The Hindu Business Line : Affirmative action: The Malaysian case

Malaysia has relied on three different routes to ethnic economic restructuring: Job quotas, human resource development and direct action to promote the share of the bumiputra in corporate equity. But this policy has had its critics, who argue that the Malaysian economy would have grown at a higher rate, if only the policy-makers have been focussing on enriching the poor as a group, regardless of race, says BHANOJI RAO.

Colonial times in Malaysia saw the influx of Chinese and Indian immigrants to work in the country's tin mines and rubber plantations. The immigrant populations settled there and worked their way up. Over time, Malaysia evolved into a multiracial population, with the Malays and other indigenous people maintaining a majority share in the population, while allowing the Chinese and Indian populations to grow.

Ethnic composition, as per the Census of 2000 (of the then 23.5 million people) was as follows: Malay and other indigenous peoples (bumiputra) 66.1 per cent, Chinese 25.3 per cent, Indians 7.4 per cent, and Others 1.2 per cent. Three decades ago, in 1970, the shares in the total population of 10.8 million were bumiputra 55 per cent, Chinese 34.4 per cent, Indians 9.1 per cent and Others 1.5 per cent.

Against these population shares, the common perception in the 1960s was that the bumiputra had almost minuscule shares in national income and wealth. Also, there was too much of a concordance in the minds of the people between race and economic function. For instance, the popular perception was that the Malays were mostly employed in traditional and small-scale agriculture, Chinese in commerce and modern urban-based sectors of the economy and Indians in plantation agriculture, as workers.

Majority community had little economic clout

Here is a case where a majority community has little economic clout, though the community has enjoyed political power, especially since self-rule in 1957. As the political power and economic morbidity of the majority sinks into the conscience of the community, it is but natural that it becomes increasingly difficult to keep inter-racial unity in tact. The volcano erupted in May 1969, and Kuala Lumpur saw perhaps one of the bloodiest of race riots in the history of the nation, leaving more than 100 people dead.

The race riots and the underlying frustration of the majority community prompted the policy-makers to go in for a New Economic Policy (NEP) that explicitly set the twin objectives of restructuring society and eradicating poverty. Of the two, the most debated, bold and affirmative was the first objective. It meant the restructuring of the Malaysian society to correct the economic imbalance among racial groups and reduce, eventually eradicate, the identification of race with economic function.

The NEP, introduced in 1970, was the driving force behind the development plans during 1970-1990. The Malaysian planners of the time recognised that the implementation of NEP was best done in the context of a rapidly growing economy, which would generate employment and business opportunities relatively quickly.

Restoring the balance

There was thus the stress on growth, with the proviso that it must benefit all groups of society in an equitable manner. It was envisaged that the government would be pro-active and would take measures to create a bumiputra commercial and industrial community.

The private sector too was more or less mandated to participate actively in the national efforts to correct economic imbalances. Since the NEP addressed the problem of the majority community, it enjoyed the support of the majority and continued in its original form between 1970 and 1990. When the National Development Policy, or NDP, was formulated in 1991, the NEP was fine-tuned to increase the emphasis on bumiputra employment growth and human resource development. Even during the economic recovery efforts after the financial crisis of 1997-98, the spirit of NEP was kept intact.

Malaysia relied on three different routes to ethnic economic restructuring: Job quotas, human resource development and direct action in regard to promoting the share of the bumiputra in corporate equity.

The first was a simple policy of requiring enterprises to ensure that the ethnic composition of the workforce is as close as possible to the ethnic composition of the population.

As for the second, in addition to insisting that public universities reserve 60 per cent of seats for the bumiputras, the State spent liberally and sent bumiputra scholars to leading universities in the United States, the UK and Australia. In the span of one generation, an elite class evolved out of the erstwhile deprived bumiputra.

The third route to economic restructuring was in terms of raising the share of the bumiputra in corporate equity. New manufacturing companies with paid-up capital above a floor level and existing companies with the floor level capital raising new equity are required to offer at least 30 per cent of the additional equity to bumiputra investors.

Impressive results

In addition to the initiatives in terms of employment quotas and human resource development initiatives aimed at improving the relative position of the Malay community, an important complementary policy was the adoption of Malay as the official language of Malaysia. Complementary steps also included measures such as the adoption of a common national syllabus in all government-funded schools.

The overall results were impressive. In the backdrop of an economy posting robust growth at an average annual 6.7 per cent during 1971-1990 and 7 per cent during 1991-2000, much has been accomplished in terms of moving forward towards a relatively better ethnic economic balance.

In 1970, 65 per cent of the Malay workforce was engaged in agricultural and allied activities. The proportion in manufacturing was a low 6 per cent.

After three decades of a conscious policy of ensuring racial balance in employment, the bumiputra's manufacturing share of employment rose to 26.3 per cent, surpassing the agricultural share of 18 per cent.

Occupationally, in 1970, just about 4 per cent of the Malay workforce was in the professional and technical category, and a miniscule 0.01 per cent in the administrative and managerial group. The respective percentages in 2000 were 13.6 per cent and 3 per cent.

In 1970, the Malay share in corporate equity was an estimated 2.4 per cent of total equity. By1990, the share rose to 20 per cent, and in 2000, it stood at 19.1 per cent.

It is not as though there are no critics of NEP, especially the goal of restructuring wealth ownership and developing a bumiputra entrepreneurial class and the policies pursued to achieve them.

Critics argue that in the name of restructuring wealth ownership, the government, in effect, transferred wealth to a small number of influential and politically well-connected businessmen.

There is also the view that the Malaysian economy would have grown at rates close to 10 per cent per annum instead of 7, if only the policy-makers have been focusing on enriching the poor of the country as a group, regardless of race.

Even more pertinent is the critical view that the very success of the bumiputra has now created an economically and demographically minority community in Malaysia, the descendants of the Indian working class who slogged on the Malaysian plantations and contributed to the wealth of the British colonial masters as well as Malaysia in general. The Indian community is neither here nor there.

(The author, formerly with the National University of Singapore and the World Bank, is Professor Emeritus, GITAM Institute of Foreign Trade, Visakhapatnam. He can be reached at bhanoji@gmail.com.

This article has benefited from the case study "Malaysia: 30 Years of Poverty Reduction, Growth and Racial Harmony", brought out by the Economic Planning Unit of the Malaysian Prime Minister's Department.)

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