THE ROLE OF THE NEW ECONOMIC POLICY (NEP) IN BUILDING A UNITED MALAYSIAN NATION IN DIVERSITY

As a precursor to the upcoming KPMM 2008 – DEB: Dari Perspektif Pembinaan Negara Bangsa, this article by eminent developmental economist Dr. Rais Saniman, who was instrumental in the formulation of the New Economic Policy in 1970, is produced here with permission:

FIFTY YEARS OF MERDEKA :

THE ROLE OF THE NEW ECONOMIC POLICY (NEP) IN BUILDING A UNITED MALAYSIAN NATION IN DIVERSITY

 

By : Mohamed Rais bin Saniman

 

Introduction :

 

As Malaysia celebrates its 50th Merdeka anniversary this year with joy and thanks giving, across the land from Perlis to Sabah, including sending its first Cosmonaut into space, it is also a time for all of us responsible Malaysians, who wish the country and its people well into the future, to take stock of our history, namely to assess what went right and what went wrong in the past decades. We must learn from our history, so that we could map out our future development, utilizing the strengths of our successes and also avoiding the weakness of our past mistakes. This article attempts to asses the socioeconomic contribution of the New Economic Policy (NEP or DEB in Bahasa) towards building a united Malaysian nation in diversity since its introduction in 1970 and its evolution over the decades. It also attempts to assess its relevance in the future socioeconomic development of this country. This is the Unfinished Business of Malaysia which it sets out to accomplish since Merdeka. Indeed it forms the basis of its national drive particularly the spirit of the Angkatan Bangsa Melayu.

 

The article is divided into the following sections, which we will elaborate in turn :

 

  1. The Origin of Malaysia’s New Economic Policy (NEP)
  2. The NEP in Summary
  3. Some Instruments of the NEP
  4. NEP Debate and Decision
  5. The Outcome : Economic Growth and Ethnic Disparity
  6. The NEP Today
  7. The Relevance of the NEP type of policy in the future
  8. Conclusion

 

* The writer wishes to thank his mentor, teacher and friend Tan Sri Just Faaland, of the Chr. Michelsen Institute, Bergen, Norway, for allowing him to use part of his paper on the NEP, which he presented to the international symposium on the NEP organized by the Central Bank of Namibia in September 2007. The African countries, most of which are facing problems similar to those faced by Malaysia, are keen to learn from the Malaysian experience of implementing the NEP, to achieve maximum economic growth with ethnic economic balance simultaneously. Tan Sri Faaland, who was the Economic Adviser to Tun Abdul Razak, at the time of the 1969 racial riot, devised the NEP which became the basic underpinning of the Malaysian economic system since 1970. He is currently one of the Economic Adviser to YAB Dato Abdullah.

 

A. The Origin of Malaysia’s New Economic Policy (NEP)

 

What came to be called the New Economic Policy (NEP) in Malaysia was initiated and developed in response to massive economic disparities along ethnic lines. Fifty years ago, in 1957 when Malaya achieved its independence from British colonial rule, it had a population of 7 million; nearly every other resident was a resent Chinese or Indian immigrant stock. Today, in the large Malaysia-which since 1963 includes also the two North Borneo States of Sabah and Sarawak-there are some 25 million citizens; one in three being Chinese and Indian Malaysians and two of three are Malays or members of other indigenous groups of peoples, collectively referred to as Bumiputera (sons of the soil).

The economy of Malaya at Independence was deeply segregated as between ethnic groups: in geographic location, in types of economic activity and in levels of livelihood. As compared with the non-Bumiputera :

 

  • Malays form a much higher proportion of population in rural areas than in towns;
  • Malays populate the relatively poorer States and occupations to a higher degree;
  • Malays form a higher proportion of the workforce in low productivity traditional agriculture and a lower proportion of the workforce in high productivity modern industry and commerce;
  • Within given industries and enterprises Malays typically hold lower-echelon position;
  • Malays have property rights over only about one-third of land under agricultural cultivation;
  • Malays have a significantly lower share of ownership, control and management of industrial and commercial enterprise and, as a result, less control of their own economic destiny;
  • The average Malay has a much lower standard of living.

 

These disparities persist today and remain major issues for policy debate and formulation.

 In May 1969, following general elections that year, the tenuous social balance between ethnic groups broke down into vicious rioting. This was quickly and effectively met by the declaration of a state of emergency, vesting all power in a National Operations Council (NOC), headed by the then Deputy Prime Minister Tun Abdul Razak. Civil order was quickly restored and the NOC spent the next year and a half laying the political and institutional basis for what they saw as a viable and prosperous multi ethnic Malaysia of the future. The NEP was borne and presented in the Second Malaysia Plan (SMP), issued in early 1971, when the country returned to Parliamentary rule. The NEP was further elaborated in the Mid Term Review of SMP in 1973.

 The socio-political conviction on which the NEP was based was clear :

 “National Unity is unattainable without greater equity and balance among Malaysia’s social and ethnic groups in their participation in the development of the country and in the sharing of the benefits from modernization and economic growth. National Unity cannot be fostered if vast sections of the population remain poor and if sufficient productive employment opportunities are not created for the expanding labour force” (SMP, pp.3-4).

 The basic formula for an effective NEP was set out in no uncertain terms and the political commitment to its implementation were emphatic :

 “(The NEP) incorporates the two pronged objective of eradicating poverty, irrespective of race and restructuring Malaysia society to reduce and eventually eliminate the identification of race with economic functions…(The Government) will spare no efforts to promote national unity and develop a just and progressive Malaysian society in a rapidly expanding economy so that no one will experience any loose or fell any sense of deprivation of his rights, privileges, income, job and opportunity… To achieve our overall objective of national unity, Malaysia needs more than merely a high rate of economic growth. While devoting our efforts to the task of achieving rapid economic development, we need to ensure at the same time that there is social justice, equitable sharing of income growth and increasing opportunities for employment… The Plan must succeed as it is vital to our survival as a happy and united nation” (SMP, p.v).

  

B. The NEP in Summary

The NEP was designed to enable the Bumiputra community to enjoy the fruits of development on par with the other ethnic groups, who were then and still remain economically far more advanced. This was to be achieved through a process of growth and modernization so directed as to bring about gradual restructuring of employment and production patterns in all sectors and at all levels, so as to be in rough accord with ethnic population ratios.

The NEP is not a policy purposely to discriminate against non-Bumiputra ethnic communities or withdraw from them the levels of income and wealth they have already gained; on the contrary, it seeks to ensure that increments in the nation’s wealth and income redound more fully to the Bumiputra and not disproportionately to the minority. To achieve this, the Bumiputra must eventually participate on an equal footing in the modern high productivity sectors. The NEP therefore places emphasis on advancing economic productivity of the Bumiputra, on education and training, on the adoption and spread of modern technology, on market efficiency and competition in a largely private sector regime, and on a business friendly government. The NEP, therefore, is firmly a policy for sustained growth with emphasis on a gradual change in distribution as between ethnic groups, and at the same time a transformation of social institutions and attitudinal change. In other words, economic development is indeed important. Yet, growth alone, no matter how rapid it may be, is not enough. Distribution must be a parallel or twin objective of equal importance.

The twin objectives of NEP are the eradication of poverty for all Malaysians irrespective of race and the correction of the racial economic imbalances in terms of income, employment and wealth. This required action on many fronts:

First, it was accepted that the federal and State governments and their various agencies and institutions would have to play more active and interventionist role, so as to ensure that the Malays obtained a fair opportunity to gain more ready entrance into, and equality within, the modern sectors. New institutions would therefore be set up and old ones sharpened to assist the Malays.

Second, the policy framework had to be consistent with and conducive to a high rate of economic growth. This would alleviate general poverty in the country by raising the general income level, provided growth was fairly evenly spread. It would enable the non-Malays to grow without hindrance while allowing for accelerating Malay entry into the modern sectors. Growth was also necessary to create those additional resources, required to undertake the economic and social reforms envisaged, without serious pain and dislocation to the system. To achieve such a high performance, the private sector was to be given incentives to spearhead the growth of the economy, especially in its rapid industrialization efforts and export drive. The challenge was to ensure both rapid growth and an improving racial economic balance. It was recognized, however, that beyond a point, the pursuit of these objectives could become competitive rather than complementary. The Government would therefore have to exercise flexibility in case of severe conflict.

Third, an active full employment policy would be pursued so as to absorb the already underemployed and unemployed labour force, while at the same time catering for new entrants to the market, stemming from population growth and making room for those wishing to move to new jobs in the modern sector of the economy. Economic growth had to be encouraged and guided along an employment intensive path. The full employment policy, like the rapid economic growth policy, was therefore an indispensable and a strategic element of the NEP.

Fourth, to develop the capability of the Malays: Vigorous programmes of education and training the Malays would be undertaken so as to enable them to participate actively in the development process. For all Malaysians, education was assigned the important role of laying the foundation for the creation of a new common value system among the younger generations for the attainment of national unity and racial integration.

At its core, therefore, the NEP was designed to achieve no less than a complete social and economic transformation. It sought to achieve the emergence of a new Malaysian society which would transcend existing ethic, cultural, religious and economic differences and provide for opportunities for advancement for all Malaysians. After 1969, it seemed there was no other option, otherwise the country would return to anarchy and chaos.

  

C. Some Instruments of the NEP

 

Consistent with-and indeed as part and parcel of-the pursuit of this strategy, Malaysia introduced a set of policies which are characteristic of the NEP:

 1. Foreign Investment Committee (FIC) and the industrial Coordination Act (ICA)

For the effective pursuit of the NEP objective to correct ethic economic imbalances, specifically in the patterns of employment and in ownership and control of enterprises, the Government established what was called the foreign Investment Committee (FIC) and introduced the Industrial Coordination Act (ICA). This became the powerful agent of change in the private corporate sector, focusing on the balance of equity ownership as between foreign and domestic investors. However, only sporadically and only in the early years was the FIC active in the pursuit of employment restructuring, even though this had been the intention when NEP was first formulated. Also, the name notwithstanding, the FIC has concerned itself not only with the role of foreign investment; all acquisitions of assets above stipulated magnitudes, mergers and take-over of companies-whether they involved foreign or just domestic investors-have to be approved by FIC.

The NEP at its inception in 1970 envisaged that by 1990 the ownership of capital would be such that 30 per cent was owned by Bumiputera as against no more than 2 per cent in 1970, 40 per cent by non-Bumiputera nationals as against some 35 per cent in 1970 and 30 per cent by foreign investors as against well over 60 per cent in 1970. The FIC was mandated to formulate policy guidelines on foreign private investment, to monitor progress and make recommendation for investment policy changes, to supervise ministries and agencies concerned, to regulate the acquisition of assets, mergers and take-over of companies.

Over time and as Malaysia has developed and its economy has been even more integrated in the global economy, the FIC has changed rules and practices so as to allow the more unencumbered flow of market forces in respect of corporate equity structures. However, the FIC is still in place and retains its functions as an important regulatory and monitoring agency.

 

2. Privatisation

In the early 1980 the Government initiated what became an active and deep-going privatisation process. A proactive Malaysian Privatisation Plan was prepared by a consortium of local and foreign consultants, approved and published. Privatisation included turning Government departments and agencies into corporations as well as management buy out of Government companies. The record for the past 25 years shows that in all 500 projects were privatised and well over 100 000 public sector employees were transferred to the private sector. Privatisation remains today a major aspect of national development policy. Where possible, it is so directed as to enhanced the participation of Bumiputera ownership, employment and business opportunities in line with NEP objectives.

 

3. Public Procurement

Government departments and agencies, as part of both operation and development activities, provide a major market not only for employment (up to 10 % of the total workforce), but also for services and products supplied by the private sector. In various ways Malaysia seeks to use this market power to contribute to the NEP objectives. Preferential treatment of Bumiputera suppliers is the order of the day for some categories of products and services, contracts for standard building and construction are awarded to Bumiputera entrepreneurs and corporations, business opportunities are created as part of special Bumiputera vendor programmes etc. Over time this has had positive effects and the empowerment of Bumiputera through public procurement continues as a major thrust today. Yet, the system-as practiced-has also led to a state of over dependence by many Bumiputera entrepreneurs on preferential public procurement. Moreover, the system has proved difficult to operate with both effectiveness and perceived fairness.

 

 

D. NEP Debate and Decision

 

It is in the nature of economic policies in this area that they raise controversy. And so they should. While it may not be seriously contested that-in the interest of a cohesive and viable Malaysian nation-the successful attainment of the NEP objectives would be of lasting benefit to each and all ethnic groups, the implementation of NEP policy measures, each seen by itself, will be felt-and rightly so-to have costs borne disproportionately by the non-Bumiputera and giving benefits to the Bumiputera which are discriminatory for the non-Bumiputera. Also, some benefits have to be accorded now in order for benefits to flow much later. An illustration of this may be the terms of “the Social Bargain” which created the basis for the immediate right of citizenship for a million or more immigrant non-Malay residents against the long term commitment to ensure that the Malays be brought up roughly at par with the non-Malays in the future economic life of the nation. And moreover, the very purpose and justification for specific NEP policy measures may be defeated in actual implementation, resulting in misdirected preferences, serious leakages and costly inefficiencies. Much of the opposition to the NEP is based on the more blatant such misuse of NEP instruments, giving the whole NEP effort a bad name in some circles. Illustrations may be the reservation of a minimum of 30% of new equity holding for Bumiputera; and the preference accorded in public procurement.

Policy decisions in Malaysia have often emerged in part through a special process of consultation between leading personalities in political parties and interest groups. While for the original NEP the imprint of Tun Razak himself is very much in evidence, he successfully sought to build a broad consensus in support of the new strategy and its specific policies. One such step was to create what was called the National Consultative Council which allowed influential representatives of a wide range of political groupings and economic interests to deliberate freely but in closed sessions the needs and options for handling the challenges to national cohesion and development. Similarly, in 1989 when the planning period of 20 years of NEP restructuring was coming to conclusion, a National Consultative Council (with the Malay acronym MAPEN) was convened, again with a membership representing a cross section of Malaysian society. Then, in 2000 when the National Development Plan (NDP) for the 1990s was coming to a close, a second National Economic Consultative Council (referred to as MAPEN 2) was convened. And earlier this year, as a follow-on to the National Missions as formulated in the Ninth Malaysian Plan, a similarly constituted 50 member National Unity Board was established.

While the Government paid considerable attention to the findings and recommendations of these Councils, they were not always accepted in policy formulation and implementation. Yet the deliberation in the Councils provided both general orientation and specific input for Government decision making. These Councils have allowed its broad and influential membership to gain a more balanced insight into the nature of the challenges to nation building and to find common ground. Moreover, to an extent, the Council deliberations have helped create for its membership a sense of ownership of the NEP.

 Ever since it origin, the NEP itself and-even more-its implementation have been hotly contested. The central objectives of the NEP have had the full acceptance of successive Governments to this day, but they have been pursued with varying determination and consistency. Sometimes pressures for changes have been accepted in the rules of application of particular instruments of NEP policies, sometimes in complete retreat. The initial formulation of the NEP and its subsequent elaboration in the early years could draw on strong and focused political will. However, the success of the strategy depended crucially on close monitoring of implementation for impact, effectiveness and shortcomings. The monitoring of the course of restructuring of the ethnic employment pattern in the private sector, which is such a critical element in the NEP, has been particularly weak. So has the build-up of statistics on the ethnic distribution of different forms of capital. This has left the Government without the information base needed for confident decision making on how best to interact and dialogue with the private sector so as to gradually come to grips with the ethnic disparity issues.

 

E. The Outcome : Economic Growth and Ethnic Economic Disparity

 

The NEP has shown itself, in spite of some shortcomings, to be an effective policy for dealing with the economic and ethnic problems of Malaysia. During the NEP era Malaysia achieved one of the highest rates of economic growth in the world, reduced poverty and restructured the production and income pattern to gradually contain rising ethnic economic disparity when it was implemented firmly particularly from 1970 – 1987. The NEP had shown that the two twin objectives of maximum economic growth and the reduction of ethnic economic imbalances were mutually reinforcing. The experience of implementing the NEP gives a valuable lesson to policy makers, namely in this country at least, it is possible to achieve optimal growth and reduction of inequality at the same time. Our experience shows that the upper ceiling is at about 7% of growth. Beyond that rate there would be a trade off between growth and equity as the implementation of the National Development Policy shows. There should not be extremes of implementation either for growth or distribution-a balance should be struck and managed, by careful monitoring to adjust policies accordingly as required, to be on the simultaneous optimal paths of growth and distributions.

The NEP has been criticised as an anti-Chinese discriminatory policy and to take away what they already owned. The evidence suggests that this criticism is not valid. Under the NEP and the National Development Policy regimes, Chinese capital have replaced foreign capital as the most dominant force in the Malaysia economy replacing the latter.

 What the NEP did was to redistribute the INCREMENTS of the Gross National Product newly created by joint cooperative efforts in proportions to their contributions, and not the distribution of the whole economy. Nor was there a threat of nationalization or coercion of foreign or Chinese assets. The Federal Constitution protects the economic and social rights of the Chinese and others. What they already owned in theirs, and the NEP was designed not to touch those right and ownerships. The fact was, ‘The efforts to attain these objectives (of the NEP) will, in turn, be undertaken in the context of rapid structural change and expansion of the economy so as to ensure that no particular group experiences any loss or feels any sense of deprivation in the process’. (Mid-Term Review of the Second Malaysia Plan 1971-1975)

 All Malaysians gained from the NEP irrespective of the social and ethnic groups. GDP per capita in real terms increased by about 4% a year on average over the 50 years since Independence. Ethnic income disparity, already very high in 1957, deteriorated further in the years up to the early 1970s when NEP was introduced. In 1990, after two decades of NEP, the income disparity in favour of the Chinese as against the Bumiputera had been reduced to nearly 7 to 4 as against 9 to 4 in 1970. Since 1990, in fact since the mid 1980s, there has been no further sustained improvement in the ethnic income ratios. Now, however, the recently announced National Mission as contained in the RMK-9 document is set to not only maintain the rate of growth in per capita GDP at well over 4%, but also to bring in an epoch of sustained gradual correction in the ethnic income ratios, specifically to bring the ratio of Chinese to Bumiputera income down to 6 to 4 in 2010 and to 5 to 4 in the course of the 2020s.

  

F. The NEP Today

 The original NEP was developed in a long term perspective with targets to be achieved within the first 20 years. In 1990 the framework was reoriented into the National Development Policy (NDP) for the 1990s and presented in the perspective of Vision 2020, outlining the aim of Malaysia attaining developed nation status by the year 2020. While specifies of policy have changed over the decades, the core NEP objectives of national unity, growth and social equity have remained-although with shifting emphasis. In 2005, a new policy and implementation framework-The National Mission-was drawn up, outlining the approach to be taken to achieve Vision 2020.

 The National Mission is a framework aimed at obtaining greater impact and performance. It identifies five key thrusts:

 First: To move the economy up the value chain so as to sustain a growth rate of at least 6%. For Malaysia to be successful within today’s increasingly competitive market place, moving out from its “middle development” stage towards a human capital driven economy, this will require

 Increasing the productivity, competitiveness and value added of establish activities in agriculture, manufacturing and services sector; 

Generating new sources of wealth and upgrading employment opportunities in technology and knowledge intensive sectors such as biotechnology and skills based services; 

Giving a lead role to the private sector, enhancing small and medium enterprise development, increasing public-private partnership and attracting targeted high-quality foreign direct investment. 

 

Second: To raise the capacity for knowledge an innovation so as to reach specific targets set for educational improvements for research and development, for the penetration rate of personal computers etc.

 

Third: To address persistent socio-economic inequality through focused efforts on reaching the right target groups and by providing opportunities for employment and advancement. Here time limited specific targets are set for poverty eradication and for reduction of disparities within and between ethnic groups, between rural and urban areas as well as between regions of the country. The employment structure and hierarchy in the economy is targeted to better reflect the full and fair participation of all groups in the population. In addition, targets are set for ethnic distribution of assets, both equity holdings and ownership in residential and commercial property.

 

Fourth : To improve the standard and sustainability of quality of life by action on many fronts from better management of natural resources to ensuring public safely and security and to promotion of the rich Malaysia cultural heritage.

 

Fifth: To strengthen the implementation capacity by improving public service delivery, addressing actual and perceived corruption in both public and private sectors, enhancing corporate governance by strengthening the legal and regulatory frameworks and also strengthening the roles of Parliament, media and civil society.

  

G. The Relevance of the NEP type of policy for future economic policies of this country.

 

The Malaysian NEP story as depicted above of advance towards the distribution objectives and then retreat or consolidation at half way and now renewed efforts to advance again holds lessons for the future. They are:

 

The importance of growth

Broad based growth to ensure that disadvantaged groups can be more fully and effectively included as participants in the production process through employment, eventually at par with those already in places, and in ownership, management and control of enterprises is less firmly resisted-in conditions of growth and expansion.

Growth is a matter of increasing productivity in given economic activities; it is also a matter of shifting employment from lower to higher productivity sectors and activities. In the evolution of the Malaysian economy in recent decades, both these growth factors have been operating. With education, training and opportunity large components of the labour force have move to higher levels of productivity by both avenues. The NEP strategy focusing on a more rapid and continuing shift of Bumiputera into activities of high productivity has led to high growth rates overall, even if the affirmative action to do so may have meant foreclosing-at least in the short run-some opportunities for more rapid advancement of the non-Bumiputera.

 

Employment creation and poverty alleviation

The speed and pattern of growth in a largely traditional economy, as was Malaysia in 1970, need to be such as to increasingly include the underemployed and unemployed in the growth process, specifically creating opening for those wishing to move into the modern sector. Thus, economic growth has to be encouraged and guided along an employment intensive path. Largely through these approaches, Malaysia reduced its poverty rate from a high of one household in two in 1970 to less than one in five in 1990 with further significant improvement in subsequent years.

 

Education, training and opportunity

In Malaysia a pre condition for success in the labour market has been the raising of the levels of general literacy and basic skills and of general and specialized education at secondary and tertiary levels. In these respects the Bumiputera were at a great disadvantage at Independence and when NEP was initiated in 1970. The lifting of the educational standards of the Bumiputera to that of their compatriots of other backgrounds has therefore been a constant Endeavour of the Government, including scholarship and stipends, multiplication of educational facilities, imposition of quotas for University entrance so as to allow for an ethnic distribution of student body in closer accord with the population structure. Some of these efforts by Government to improve quality and quantity of supply of manpower from the disempowered majority groups have been controversial and at times arguably misapplied. Yet, they have been essential to the gradual improvement of the position of the Bumiputera in the pattern of employment in the private sector.

 

Role of the State and the private sector

 

In Malaysia throughout the 50 years since its independence, the private sector and market forces generally have been relied upon to be the major agents of growth and modernizations. At the same time the Government at national, state and local level has set and re-set the framework within which the market operates. Malaysia has a strong tradition of planning, setting time bound targets for overall and sectoral development and carefully ensure that the need for more balances is respected.

Malaysia has also sought to deal with real or perceived shortcomings and failures of the market, be it in the area of labour supply, in the availability of investment funds, in attention to under researched potentials for growth and efficiency, in opportunities for social policy actions etc. etc.

This country has succeeded in maintaining generally constructive interaction between the State and the private sector by adopting a proactive business policy and an open market regime. When it comes to the still unmet need for empowerment of the Bumiputera in the economy, the problem expresses itself most generally in the private sector. The Government has at times made overtures to the private sector to overcome any built in practice of discrimination against the Bumiputera; thus aiming to ensure that the private sector can become part of the solution, not only of the problem of ethnic imbalances in the market economy.

H. Conclusion

The NEP was launched as part of an overall strategy of Tun Razak, to reunite and rebuild the country after the traumatic experience of 1969. Besides its objective of creating prosperity for all Malaysians, so that no community would experience a sense of loss and deprivation, it equally stressed the important objective of uplifting the economic status of the Malays, in line with the spirit and intent of the ‘Social Bargain’, the Federal Constitution and the RUKUNEGARA. In formulating the policy, the lessons of past policies were valuable, namely that the efforts of the previous years, in bits and pieces and not in a comprehensive manner, were not sufficient to redress the economic imbalances against the Malays vis-à-vis the non-Malays, even if implementation and the delivery system could be improved. Indeed past policies had increased the gap between the Malays and other groups. It was the basic underlying assumption of the NEP strategists, as proved by the riot of 1969, that too much poverty and the much inequality, stacked against the Malays, who form the majority of the population, could only bring further discontent and trouble. The need and indeed the policy was designed to shift and integrated the Malays into the main stream of development of commerce and industry, and prevent them from being permanently marginalized in the backwards sectors. The strategists firmly believed that unless the Malays participate on a genuine basic in the production process of the country, they would be permanently left behind. Indeed as the evidence of implementing the NEP shows, it is the only viable option to solve the ‘Malay problem’. It is the Unfinished National Business today, as inequality has risen again to the levels of the pre-1969 era, moderated somewhat in some years.

Malaysia has on often positive, albeit chequered, experience with the NEP to deal with gross ethnic disparities and to move towards a sustainable and balanced nation in diversity. The lessons of this experience, as applied to the now more developed Malaysia economy, are under scrutiny today. Instruments of policy as designed and implemented in past years are being left aside or redesigned and the search for other instruments is ongoing.

The NEP is a national objective, not a Malay objective per se, as being interpreted and promoted by some quarters based more on prejudices rather than on empirical evidence. The policy therefore can only be successful with broad and informed public support. While group interest will be affected differently, they must be brought to accept accommodation and compromise in the wider interest of national cohesion and political stability, which itself is a precondition for sustained development. Perhaps the major lesson that can be learned from the NEP experience is that deep seated structural disparities in employment, income and assets along ethnic lines can only be corrected gradually and over decades, even generations. And while realities on the ground and ill winds from abroad call for flexibility and compromise, eventual success depends on firmness of resolve and persistence of pressures for change. Ethnic economic balance policy can be made to work, but it requires clarity of objectives and wide acceptance of the need for a national effort in which both the State and the private sector play their part.

 Malaysia enjoyed political and socioeconomic stability since 1969, and to a degree the NEP contributed to this success. There has not been any racial riot since then. But we cannot rest on our laurels while the pressure builds up beneath the ostensible happy, calm and smiling faces of the Malaysian society. Wide and rising economic imbalances persist today as they did before the NEP era, and the division coincides with racial, cultural, linguistic, and religious divisions. Sooner or later there will be eruptions. We pray to ALLAH that this country will be spared the agony of recurrence of such a misfortune, but that is the pattern in countries with extreme inequality where the majority or even the minority are excluded from the full development process and deprived of their full socioeconomic human rights. The fact is that this country remains as one of the most unequal countries in the world. It must therefore continue to be addressed firmly as the NEP did, for the common good of all Malaysians. Even in a homogenous society the issue has to be confronted directly with decisiveness, as the situation is unacceptable by any standard of a civilized society especially one that aspires to be a developed country by 2020. It would be a historic policy mistake not to take the dangerous problems of ethnic imbalances seriously. Malaysia experienced it in 1969, so also most other countries which failed to address the issue as a national priority policy. But the history of implementing the NEP from 1970-1987 shows, the phase when the policy was firmly implemented, that it is possible for this country to reduce extreme inequality while simultaneously pursuing a policy of maximum economic growth. Tun Razak took the risk without having a precedent case policy to emulate. But we can now learn from the lesson of our own history if we so desire.

 

 

Kuala Lumpur 

12th October 2007/30 Ramadan 1428

 

 

 

 

 

 

 

 

Selected References

 

Anand, Sudhir, Inequality and Poverty in Malaysia-Measurement and Decomposition.

Oxford : Oxford University Press, 1983.

 

Chua Amy, World on Fire. Heinemann, 2003.

 

Economic Planning Unit, Prime Minister’s Department, Second Malaysia Plan 1971-1975.

Kuala Lumpur : Government Printer, 1970.

 

Economic Planning Unit, Prime Minister’s Department, Mid-Term Review of the Second Malaysia Plan 1970-1975. Kuala Lumpur : Government Printer, 1973.

 

Economic Planning Unit, Prime Minister’s Department, Privatization Masterplan. Kuala Lumpur : Government Printer, 1991.

 

Economic Planning Unit, Prime Minister’s Department, FIC Guidelines on Acquisition of Interest, Mergers and Take-overs by Local and Foreign Interest. Kuala Lumpur : Government Printer, 2003.

 

Economic Planning Unit, Prime Minister’s Department, FIC Guidelines on Acquisition of Properties by Local and Foreign Interest. Kuala Lumpur : Government Printer, 2003.

 

Economic Planning Unit, Prime Minister’s Department, Ninth Malaysia Plan 2006-2010. Kuala Lumpur : Government Printer, 2006.

 

Economic Planning Unit, Prime Minister’s Department, Fifty Years of Charting Malaysia’s Development. Kuala Lumpur : Government Printer, 2007.

 

Faaland, Just. Ninth Bank of Namibia Annual Symposium 2007, Broad based Economic Empowerment : The Experience of Malaysia : Chr. Michelsen Institute, Bergen, September 2007.

 

Faaland, Just, Jack Parkinson and Rais Saniman, Growth and Ethinic Inequality-Malaysia’s New Economic Policy. Bergen : Chr. Michelsen Institute/Kuala Lumpur : Utusan Publications and Distributors Sdn Bhd, 2003. (First published in 1990 by C.Hurst and Co. UK).0+

 

Gomez, Edmond Terence and K.S. Jomo, Malaysia’s Political Economy-Politics, Patronage and Profits. Cambridge : Cambridge University Press, 1999.

 

Jomo, K.S., Beyond 1990 : Considerations for a New National Development Strategy. Kuala Lumpur : University of Malaysia, Institute of Advanced Studies, 1989.

 

Mahathir, Mohamed, Malaysia : The Malay Dilemma. Singapore : Federal Publications, 1977, 3rd edition.

 

Mahathir, Mohamed, Malaysia : The Way Forward (Vision 2020). Kuala Lumpur, 1991.

 

Ministry of International Trade and Industry, Third Industrial Master Plan 2006-2020. Kuala Lumpur, 2006.

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  1. The NEP has noble aims, that is indisputable.

    However, it has been hijacked by UMNO, MIC, MCA and other BN component parties to enrich its own members at the expense of the Rakyat (Bumi and non Bumi) who really need and deserve economic assistance. You can deny it all you want, but its a fact.

    A classic case of income disparity could be seen during the campaigning time for the previous elections. UMNO Big Dogs roaring into the kampungs in their big SUV convoys to talk down to their kampung brothers toiling in the padi fields.

    And you wonder why the people kicked BN’s ass during the election?

    NEP remained as the policy of the Federal Government and the implementation had brought termendous social, economical and political transformation for the majority part of Malaysia, where once left wholesomely undeveloped. These are the fundamentals of where the country is today. The economic progress and achievement enjoyed today is the direct result of how successful NEP was implemented, in consistently developing the people, laying physical and soft infrastructure of the entire system and the economic development programs which improved standard of living and purchasing power. Hence, the economic growth and progression. No, it was never hijacked by any political parties, especially UMNO.

    On the contrary. UMNO won big in Malay dominated constituencies. Shows the Malay support for UMNO/BN is still strong (maybe not as strong as before). BN is still in power with UMNO still taking the dominant lead although UMNO/BN do not enjoy the support of 2004 GE. Its all about peoples’ dismay against PM ‘Flip-Flop’ Abdullah and not the party nor the Perjuangan.

    Were you actually on the ground during the elections (or for that matter, any other time) and actually witness how UMNO leaders approach the kampung folk?

    Armchair analysis would simply not give UMNO 78 seats in Dewan Rakyat, the largest party represented in Parliament. Its almost the representation of the entire Barisan Alternatif (now Pakatan Rakyat – for rebranding purposes!).

    If the rakyat had completely kicked BN out, then UMNO would not have 24 out 0f 32 members of the Cabinet.

    Get your facts and analysis right.

  2. [...] world class corporate players. However, holistically it has not achieved what it was set to be. The NEP has a pivottal role in building a united Malaysia in diversity.  The nation building process must be made with significant and active participation of the Malays [...]

  3. [...] political parties to consult and work togerther (with the exception of Chinese Chauvinists DAP!), New Economic Policy (NEP) to socially transform and reduce desparity as a tool of nation building was agreed and born in 1971, Rukunegara to bind the allegience as a nation was installed and [...]

  4. [...] NEP was launched by Prime Minister II Tun Abdul Razak Hussein in 1971 as an answer to grave socio-economic imbalance with a bold economic restructuring and transformation plan, to eradicate poverty and narrowing the socio-economic gap and standing between ethnic groups and the urbanites and rural folks. It is a part of an affirmative action plan involving socio-economic development programs which focused on infrastructure, education and socio-economic development which saw more opportunities being opened to the lesser privileged, particularly the Malays. NEP was a massive implementation plan that had been provided for the Malays as the majority and indeginous Malaysians, as per inscapsulated and enshrined in the Federation of Malaysia Constitution. [...]

  5. [...] spirit of nationalism was also the underlying factor the New Economic Policy introduced in 1971 as a solution to transform and re-engineer the majority of th…, mainly in the rural areas. This socio-economic development plan was the key factor of the [...]

  6. [...] konsep meritokrasi, idea idea untuk secara perlahan lahan menghilangkan penerapan dan perlaksanaan Dasar Ekonomi Baru dan kesediaan untuk membuka ‘pasaran’ yang selama ini di’lindungi’ demi [...]

  7. [...] agar orang didedahkan mengenai kedudukan mereka, agar apa apa peracangan termasuk perlaksanaan plan affirmatif seperti Dasar Ekonomi Baru (DEB) yang dilancarkan Perdana Menteri ke II Tun Abdul R…mendapat kesefahaman semua, terutama sokongan dan kesediaan untuk menjayakanya secara komprehensif [...]

  8. stupid blogger is stupid……..


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