The New Economic Policy and Interethnic Relations in Malaysia

The New Economic Policy and Interethnic Relations in Malaysia
Author(s): Jomo Sundaram
Programme Area: Identities, Conflict and Cohesion (2000 - 2005)
Paper No.: 7
Code: PP-ICC-7
Project Title: Racism and Public Policy
No. of Pages: 23

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 United Malays
National Organisation (UMNO) as the ?Young Turks? supporting then-Deputy Prime
Minister Tun Abdul Razak sidelined Prime Minister Tunku Abdul Rahman, who had
led the 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
toward the ubiquitous Chinese business community. The Razak NEP regime, through
the NEP, was therefore committed to increased ethnic affirmative action, or
positive discrimination policies, on behalf of the ethnic Malays in particular
and bumiputera (indigenous Malaysians) in general.
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 interethnic resentment due to socioeconomic disparities. In practice,
the NEP policies were seen as pro-bumiputera, or more specifically, pro-Malay,
the largest indigenous ethnic community. Poverty reduction efforts have been
seen as primarily rural and Malay, with policies principally oriented to 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 efforts at ?restructuring society? efforts to reduce interethnic
disparities, especially between ethnic Malay and ethnic Chinese Malaysians.

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

The NEP has since ostensibly been replaced by the National Development Policy
associated with the Second Outline Perspective Plan for 1991?2000, and then by
the National Vision Policy linked to the Third Outline Perspective Plan 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 dominated by the NEP?s interethnic
economic policies, especially wealth redistribution or ?restructuring? targets.

These policies are believed to be especially important in terms of influencing
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 interethnic tension is most acute. Interethnic business coalitions have
become increasingly important over time, often with an ethnic Malay partner
securing rents for gaining access to government-determined business
opportunities, and the ethnic Chinese partner with access to capital and
business acumen getting the job done. Such joint ventures 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?1998 currency, financial and economic crises have
strengthened, rather than undermined, these tendencies.

While there is little doubt that specific socioeconomic 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
interethnic relations. Associating improved interethnic rela-tions almost
exclusively with reduced interethnic 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 re-sentments associated with
interethnic, intra-class competition. Thus, it is unlikely that the ethnic
affirmative action policies will achieve the end of improved interethnic
relations. An alternative approach needs to be found to create more lasting
conditions for improved interethnic relations.


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