This article first appeared in Forum, The Edge Malaysia Weekly on November 9, 2026 - November 15, 2026

Few people are as unconvinced of their economic achievements as Malaysians. Returning to Kuala Lumpur after 10 years to speak at the Khazanah Megatrends Forum, I kept hearing the same refrain that Malaysia could have done better, that it fell behind Singapore, South Korea and Taiwan, that it is stuck in the middle-income trap.

The frustration is understandable. But it rests on a peculiar choice of benchmark. Measured against the East Asian tigers, Malaysia can look like an underperformer. Measured against the rest of the developing world, its economic transformation is remarkable.

At the country’s independence, tin and rubber accounted for over 80% of exports. Most economies that start from such a position never leave it. Across Africa, Latin America and the Middle East, the commodity dependence of the 1960s is, in many cases, the same commodity dependence of today.

Malaysia, by contrast, now exports high-tech goods. It also did something even rarer: it built sophisticated industries around its natural resources. Palm oil became oleochemicals, latex became medical gloves, and oil and gas became a diverse petrochemical industry.

But let’s remember that the odds were stacked against Malaysia and few were betting on the country. The lack of technical expertise back in the 1970s led an international oil company executive to condescendingly remark that “Malaysians wouldn’t know an olefine from a chocolate bar”.

None of this progress happened by accident. Nor was it the product of a smooth, linear plan and supportive international partners. Having studied how Malaysia upgraded, I would draw two lessons.

Mike Tyson famously said that everyone has a plan until they get punched in the mouth. The same is true of industrial policy. Governments can draft elegant and technically sound strategies, but those strategies are tested by what comes next: technological shifts, trade barriers and resistance from incumbents who profit from the status quo.

Malaysia’s industrialisation took all three punches, but what distinguished it was the ability to adapt. Here are some examples.

The first punch in Malaysia came from European incumbents. Long after independence, much of the plantation economy remained in the hands of British companies listed in London, which had little interest in processing at home what they could ship abroad. Malaysia’s response was as audacious as it was elegant: it used the rules of the London Stock Exchange to its own advantage.

On the morning of Sept 7, 1981, Permodalan Nasional Bhd (PNB) began buying Guthrie shares as soon as the market opened. In less than four hours, its stake rose from about a quarter to more than half. By the time the City had finished its morning tea, one of its grandest plantation houses had become Malaysian. The Dawn Raid is usually remembered as a story of national pride. It is also a lesson in industrial policy. Ownership and control matter, because firms headquartered elsewhere have little reason to build capabilities where they extract.

The second punch came from trade policy. European tariff structures penalised processed palm oil relative to crude imports, a textbook case of tariff escalation that kept refining, and the value it generates, in Europe. The Malaysian government attempted to impose a tax on crude palm oil exports, but the European Commission responded by escalating its tariffs, knowing it had the leverage as the key consumer market for palm oil.

Malaysia did not wait for Europe to change its mind. Instead, it built refining capacity at home and found buyers elsewhere, including through barter deals with countries that wanted palm oil but lacked the foreign exchange to pay for it. If a customer could not pay in dollars, Malaysia would take payment in goods (it received jet fighters and railway infrastructure, among other things). This is not the stuff you learn in trade economics textbooks, but it worked.

The third punch came from technology. The rise of synthetic rubber threatened natural rubber producers everywhere. Rather than simply defending its traditional product, Malaysia also built capabilities in synthetic rubber, drawing on its growing petrochemical industry. It therefore avoided the Chile scenario of the 1930s, where the invention of synthetic nitrate destroyed its economy as natural nitrate was the bulk of the country’s exports.

The lesson for developing countries is that value addition does not unfold through market forces alone. Power asymmetries along global value chains block the way, and overcoming them requires deliberate policy, sustained investment in capabilities and, above all, the boldness and capacity to change course. A plan that cannot absorb a punch is not a strategy.

My second reflection is a hypothesis rather than a finding: Malaysia’s reluctance to declare success may itself be one of its assets for the future.

There are, of course, legitimate reasons for frustration. Economic transformation does not mean that everyone benefits equally, and export sophistication says little about wages, housing costs or the quality of public services. But a society that keeps measuring itself against the best performers in the class remains, by definition, in the race.

Meanwhile, countries that believe they have arrived tend to stop climbing. I have witnessed it firsthand in Chile, a country that in many respects has not experienced structural change to the same extent as Malaysia but features similar income levels, and where a think tank director (who later became finance minister) told me: “Chile has grown faster than the rest of the Latin American region over the past 50 years, so where is the problem?” This echoed the perception made 100 years earlier by Ortega y Gasset, who found in Latin America a “tendency to use reality as a mirror for self-contemplation, rather than as a subject for critical analysis and progress”, before arguing that “human history is the product of discontent”.

Having said that, dissatisfaction has a dark alter ego: cynicism. In other words, the idea that nothing will ever change. Expectations are shaped by lived experience, political debate and the countries a society chooses as its reference points. But the relationship between collective aspirations and development outcomes deserves far more attention from economists than it has received. When does discontent drive improvement, and when does it curdle into resignation? The difference probably lies less in the level of discontent than in whether people believe improvement is possible, and whether institutions can turn that expectation into action (Malaysia Boleh!).

Malaysia has unfinished business in its economic transformation but it now faces a new round of punches: semiconductor supply chains reshaped by geopolitical rivalry, the energy demands of artificial intelligence and data centres, and tightening trade protectionism from the US and European Union (sometimes disguised in the form of carbon taxes and environmental regulations, which is nothing Malaysia has not seen before).

But history suggests that Malaysia is well equipped to absorb the coming shocks, provided it keeps the two habits that served it so well: adapting its strategy when hit and refusing to believe it has done enough.

The rest of the developing world has much to learn from Malaysia. Malaysians, meanwhile, are entitled to demand more of their country. Perhaps the most Malaysian thing is the refusal to fall into complacency. Long may that continue, up to a point.

Amir Lebdioui is an associate professor at the University of Oxford and director of the Technology and Industrialisation for Development Centre (TIDE). His research on Malaysia’s industrial transformation, “The political economy of moving up in global value chains: How Malaysia added value to its natural resources through industrial policy”, was published in the Review of International Political Economy.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.