New Economic Policy—Malaysia
The New Economic Policy (NEP) of Malaysia was a set of government actions introduced in 1970 to promote the interests of ethnic Malaysians (bumiputras, or "sons of the soil") over those of the nation's other two large ethnic groups: the Chinese and the Indians. The NEP was introduced in the wake of fear over a Communist uprising and widespread ethnic tension that threatened the nation. It aimed to bring social stability by reducing overall poverty and strengthening the economic and social positions of bumiputras over the other two groups. This aim has broadly been achieved, and the NEP should therefore be considered a success, even though it has been criticized.
Historical Context
Like many other Southeast Asian nations, Malaysia historically had a comparatively low population density, partly as a result of inaccessible terrain. When the nation was colonized by the British in the late eighteenth century, the labor force was not sufficient for the large-scale processing and manufacturing activities planned to exploit the rich natural resources. Specifically, large-scale tin mining for the canning industry and cultivating rubber trees for the tire industry required larger labor pools. The British imported workers from India to meet the needs of the rubber industry and introduced modern technology to be used by Chinese migrants in the tin mines. This also helped prevent economic power falling into the hands of indigenous people and hence reduced the chance of organized resistance to colonization. Migration from China had been a long-term phenomenon, and trading networks had been established since at least the fifteenth century. Activities supporting these industries, such as retailing and wholesaling, therefore also tended to fall into Indian or Chinese hands. This situation led to the relative impoverishment of the more numerous bumiputras and their marginalization in economic terms as they remained largely in rural occupations.
After the Japanese occupation during World War II demonstrated that the European powers were not irresistible, opposition to the colonists grew, and new British settlement plans in 1946 and 1948 were strongly resisted. At the same time, a Communist insurrection, led mainly by Chinese, threatened the security of Malaysia, and the British took strong steps to end it, including the resettlement of 500,000 Chinese in villages that the British controlled. Violence broke out sporadically in subsequent years. When independence was finally granted in 1967, therefore, it was against a background of ethnic tension and division, with both Chinese and bumiputras feeling threatened. Tensions were worsened by the creation and strengthening of political parties almost wholly along ethnic lines—a situation that persists.
Riots continued after independence; in 1968 two hundred people were killed in Kuala Lumpur in incidents sparked by fears of excessive ethnic Chinese wealth and power. These incidents convinced the ruling United Malays National Organization (UMNO) that action was necessary not just to settle the emergency but also to institute social and economic reform to prevent a repeat. This is the context in which the NEP was created.
The New Economic Policy
The NEP consisted of a series of linked measures with two specific objectives: reduction of the absolute poverty of the bumiputras and an increase in their participation in the economic system. A principal measure to achieve these objectives was the forcible restructuring of corporate equity; that is, overseas firms were required to divest part of their ownership to bumiputra interests, primarily through trust companies set up for that purpose. The aim was to achieve 30 percent of corporate ownership by bumiputras, 40 percent by other Malaysians, and 30 percent by others. In other words, both Chinese Malaysians and overseas investors were obliged to cede control of parts of their firms to the government-controlled bumiputra nominees. The Malaysian government has often intervened in the economy in this way, and although economic success has followed, international investors have lower levels of confidence that their interests will be respected.
At the same time, incentives were offered to bumiputra companies to establish themselves and to invest. Preferential opportunities were also provided to bumiputras for higher education and for other forms of personal and professional development.
The NEP was put into effect through successive Five-Year Plans, which began with specific goals of redistribution and which gradually adopted goals of growth more generally. The NEP was introduced with a lifetime of twenty years, and, by 1990, when it was replaced by the National Development Plan and other policies, the government had become concerned with more sophisticated maneuvering of an economy engaged in the struggle to be competitive on a global scale and with the needs of a developing, mixed export-led economy in which industry had succeeded agriculture as the main activity.
Assessment
The NEP was an affirmative action plan, and so assessments of its success or failure are subject to the arguments that affect affirmative action programs generally. In its own terms, the NEP was successful: poverty in Malaysia was reduced from 49 percent at the policy's inception to 9 percent at its conclusion in 1990. Many indicators demonstrate that bumiputras have a much greater share of the national wealth and are taking more active senior administrative and executive roles. However, many international businesses complain that bumiputra nominees are underqualified and lack motivation. Further, it is clear that inequality of income and opportunities within the ethnic Malay community has increased substantially and that this factor is now one of the most divisive in the nation. This inequality is manifested in the apparently disproportionate access to benefits obtained by a small group associated with the UMNO government—in other words, cronyism. Additionally, in the comparable case of Indonesia, poverty rates were reduced by a greater extent without affirmative action, although it is true that ethnic relations there (as was revealed in the aftermath of the 1997–1998 currency crisis) are still fractured below the surface.
However, the NEP assisted in shaping a modern multicultural society that has achieved splendid rates of economic growth since the early 1970s, even if political development has not fully kept pace. It avoided large-scale outbreaks of ethnic rioting and has retained a considerable degree of economic sovereignty.
Further Reading
Hiebert, Murray. (1999) "Tin Cans and Tyres." Far Eastern Economic Review (April 15).
Kok Swee Kheng. (1994) Malaysia to 2003: From Redistribution to Growth. London: EIU.
Reid, Anthony. (1999) Charting the Shape of Early Modern Southeast Asia. Chiang Mai, Thailand: Silkworm Books.
Unido. (1991) Malaysia: Sustaining the Industrial Investment Momentum. Oxford, U.K.: Basil Blackwell.
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