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Back | Programme Area: Identities, Conflict and Cohesion

The New Economic Policy and Interethnic Relations in Malaysia



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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  • Pub. Date: 1 Sep 2004
    Pub. Place: Geneva
    ISSN: 1020 8194
    From: UNRISD