Malaysia’s Rapid Growth under Mahathirism due to External Factors, not NEP

July 11, 2010

Malaysia’s Rapid GDP Growth: External Factors not NEP, says Professor Datuk Dr Mohamed Ariff

By Lee Wei Lian (

The country’s premier economic think tank’s ex-chief questioned Tun Dr Mahathir Mohamad’s assertion that the country grew rapidly due to the New Economic Policy (NEP), and instead said Malaysia should thank external factors.

Professor Datuk Dr Mohamed Ariff, distinguished fellow at the Malaysian Institute of Economic Research and its former executive director, also suggested that Malaysia could have grown even faster if the NEP restrictions were absent.

“Mahathir’s argument that the country had developed more rapidly under NEP is questionable,” Ariff told The Malaysian Insider.“Yes, Malaysia under Mahathir’s leadership did post impressive growth rates, but that cannot be attributed to NEP. A counter argument would be that the economy grew rapidly — not because of, but in spite of NEP.The high growth rates Malaysia registered during Dr M’s premiership was largely due to very favourable external circumstances, driven mainly by strong external demand for exports.”

He also warned that the external factors are much less favourable now and NEP type policies could not help the nation. “NEP constraints will impair the country’s competitiveness in an increasingly competitive environment,” said Ariff.

Mahathir said on Thursday that the country has developed more rapidly under the NEP and the country’s performance outpaced other developed nations.

The former prime minister had also said that the controversial NEP, which was introduced in 1971 and

Malaysia's Economic Guru

gave economic and other privileges to the Malays, was to help them catch up to other communities and prevent racial riots.

Ariff said that affirmative action was relevant but Bumiputeras were shortchanged by the NEP as it benefitted the elite rather than the poor masses.

“The NEP version of affirmative action could not trickle down as the lion’s share of the benefits were arrested at the top by politically well connected people,” said Ariff. “No one would deny that all Bumiputeras have got something out of it one way or another, but what they got was crumbs falling out of the table.”

Malaysia, once counted as among Asia’s most prosperous countries in the 1960’s and even through parts of the 1970’ fell behind in the following decades.

Despite relatively high growth rates it is not kept pace with its Asian counterparts such as Singapore, South Korea, Hong Kong and Taiwan which are now regarded as developed high income countries.

Prime Minister Datuk Seri Najib Razak has said, however, that affirmative action will be made more transparent and market friendly as part of his new economic reforms to boost the country’s competitiveness.

34 thoughts on “Malaysia’s Rapid Growth under Mahathirism due to External Factors, not NEP

  1. Nobel Laureate in Economics Amartya Sen in his book ‘Development as Freedom’ states that freedom is the most effective way of sustaining economic life. He also puts a premium on education as key to eradicating poverty and raising income levels.

    The private sector performs well under conditions of minimal government rules and regulations. Overzealous implementation of the NEP created administrative obstacles and led to corruption. Dr. Mahathir is silent about his crony politics.

    I have always felt that luck favored Mahathir. After the Plaza Accord in 1985 when the yen was revalued, Japanese companies sought low cost locations. Wages in Malaysia were low then and Mahathir’s Look East Policy favored the Japanese. In fact, Mahathir went out of his way to court FDIs from Japan and South Korea. Professor Dr. Ariff is spot on.

    Times have changed. We are now in the 21st century.Mahathir is dreaming of the past. Our labour cost is high and most of Malaysian companies have to rely on relatively cheap labour from ASEAN countries like Bangladesh,Cambodia Indonesia, Myanmar and Vietnam. This cannot continue because these economies are also growing.

    Policies must change to enhance national productivity, and that is the idea behind the New Economic Model–to get us to move from middle-income to high-income economy. Innovation and technology have to drive it since our production cannot be competitive if we remain dependent on labour intensive industries and old production methods. Here human capital development is priority.

    Najib’s NEM has yet to show us how human capital, innovation and services would be addressed to sustain our future economic development. Affirmative Action policies must be pro-Malaysians, not just the Malays. Mahathirism (crony capitalism) should be abandoned for good if we are to move forward.

    As for Mahathir, he should learn to keep his mouth shut since his ideas about the economy are driven by politics, personal interest, and outmoded theories of economic development.

  2. Kathy, I have no means of checking it out. Many people can have the same name, but that does not mean that it is the same person. There are thousands of “Din”s around the world. Let me assure you that they are not the same person.–Din Merican.

  3. Professor Datuk Dr.Mohamed Ariff,for the first time,someone has the courage to set the record straight.Otherwise,the apa nama dia PM still thinks that his 22 yrs rule was the greatest,although he had short-changed the Bumis in general and malaysians in particular,using NEP,race and religion,to benefit his cronies,family members and UMNOputras.

    The global demand and favourable export pricing on Petronas’ Oil and crude palm oil,rubber etc. were the real reasons for Malaysia growth during the 80s and 90s.

    Due to massive corruption and abused of power,Malaysia fails to develop as fast as our neighbouring countries , for example, Singapore,Taiwan,Korea etc..corruption is everywhere you look.

    Mahathir is still surrounded by people whose job it is tell him that he is the greatest Malay to have graced our country.

  4. “Luck favoured Mahathir…” as during his long stint PETRONAS was still a cash cow and he plundered it along with his mega projects, KLCC, Putrajaya, crony and sons bailouts etc etc. Now that Petronas has little left…it will be EPF. FELDA and land banks etc. out for grabs. Can someone check out who really owns Ethos Consultancy ???

  5. How on earth can a policy that gives unfair advantage to the largest community of account of RACE, bring about Growth?

    How could a policy that demands 30% equity from companies that were establish by other communities through years of sweat and toil?

    How could there be growth when the rich buy houses at 15% discount which is paid for by the minority community?

    How could there be growth when university places are given, not based on merit but race?

    What growth can we get when all IPOs are given the Bumis to be sold on listing for doing nothing?

    NEP divided the country.

  6. The truth is as usual somewhere in between.

    Yes, Mahathir got lucky. But perhaps he also made his own luck and knew how to ride it. It’s incredible that Hussein Onn picked him over Razaleigh and others!

    And yes, we should judge also by what more could have been achieved without cronyism, ali babism, corruption and “leakages”.

    we are all of 1 race, the Human Race

  7. Yes, we must quickly understand that the NEP or any other economic policy where the government sector is the engine for growth may not be good for the building of a sound, strong, and sustainable economy. But a sound, strong and sustainable economy will be able to strengthen the NEP and sustain the government.
    The failed economies of the so-called Eastern European countries in the late 80s and early 90s should guide us so that we do not make the same mistakes. While we were conducting experiements in social and economic engineering one country in this region has increased its per capitia income from $400.00 in 1966 to $40,000 today.

  8. Ha, ha, Mahathir is like a wave surfer who ride his surfboard on a big wave and goes round thumping his chest on how good he is as a surfer. But without the big wave (favourable economic conditions world wide) his “achievements” would have been unimpressive.

    But being a smart guy and seeing that the waves are no longer huge, he quickly resign, for he knows well that if he were to continue on, his so called achievements would be deflated. For a surfer cannot surf without the waves.

    Does Mahathir think if he were the PM now he would be able to bring in the FDIs like in the 80s ?.

    Prof Ariff has hit the nail on the head. Kudos to this brave man who dare to say that the King is not wearing any clothes.

  9. Dr Mahathir – a Creation of the US!

    By Martin Jalleh

    For a very long time the US government was looking for a political lackey to do its bidding in South East Asia. They scoured the earth and soon found their man in Bolehland – a land where anything is possible. He was none other than Dr Mahathir Mohamad (Dr M). They would mould, modify and manage him into a perfect make-believe.

    They first portrayed Dr M as the savior of his nation. He would make great speeches about the grave threat of recolonisation but for his own political survival he would hone to perfection and use a gamut of archaic repressive laws left behind by the Colonial Master. US professors in history and politics would then write about the tragedy of how the once-oppressed are now the oppressors in the Third World!

    Next they projected him through the foreign press as a Voice of the Third World. Dr M would invite Nelson Mandela to stand next to him in Kuala Lumpur to declare his anti-apartheid vehemence. The same media would then go to town with his racist stance at home reinforced recently by a Cabinet minister who crowned him a “Bloody racist” and a “Father of racists”! It was an excellent smokescreen for racism in US.

    The US singled him out, shored him up and saluted him the hero of the Muslim world. Dr M would declare his country an “Islamic State” and preach on Islamic values. Yet, his party was corrupted to the core and his Federal ministers and Chief Ministers (Menteris Besar) were guilty of sexual immorality and many other sins. The West pounced on the tragic contradiction and used it to smear the good name of Islam.

    The US gave him free rein with his occasional anti-semitic invective. He would blame the problems of his country and the world on the Jews, though he had official Jewish financial advisors to his government, such as Salomon Smith Barney and Goldman Sachs. The more he attacked Israel, the more it gave the US the excuse to defend and protect them!

    He was pictured as fearless in criticising and castigating the US for its many human rights abuses, whilst the US collected evidence of every human right violation he had committed especially those related to the Internal Security Act. Every year such evidence would fill the pages of the annual reports by US agencies on human rights abuse in the country which are sent to potential investors of Malaysia.

    “Mahathir, despite his nationalistic rants, signed a secret security agreement with the United States in 1984 that gave the Americans access to a jungle warfare training school in Johor and allowed them to set up a small-ship repair facility at Lumut and a plant in Kuala Lumpur to repair C-130 Hercules transport aircraft,” wrote Barry Wain, author of the ‘Malaysian Maverick: Mahathir Mohamad in Turbulent Times’.

    The US recognized him as the man behind Malaysia’s economic success but at the same time it would point the finger at him for the nation’s stagnant economy and for the scandalous amount of money lost during his premiership. As Barry Wain would also reveal: “Malaysia has squandered an estimated RM100 billion on financial scandals under the 22-year rule of Dr Mahathir Mohamad,” based on only 4 Mega projects. There were more than 400 Mega Projects during his time….

    In spite of the big show he had put up in demonising the US, Dr M would seek to return to the US for re-engineering and to receive further instructions. The government paid RM4.6 million for the services of disgraced US lobbyist Jack Abramoff to secure an audience with the then US President George W Bush, whose many crimes against humanity gave an elated Dr M a longer anti-US script to act out.

    Dr M said recently that if the US can make ‘Avatar’, they can make anything, even 9/11!

    Alas, how true, they can even make their very own Dr Mahathir Mohamad, one who would do anything at the behest of the US to satisfy his craving for the attention and adulation of his country and the world, and the adoration of his many followers who consider him their very avatar of power! .

  10. Thank you, Alan for reminding me of the man who ruled our country for more than 2 decades. I really tried to be generous to Mahathir, but the more I read about him, especially the writings of Jomo, Khoo Boo Teik, Barry Wain and others the more I realise that the 4th Prime Minister is a troubled person. He is the epitome of selfishness, duplicity and political expedience. To him, it is Mahathir first and last. Malaysia is just a toy for him to play with. He has no sense of remorse.

  11. All this while this TDM was having a free ride . Thinking that the people can be taken along with him. Now to project his security he is jamming in on race so that Malay will once again go along with his silly ride. He is a good actor. His last kick is to avoid the opposition coming in to take over Putrajaya. He has sleepless nights now. he knew that people are not that stupid except PERKOSA.

  12. How could the size of the economic cake be influenced by the way the cake is distributed and vice versa?? One is about growth and the other is about how UMNO gooks divide the loot among themselves.

  13. i m no fan of mahathir but facts are selangor under anwar and compare malaysia under mahathir….and imagine khalid as is water till bancrupt!

  14. Can someone check out who really owns Ethos Consultancy ???

    Khem – July 11, 2010 at 3:57 pm

    Here is the answer;

    “Datuk Rohana Tan Sri Mahmood, Chairman & General Partner

    Datuk Rohana brings her extensive political and business networks in Malaysia and the region to the Fund. She is the President & Member Founder of the Kuala Lumpur Business Club and has served with the Ministry of Foreign Affairs and also a Distinguished Fellow of ISIS Malaysia – the country’s pre-eminent think tank. Datuk Rohana is also a member of Board Trustees of the Asia Society of New York. She sits on the board of various private and listed companies.”


    Are you a member of the Asia Society of New York? Are you the one sponsor the 1st Lady ad in New York?.

  15. Bean

    She’s the daughter of our former IGP Tan Sri Mahmood.
    Pal to Khairy and Najib.
    Best friend to Sihanouk’s daughter.
    Currently Malaysia’s most powerful woman. Unmarried ( good news to you).
    Stays in a plush multi-million dollar apartment in Jalan Duta – the wealthy enclave.
    Just a so-so student. Sister runs a well-known family owned Security company since dad was top policeman.

  16. “The NEP version of affirmative action could not trickle down as the lion’s share..” Prof Ariff

    A trickle here and a dribble there, makes bad economics and worse politics. This old Octo built the whole house of cards on a promise taken cynically and managed abhorrently. While many blame his immediate successor Dopey, for the miasma that Malaysia is presently in, it is the actually delayed effect of the dribs and drabs of his gross manipulation and self serving policies.

  17. We tend to forget the loss of one the country’s most valuable resources during the time of the NEP – Human Capital – where hundreds of thousands of our brightest minds – irrespective of race – have not returned to contribute to the growth of this nation.

    This, as we all know, was one of the greatest loss during the period and yet not fully seen or grasped because of its invinsible nature.

    So, Tun Apanama, how could you say the period of the NEP was the greatest period for economic growth for this country when our brightest minds were lost and forever not to return?

  18. Actually To Mahathir it wasnt just him first, it was to make sure his children were taken care of, not the people.

  19. “Currently Malaysia’s most powerful woman. Unmarried ( good news to you).”

    For some reason Din’s blog seems to be a magnet for some andatu.

  20. Din’s blog is also a magnet for school kids.To be more precise, kids on summer holiday who have so much time on their hands.
    Sayang Bangsa,
    I hope so, because they can learn a little bit of history of my time from WWII to now, from the colonial Malaya to Merdeka, post Merdeka, and now 1Malaysia (?)…under 6 Prime Ministers. Most of those in their twenties and thirties who grew up under Mahathir must know that Malaysian history does not start with him. Mahathir undid what his predecessors (Tunku, Razak and Hussein) did. That is a tragedy.–Din Merican

  21. I think Sayang Bangsa has kids of her own .

    So why not let them read these blogs if only to let them weigh for themselves the rights and wrongs of governance (form within or without Malaysia)or would she prefer the old ( but false) practices of dont teach the young ones anything for with knowledge comes pwoer. Power to change Malaysia.

    Our society must be an informed society in order to get their power back form the Govenrment.

  22. Generally, goverments can only be parasitical. There are exceptions – the growth of Japan and Korea is attributed to hot-housing and massive goverment aid. Much if US business is actually socialist in that massive amounts of money flow from goverment to business, but this is to support cronies and party funds. In Britain when the goverment of the time tried to take credit for an upswing some tome ago, this was rightly dismissed by economists as a mere cycle they were riding.

    Here, we have been hearing this rubbush that a certain man or political party brought us development for some time.

  23. Sayang Bangsa…Thanks for the “flash” on Rohana Mahmood, Chairman of Ethos. Only reason I asked about Ethos is strong rumors of Najibs personal interest in it and use of proxies has always been the SOP. Dr M at one stage flashed his concern that EPF funds were to be channeled to Ethos for investment purposes and in the process it fizzled out. True or false ???

  24. Mr Merican

    Yep my kids are back for the summer vacation and enjoy reading your blog. They love to see me being the target of the commentators here. Since they are all born in Mahathir’s time, they know only Atuk Det.

    They were shocked about the comments on Tun M here. Confused in fact, since I told them a different version. They asked me to tell you Atuk Din is one cool grand-pa.
    They asked whether you and then girlfriend went to Woodstock in bell-bottoms, sporting long hair , wearing beads and smoking pot while chanting Give Peace A chance.
    No bell bottoms, no “rambut panjang”, ketiak busuk, and no pot. I was a Bank Negara scholar and need to be careful how I behaved. No girlfriend as I was a married man then (already 29 years old). I left it to young Americans to demand peace now as they were dying like chickens (some 55,000 Americans died in defence of corrupt South Vietnam and a hundred thousand more wounded, some maimed for life).–Din Merican
    Hi Kathy

    Remember once I described you as a kid back on holiday with nothing to do but post some cute comments here. I still think you are a student in Auistralia who is now on winter break. Enjoy.

  25. From Terence Netto to Ahmadi Hussein (via e-mail)


    Ahmadi is putting the cart before the horse: Najib as reformer of Umno and the national system has about as much credibility as a move to make the poacher the gamekeeper. It won’t wash.

    Umno is too deep in the rut; a reformer has to be a lot cleaner and baggage-less than Najib to succeed at the project of thoroughgoing reform. Otherwise the dyed-in-the-wool Umno malcontents will tell their putative reformer, “Physician, heal thyself!”

    “It’s the economy, stupid,” Ahmadi interjects. Yes, indeed. If that’s doing well, all’s well. But we have just heard the economist Mohamed Ariff tell Dr Mahathir that Malaysia did well in the years 1987-2003 inspite of the NEP not because of it, as the supposedly elder statesman contended in his usual sly style of deploying a partial truth as the whole truth.

    What many have forgotten is that Dr Mahathir and Daim had, during the 1985-87 recession, to water down provisions of the 1974 Industrial Coordination Act which mandated 30% bumiputera equity as prelude to the revival of the economy and the boom of 1988-97.

    Now, the international economic scenario has changed. Things have become more competitive. The featherbedding that Dr Mahathir opted for in response to the currency and stock market crisis of 1997 has come back to haunt us. The country cannot compete. Other nations, like South Korea, Thailand, etc., which had, in contrast to Malaysia, opted for the IMF regime of high interest rates, have rebounded while Malaysia has slithered down the slope.

    Moreover, our recovery is hamstrung by the NEP. It is obsolete. Granted Najib knows that and wants to act on it. But will Umno’s malcontents – Ibrahim Ali and Dr Mahathir – allow him? Does Najib have the strength to disregard them and implement the NEM, which by the way is a carbon copy of Anwar Ibrahim’s Malaysian Economic Agenda? On the evidence so far: no.

    So, as Ahmadi contends, Najib has to go back to the electorate. He’s got to win a decisive mandate. But what is the recurrent scenario against which he acts?

    The scenario is an unbroken litany of official malfeasance which, acting on the Malaysian electorate, is like Chinese water torture: it just wears you down. The people have grown weary of this unending series of scandals and incompetence. And when one attempts the meager reforms that Najib has tried out, the people, instead of feeling relieved, are emboldened to ask for more. As Alexis de Tocqueville cautioned, a corrupt order is in most danger when it begins to dabble in reform.

    Sure, Pakatan has yet to achieve the cohesion that would warrant public confidence that they can take over. But frankly, with an incumbency of over a half-century, the powers-that-be get to enjoy an aura of invincibility that is difficult to deflate. But deflation has occurred; supplanting it is inevitable.

    The Ahmadi Husseins’ of the Malaysian body politic must sharpen their forensic skills to train them on a Pakatan takeover that is inevitable and fallible, yet necessitous. Their criticism would ensure that Pakatan will succeed at being better than the replaced. When the incumbents are intolerable, the alternative has to be a little better to be preferable.

    I believe Pakatan are not the anarchists of Ahmadi’s description, and are a lot preferable to Umno-BN’s advanced decay. Replacement and regeneration are the lifeblood of democracies. The quasi-democracy of Umno-BN has to be replaced by the better one of Pakatan’s making.”

  26. Mr Netto has written like a true spinner for Anwar Ibrahim. Let us face it. Anwar Ibrahim’s Malaysian Economic Agenda does not contain any substantial programmes. It is full of platitudes and promises of change; after two years we know that there is no economic model for Pakatan Rakyat. Selangor is in a mess and Anwar as its Economic Advisor has done nothing for the people of the state except talk and hot air.

    I am sorry Mr. Netto, you can keep spinning but when the day of reckoning comes in 18-24 months’ time, Selangor will be back in BN’s hands. People are fed with Khalid Ibrahim, especially the Malays and Indians.

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