Malaysian New Economic Policy - Definition and Overview

The Malaysian New Economic Policy is a controversial economic policy first implemented by the Malaysian government lead by Tun Abdul Razak in 1971. Originally planned to end in 1999, the NEP is currently in its eighth incarnation and is scheduled to run until the year 2010.

History

In the 1960s, Malaysia began its first stage of Import Substitution Industrialization (ISI), which consisted of high tariffs to motivate domestic investment, the underpricing of fuel and utilities to keep production costs down and tax and interest rate breaks to pioneer industries.

In 1970 there was a huge underclass of Bumiputras, whose economic conditions had remained largely unchanged under the ISI. In 1970, the Malaysian Government estimated that Bumiputras held roughly 2.4% of Malaysia's economy, compared to 33% owned by other races and 63% in foreign hands.

Also, in 1969 Malaysia experienced her worse ever racial rioting, the NEP was also perceived as a means of preventing such outbreaks in future. The perception was that the Malays (and not all Bumiputra) had rioted due to poverty and lack of opportunities. The more impoverished Indian community has not rioted.

Goals

The NEP had the stated goal of eradication of poverty 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 ration 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.

Alongside this redistribution of wealth was the goal of increased economic growth, which was mainly in the form of ISI. The government in 1975 created incentives to expand large-scale manufacturing industries and energy-intensive industries. Industries were targeted and policies were built around them. The Heavy Industries Corporation of Malaysia (HICOM) 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.

The aims of the NEP were defined in terms of goals which referred to Bumiputras collectively. For example, a goal of 30% of the national wealth held by Bumiputra was not indicative that the median 60% of Bumiputras held 28% of the netional wealth, but it could also be achieved by just one bumiputra holding 29% of the national wealth and all the rest holding 1% collectively. No assistance for Malaysian Chinese and Indian communities to achieve the 40% goal was ever planned or provided int he actual implementation of the NEP.

Results

As a result of NEP, the wealth in the hands of the bumiputras went from 4% in 1970 to about 20% in 1997. The disparity of wealth in Malaysia no longer disadvantaged the Bumiputra collectively.

Wealth distribution under the NEP remains unequal: in 1997, 70.2 percent of households in the bottom 40 percent income group were Bumiputra, while 62.7 percent of households in the top 20 percent income bracket were non-Bumiputra. In addition, due to the dramatic government intervention, the NEP increased the national debt and economic inefficiencies, causing worry among private sector investors.

The Malaysian Chinese mostly accepted the NEP as a necessary evil for cessation to Malay aggression. Occasional anti-Chinese rioting in Indonesia often drew stark contrast to their situation in Malaysia. Furthermore, the Chinese community generally moved away from the public sector and set up businesses in the private sector where the actual impact of the NEP was one of convenience rather than actual paradigm shift.

Over time, the share of the national wealth owned by the non-Bumiputra races has increased beyond the 40% mark in spite of the policies implemented under the NEP However, this represents an aggregation of the non-Bumiputra population and certain segments of the population live in direst poverty, particularly much of the Malaysian Indian. Certain ethnic groups within the Bumiputra classification such as the orang asli (native people) have also not seen their economic situation improve. Collectively the Indian and Orang Asli form the lowest strata of the population in terms of economic ownership.

Criticisms

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

Many of the policies strive for equality of results than equality of opportunity. For example, when the NEP was implemented, it was announced that one of its goals was to have 30% of all equity in Bumiputra hands. Some have argued that a target of having 30% of Bumiputras trained and certified to run companies would represent a better equality in terms of opportunity.

Although there are issues of wealth distribution and economic inequality, the NEP does not actually have any measures in place which address these. One of the NEP's criticisms is that it no longer helps the poor but instead is an institutionalised system of handouts for the largest ethnic community in Malaysia. The Bumiputra system does not discriminate based on economic class; both well-off and poor Bumiputras are entitled to the same benefits. As such, even well-off Bumiputra who could sacrifice their right to an opportunity in favour of another Bumiputra, have never been known to have done so.

While the NEP may assure that the bumiputras collectively own a certain percentage of the national wealth, it does not ensure that the median economic situation of the Bumiputra is improved in any meaningful sense.

Bumiputras are also accorded large quotas for admission to public universities, which are largely viewed as unfair, although the government began minor remedial steps in 2003. These actions were largely viewed as doing nothing to change the situation, as most Bumiputras could opt to enter a one year matriculation programme less intensive than the two year Sijil Tinggi Pelajaran Malaysia (Malaysian High Certificate of Education, equivalent to the British A-levels). Both programs are technically open to all races but in practice more significantly more Bumiputra make it into the matriculation program, even after normalising for ethnic demographics.

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 Organisation (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 May 13 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."

See also

• Economy of Malaysia
• Discrimination against non-Muslims in Malaysia
• Education in Malaysia.

External links

• TimeAsia's A Working Racial Bias (http://www.time.com/time/asia/2003/mahathir/mahathir900820.html) 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" (http://www.unrisd.org/80256B3C005BCCF9/(httpPublications)/A20E9AD6E5BA919780256B6D0057896B?OpenDocument) presented by Jomo K. Sundaram at UNRISD conference in Durban, South Africa, 3 - 5 September 2001.