Economic inequality in British Colonial Malaya

Dr. Muhammed Abdul Khalid, Research Fellow, Institute of Malaysian and International Studies (IKMAS), University Kebangsaan Malaysia

Although Malaya was one of the richest colonies in the British Empire, its socioeconomic development during the colonial era was fairly limited. It produced, for example, more than half of the world’s tin by the end of the 19th century, and by the early 20th century was also the world’s largest natural rubber producer. But welfare gains to the masses were paltry, and huge geographical disparities emerged, especially between urban and rural areas, as well as between the Malay peninsula's more economically developed west coast states and those on the east coast. During the period, economic policies, and supportive legislation, favoured colonial economic objectives, and did not aim to improve the well-being of any community group, nor to spread the benefits geographically. There were vast inequalities between the British, other Europeans, and the very small aristocratic and business elite of Malayan society on the one hand, and the majority of Malays, Chinese, and Indians on the other. This article briefly explores these inequalities through various ‘proxy’ indicators, given the lack of systematic data on income and wealth for the colonial period.

Consumption expenditure

Malaya under British administration, which progressively spread over the Malay peninsula after the Pangkor treaty of 1874, was characterized by huge inequalities in wages and standards of living. Disparities in colonial economic development are evidenced by the large differences in expenditure among different population groups. Sultan Nazrin Shah (2017), using primary source data, categorized Malaya's population during the first four decades of the 20th century according to six ‘consumption standards’—European, Eurasian clerical, Asiatic clerical, Malay labour, Chinese labour, and Indian labour—based on a combination of ethnicity and occupation. For those spending according to the European consumption standard—mainly British and the Malay, Chinese, and Indian elite, who accounted for just 1 per cent of the population—their expenditure was more than 21 times higher than the Malayan average.

For Chinese, Malay, and Indian labourers, collectively making up 97 per cent of the population, expenditure was 24 per cent below the weighted average of all groups, a figure that remained almost unchanged throughout the first 40 years of 20th century (Sultan Nazrin Shah, 2017, p. 164). The differences between the three labour standards, however, were moderate, with per capita consumption of Chinese labourers 1.5 times that of Malay labourers in 1900 and 1.3 times in 1939 (Sultan Nazrin Shah, 2019, p. 409). This differential reflects the fact that Chinese labourers were often engaged in semi-skilled work, whereas most Malays were in subsistence farming or had jobs in the agricultural sector, especially rice farming.

Capital ownership

Ownership and control of the economy were heavily skewed. In 1957, foreign interests, mainly British and other Europeans, owned 62 per cent of the share capital in limited companies, and were dominant in plantation ownership in agriculture (73 per cent) and in mining (75 per cent) (Faaland et al., 1990, p. 85). For the two most lucrative industries—rubber and tin—ownership and control were largely in the hands of British and European businesses, especially British agency houses and a small group of rich Chinese capitalists. In the early part of the 20th century, rubber and tin contributed more than half of the colony’s exports, and taxes on these industries were highly remunerative for the colonial government.

By 1919, Malayan rubber exports and tin production, dependent respectively on Indian and Chinese migrant labour, accounted for over half of the world’s respective totals (Stenson, 1980). Much of Malaya’s tin production came from the Kinta Valley in Perak, the world’s richest tin field (Snodgrass, 1980). The earnings from these two industries were so significant that Malaya was known as the ‘dollar arsenal of the Empire’. In 1925, rubber and tin accounted for 72.1 per cent of Malayan export earnings, and by 1937, 75.6 per cent (Table 1).

Table 1 Share of rubber and tin in Malaya's export earnings, 1912–1937 (%)

Source of data: Fujimoto, 1983, Table 2-1.

Malaya as the world’s largest rubber producer and the Empire’s single largest hard-currency earner, became a vital source of revenue for cash-strapped post–World War II Britain. Most rubber and tin earnings were repatriated to the metropolitan capital for the benefit of British capitalists. For example, in 1951, Malaya earned US$400 million from exports, of which 83 per cent went into the sterling pool in London to cover the balance-of-payments deficit due to post-war reconstruction efforts (Stubbs, 1974, cited in Jomo 1986, p. 147). However, despite this huge contribution to the British balance of payments, colonial public expenditure in Malaya was rarely in the interests of the vast majority of the Malayan population (Jomo, 1986).

Historically, the bulk of tin was mined by Malays from readily accessible surface alluvial deposits. But as demand for tin grew in the early decades of the 19th century, Chinese interests gradually came to dominate the labour-intensive mining industry which was concentrated along the peninsula's west coast states. In 1910, Chinese-owned mines produced 78 per cent of Malaya’s tin (Abraham, 1997, p. 137). However, Europeans, mainly British interests, with their heavy investments in capital-intensive dredging machines, gradually wrested control of tin ore production from Chinese operators who, by the 1930s, owned only one-third of Malaya's mines, with Europeans owning the rest (Purcell, 1965, p. 283). Malay (and Indian) ownership and participation in this industry were negligible. Tin smelting was monopolized by two British firms, the Straits Trading Company and the Eastern Smelting Company, from the late 19th century.

Rubber replaced tin as Malaya’s leading export earner in the second decade of the 20th century (Table 1). In 1913, British interests owned three-fifths of Malaya’s planted area (Butcher, 1979). In 1924, of 1.1 million acres planted with rubber in the Federated Malay States, 55 per cent was on European-owned estates of 100 or more acres, 9 per cent on Asian-owned estates, 9 per cent on

Tin Mining was initially labour-intensive requiring migrant labour
Source: National Archives Malaysia, Accession No. 20010050132

holdings owned by planters of various nationalities, while Malays—principally smallholders—owned on average about 25 acres or less (Butcher, 1979, p. 14). A survey in 1932 found that Europeans owned 296 out of the 308 estates, having 1,000 or more acres each, while the remaining 12 were owned by Chinese (Butcher, 1979, p. 14). This pattern remained largely unchanged until the end of the colonial era (Purcell, 1965).

Land ownership and employment

In the mid-20th century, British business interests owned more than 43 per cent of alienated land in the Malay peninsula, Malays 27 per cent, Chinese and Indians together 23 per cent, and other groups the rest (Abraham, 1997, p. 217). The ownership of land by Chinese and Indians, however, accrued among a select few wealthy capitalists. Even by 1947, just 1.6 per cent of Chinese in Malaya were employers of labour, while the remaining 98 per cent were wage earners, own-account workers, or unpaid family workers (Del Tufo, 1949, p. 533). The same skewed ownership was replicated among Malays, with land belonging mainly to the ruling class.

Employment-wise, the British occupied almost all top positions in the federal government administration as well as having a highly disproportionate share of the professional, managerial, and top posts in modern urban employment. In 1931, only 5 per cent of administrative and professional positions were filled by Malay and non-Malay community groups, while the rest were occupied by Europeans. In contrast, almost no Europeans worked in agriculture or as labourers, where Malays and non-Malays filled virtually all occupations (Hirschman, 1975). Gradually, however, Chinese and Indians moved into the modern urban sectors, while Malays stayed mainly in agriculture, although this community came increasingly to dominate federal and state administrative jobs before the end of the colonial era. The highest administrative positions held by the Malays were by the aristocratic elite who were trained at the Malay College, Kuala Kangsar, Perak, and many Malays were also educated in English-medium schools established and supported by the British administration (Sultan Nazrin Shah, 2019).

Policies perpetuating inequalities

The alienation of land for capitalist production was a primary objective of the colonial administration. Wealth ownership patterns among British and Malay society differed sharply. Colonial policies and legislation indirectly restricted the progress of the bulk of Malay society from venturing into profitable capitalist opportunities and acquiring wealth.

The Federated Malay States Legislative Council passed the Malay Land Reservation Enactment in 1913, which enabled British Residents to declare certain areas suitable for rice cultivation to be owned exclusively by Malays. Although ostensibly designed to prevent Malay smallholders from losing their land to non-Malay community groups, this policy indirectly discouraged Malays from venturing into the more profitable rubber plantation export economy. In addition, laws such as the Rice Land Enactment and the Coconut Palms Preservation Enactment, both of 1917, were intended to encourage Malay rice and coconut cultivation and discourage Malays from changing their land use into smallholder rubber planting, which could yield higher returns (Stenson, 1980; Fujimoto, 1983). The colonial government tried to ensure that they constituted a stable political base and produced a steady supply of cheap rice—minimizing the import of rice and the loss of exchange—of fruit, and of vegetables for the Chinese and Indian labourers essential for the tin and rubber industries (Lim, 1977).

Padi farming, Kedah, 1934
Source: National Archives Malaysia, Accession No 2015/0010641W

Land policy thus discouraged Malays from integrating into the modern Malayan economy and kept the majority in low-income subsistence farming. Those who lived on reservation lands, despite being protected from the encroachment of capitalists, separated themselves from the economic activities of towns and commercial centres. Yet while the system protected them from selling land to non-Malay community groups, poorer Malays seldom benefited from the market economy because of the low returns on padi, and they often lost their land to richer Malay aristocrats to whom they became indebted (Lim, 1985, p. 253).

While providing some limited support to irrigation schemes, the British administration indirectly prevented Malay farmers, mostly concentrated in rice cultivation, from becoming commercially successful. Although rice cultivation was the least productive economic activity, the administration continued to promote it, despite evidence that Malays could be successful in the rubber cash-crop industry, which gave higher returns than padi. British policy on rice, for instance, ‘may be understood as a reflection of the hostility against peasants’ rubber development’ (Lim, 1977, pp. 116–119). The policy of entrenching Malays in a non-lucrative

activity was another major factor impeding their economic modernization. According to Lim, (1977, p. 215), colonial government policies in the 1930s were ‘… designed to ensure that the Malays would not be able to keep pace with the other races’.

Prices of rubber and tin were highly volatile during the colonial era, reflecting changes in supply and demand, and at certain times international agreements were signed to stabilize prices so as to protect these two industries. For example, when the price of rubber collapsed after World War I at a time of rising production, the British administration put in place a restriction scheme—the Stevenson Plan—which led to production and export quotas to limit supply and increase prices. The terms had limited impact on large plantations, however, but seriously harmed rubber smallholders—mainly Malays and to a lesser extent Chinese—because of their limited quota allocations (Barlow et al., 1994).

Access to credit

In the pre-colonial, traditional Malay economy, the need for credit seldom arose as the economy was non-monetized. This changed under the colonial administration as capitalism took hold and money became important for most transactions. British-controlled banks, located in the big cities, loaned money to those with capital, thus excluding rural communities, predominantly Malays. For the rural population, one of the main obstacles to participating in the urban sector was lack of access to credit.

Yet the rural population now needed credit to open up new land, invest in new technology, and to buy agricultural supplies. The reluctance of the colonial administration to help them elevated the role of Chettiars, a group originating from South India, among whom unofficial moneylenders began to charge exorbitant interest rates (Ungku A. Aziz, 1975). Other groups also exploited the peasantry, who borrowed not only from Chettiars, but also bought on credit from (often Chinese) shopkeepers and from well-to-do Malays, also charging inordinate rates. Shopkeepers’ interest rates to Malay padi planters have been estimated at 100–200 per cent a year (Puthucheary, 1960, p. 8).

The Standard Chartered Bank, Kuala Lumpur, 1909

Source: Photo credit to (Ar) Rosli Mohd Ali, PAMHericon, 2003.

When rice yields and prices were low, most of the peasants who had used their land as collateral were forced to transfer that land to the lenders if they were unable to service their loans. In Selangor, in 1909 and 1910, 1,584 holdings totalling 7,567 acres were transferred from Malay to non-Malay community groups (Lim, 1977). In Perak, almost nine-tenths of the land originally held by Malays had been sold to non-Malay community groups (Lim, 1977). So concerned was the British administration with this practice that the governments of the constituent parts of Malaya progressively enacted Malay Land Reservations, following the lead of the Federated Malay States.

Chinese businesses did not, by and large, face such credit challenges, as they could access funds through clan associations and chambers of commerce, established in Malaya after 1906 (Purcell, 1965). These served as networks for their members to gather and exchange information on market conditions, and as sources of capital and credit required to start or expand a business. This approach considerably lowered the cost and risk of business transactions for Chinese entrepreneurs vis-à-vis Malays, giving them a huge advantage for participating in the modern market economy. But the Chinese labouring class were often exploited by mine owners.

Conclusion

Malaya's economic growth during the colonial era overwhelmingly benefited Britain and a very small group of capitalists. The exploitative and extractive nature of colonial economy policy led to huge income and wealth gaps, primarily between the British and a very small group of capitalists from all communities on the one hand, and the bulk of the population of Malaya's three main communities on the other. There were also smaller but significant differences between the Malay and non-Malay community groups, which tended to reflect the colonially imposed division of labour and the geographical disparities in location of industries. Infrastructure—such as the first rail line between Taiping and Port Weld and the first electricity generation plant to facilitate the extraction of gold in Raub, Pahang—was built primarily to extract resources for the benefit of the colonial government, not specifically to improve the lives of the local labouring class. While infrastructure built by the colonialists, as well as many of the institutions that they created, provided solid foundations for post-independence development, it was only after independence that serious efforts were made to improve citizens' well-being, reduce huge inequalities, and ensure that growth benefited all.