the impact of the new economic policy in malaysia

Justin Ooi Monash University

Name: Justin Ooi (26260611) Monash University Subject: Malaysian Studies (AMU 2685) Essay Title: The Impact of the New Economic Policy in Malaysia (Assessment Task 1) Due Date: 28th April 2016 Word Count: 1952

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The Malaysian New Economic Policy (NEP) has been one of heavy controversy during

and after the time of its implementation. Introduced in 1971 just over a decade since

independence from the British Empire by then Prime Minister Abdul Razak and ending in 1991

during the incumbency of Prime Minister Mahathir Mohamad, the policy was two-pronged in

that it focused firstly on the ‘eradication of poverty’, and secondly, the ‘restructuring of society’

in Malaysia (Lee, 1997, p. 30). Through these two prongs, one major objective of the NEP, as

spelled out in the Second Malaysia Plan (1971-1975), was to achieve ‘national unity’, but to

which many a critic point at as one of its major failures (Muzaffar, 1989, p. 25). Yet, many also

acclaim the NEP that it was indeed successful in reducing poverty and distributing the wealth

among Bumiputera (Malay and indigenous people) and non-Bumiputera (mainly Chinese and

Indian) citizens. In assessing its successes and failures, this paper will look at the NEP and its

impact in separate, yet inherently interlinked areas such as the Malaysian economy, education,

and politics. It will also provide an overarching analysis of how the NEP, through these areas,

affected intra- and inter-ethnic relations.

In order to understand the contextual narrative leading up to the advent of the NEP, it

is first necessary to acknowledge the social and political climate of post-independence

Malaysia. The ethnic make-up of the then newly independent nation of Malaysia consisted of,

and even up until today, a majority of a predominantly Malay, Bumiputera community. Second

to that majority is the Chinese population, followed by the Indians, and then by a demographic

labelled ‘others’ who do not fit into specific ethnic group labels (Welsh, 2015, p. 13; Mokhtar,

Chan, & Singh, 2013, pp. 12-13). Of the total population, 49.3 percent were living with income

below the poverty line which consisted predominantly of Malays in the agrarian sector while

most non-Bumiputeras, mainly the Chinese, were urbanised and very much in control of the

economy (Muzaffar, 1989, pp. 26-27, 37). Thus, ethnic communities were polarized, and as a

result contributed to the nature of race-based political representation in Malaysia as the ruling

coalition, then known as the Alliance, consisted of the United Malays National Organization

(UMNO), MCA (Malaysian Chinese Association), and MIC (Malaysian Indian Congress).

In 1966, the Alliance introduced the First Malaysia Plan (1966-1970) for the purpose

of eradicating poverty regardless of race which benefitted mainly the Malay population.

However, in the 1969 general elections many Malays, discontented with UMNO for its

tolerance of the Chinese-dominated economy, demanded special and exclusive rights and opted

for the Pan-Malaysian Islamic Party (PAS) which they felt would do better in safeguarding



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their interests (Case, 2015, p. 41). The Chinese on the other hand, feeling as second-class

citizens, opted for opposition parties. As a result of these social and political cleavages, racial

tensions were rife, escalating to violent racial attacks on May 13, 1969 mainly between the

Malay and Chinese communities (p. 41). Despite winning the 1969 general election, split

support in a dichotomized political milieu left the Alliance coalition weakened. Thus, it was in

these social and political conditions following the election that a weakened Alliance coalition,

absorbing almost all opposition parties, and renaming itself the Barisan Nasional (BN),

introduced the NEP just two years later.

The NEP arguably had a positive impact in the Malaysian economy. In pursuit of

fulfilling its objectives, the ruling coalition, led by UMNO set out a number of policies to

elevate the Malay population into the trade and industry sectors which Malaysian leaders

believed was a method of spreading the wealth of the population equally, or as former prime

minister Mahathir Mohamad once put it, ‘… in trying to redress the imbalance it will be

necessary to concentrate your effort on the Malays, to bring out more Malay entrepreneurs and

to bring out, and to make Malay millionaires, if you like, so that the number of Malays who

are rich equals the number of Chinese who are rich, the number of Malays who are poor, equals

the number of Chinese who are poor and the number of unemployed Chinese, then you can say

that parity has been achieved’ (Cited in Muzaffar, 1989, p. 17). Consequently, the government

through the NEP set the goal to establish 30 percent involvement of Bumiputeras in corporate

fields by the end of the twentieth year of the NEP through the setting up of many economic

vehicles such as Perbadanan Nasional (PERNAS) and Permodalan Nasional (PNB) which

pooled Malay investment capital to establish new Bumiputera enterprises (Felker, 2015, p.

136).

The affirmative actions taken by the government to eradicate poverty and establish

Bumiputeras alongside the non-Bumiputeras in the market indeed achieved new heights for the

Malaysian economy as it heralded an ‘era of rapid growth and redistribution’ as poverty in the

country significantly reduced from 49 percent in 1970 to 16 percent in 1990 as defined by the

government (Rasiah & Shari, 2001, p. 58; Lee, 1997, p. 31). Furthermore, unemployment rate

fell from 8.0 percent in 1970 to 2.5 percent in 1996 as a result of increased job opportunities

(Rasiah & Shari, 2001, p. 58). Portions of the Malay population, having been catapulted into

the trade and industrial sector, formed a professional, middle-class, Malay society which

competed with the Chinese in the economy.



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That is not to say that non-Bumiputeras did not economically gain from the NEP as

well. After a severe recession during the mid-1980s, the government realized, and thus

acknowledged the importance of the Chinese and foreign investors in the growth of the

economy through ensuring that non-Bumiputera-owned capital were not hindered (Gomez,

2009, pp. 169-170). Furthermore, unintended ethnic relations between the Chinese and Malays

began to arise through the appointment of Bumiputera directors by non-Malay companies as a

means to ‘secure government contracts and licenses’, a practice Malaysians widely termed ‘Ali

Baba’ (p. 170). By the end of 1990, Chinese equity had doubled from 22.8 percent to 45.5

percent during the NEP period (p. 170). The Chinese, in spite of the favourable nature of the

NEP towards the Malays, persisted to thrive in business.

However, many critique the NEP despite its contributions in the economy for dividing

rather than uniting Malaysian society. One such argument posits that the policy did not promote

the ‘spirit of entrepreneurialism’ but rather ‘rent-seeking’ among these elites in a hotch potch

of political ties and connections (The Economist, 2005). Ramasamy (2009) argues that this

transformed the nature of UMNO as a political party into a ‘patronage machine’ for these elite

Malays’ political and economic advancement (p. 105). Put simply, the NEP gave well

connected Malay elites the leeway to negotiate with political leaders of UMNO for projects,

positions, and economic opportunities often in exchange for political support.

Another criticism of the NEP’s impact in the Malaysian economy is that the policy

created contention between Bumiputeras and non-Bumiputeras as many non-Bumiputeras

despised the policy, deeming it unfair and race-based as their Bumiputera counter-parts

excelled with favourable opportunities by the government. Many contended that such policies

should instead be based on, as former senior leader of the MCA Michael Yeoh described, ‘merit

and needs’ (Far Eastern Economic Review, 1989, p. 33). Thus, it is argued that the contention

the NEP has created between ethnic groups contradicted its objective of facilitating national

unity.

The impact of the NEP in Malaysian education was similar to its impact in the economy

in that it worked to elevate and urbanise the Bumiputeras in society. This was done through

two major changes. The first major change made in the education system was the replacement

of English as the sole medium of instruction with the Malay language Bahasa Malaysia in all

national school subjects from 1976, the justification being that Malaysia needed a ‘common

language to unite its people and to promote its national identity’ (Lee M. N., 1997, p. 31; Lee



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H. G., 2009, p. 219). This caused problems in two ways. Firstly, it reduced the standard of

English in the country and especially among the Bumiputeras who had little or no exposure to

the English language outside of school. Lee (1997) argues that this became a ‘concern among

political leaders and employers in the commercial sector’ where English remains an important

medium (p. 34). Secondly, the decision to change the national language to Bahasa Malaysia

affected ethnic relations as the Chinese felt that the change was a means to ‘advance Malay

economic interests (Lee H. G., 2009, p. 207).

The second major change in the education system heralded by the NEP was the racial

quota system of the admission of students into public tertiary institutions. This system allowed

admission of a majority of Bumiputera students while rejecting many non-Bumiputeras who

were just as, if not more qualified. Statistics show that between 1970-1975, public university

recruitment of the Chinese declined steadily from 42.7 percent to 31.1 percent; in the case of

the Indians it was 5.1 percent to 3.3 percent; while the Malays experienced an increase from

39.7 percent to 57.2 percent (Muzaffar, 1989, p. 32). As a result, many non-Bumiputera

students had no option but to go overseas or to private schools for their higher education at

much higher costs (Lee M. N., 1997, p. 31). Such systems are argued to contribute to the ethnic

divide and are, as Muzaffar (1989) posits, ‘by no stretch of the imagination… contributing

towards national unity’ causing distress to a non-Bumiputera middle-class who ‘could hope to

– and yet cannot – give their children university education…, make it to the top…, and

dominate and control the professional, commercial and industrial elite-world of Malaysian

society’ (pp. 31-34).

The NEP was seen a boon for the government to maintain support by the majority

Malay population. As mentioned earlier in this paper, the NEP came about as a response to the

demand by the Malay Bumiputeras for special and exclusive rights. Pepinsky (2013) argues

that the NEP ‘reified the ethnicity/economy cleavage in Malaysian politics’ in that it became

inherently linked to the BN’s political survival as the sole protector of ‘Malay rights’ (p. 87).

In contemporary Malaysia, fierce possession of ‘Malay rights’ remain pervasive among the

Malay middle-class. In one case, a former cabinet minister Zaid Ibrahim’s statement that the

‘concept of ‘ketuanan Melayu’ (Malay sovereignty) has outlived its sell-by date’, causing an

outcry among a segment of the Malay population, only proved that this demographic remains

unwilling to wean off such policies that preserve their so called special rights (Anwar, 2009, p.

261). Thus, it can be said that though contemporary Malaysia is no longer poverty stricken like



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in the 70s, successive policies similar to the NEP continue to be used by the BN as a means to

hold on to power – a tactic they see worth keeping for as long as the Malay population remain

dependent on such policies.

In conclusion, it is clear that the NEP was successful in achieving its two prongs in that

it reduced poverty as well as restructured society by contributing favourably in the economy

through the creation of an urbanised, Malay middle-class. However, it can be argued that while

doing so, it failed miserably in its objective to achieve national unity as it showed to favour

Bumiputeras over non-Bumiputeras in terms of opportunities. Futhermore, the policy showed

to have a negative impact on politics as it has undeniably created a ‘patronage machine’ in

UMNO in that it opened doors for corruption, money politics, and political hegemony. Thus,

although, policies like the NEP was indeed necessary in the 70s when poverty was pervasive,

many continue to argue that contemporary Malaysia would be better off without them as they

are detrimental to inter-ethnic relations and national unity.

[Word Count: 1952]


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