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Back | Project: Racism and Public Policy

Abstract of Paper by Jomo K.Sundaram

  • Project from: 2000 to 2001

The Economics and Politics of Affirmative Action: Malaysia's New Economic Policy and 'National Unity'

Malaysia's New Economic Policy (NEP) was first announced in 1970 as the principal policy response to the post-election race riots of May 1969, which also resulted in a significant regime change. This paper suggests that the events of May 1969 also involved a widespread popular rejection of the ruling Alliance coalition as well as a 'palace coup' within the ruling UMNO as the 'Young Turks' supporting then Deputy Prime Minister Razak sidelined Prime Minister Rahman who had led UMNO from 1951 and the country to independence in August 1957. The Rahman regime was seen by the new Razak regime as having been too conciliatory towards the ubiquitous Chinese business community. The new Razak NEP regime was therefore committed to increased ethnic affirmative action or positive discrimination policies on behalf of the ethnic Malays.

The NEP had two prongs, namely 'poverty eradication regardless of race' and 'restructuring society to eliminate the identification of race with economic function'. The NEP was supposed to create the conditions for national unity by reducing inter-ethnic resentment due to socio-economic disparities. In practice, the NEP policies were seen as pro-Bumiputera (indigene), or more specifically, pro-Malay, referring to the largest indigenous ethnic community. Poverty reduction efforts have been seen as primarily rural and Malay, with policies principally oriented to the rural Malay (peasants). As poverty reduction efforts had been uncontroversial and had declined in significance over time, the NEP came to be increasingly identified with 'restructuring society' efforts to reduce inter-ethnic disparities, especially between ethnic Malay and ethnic Chinese Malaysians.

The NEP has been associated with the first Outline Perspective Plan (OPP) for 1971-90. The OPP sought to reduce poverty from 49% in Peninsular Malaysia in 1970 to 16% in 1990. The actual poverty rate in the peninsular in 1990 was 17%, while the national rate was slightly higher. The NEP's main restructuring target was to raise the Bumiputra share of corporate stock ownership from 1.5% in 1969 to 30% in 1990. The government's data suggest that Bumiputra ownership rose to about 18% in 1990 and slightly over 20% in 2000. Although the government originally envisaged that much of the Bumiputra corporate wealth would be held by trust agencies, private individual Bumiputra ownership has risen from less than a third to over 90%. Much of the measurement of NEP achievement has been subjected to dispute. This has been exacerbated by the lack of transparency on socio-economic data deemed sensitive.

The NEP has since ostensibly been replaced by the National Development Policy associated with the Second Outline Perspective Plan (OPP2) for 1991-2000, and then by the National Vision Policy linked to the Third Outline Perspective Plan (OPP3) for 2001-2010. Although the new policies have put far greater emphasis on achieving rapid growth, industrialization and structural change, there is the widespread perception that public policy is still primarily influenced by the NEP's restructuring of society policies.

These policies are believed to be especially important in terms of affecting public policies affecting corporate wealth ownership as well as other areas, notably education and employment opportunities. In other words, ethnic discrimination primarily involves the business community and the middle class, where inter-ethnic tension is most acute. Inter-ethnic business coalitions have become increasingly important over time, often with the ethnic Malay partner securing rents for gaining access to government determined business opportunities, and the ethnic Chinese partner with business acumen getting the job done. Such 'Ali Baba' arrangements have generated considerable resentment, especially among those denied access to such business opportunities.

With privatization opportunities from the mid-1980s largely decided on a discretionary basis by the government leadership, there has been growing resentment and criticism of 'rent-seeking' and 'cronyism'. Such disbursement of privatization opportunities also strengthened the leadership's means for patronage, in turn encouraging competition for party and government political office and upward mobility. The selective nature of the 'bail-out' processes and procedures following the 1997-8 currency, financial and economic crises have strengthened rather than undermined these tendencies.

While there is little doubt that specific socio-economic targets of the NEP have been largely achieved, later rather than sooner, it is not clear that such achievement has led to national unity, understood in terms of improved inter-ethnic relations. Associating improved inter-ethnic relations almost exclusively with reduced inter-ethnic disparities among the respective business communities and middle classes has in fact generated greater ethnic resentment and suspicion on both sides. Ethnic affirmative action policies as implemented and enforced in Malaysia have associated the interests of entire ethnic groups with their respective elites, thus generalizing resentments associated with inter-ethnic, intra-class competition. Thus, it is unlikely that the ethnic affirmative action means will achieve the end of improved inter-ethnic relations. An alternative approach needs to be found to create more lasting conditions for improved inter-ethnic relations.