Malaysia's New Economic Policy 1969

Introduction

The ambitious and controversial New Economic Policy (NEP) was announced in 1970 after the post-election race riots of 13 May 1969 and was launched the following year by Malaysia’s former Prime Minister Tun Abdul Razak. The aim of this policy is to eradicate poverty regardless of race by raising the people’s income and increasing employment opportunities. Secondly, it is to restructure society to correct economic imbalances as well as to eliminate the identification of race with economic function.

Initially, the NEP was created to accommodate and facilitate social cohesion by reducing interethnic resentment. However, the policies implemented were seen as pro-bumiputera by the general public. This can be seen especially in the rural areas. Nevertheless, the rate of poverty has decreased significantly.

Background

Before 1970, the main goal of the development policy of Malaysia was to encourage growth that stressed the importance of the export market. Even though the economic prospered more very quickly during this time at a yearly average of 6.0 per cent, too little importance was placed when it comes to areas of distribution which caused the country to be unequal socio-economically among the races. This resulted in social costs in 1969 where a racial riot broke out. The New Economic Policy (NEP) commenced in 1971 and was a watershed in the Malaysian economic policy history. Because of the NEP, people became aware that reaching socio-economic targets while striving for economic growth objectives as steps to have a harmonious and united country with various races and religious groups. The overriding objective was cohesion in the country.

Objectives

The New Economic Policy was basically formulated with an ambitious yet important objective of creating a harmony and united nation as well as fostering nationhood spirit among all Malaysians. The New Economic Policy and the objectives where based on the principles in the Federal Constitution of Malaysia and the Rukunegara. In the Second Malaysia Plan (1971-1975) the objective was stated quite clear that “under the New Economic Policy, development will be undertaken in such a manner that in the process of growth and expansion, it makes the maximum contribution to the achievement of national unity.”

The two main strategies to achieve national unity is by eradicating poverty through increasing of income and employment level for all Malaysians and restructuring the composition of society in order to eliminate the identification of ethnicity with various economic functions. The Second Malaysia Plan drew attention to that “while there must be no delusion that national unity can be achieved by purely economic means, the eradication of poverty and the restructuring of society and economy are necessary condition for national unity.”

Eradication of Poverty

To achieve national unity, government leaders feel that ‘national unity cannot be fostered if vast sections of population remain poor.’ Poverty becomes more serious because it alleged and infer in ethnic perspectives. Thus, the first prong of the NEP was to reduce and eventually eradicate poverty by increasing income levels and job opportunities for all Malaysians, irrespective of race. In 1970, the poverty is 49.3 per cent of the total population and the target of NEP was to reduce the figure to 16.7 per cent by 1990. The majority ethic in the country, which is the Malays, was poorer in comparison to the non-Malays. At that time, the Chinese was the dominant ethnic in the society’s wealth as they were more involved in the modern development such as mining business while Malays remained to be involved in traditional economic activities. In fact, ‘the Bumiputera formed the majority of the poor, accounting for 74 per cent of all poor households in Peninsular Malaysia in 1970.’ The NEP recognized that the distribution of wealth can only be achieved by undertaking steps to boost the economic growth, which may increase opportunities for employment.

Restructuring Society

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Restructuring Society

The second prong of the NEP strategy was to restructure society by eliminating the identification of ethnicity with economic functions to correct economic imbalances. The NEP paid special attention to the creation of bumiputera ownership and their capital share in the corporate sector. As Tan Sri Ghazali Shafie has argued, ‘it would not be conducive to the national unity merely to have the urban-rural racial split replaced by an employer-employee racial split. Malays and other indigenous people must move into the modern urban sectors of the economy, not just merely as workers and employees. They must eventually also have a roughly proportionate stake of ownership and control of urban-type activities, whether located in existing urban areas or in new township or growth-centers in the present small towns.’ This process of restructuring society involves massive and centralized planning of modernization of rural areas.

As shown in Table 1, the Bumiputera were mainly involved in the traditional agriculture sector and generally belong in low income categories, as compared to the non-Bumiputera, especially Chinese, were more involved in the modern sectors as professional and technical occupations which had a much higher income. The government had planned out many strategies to increase new employment in particularly the industrial and services sectors. A significant element introduced through the NEP was the creation of the Bumiputera Commercial and Industrial Community (BCIC) to provide more opportunities for the participation of Bumiputera in the modern economy sectors.

Table 1- Selected Sosio-Economic Targets Under the OPP1

The ultimate goal of NEP is to expand the government spending and thus creating economic growth. Therefore, ‘a high economic growth strategy was adopted during the OPPI, with real GDP targeted to grow at 8 per cent per annum’. The aim of such high growth rate was to generate sufficient employment and job opportunities to help the rural area community to gain their income to a higher level which ultimately helps to reduce poverty, without depriving other sections of the community to achieve the NEP’s socioeconomic objectives.

The government had opted two importance development strategies to further accelerate the growth of the economy. The economy’s growth must be done by utilising the national’s abundant natural resources through the increase in the agricultural production as well as developing the industry sector which are based on raw-materials. The increase in investment, both public and private was vital for the rural areas to develop and reached the target by 1990. The significant part of the investment was spending of the infrastructural and rural development. The public enterprises had increased the Bumiputera participation in the modern commercial and industrial activities. An 8.5 annum growth rate during that period was projected through the rapid expansion of public sector investment, which further accelerates the private investment.

ACHIEVEMENTS OF NEW ECONOMIC POLICY

Eradication of Poverty

With the introduction of NEP, wealth among the Bumiputras went from 4% in 1970 to about 20% in 1997. The overall wealth of the country as a whole also grew where per capita went from RM1, 142 in 1970 to RM12, 102 in 1997. During the same period, absolute poverty in the population as a whole dropped from 50% to 6.8%.

Meanwhile, the , a measure of statistical dispersion which is used as a measure of inequality of income distribution or inequality of wealth distribution decreased from 51.3 in 1970 to 44.6 in 1997. This implies that the inequality of wealth distribution has gone down. In 1987, the figures also showed that the mean income of the Malays had improved relative to both the Chinese and Indian communities

Table 2: Distribution of Wealth after the Introduction of NEP

Elimination of Race Identification

The Bumiputra participation in the professions and private sector had increased after the implementation of NEP. Between 1970 and 1990, the Bumiputra share of accountants doubled from 7 to 14 per cent, engineers from 7 to 35 per cent, doctors from 4 per cent to 28 per cent, and architects from 4 to 24 per cent. Besides, the Bumiputra portion of the share market increased as well from 2 to 20 per cent over the same period.

On the other hand, the Chinese share also increased from 37 to 46 per cent, at the expense of foreign participation. The Official figures also indicated that the Bumiputra share ownership stood at 28.6% in 1990 and 36.7% in 1996.

To other countries, those affirmative steps were a “success story” which was a policy that should be followed. The “Malaysian model” was used by developing countries like South Africa and Zimbabwe to have affirmative action for their majority ethnic groups that were prejudiced and excluded by repressive colonial and post-colonial regimes. The policy was aimed at ethnic and class minorities in India and there were people very keen in getting the same results as Malaysia of affirmative action business-wise which is has the objective of having a Bumiputra commercial and industrial community.

Quality Education to Poor

When the NEP was introduced, it also emphasizes on providing poor children with quality education. Thus, young Bumiputras from the rural areas were sent to well-equipped residential schools and were provided the preferential access to tertiary education. These people who were properly educated from young are now the new middle class and have more influence as a community with entrepreneurial abilities.

According to research, those who were prepared with proper education from young don’t only excel in their tertiary studies. They are also able to enter the business world and are rather competent when handling competition.

In conclusion, NEP had provided quality education at an early age to poor Bumiputras. This helped to reduce the illiteracy rate in Malaysia.

Conclusion

The New Economic Policy (NEP) came about after the post-election race riots of May 1969 and was launched by former Prime Minister, Tun Abdul Razak.

One of the objectives of the NEP is to eradicate poverty. This is because national unity cannot be achieved if vast sections of population remain poor. The NEP attempts to increase income levels and job opportunities.

Another objective of the NEP is to restructure society by eliminating the identification of ethnicity with economic functions in order to correct economic imbalances. This process of restructuring society involves massive and centralized planning of modernization of rural areas.

The NEP has many achievements. One of them is poverty eradication regardless of race. Not only did the wealth of the bumiputras increased by 16%, but the overall wealth of the country as a whole also grew. Absolute poverty also dropped from 50% to 6.8%.

The NEP also succeeded in eliminating the identification of race with economic function. More bumiputras participated in the professions and private sector after the NEP was implemented. The Chinese had an increase in shares from 37 to 46 percent.

Furthermore, the NEP provided quality education to the poor. Children from poor families that were given proper education became the new middle class and are more influencial as a community with entrepreneurial abilities. In fact, these students not only do well in their tertiary studies, but they also handle competition well.

References

Economic Planning Unit Prime Minister’s Department, Malaysia, New Economic Policy, http://www.epu.jpm.my/New%20Folder/development%20

policies/cont%20key%20policies/NEP.htm, updated 14 January 2008.

United Nations Research Instituted for Social Development, Jomo K.S., Economic Policy and Interethnic Relations in Malaysia, http://www.unrisd.org/unrisd/website/document.nsf/0/A20E9AD6E5BA919780256B6D0057896B?OpenDocument, updated 1 September 2004.

Gomez, T, The Good of NEP, http://biz.thestar.com.my/news/story.asp?file= /2009/2/21/business/3313666&sec=business, retrieved on 15 April 2009.
Funston, J, 2001, "Malaysia: developmental state challenged" in Government and Politics in South East Asia, Institute of South East Asia (ISEAS).

Economic Planning Unit of Prime’s Minister’s Department Malaysia, ‘Table 2-1 Selected Socio-Economic Targets under OPP1’, http://www.epu.gov.my/new%20folder/development%20plan/2nd% 20opp%20content/opp2/t2-1.htm, accessed on 5 April 2009.

Chandra Muzaffar, The NEP Development and Alternative Consciousness, Penang, Malaysia: Aliran Kesedaran Negara, 1989.

Economic Planning Unit of Prime’s Minister’s Department Malaysia, II. Objectives and Targets of the OPP1, http://www.epu.gov.my/new%20folder/development%

20plan/2nd%20opp%20content/2nd%20outline(chap%202-ii).htm, accessed on 5 April 2009.

Tan Sri Muhammad Ghazali bin Shafie, Pamphlet, ‘Democracy: The Realities Malaysian Must Face’, Kementrian Penerangan, n.d.,

United Nations Research Instituted for Social Development, Jomo K.S., Economic Policy and Interethnic Relations in Malaysia, http://www.unrisd.org/unrisd/website/document.nsf/0/A20E9AD6E5BA919780256B6D0057896B?OpenDocument, updated 1 September 2004.

Economic Planning Unit Prime Minister’s Department, Malaysia, New Economic Policy, http://www.epu.jpm.my/New%20Folder/development%20policies/cont%20key%20policies/NEP.htm, updated 14 January 2008.

Ibid to 1.

Ibid to 2.

The Rukunegara or the National Principles is the Malaysian declaration of national philosophy after the May 13 incident which occurred in 1969. The incident had proved to Malaysian leaders that Malaysian racial balance and stability was fragile. Thus, the Malaysian government establish policies and the Rukunegara to foster unity among Malaysians (Wikipedia, 2009).

Second Malaysia Plan 1971-75, Kuala Lumpur: Government Press, 1971, p. 3

Chandra Muzaffar, The NEP Development and Alternative Consciousness, Penang, Malaysia: Aliran Kesedaran Negara, 1989, p. 25

Ibid to 2.

Second Malaysia Plan 1971-75, Kuala Lumpur: Government Press, 1971, p. 3- 4

Economic Planning Unit of Prime’s Minister’s Department Malaysia, II. Objectives and Targets of the OPP1, http://www.epu.gov.my/new%20folder/development%20plan/2nd%20opp%20content/ 2nd %20outline(chap%202-ii).htm, accessed on 5 April 2009.

Ibid to 6.

Tan Sri Muhammad Ghazali bin Shafie, Pamphlet, ‘Democracy: The Realities Malaysian Must Face’, Kementrian Penerangan, n.d., pp. 14-15.

Economic Planning Unit of Prime’s Minister’s Department Malaysia, ‘Table 2-1 Selected Socio-Economic Targets under OPP1’, , accessed on 5 April 2009.

Gross Domestic Product (GDP) - The total market value of all the goods and services produced within the borders of a nation during a specified period (cited from Dictionary.com).

Ibid to 6.

Refer to Funston, John (2001). "Malaysia: Developmental State Challenged". In Government and Politics in Southeast Asia, p. 193. Singapore: Institute of Southeast Asian Studies.

Ibid to 20.

Refer to Funston, John (2001). "Malaysia: Developmental State Challenged". In Government and Politics in Southeast Asia, p. 201.

Refer to Funston, John (2001). "Malaysia: Developmental State Challenged". In Government and Politics in Southeast Asia, p. 193-201. Singapore: Institute of Southeast Asian Studies.

Refer to Gomez, Terrence (2009). “The Good of the NEP”. In The Star Online.

Ibid to 25.