Southeast Asia's Mercantile Microcosm

Penang: This island at the junction of the Andaman sea and the strait of Malacca is the living embodiment of a region united by water and trade. A smallish city and a province of Malaysia, it is a microcosm of an Asian inter-connectivity two millennia old. Its prosperity has lessons for a whole region seeking to keep growing through specialization, trade, the interchange of peoples - and ethnic and religious tolerance.

Penang's success as manufacturing center, tourist destination and multi-racial regional hub is nothing new, but it has been given added impetus in recent years by a state government which reflects its outward-looking history and multiracial present—roughly 40 percent ethnic Chinese, 40 percent ethnic Malay 10 percent ethnic Indian and the rest a mix of “others” and foreigners.

The city's characteristics augur well for a region where national boundaries have long been fluid and economic links have often taken precedence over dictates from capital cities and authoritarian rulers.

The commitment to openness here as in other trading cities underpins the success of ASEAN in creating a framework for a regional market to which China and, hopefully, India may be joined.

Modern Penang was a relatively recent - 1776 - creation of British mercantile imperialism, one of a chain of port cities running from Madras/Chennai to Rangoon, Penang, Malacca to Singapore and Hong Kong, the last three open to traders and merchant settlers from anywhere.

In between lay the ports of Jakarta, Bangkok, Saigon and Manila. Beyond lay southern coastal China, Xiamen in particular, at once part of China but forced by its own geography between the sea and the mountains to look to trade and, Nanyang, the south sea to which many poor Chinese migrated in search of a better life.

But Penang is also just one of the later examples of a modest port city acting as a key link.

There is a long tradition multiple small trading centers joining the Malay island world to the Asian mainland, acting as a bridge between India and China, pioneering trade west across the Bay of Bengal and southeast to the spice islands of eastern Indonesia.

Penang was once part of Kedah, a Malay speaking but Hindu kingdom which was a major entry point for Indian culture as well as a center for trading to island Southeast Asia and China. Not far to the north lie Phuket and a series of now forgotten Andaman ports from which trade went by river and land to the Gulf of Thailand and hence to the Mekong delta and to China and westward to Tamil ports and from there to Arabia and Rome.

Just to the west of Penang lies Aceh, entry point for Islam from India and a main base for the Hadhramauti (Yemeni) merchants who played a huge role in regional trade before the arrival of steamships. To the south lie Malacca, Singapore, then Palembang, for long island Southeast Asia's major trading hub and capital of Sri Vijaya, an empire of seafarers and merchants whose writ probably ran as far east as Butuan in northeastern Mindanao, a port which was trading with India 1,000 years ago.

These cities were not parts of large centralized states with armies and bureaucracies but lived well from specialized production and exchange of goods and people, by smuggling if necessary. Cities with an open attitude to trade thrived in the face of official bans and monopolies - Penang from untaxed tin, Saigon from exporting rice, every city benefitting from Fujian merchants moving to wherever there was trade and a Chinese community.

Today the Chinese communities are those most identified with trade, whether in Penang or Southeast Asia. But it was not always thus. Indeed India has a much older trading tradition with this region and, until well after the arrival of the Europeans, Malays (of whatever religion) provided most of the shipbuilding, navigation and seafaring skills that made trade possible.

Today the sea has lost some of its influence to faster land transport and aviation. But the same principles apply to making a place attractive to commerce - low and stable taxes, religious tolerance, multilingual societies. The likes of Motorola and Intel went to Penang for its attitudes and policies, not its geography or seaport.

Often these attributes can best be found in small states, and in regions where central governments are relatively weak as has mostly been the case in along the shores not only of the South China sea - a predominantly Malay sea - the Malacca straits, the Andaman sea and across to the Coromandel coast of India, home of the Tamil traders who took Hindu culture to all of southeast Asia. And so it is today with Penang, a state which can get along with the limited autonomy provided by Malaysia's federal structure.

It helps that Penang now has a state government known for not tolerating corruption, addressing pollution and waste management and running a budget surplus. It helps not to have one race being dominant. It helps that its old centre, George Town, with its Chinese shop houses, temples, mosques and colonial buildings is a World Heritage site.

It helps to have a tradition of good food. It probably helps to have as Chief Minister, Lim Guan Eng, who leads the federal opposition party the Democratic Action Party. Penang may be starved of federal support as a result, but the opposition is keen to show that it can set an example of clean, efficient government.

Underlying Penang is the reality that trading cities cannot thrive when government corruption is rampant or ethnic tensions are deliberately stirred. By the same token, Penang's interests help keep Malaysia on a more open and moderate path than might otherwise be the case.

Quasi autonomous trading states have long been part of the fabric of southeast Asia and remain central to the pre-eminence of trade over political and ethnic differences. The region's trading tradition, free flows of money, and old established business links with the outside world have given substance to Asean trade agreements. They have provided China with entrée to the region and could do the same for India again.

But more importantly they bind a region which is neither an extension of China or India but one united by the sea, by trade, and by the need to accept diversity. Penang is far from the geographical centre of southeast Asia, but it embodies its spirit.