INTRODUCTION

Penang, like many other small, land- and resource-poor territories, has had to survive by being externally-oriented. For much of the past two centuries, its growth model has been outward-looking, fluctuating between catering for regional markets and acting as a conduit between Malaysia and global markets. And, since 1826, as a constituent unit of a larger entity – be it the Straits Settlements or Federation of Malaysia – it has always had to weigh up collective and individual needs.

A good reading of developments on these two planes has always been imperative for formulating strategies for Penang to best position itself. To this end, this chapter will provide an overview of the regional and national context. Of particular relevance are the large-scale and far-reaching structural changes taking place as the global economy shifts towards Asia – which conveys opportunities and threats. Of equal importance is the policy framework being put into place at the national level – which may map imperfectly onto Penang's localized attributes and strengths.

This chapter is comprised of four sections. The first asks what is happening in Asia economically and what implications this has for Penang. The second explores what is happening at the policy level in Malaysia in response to this. The third section assesses what this implies for a constituent state such as Penang in a relatively centralized federal system. The fourth and final section summarizes this chapter's main arguments.

GLOBAL ECONOMIC TRENDS: THE SHIFT TO ASIA AND ITS IMPLICATIONS FOR PENANG

As economies, consumer tastes, and production networks the world over become more sophisticated, levels of competition are rising. This shift has been classified by some as a shift from the production or ‘P’ Economy to the knowledge or ‘K’ Economy, where successful competition is based on the acquisition and use of knowledge, as opposed to the undifferentiated physical production of goods and services (Machlup, 1962).