New Economic Policy–Malaysia’s Deformative Action Progamme

May 20, 2017

Malaysia’s Deformative Action–Doing the Malays a Disfavour

Income-based benefits would work much better.

Najib Razak –A Spoilt Aristocrat and the Embodiment of Malaysia’s New Economic Policy introduced by his Father, Tun Abdul Razak and exploited by Tun Dr. Mahathir Mohammad to  retard and subjugate the Malays. Incentives Matter. Reward Performance and Discipline.–Din Merican

WHAT government would not like to reduce racial disparities and promote ethnic harmony? The tricky part is knowing how. One country that claims to have found a way is Malaysia. Since 1971 it has given preferential treatment in everything from education to investing to bumiputeras—people of indigenous descent, who are two-thirds of the population but poorer than their ethnic-Chinese and -Indian compatriots.

On the face of things, this system of affirmative action has been a success (see article). The gap in income between Malays (the biggest bumiputera group) and Chinese- and Indian-Malaysians has narrowed dramatically. Just as important, there has been no repeat of the bloody race riots of 1969, when Malay mobs burned Chinese shops in Kuala Lumpur, prompting the adoption of the policy. And the economy—typically an instant victim of heavy-handed government attempts at redistribution—has grown healthily.

Small wonder that some see Malaysia as a model. South African politicians cited it when adopting their plan for “Black Economic Empowerment” in the early 2000s. More recently Indonesian activists have been talking about instituting something similar there. Malaysia, meanwhile, keeps renewing the policy, which was originally supposed to end in 1991. Just last month Najib Razak, the prime minister (pictured), launched the latest iteration: the catchily named Bumiputera Economic Transformation Roadmap (BETR) 2.0, which, among other things, will steer a greater share of government contracts to bumiputera businesses.

Money for old rope

Yet the results of Malaysia’s affirmative-action schemes are not quite what they seem. Malays in neighbouring Singapore, which abjures racial preferences, have seen their incomes grow just as fast as those of Malays in Malaysia. That is largely because the Singaporean economy has grown faster than Malaysia’s, which may in turn be a product of its more efficient and less meddling bureaucracy. Singapore, too, has been free from race riots since 1969.

If the benefits of cosseting bumiputeras are not as clear as they first appear, the costs, alas, are all too obvious. As schools, universities and the bureaucracy have become less meritocratic, Chinese and Indians have abandoned them, studying in private institutions and working in the private sector instead. Many have left the country altogether, in a brain drain that saps economic growth.

Steering so many benefits to Malays—developers are even obliged to give them discounts on new houses—has created a culture of entitlement and dependency. Malays have stopped thinking of affirmative action as a temporary device to diminish inequality. As descendants of Malaysia’s first settlers, they now consider it a right.

The result is that a system intended to quell ethnic tensions has entrenched them. Many poorer Malays vote reflexively for UMNO, the Malay party that introduced affirmative action in the 1970s and has dominated government since then, for fear that another party might take away their privileges. With these votes in the bag, UMNO’s leaders can get away with jaw-dropping abuses, such as the continuing scandal at 1MDB, a development agency that mislaid several billion dollars, much of which ended up in officials’ pockets, according to American investigators. Minorities, in turn, overwhelmingly support parties that advocate less discrimination against them.


THERE is something odd about MARA Digital, a cluster of stalls selling laptops, mobiles and other gizmos on the second floor of a shopping centre in Kuala Lumpur, Malaysia’s multicultural capital. No ethnic-Chinese or -Indian entrepreneurs are allowed to do business here. Spots in the market are reserved for Malays, the country’s majority race. The year-old venue was set up with subsidies from the government, which insists that its experiment in segregated shop-holding has been a big success. It has already launched an offshoot in Shah Alam, a nearby city, and talks of opening at least five more branches this year.

This project is just one recent outcome of racially discriminatory policies which have shaped Malaysian society for more than 50 years. Schemes favouring Malays were once deemed essential to improve the lot of Malaysia’s least wealthy racial group; these days they are widely thought to help mostly the well-off within that group, while failing the poor and aggravating ethnic tensions. Yet affirmative action persists because it is a reliable vote-winner for the United Malays National Organisation (UMNO), the Malay party that has dominated government since independence. Malays are more than half of the population, so their views carry weight.

Last month UMNO launched a fresh batch of race-based giveaways. Harried by claims that it allowed billions to be looted from 1MDB, a state investment firm, and preparing for an election that may be called this year, the party looks disinclined to consider reform.

Affirmative action in Malaysia began shortly after the departure in the 1950s of British colonial administrators, who had opened the cities to immigrant merchants and labourers from India and China but largely preferred to keep Malays toiling in the fields. The practice accelerated after 1969, when a race riot in the capital killed scores. (Most of the victims were Chinese.) The New Economic Policy (NEP) of 1971 had two goals: to reduce absolute poverty across all races, and to boost in particular the prospects of Malays, whose average income at the time was roughly half that of their Chinese compatriots.

A temporary eternity

Although the NEP’s authors believed affirmative action would be needed for only 20 years, the practice has continued ever since, as such “temporary” policies typically have in other countries. Malaysia’s bumiputeras, which means “sons of the soil” and which refers both to Malays and to a number of indigenous groups deemed deserving of a leg-up, have accumulated a panoply of privileges. Some of these are enshrined in legislation; others are left unwritten. These include quotas for places at public universities; preferment for government jobs; discounts on property purchases and access to a reserved slice of public share offerings.

Since the NEP’s inception Malaysia’s economy has grown enormously. Its people are now the third-richest in South-East Asia, behind only Singapore and oil-soaked Brunei. Affirmative action has helped to narrow the difference between the incomes of Malays and other races. But pro-bumiputera schemes are almost never means-tested, so their benefits have accrued disproportionately to already wealthy urbanites, allowing poverty among the neediest Malays to persist.

Meanwhile the lure of the public sector—which was expanded to create more posts for bumiputeras, and in which Malays are now vastly over-represented—has sapped entrepreneurial vigour among Malays, as has a welter of grants and soft loans for bumiputera firms. Race-based entry criteria have lowered standards at Malaysia’s public universities; so has the flight of non-bumiputera academics who sense that promotions are no longer linked to merit. These days Chinese and Indians largely end up studying in private institutions or abroad, in effect segregating tertiary education. Many of those who leave the country do not return.

None of this is lost on the ruling party. For some years UMNO was split between hardline supporters of affirmative action (like the demonstrators pictured above) and moderates dismayed by the distortions it has brought. In an unusually candid paper published in 2010, the new government of Najib Razak, the prime minister, admitted that affirmative action had created an “entitlement culture and rentier behaviour”. It mooted swapping race-based policies for action intended to lift the incomes of Malaysia’s poorest 40%, regardless of ethnicity. Yet within months that suggestion was quietly abandoned.

Since then the party’s thinkers have grown more risk-averse. UMNO almost fell from power at a general election in 2013, when minority voters abandoned its coalition partners. Since early 2015 it has been trying to distract attention from the theft of billions of dollars from 1MDB (American investigators allege that $681m of the state firm’s money was paid to the prime minister, a charge Mr Najib denies). Neither of these near-death experiences appears to have prompted much soul-searching. Instead the party is trying to preserve support among Malay voters by reinforcing pro-Malay policies and by building bridges with PAS, an Islamist opposition party that is growing more extreme.

Optimists argue that the government has not completely abandoned reform. An efficiency drive has called attention to the public sector’s bloated state, even if the material gains from the effort are unclear. And whereas UMNO’s leaders once boasted of their desire to create Malay millionaires, recent schemes are more likely to aid small and medium-sized firms. But this is all rather modest—particularly when ugly racial rhetoric is on the rise.

Malaysia’s failing system of race-based preferences will probably not attract the criticism it deserves in the run-up to the next general election, which Mr Najib may call later this year and which he is likely to win. Opposition parties are keen to show poor rural Malays that UMNO’s policies have shortchanged them, but tend not to openly bash the notion of race-based affirmative action. Egged on by bigots, some Malays have come to see their economic privileges as a right earned by their ancestors when they first settled the territory, not as a temporary leg-up. Meritocracy and the distribution of benefits based on need remain distant prospects.

This article appeared in the Asia section of the print edition under the headline “Malays on the march”–The Economist
Image result for The Malays

The ambition to improve the lot of Malaysia’s neediest citizens is a worthy one. But defining them by race is a mistake. It allows a disproportionate amount of the benefits of affirmative action to accrue to well-off Malays, who can afford to buy the shares set aside for them at IPOs, for example, or to bid for the government contracts Mr Najib is reserving for them. It would be much more efficient, and less poisonous to race relations, to provide benefits based on income. Most recipients would still be Malays. And defusing the issue should pave the way for more nuanced and constructive politics. Perhaps that is why UMNO has resisted the idea for so long.

This article appeared in the Leaders section of the print edition under the headline “Deformative action”

13 thoughts on “New Economic Policy–Malaysia’s Deformative Action Progamme

  1. My views on the NEP are well know and popular. I like to hear from both defenders and critics of the policy. What should be the alternative policy that can empower Malaysians? I have always believed incentives matter, not politics, although policy has political implications that leaders must face up.

    LaMoy, CLF, Orang Malaya, Dr. Bakri Musa, and Conrad can take the lead. Be frank but fair. –Din Merican

  2. The NEP should be allowed to run its course and ended as agreed when it was first mooted. The Malays after three generations should be able to compete and stand on their own without crutches. Otherwise the Malays will continue to depend on NEP or other variations for life.

    If after three generations the Malays are still dependent on NEP then the program has been a failure. The question to be aksed is Apa lagi Melayu mahu?
    Orang Malaya,

    Melayu mahu hidup dan makan senang. Hanya UMNO boleh buat dasar ini.There is no such thing as a free lunch. At the end of the day, the Malays as a whole pay a price for it. Mahathir has to say Melayu malas saja. Dia buat apa masa dia ada kuasa. Dia buat Melayu malas.Mamak semua rajin. Dia mamak, bukan?–Din Merican

    • Otherwise the Malays will continue to depend on NEP or other variations for life.
      Is this the objective of the leadership”

  3. While it is the responsibility of all Governments and leaders to look after the needy and assist the across policy which may biased as in the various spheres including housing-jobs-licences-loans-contracts may be welcome by the beneficiaries and good for the short term it may also encourage the biased groups to lose initiatives and SPIRTIT to become BERDIKARi and continue to become addicted-dependent on handouts from public funds. The next generation of the biased group may be even worse off especially when [not if] the economy were to take a downturn.
    Groups who progress based on merit and not on biased policies have always progressed in good and bad economic times and a good example is the many immigrants in many countries in previous centuries and also to-day’s immigrants many of whom succeed without much assistance whereas those with assistance lag behind.
    The most advanced area in KL was Kampong Bahru which was surrounded by wastelands but to-day it is perceived to be the most backward in development which may be due to the then biased policies which may have killed of incentive to improve or develop. This weakness in biased policies appears to have been realized by the leadership and is trying to do its best via various means to bring Kampong Bahru status in line with its neighbors but is facing opposition from some
    senior residents and the laws/customs may be hindering the plans to develop it.

    Another adverse effect that the biased policies may make the groups so addicted that the the leaders may be refusing to accept the cause may be biased policies. OR IS IT THE POLICY TO MAKE THE GROUPS ADDICTED AND SUBSERVIENT TO THE LEADERSHIP?

    • There is talk about Indians deserving respect in Malaysia. I do respect Indians, and many Indian leaders genuinely respectable. With all my own bias, I just cannot find myself not despise the ruling, educated, and pious Malays. Kill some average Chinese (not the Chinese taukeh type), and demand equality like what was claimed by MLK jr. Then, twist the argument to some talk of Ketuanan Melayu 3 generations later. I could not see how Allah would take delight in such a layu culture. I am not suggesting the Chinese (esp of those Chinese descent like myself) is any better. But, in all reality, it is the Malays who have been ruling the past 3 generations. Behind every MO1, there is always a Jho Low who gets implicated. Welayu. We deserve every rational reasons to layup, with or without NEP. We Malaysians deserve what we sow.

  4. From the start, allowing the NEP to be called affirmative action is like calling a slegdehammer a surgeon scapel. It was never affirmative action, at best it was entitlement with affirmative goals. Affirmative Action programs uses specific handicaps, NEP is a general handicap without specific. Affirmative action have targets and performance, not just wholesale allocations without any test and results. Sometimes that allocation is entire sector and area, the quotas exceeded, manipulated to be a monopoly. Its simply NOT affirmative action, merely affirmative intend and the old adage BEWARE OF GOOD INTENTIONS or GOOD INTENTIONS GONE WRONG is exactly what happened.

    NEP IS ENTITLEMENT and critics of the program calling it a “right” DOES NOT HELP. You keep calling it a “right” and the likes of Perkasa so “it is, so what” – they tell a lie with their language and if you use THEIR language, you only confirm their myth. Its entitlement and all entilement can be removed in theory. You call it a “right”, then even if it kills us all, good luck to changing it.

    Already modern politics “entitlement” is too often third rail politics – try getting any American to give up social security or medicare. Its the death of any practical politicians. But a young nation can still look into the future and at least avoid a disaster with entitlement. In other words, you call it a “right”, its never going to change. You call it “entitlement”, there is a last chance window before the country age.

    There is no choice but to move to a “need based” -entitlement rather than raced-based. Otherwise, this country will be what the Ketuanan and the theocrats ideologues wants. They could not give a damn if they get what they asked for because they are fascist-communist-like blind-faithed not to see any failure like all ideologues.

    What makes the NEP a truly difficult policy to change is its now wrapped in religion and theocracy debate. Like it or not, Malay and Islam is one and the same in this country and we are way over the line to be able to cross back. The joining of Najib and Hadi’s PAS is a runaway train. Their vision that train is heading is a proven failure.The future of UMNO-PAS vision is all evident in Iran especially but also Saudi Arabia, Sudan, Yemen especially – they have tried, failed and now turning back is still too difficult for them. The evidence is absolutely clear. If that is not enough, the best evidence of certain failure is Vatican – the Catholic church IS a failure – they are supported by congregations from rich countries, fabolously wealthy BUT within the state of the Vatican the abuses and failure of what they do is evident if you strip out the superficial, almost all their congregations break at least one or more of their rule called sins, attendance have been in long term decline and in fact minority, they have no real intellectual answer to dealing when they should be leading with their biggest challenger – the Muslim faith and their extremist.

  5. I repeat. The NEP may have difficulties to build a strong and sustainable economy. But a strong and sustainable economy will be more than able to build a sustainable and strong NEP.

  6. I’m always for some form of affirmative action for the disadvantaged groups in a society, say, based on the level of income. I’ve always opposed the race-based affirmative action as practiced in Malaysia. It is discriminatory. It’s a political tool for one race to dominate over other races. It destroys the idea of a meritocracy and instead puts race as the dominant factor in admissions and hiring procedures. The best people for the position should be put there, regardless of race. Those who are put into a position through affirmative action often are not fully ready for the task. Not only is this not good for the society, it is also not good for the individuals as well because it lowers self-esteem. Such race-based affirmative action reinforces stereotypes and racism. People given a position purely because of such affirmative action often are not qualified, and the idea that all people of that race must be “stupid” is perpetuated. Also, it presupposes that all people of the same race need help. This also reinforces stereotypes and even embeds them permanently into the system.

    Let’s face it: race-based affirmative action has divided Malaysia and is driving the nation to a failed state. Given the glaring facts that Malaysia remains a very unequal society, with strikingly low levels of social mobility, what’s needed is a set of policies that promote upward movement from the bottom, and, at the same time, has more appeal to Malaysians who find racial preferences objectionable. Fortunately, such an approach is readily available: race-blind affirmative action that helps poor and disadvantaged people get ahead regardless of their skin color and ethnic origin.

    Race-blind affirmative action isn’t a new idea, of course. At the state level in the United States, such tools have already been shown to work, both in enhancing opportunity and winning political support. The Texas Top Ten Percent Rule, which was introduced in 1998, guarantees students who finish at the top of their classes admission to state universities. Although the rule has attracted a lot of criticism from Texas Republicans and conservatives, they have only succeeded in scaling it back rather than abolishing it. And it has served as the model for similar reforms in California and Florida.

    In an important study that was published in 2012, “A Better Affirmative Action,” Richard D. Kahlenberg, a senior fellow at the Century Foundation who is a big proponent of race-blind measures, pointed to other ways in which states have used them to boost diversity and social mobility (https://s3-us-west In seven states, public universities have adopted class-based admissions policies, which take into account factors such as parental income and parental education level. Eight states have set up partnerships with local high schools to encourage students from low-income backgrounds to apply for college. “If college admissions officers want to be fair—truly meritocratic—they need to consider not a student’s raw academic credentials, but also what obstacles she had to overcome to achieve them,” Kahlenberg notes. “A 1200 SAT score surely means something more for a low-income, first-generation college applicant who attended terrible schools than it does for a student whose parents have graduate degrees and pay for the finest schooling.”

    But in casting aside racial preferences, or any other policies designed to overcome the legacy of racial discrimination, we need to keep sight of the broader issue of equal opportunity for all. Malaysia, as we are constantly reminded these days, is, in some ways, coming to resemble a plutocracy or an oligarchy. To counteract the forces of inheritance and inequality, we need some policies designed to help the folks at or near the bottom. Race-blind affirmative action, properly designed, can be one of them.

  7. Affirmative action, aka NEP? The ‘natural’ evolution has always been this:
    Affirmative policies -> Discriminatory action -> Entitlement-Privilege -> Supremacy -> Fascism -> Apartheid.
    Now, you may reverse the arrow but you still end up in a closed end circuitous loop. The feedback mechanisms are non existent in the case of Malusia, because it’s the ‘majority’ who are demanding such a policy which only serves to demean, pervert and subvert themselves. Mammon is great!

    So Yes, Malusia is in the process of becoming Apartheid – where acquaintances of a different culture and religion from the Ketuanans, will have to grovel on the ‘haram’ side of a longkang in order to chat with them.

    But both groups have to handle the same kaffir harbi wang tunai passed over the longkang. Is that halal (kosher, sanctifiable)? Time to morph into a cashless society like the Swedes, i guess.

    The question is not how to rectify, rehabilitate or heal both sides of the divide. The question is whether there will be political will. Obviously, at the moment neither the Establishment nor the Oppo Goons have the Cojones to stop the Rot.

    • CLF too sensous and showing too much skin. All the Muslim NGOs will be out in full force he he

  8. Biases is perceived to have even been extended to ‘Open House’ which have been organized for many years to celebrate Hari Raya-Deepavali-Chinese New Year-Christmas-other festivals.
    In the earlier days there used to free mingling of all regardless of race or religion or status. This was also the opportunity to taste the various types of dishes [Now it is only the catered foods] and interact with the hosts on personal levels including knowing and appreciating the cultures of both the hosts and the visitors [but now the crowds compete with each other to be in front and sometimes there may be scuffles and angry words resulting in lack of tolerance]. There was genuine and sincere friendship even between the young which built life long friendships.
    This was the TRUE ONE MALAYSIA.

    But then came the TAXPAYERS’ FUNDED OPEN HOUSES which may be more of commercial and void of any of the cultural values and spirit of tolerance among the various races. Corporate sector uses Open Houses for building business contacts. Even the economical benefits of these Open Houses may be mainly enjoyed by selected/connected groups who may include decision makers-food suppliers-logistics suppliers-entertainers-others.

    There is a common perception of suspected
    MISMANAGEMENT-FRAUD-CORRUPTION-EMBEZZLEMENT-CRONYISM-BRIBERY-KICKBACKS-NEPOTISM of public/shareholders/organization funds but rarely are the suspicions rejected by anyone in authority as it may have become an accepted culture and may also involve senior level personal.

    How to increase personal contacts when the policies may be based on bias based policies?

  9. The grossly prolong and abused discrimination policies destroyed unity, harmony, social cohesion and the real economy.

    Many ordinary people and real small to medium businesses are affected or destroyed by decades of unfair policies. Excessive government intervention has grossly distorted the real economy.

    Self serving and corrupt politicians and their parties only look after themselves.

    When political ‘ leaders ‘ do not strongly call out Malay/Muslim extremists who are provided platform to spread racial and religious hate, you have a serious and dangerous problem facing a multi racial and religious country.

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