whether other factors now come into play to make him rethink.

The fact there is no successor as to a clear frontrunner for the chief minister's position. Does it speak well for Gerakan? People would think that a party like that would be able to provide a clear-cut successor to Tsu Koon if he decides to move to the federal level.

I think that is a very difficult question. I mean there is no denying that there are a few capable aspirants for the job. The other thing, of course, is Gerakan has traditionally been given the job of leading the state government of Penang and Pak Lah (Prime Minister Abdullah Ahmad Badawi) also said so. I think it is not correct for Gerakan to make such an early announcement.

I think the views of other political parties also have to be sorted (out). It's not so easy from a practical point of view to say 'let's decide now'. Maybe the decision is 'let's leave it till to the eve of the general election'. I think by then the indication would be very clear.

Would the decision be made by Umno?

Of course, Umno has to be consulted. Certainly the prime minister has to be consulted. And I think even MCA and MIC will have to be consulted because you are talking about a coalition. It is not as if you are running some government by yourself, which would makes things much easier. Then you can just decide from within.

How would you compare with the new acting president with the past president, Dr Lim Keng Yaik?

It would be hard to compare...

I mean the character of the two...

Well, that's very obvious - everybody knows. Tsu Koon is a very good orator. He's not so colourful maybe (compared to Keng Yaik). But in terms of oratorical skills, I think Tsu Koon is a good orator and he would be able to articulate.

But as to other leadership qualities, I think you should give him a chance. After all, he has only led the party for a few months. Maybe after a few years, then maybe you can assess and make a comparison.

Party veteran: Koh to move up before polls

Part 1:

Tough to change BN, says Gerakan leader

Q&A: Umno decides roles for BN components