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Democracy, Governance and Human Rights Programme Paper 20: Ethnic Structure, Inequality and Governance in the Public Sector: Malaysian Experiences

18 Jan 2006



An ethnic division of labour emerged in Malaysia when colonial capitalism created patterns of uneven development and socioeconomic disparities. At their starkest, patterns of ethnic inequalities were traceable to the organization of labour of different ethnic origins by separate sectors and pursuits, crudely captured by stereotypes of the “Malay farmer”, the “Chinese trader” and the “Indian estate labourer”.

As a result of ethnic diversity and the ethnic division of labour, ethnic cleavages in Malaysian society prompted politicians to communalize issues and policy makers to discriminate on the basis of ethnic differentiation. Ethnic disagreements, for example, were often regarded as pitting “Malay political power” against “Chinese economic domination”, especially when post-independence laissez-faire capitalism failed to redress inequalities in income distribution, incidence of poverty, employment and social mobility.

This paper analyses Malaysian experiences in managing ethnic imbalances - between the indigenous community and immigrant communities. Part I gives an overview of the formation of a plural society and an ethnic division of labour. Part II focuses on the public sector’s use of the New Economic Policy (NEP) to overturn the ethnic division of labour and its impact on public sector governance. Part III examines how a matrix of ethnic representation, power sharing and domination imposed some measure of stability upon the political system.

One solution to ethnic tensions came in the form of the NEP, which relied on massive state intervention to eradicate poverty irrespective of race and to restructure society to abolish the identification of race with economic function. Accordingly, the public sector provided economic, investment and educational opportunities for Malays; regulated businesses by using legislative means, bureaucratic procedures and ethnic quotas for equity participation and employment; invested so as to raise Malay corporate ownership rates; and served as the trustee of Malay economic interests.

Given new roles, greater resources and political support, the state’s public enterprises, statutory authorities and state economic development corporations proliferated, creating notable impacts on public sector governance. The civil service became increasingly Malay-dominated at higher administrative and professional levels. An ethnic public sector/private sector divide emerged when the public sector applied ethnic quotas and targets to many socioeconomic sectors. Consequently, public sector ineptitude was commonly contrasted with private sector efficiency. Policies of “Malaysia Incorporated” and a wave of privatizations ultimately subordinated the public sector to the private sector, raising new problems of governance, as Malay conglomerates - sometimes in joint ventures with non-Malay capital - became politicized oligopolies that escaped stringent scrutiny and regulation. Hence, while the NEP overturned an earlier ethnic division of labour, its ethnicized governance reaffirmed an identification of ethnicity with politico-economic sectors.

Khoo Boo Teik is Associate Professor in the School of Social Sciences, Universiti Sains Malaysia, Penang.

Order DGHR PP 20 from UNRISD, 48 pages, 2005; US$ 12 for readers in industrialized countries and US$ 6 for readers in developing and transitional countries and for students.