Malaysian New Economic Policy

 

For the Soviet New Economic Policy, see New Economic Policy.

The Malaysian New Economic Policy (NEP or DEB for Dasar Ekonomi Baru in Malay) was an ambitious and controversial socio-economic restructuring affirmative action program launched by the Malaysian government in 1971 under then Prime Minister Tun Abdul Razak. The NEP ended in 1990, and was succeeded by the National Development Policy in 1991. Although the NEP was hailed in some quarters as having reduced the socioeconomic disparity between the Chinese minority and Malay majority, others accused it of having reduced non-Malays to the status of second-class citizens by cementing ketuanan Melayu (Malay supremacy). The NEP is often invoked as part of the Malay Agenda, which is in turn part of the Malaysian social contract granting Malays special rights in return for citizenship for non-Malays.

The NEP's success is a subject of heated debate. The NEP targeted a 30% share of the economy for the Bumiputra, but according to official government statistics, the NEP did not succeed in reaching this target. Although the policy ended officially in 1990, Malaysians often refer to the NEP in the present tense because many of the tangible economic benefits it offered the Bumiputra are ongoing. In 2005, some politicians from the United Malays National Organisation (UMNO), the leading political party of the governing Barisan Nasional coalition, called for the restoration of the NEP as part of the New National Agenda (NNA).

History

During British colonial rule, Malays were given certain privileges over their non-Malay counterparts, such as quotas for public scholarships and employment in the civil service. When the Federation of Malaya (West Malaysia) declared independence in 1957, its Constitution contained a provision called Article 153 that provided special rights for the Malays. The Reid Commission, which had drafted the Constitution, stated that "in due course the present preferences should be reduced and should ultimately cease." When Malaya merged with Singapore, Sabah, and Sarawak in 1963 to form the Federation of Malaysia, the new Constitution retained Article 153, and the definition of Bumiputra was expanded to include all the indigenous tribes of Sabah and Sarawak in East Malaysia. Due to increasingly strained relations between the federal and state governments, and a dispute over the special rights of Malays, Singapore separated from the Federation in 1965. ^[1]

The Reid Commission specified that the intent of Article 153 was to address the imbalance between the Chinese and Malays in terms of economic equity. In the period following Malaysian independence, however, the Bumiputra share of the economy did not substantially increase; as late as 1970, it was estimated that Bumiputras held only 2.4% of the economy, with the rest in Chinese and foreign hands. ^[2] Friction between the Malay and Chinese communities grew, reaching its peak in 1969 during the May 13 race riots.

NEP Launch

In the wake of the riots, the government declared a state of national emergency, and Parliament was suspended. The government formed a National Operations Council (NOC), led by Tun Abdul Razak. The implementation of the NEP was one of the NOC's first decisions, and the plan had the stated goal of "eventually eradicat[ing] poverty...irrespective of race" through a "rapidly expanding economy", which would reduce the non-Malay share of the economy in relative terms, while increasing it in absolute terms. The net "losses" of the non-Malays would go to the Malays, who held just 1.5% of the economy at the time of the May 13 riots. In 1971, Parliament reconvened, and Tun Abdul Razak officially became Prime Minister. That same year, Tun Razak also announced the NEP, as well as some controversial amendments to the Sedition Act that prohibited discussion of repealing certain articles of the Constitution, including Article 153, even in the Houses of Parliament. The amendments passed, and remain in effect as of 2006. ^[3]

Goals

The NEP had the stated goal of poverty eradication and economic restructuring so as to eliminate the identification of ethnicity with economic function. The initial target was to move the ratio of economic ownership in Malaysia from a 2.4:33:63 ratio of Bumiputra, Other Malaysian, Foreigner ownership to a 30:40:30 ration. This was to be done by redistributing the wealth to increase the ownership of enterprise by Bumiputras from the then 2.4% to 30% of the share of national wealth. The 30% target for Bumiputra equity was proposed by Ismail Abdul Rahman after the government was unable to come to a consensus on an appropriate policy goal.^[4]

Alongside this redistribution of wealth was the goal of increased economic growth, which was mainly in the form of ISI. This economic growth would allow the non-Bumiputra share of the economy to decrease, while permitting the growth of non-Bumiputra business interests in absolute terms. In some quarters, this was referred to as "expanding pie theory": the Bumiputra share of the pie would increase, without reducing the size of the non-Bumiputra slices of the pie. This theory was first enunciated in the Second Malaysia Plan. ^[5]

In 1975 the government created incentives to expand large-scale manufacturing industries and energy-intensive industries, targeting these industries and building policies around them. The Heavy Industries Corporation of Malaysia (HICOM), for example, was formed in order to assist in the manufacture of pig-iron, aluminium die casting, pulp and paper, steel, cement, motorcycle and heavy engineering. At the same time, export incentives were initiated.

Implementation

The abstract policies and goals of the NEP were implemented by the Second, Third, Fourth and Fifth Malaysia Plans.

Some specific requirements were introduced to achieve the 30% Bumiputra equity target set by the NEP. Amongst these was a requirement that all initial public offerings (IPOs) set aside a 30% share for Bumiputra investors. These investors could be selected by the company being listed on the stock exchange, or the Ministry of International Trade and Industry, which would normally recommend such state-owned trust agencies as Permodalan Nasional or the Armed Forces pension fund. These shares were initially heavily discounted, as IPO prices were often significantly lower than prices after the listing had taken place. However, this advantage has disappeared in recent years. Nevertheless, this regulation has been criticised, especially as the 30% target continues to apply after the IPO has occurred; if the Bumiputra investors divest their shares, the company must issue new shares to maintain the proportion of Bumiputra shares above 30%.^[6]

Results

Wealth in the hands of the bumiputras went from 4% in 1970 to about 20% in 1997. The overall wealth of the country as a whole also grew; per capita GNP went from RM1,142 in 1970 to RM12,102 in 1997. During the same period, absolute poverty in the population as a whole dropped from 50% to 6.8%.^[7] It is unclear what role the NEP played in these changes.

NEP Benchmarks	1970	1990	2004
Bumiputra equity	2.4% (RM477m)	19.3% (RM20.9b)	18.7% (RM73.2b)
Overall poverty	52%	17.1%	5%
Rural poverty	59%	21.8%	11%
Household income	RM660	RM1,254	RM2,996

The effects of the NEP on wealth distribution are disputed. The Gini index declined from 51.3 in 1970 to 44.6 in 1997, and 1987 figures indicated the mean income of the Malays had improved relative to both the Chinese and Indian communities.^[7] However, some have used 1997 statistics with 70.2 percent of households in the bottom 40 percent income group as Bumiputra, and 62.7 percent of households in the top 20 percent income bracket as non-Bumiputra, to argue that inequities remain.^{[citation needed]} The Gini index also began to increase in the 1990s, going from 44.6 to 46.4 between 1990 and 1995; meanwhile, 1997 figures indicated that Chinese incomes were increasing at a rate double that of Malays'. Intra-ethnic income differences also increased markedly, especially among Malays.^[8] In addition, due to the dramatic government intervention, the NEP increased the national debt and economic inefficiencies.^{[citation needed]}

Bumiputra participation in the professions and private sector increased as well, although Bumiputras remain somewhat under-represented. Between 1970 and 1990, the Bumiputra share of accountants doubled from 7 to 14 per cent, engineers from 7 to 35 per cent, doctors from 4 per cent to 28 per cent, and architects from 4 to 24 per cent. The Bumiputra portion of the share market — a figure frequently cited as "a measurement of overall community wealth", despite claims that it was misleading — increased from 2 to 20 per cent over the same period according to one academic's measurements. The Chinese share also increased from 37 to 46 per cent, at the expense of foreign participation. Official Kuala Lumpur Stock Exchange figures from 1998 were even more optimistic, indicating Bumiputra share ownership stood at 28.6% in 1990 and 36.7% in 1996.^[7][9]

The Chinese community in Malaysia accepted the NEP as a necessary evil for cessation to Malay aggression. Furthermore, the Chinese community generally moved away from the public sector and set up businesses in the private sector, where the impact of the NEP was less pronounced ^{[citation needed]}.

In spite of the policies implemented under the NEP, the share of the national wealth owned by the non-Bumiputra races increased beyond the 40% mark. This figure, however, does not reflect that certain segments of the non-bumiputra population live in dire poverty. The Malaysian Indian and Orang Asli in particular form the lowest strata of the population in terms of economic ownership. The Orang Asli of Peninsular Malaysia are not considered Bumiputra under the Federal Constitution despite their indigenous status (see Bumiputra for further information).

Reimplementation

Officially the term of the NEP ended in 1990. However, much of it remained in effect through other governmental policies; the New Straits Times reported that this was because as of 2007, "the government believes the aim of having 30 per cent Bumiputera equity has yet to be achieved".^[10] In 2006, it was reported that the NEP would be reinstated under the Ninth Malaysia Plan, the ninth in a series of five-year economic plans. Originally, the NEP was replaced by the National Development Policy (NDP), which ran from 1990 to 2000. The NDP was supposed to have then been replaced by the National Vision Policy (NVP), which would reportedly have lessened the aggressive affirmative action of the NEP and NDP. However, UMNO later called for the NEP to be reinstated.^[11]

Criticism

In recent years, the NEP has come under attack as being an inefficient system that promotes a laid-back attitude among the Bumiputras. Several policies of the NEP which give economic advantage to the Bumiputras, such as Bumiputra quotas in ownership of public company stock, and housing being sold exclusively to Bumiputras, are viewed as discriminatory.

Many of the NEP policies strive for equality of results rather than equality of opportunity, with NEP proponents justifying the concentration on results rather than opportunity as by pointing out that measuring equality of opportunity is difficult or impossible. When the NEP was implemented, for example, it was announced that one of its goals was to have 30% of all equity in Bumiputra hands.

NEP critics have argued that setting a target of 30% of Bumiputras trained and certified to run companies would represent a better equality in terms of opportunity. Still others suggest this target may not work as training and certification does not necessarily guarantee equality of opportunity. Tun Abdul Razak's predecessor as Prime Minister, Tunku Abdul Rahman, also opposed the 30% target, writing in the 1980s that "[a]n attempt was made to fill the target without thought for the ability and the capability of attaining it. ... Some became rich overnight while others became despicable Ali Babas and the country suffered economic set-backs". ^[12]

The NEP is also criticised for not dealing directly with issues of wealth distribution and economic inequality; that it no longer helps the poor but is instead an institutionalized system of handouts for the largest ethnic community in Malaysia as the NEP does not discriminate based on economic class. Bumiputras of high and low economic standing are entitled to the same benefits. The statistical problems of categorising wealthy and disadvantaged Bumiputras in one group also meant that the NEP's goal of having 30% of the national wealth held by Bumiputras was not indicative of a median 60% of Bumiputras holding 28% of the national wealth, but could theoretically translate into one Bumiputra holding 29% of the national wealth, with the remaining Bumiputras sharing 1%. Some have alleged that because of this imbalance, some Malays such as those in Penang remain economically marginalised. Criticisms also arose from the fact that there was no planned assistance for Malaysian Chinese and Indian communities to achieve their 40% goal during the actual implementation of the NEP.

Education

The education policy of the NEP is one of the plan's more controversial points.

Bumiputras were accorded quotas for admission to public universities until 2002. These quotas were fixed, however, and in later years meant that the Bumiputra were allotted a significantly lower percentage of places originally intended, as the population figures used to calculate the quotas were based on 1970s numbers. Despite this, the quotas were still considered by many non-Bumiputra as unfairly rewarding the Bumiputra. The government removed these quotas in 2003.

The removal of the quotas has done little to remedy the perceptions of Bumiputra bias in the public tertiary education system. Most Bumiputras opt to enter a one year matriculation programme, which is considered by some to be less intensive than the two year Sijil Tinggi Pelajaran Malaysia (STPM) or Malaysian High Certificate of Education, which is equivalent to the British A-levels). Although the 'grade' standards required for admission are the same for both programmes, there is no moderation to ensure the difficulty of achieving a grade standard is the same between both programmes. The Malaysian High Certificate of Education is open to all races, but the Matriculation programme has a 10% quota for non-bumiputras. In practice significantly more Bumiputra enter the matriculation program, even after normalizing for ethnic demographics.

These differences predate the removal of hard quotas. The difference in academic routes in fact begins in secondary school. Many Bumiputra enter public boarding secondary schools (sekolah asrama) whereas most non-Bumiputra remain in normal public secondary schools. The exams taken are the same until form 5 but then most Bumiputra go on to matriculation, whereas non-Bumiputra do STPM. However, even Bumiputra who remain in 'normal' secondary schools usually do matriculation instead of STPM. The lack of public transparency in grading of the papers contributed to this criticism.

The removal of quotas was largely reported to have resulted in an increase in the percentage of Bumiputra entering public universities. The perceived bias towards Bumiputras has meant that non-Bumiputra who can afford to do so choose to enter private colleges or to go overseas to further their education. There is a significant proportion of non-Bumiputra who do not enter into contention for admission to public universities.

Critics argue that this policy of the NEP has also contributed to a brain drain. Others suggest that the NEP has contributed to racial polarisation and a feeling of marginalisation among the non-Malays.^[13]

Changing mindsets

Some Bumiputras have spoken of reducing or eliminating the NEP; for example, Datuk Seri Abdullah Ahmad Badawi, Prime Minister of Malaysia, in his maiden speech as United Malays National Organization (UMNO) president to the UMNO general assembly in 2004 stated "Let's not use the crutches for support all the time, the knee will become weak". Badawi went on to state that continued usage of crutches would eventually result in needing a wheelchair instead. As of October 2004, Badawi has not addressed any significant concerns about the NEP.

Not all Bumiputra political leaders shared Badawi's views. For example, Badruddin Amiruldin, who was elected as UMNO's Deputy Permanent Chairman, waved a book about the 13 May incident at the assembly during his speech while declaring, "No other race has the right to question our privileges, our religion and our leader", continuing that any such action would be akin to "stirring up a hornet's nest". The following day, Dr. Pirdaus Ismail, an UMNO Youth Executive Committee member, stated, "Badruddin did not pose the question to all Chinese in the country. Those who are with us, who hold the same understanding as we do, were not our target. In defending Malay rights, we direct our voice at those who question them."

Because of the controversy over affirmative action policies in Malaysia, especially the NEP, it has been feared that the NEP may indirectly contribute to a decrease in foreign investment. In 2005, foreign investment fell by USD4 billion, or 14% — a decrease some commentators attributed to the controversy over the government's ethnic policies.^[14]

Equity calculation

The calculation of Bumiputra-held economic equity has been frequently disputed, with a number of allegations from some quarters that the government intentionally underestimated the share of Bumiputra equity to justify the NEP and its related policies. Although many affirmative action measures of the NEP were continued under the National Development Policy which ran from 1990 to 2000, and later by the National Vision Policy set to run from 2000 to 2010 — leading many Malaysians to refer to the NEP in the present tense — the official Bumiputra equity share remained less than the original 30% target.^[15]

In 2006, a major dispute arose when the Asian Strategic and Leadership Institute (ASLI) issued a report calculating Bumiputra-held equity at 45% — a stark difference from the official figure of 18.9%. The report's publication triggered a relatively vocal public debate about the status of the NEP and its related policies, with many from UMNO questioning the methodology used by ASLI. One strongly disputed issue was ASLI's decision to consider government-linked companies (GLCs) as Bumiputra-owned, inflating the calculated figure of Bumiputra equity. Although ASLI later withdrew the report, citing unspecified errors in its methodology, the debate did not die down. One political analyst suggested that "If Bumiputra equity is 45 per cent, then surely the next question is, why the need for Bumiputera rights? It has implications for government policy and it (removing indigenous rights) is one thing UMNO will never accept at present." Others have argued that the debate over inter-ethnic disparities has obscured intra-ethnic inequities, citing the increased Gini coefficient for Bumiputras (from 0.433 in 1999 to 0.452 in 2004), Chinese (0.434 to 0.446) and Indians (0.413 to 0.425).^[15]

A major point of dispute was the government's use of par value (as opposed to market value) of shares to calculate the equity held by Bumiputras. Many questioned the ASLI study on the basis that it had not used par value; conversely, others criticise the government for not using market value[1][2]. On another note, some critics later noted that a 1997 University of Malaya study had calculated the Bumiputra share of equity to stand at 33.7%, using par value.^[16]

At the UMNO General Assembly that year, Education Minister and UMNO Youth Chief Hishamuddin Hussein quoted a local study indicating that at current rates, it would take the Malays "120 years to achieve income parity". He also cited a 2004 statistic indicating that for every RM1 earned by a Malay, a Chinese earned RM1.64 as evidence that the income gap had not been eliminated. The Deputy Youth Chief, Khairy Jamaluddin, proposed increasing the target "quota" if non-Malays continued to allege that the 30% target had been met, as "By any yardstick, the Malays are still left behind".^[17]

See also

• Bumiputra
• Economy of Malaysia
• Ketuanan Melayu
• Pribumi

Notes and references

1. ^ Ooi, Jeff (2005). "Social Contract: 'Utusan got the context wrong'". Retrieved 11 November 2005.
2. ^ Ho, Andy (Aug. 6, 2005). "Reviving NEP, Umno's race card, again?". Straits Times.
3. ^ Means, Gordon P. (1991). Malaysian Politics: The Second Generation, pp. 8, 14, 15, 23–27, Oxford University Press. ISBN 0-19-588988-6.
4. ^ "Snag in policy implementation", pp. 8–9. (Dec. 31, 2006). New Straits Times.
5. ^ Long, Atan & Ali, S. Husin (ed., 1984). "Persekolahan untuk Perpaduan atau Perpecahan?", p. 281. Ethnicity, Class and Development Malaysia. Persatuan Sains Sosial Malaysia. No ISBN available.
6. ^ Jayasankaran, S. (Dec. 25, 2006). Time to scrap equity requirements. The Business Times.
7. ^ ^{a b c} Funston, John (2001). "Malaysia: Developmental State Challenged". In Government and Politics in Southeast Asia, p. 193. Singapore: Institute of Southeast Asian Studies. ISBN 1-84277-105-1.
8. ^ Funston, John (2001). "Malaysia: Developmental State Challenged". In Government and Politics in Southeast Asia, p. 194.
9. ^ Funston, John (2001). "Malaysia: Developmental State Challenged". In Government and Politics in Southeast Asia, p. 201.
10. ^ "'Get away from subsidy mentality'", New Straits Times, 2007-09-06. 
11. ^ Bose, Romen (Nov. 17, 2006). Racial tensions on rise in Malaysia. Al Jazeera.
12. ^ Putra, Tunku Abdul Rahman (1986). Political Awakening, p. 98. Pelanduk Publications. ISBN 967-978-136-4.
13. ^ Goh, Melissa (Nov. 21, 2006). Educationists in Malaysia concerned that NEP may cause race polarisation. Malaysia Today.
14. ^ Burton, John (Nov. 22, 2006). Ethnic policy blunts Malaysia. Malaysia Today.
15. ^ ^{a b} Ahmad, Abdul Razak & Chow, Kum Hor (Oct. 22, 2006). "The nation's economic pie in perspective", pp. 20–21. New Sunday Times.
16. ^ Beh, Lih Yi (Nov. 1, 2006). Bumi equity hit NEP target 10 years ago. Malaysiakini.
17. ^ Hong, Carolyn (Nov. 15, 2006). Stop debate on race and religion: Umno Youth. Straits Times.

Other references

• Bennet, Abang (Oct. 30, 2005). " UMNO: A threat to national prosperity". Malaysia Today.
• Goh, Cheng Teik (1994). Malaysia: Beyond Communal Politics. Pelanduk Publications. ISBN 967-978-475-4.
• Musa, M. Bakri (1999). The Malay Dilemma Revisited. Merantau Publishers. ISBN 1-58348-367-5.
• Ye, Lin-Sheng (2003). The Chinese Dilemma. East West Publishing. ISBN 0-9751646-1-9.

External links

• TimeAsia's A Working Racial Bias published on 20 August 1990, asking about NEP For years, the rules favored Malays. Should they continue?
• Malaysia's New Economic Policy and "National Unity" presented by Jomo K. Sundaram at UNRISD conference in Durban, South Africa, 3 - 5 September 2001.

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