Affirmative Action in Malaysia

Affirmative Action in Malaysia: Not as simple as Mahathir paints it

By Barry Wain*

The Straits Times, July 24, 2009

MALAYSIA is long overdue for a national debate on the costs and benefits of the wide-ranging affirmative action programme it adopted 38 years ago.

But judging by the provocative comments earlier this week by former prime minister Mahathir Mohamad, the country will have to wait a little longer for an informed discussion.

Tun Dr Mahathir indirectly defended the programme, which was called the New Economic Policy (NEP) when introduced in 1971. It is still referred to as the NEP, despite undergoing several incarnations since then. Unfortunately, he framed his remarks in the same old ethnic terms and failed to address the rising clamour over specific issues of inequality and Malaysia’s declining competitiveness.

Apart from offering some debatable statistics and observations on bumiputera corporate ownership, property holdings and poverty, Dr Mahathir presented his opinions as a case of Malays versus Chinese. What little the Malays have today is being taken away from them, he wrote in his popular blog, saying ‘the non-Malays have become the real masters’ of the country. Analysts interpreted the posting as veiled criticism of Prime Minister Najib Razak, who has liberalised several aspects of the NEP since taking office in April. But the sniping aside, Dr Mahathir’s assessment fails to acknowledge the main reasons the NEP has become so divisive. Some of the NEP’s harshest critics now are in fact Malays.

The NEP was implemented after the May 13, 1969 racial riots, when Malay deprivation was pinpointed as the underlying cause of the unrest. The NEP’s twin aims were the eradication of poverty among all Malaysians, and restructuring society so that race would no longer be identified with economic function. With Dr Mahathir as premier from 1981 to 2003, the NEP became more controversial. It was linked to a policy of privatisation, as he sought to create a small group of Malay millionaires, dubbed cronies by critics, who would become role models for their community.

The results are mixed. Poverty has been reduced drastically over the past few decades as Malaysia recorded sustained high growth rates. Its middle class has expanded to include significant numbers of Malays, and the gap between the Malay and Chinese communities has narrowed.

Affirmative action, however, also has sharpened inequality in Malaysian society. By 2004, the country had the most extreme inequality in South-East Asia, according to the World Bank. Small-scale, mostly Malay farmers and fishermen who do not fit into the modernised economy have been comparatively marginalised. Non-Malay bumiputeras, predominantly in Sabah and Sarawak, also have been left in the dust. Sizable numbers of Indian labourers, displaced by an influx of foreign workers and the development of plantations for industrial and residential use, have joined the ranks of the unemployed in urban squatter areas. They constitute the new poor.

Malay dissatisfaction has increased with growing awareness that better-off and politically connected Malays benefit disproportionately from the NEP. The majority resented the use of public funds to rescue a few wealthy Malay businessmen during the 1997-98 Asian financial crisis. It is a source of anger that Malay millionaires, for example, can take advantage of a 5 per cent housing discount for bumiputeras. In addition, the children of newly rich Malays seem to be the ones best placed to capitalise on ethnic preferences in the future, leaving their country cousins and poorer city relatives further behind.

Affirmative action also hinders Malaysia’s international competitiveness, a consideration that is becoming more acute as China and India set a sizzling economic pace. In 1971, Malaysia ranked third in East Asia, after Japan and Singapore, in terms of gross domestic product per capita. By 1990, it had fallen behind South Korea, Taiwan and Hong Kong. And the gap continues to widen.

A growing band of critics has argued that the NEP should be modified or scrapped altogether. In last year’s polls, the opposition led by former deputy premier Anwar Ibrahim made unprecedented gains, drawing support from all communities, by proposing a Malaysian Economic Agenda. It focused on needs, rather than ethnicity, and would replace the NEP, should the opposition come to power.

In criticising the material status of Malays, Dr Mahathir is passing judgment on his own record, as the current state of Malaysia is largely the outcome of policies he pursued for 22 years. Although it is almost six years since he retired, little has been done by his successors to alter the long-term patterns of growth and distribution that he set in place.

Lamenting that the bumiputera share of national corporate equity is only 20 per cent, while Chinese Malaysians hold 50 per cent despite accounting for a mere 26 per cent of the population, Dr Mahathir accepts questionable methodology. The 20 per cent government figure is obtained by using the par rather than the market value of shares, and by excluding stakes held in trust for bumiputeras.

According to one independent academic assessment, the 30 per cent bumiputera equity target, set in 1971, was achieved as early as 1997. Another assessment showed the bumiputera corporate share at 45 per cent in 2004. By using the low official figure, Dr Mahathir and other Malay nationalists believe they can build a stronger case for continued affirmative action. However, critics can argue just as persuasively that a policy that has not achieved its target after nearly four decades is fundamentally flawed.

A final irony: Dr Mahathir, as prime minister, contributed to non-Malay corporate wealth by including in his inner circle a number of high-profile Chinese Malaysian tycoons, who were favoured with privatisation and other contracts.

*Barry Wain, writer-in-residence at the Institute of Southeast Asian Studies, is author of Malaysian Maverick: Mahathir Mohamad In Turbulent Times, to be published this November by Palgrave Macmillan.