topic 10 economic development policy

INTRODUCTION Did you know that government efforts in developing the national economy began in Malaya since Independence? Generally, the history of national economic development can be divided into three main phases:

(a) Planning in the pre-independence period;

(b) Planning in the post-independence period; and

(c) Planning after the implementation of the New Economic Policy.

TTooppiicc 1100 Economic Development Policy

LEARNING OUTCOMES By the end of this topic, you should be able to:

1. Identify national economic development programmes;

2. Explain strategies carried out by the government in developing the national economic; and

3. Discuss issues arising from every economic development programme.

TOPIC 10 ECONOMIC DEVELOPMENT POLICY 167

WHAT IS MEANT BY ECONOMIC DEVELOPMENT?

Development usually refers to efforts to change the society or country from a state of under development to one of progress. These changes encompass various aspects of life like economics, politics, education, psychology and such. It also refers to the physical, material and non-material aspects. Economic development in the contexts of Malaysia, on the other hand, is economic development from traditional form to a more modern economy.

BASIS AND PHILOSOPHY OF NATIONAL DEVELOPMENT

Factors that form the basis to the drafting of development policies and strategies are:

(a) Open economic status;

(b) Diverse economic system;

(c) Multiracial society; and

(d) Federal Government.

ECONOMIC DEVELOPMENT IN MALAYSIA

Economic development in Malaysia can be examined through the introduction and implementation of development programmes that have been carried out by the government, as follows:

(a) 1956-1960 First Malayan Plan

(b) 1961-1965 Second Malayan Plan

(c) 1966-1970 First Malaysia Plan

(d) 1971-1975 Second Malaysia Plan

(e) 1976-1980 Third Malaysia Plan

(f) 1981-1985 Fourth Malaysia Plan

(g) 1986-1990 Fifth Malaysia Plan

(h) 1991-1995 Sixth Malaysia Plan

10.3

10.2

10.1


After independence, the government began implementing several national development programmes. The aim of the programmes is to overcome all political and socio-economical problems faced by the communities in Malaysia resulting from the legacy of British colonial policies. National development was planned according to two main programmes: Five Year Malaysia Plan and Long Term Plan Outline. Since independence, nine development plans and two Long Term Plan Outlines have been successfully implemented. These plans were created to suit the socio-economic and political climates of the time and national development policies. The First Long Term Plan Outline (RRJP1), 1971-1990, was the basis to the implementation of the New Economic Policy. Meanwhile, the Second Long Term Plan Outline, 1991-2000, formed the foundation to the implementation of the National Development Policy which aimed to achieve balanced development. The year 2001 saw the presentation of the Third Long Term Plan Outline (2001-2010) that was drafted based on the National Vision Policy.

NEW ECONOMIC POLICY (NEP)

This policy was launched by the Malaysian government through the Second Malaysia Plan (1971-1975). The forming of the NEP was aimed at rectifying the socio-economic imbalance among the races. The plans to achieve the targets of the NEP were included in the Long Term Plan Outline from 1971 to 1990. The development programmes under the NEP, was carried out according to a two-pronged strategy:

(a) To reduce poverty by providing more employment opportunities to all races; and

(b) To restructure communities to eradicate racial stereotyping based on economic functions.

The basis to the drafting of the NEP was to: (i) Strategy for eradicating policy The focus of the Malays was in the rural areas. Therefore, the government

implemented various public services and facilities like education, health, and water and electricity supplies. The government also provided subsidy assistance for fertilisers, education scholarships and free textbooks, additional food for children and low-cost housing programmes. The governmentÊs efforts in raising the standards of living brought results in about 20 years where the poverty rate was reduced from 49.3% (1970) to 17.1% (1990).

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(ii) Achieve the second aim of the NEP-to eradicate racial stereotyping according to economic functions. The government launched several programmes like industrialisation and commerce, agriculture, mining, and transportation. The strategies carried out were to:

• Increase output capability and standard of living of the poor in rural areas;

• Reduce imbalances in land utilisation structure so that the participation of various races in main sectors would reflect on the labour force according to racial composition;

• Increase Bumiputra equity in the productive sectors where they were quite behind, compared to other races; and

• Ensure the forming of a commerce and industry-based society among the Malays and Bumiputras so that they would own at least 30% of all economic activities come 1990.

The effects after NEPsÊ implementation is that it managed to lift the standards of living of the Bumiputras and achieve its aims in eradicating poverty. However, the restructuring of the labour force has to be stepped up considering that Malays were still under-represented in the commerce and business sectors.

NATIONAL DEVELOPMENT POLICY (NDP)

The NDP was launched by Tun Dr Mahathir Mohamed, the Prime Minister of Malaysia, on 17 June 1991. The Second Long Term Plan Outline, 1991-2000, was drafted based on the National Development Plan (NDP), marking the beginning of another new era in efforts to make Malaysia a developed nation in 2020.

10.5.1 Objectives

The main objective was still to strengthen national unity. The NDP set another step towards enabling Malaysia to achieve developed nation status in all aspects like social justice, values, ethics and morals, political stability, quality of life, government administration efficiency and economic brilliance.

10.5.2 Implementation Strategies

The NDP will continue to maintain the basic strategies of the NEP eradication of poverty and restructuring of communities to improve the social and economic

10.5


imbalance among races and with this, to contribute to strengthening national unity. The NDP will stress on:

(i) Creating an optimum balance, among the targets of economic development with fair distribution;

(ii) Ensuring balanced development for the main economic sectors to improve complementary capabilities between sectors to optimise growth;

(iii) Reducing and eventually eradication social and economic imbalances by encouraging fair sharing and mutual benefits obtained from more even growth for all Malaysians;

(iv) Encouraging and strengthening national integration by reducing the wide gulf in economic development between states and between town and rural areas;

(v) Developing a progressive society where the people can enjoy a high level of well-being, possess social and spiritual values, as well as feel appreciation and love for the country;

(vi) Developing human resources, and creating a disciplined and productive workforce as well as improve necessary skills to face challenges of industrial development through a culture of excellence without jeopardising the aim of restructuring communities;

(vii) Making science and technology an important part in socio-economic planning and development which require efforts to develop abilities in strategic technology and knowledge-based, as well as enhancing the science and technology culture in the process of developing a modern industrialised economy; and

(viii) Ensuring that, in the pursuit of economic development, appropriate attention is given to the protection of the environment and ecology in the long term. To ensure the countryÊs development can be maintained continuously, the NDP has taken into consideration the progress achieved thus far under the NEP, as well as its strengths and weaknesses. It contains several transition approaches with the aim of creating a new dimension in efforts for development, especially in eradicating poverty and restructuring communities.

The new dimensions introduced by the NDP are:

• Poverty eradication strategy to get rid of poverty among the hardcore poor as well as reduce relative poverty;


• The development of a Bumiputra Commerce and Industry-based Society as an important strategy towards increasing and subsequently maintain Bumiputra participation in the economic sector.

• Increase private sector participation in the process to restructure society; and

• Development of human resources including a system of values and ethics to achieve the target of economic growth and fair distribution.

10.5.3 Several Approaches Taken in Efforts to Implement the NDP

The approaches are:

(a) Quality and sustainable achievements.

(b) Competing in International Markets In this matter, Malaysia has to increase efforts to attract foreign investors and industrialists to expand their transactions in the country. Malaysia will continue to practise a liberal policy that will encourage the private sector to be more prepared to face related risks.

(c) Participation of all Races in Developing Malaysia The implementation of the NDPÊs two-pronged strategy will continue to encourage the garnering of national resources and use the intelligence of the multiracial societies to build a durable economy and increase the countryÊs ability to withstand the world economic instabilities and uncertainties.

(d) Eradication of Poverty In implementing strategies on poverty eradication, the NDP will take into consideration several changes to the role of the public sector through the opening of land and subsidy awards to small farmers to create work opportunities and help increase their income.

(e) Restructuring of Societies Abolishment of racial stereotyping according to economic functions and

restructuring of ownership will continue to be important programmes in the implementation of strategies to improve the Bumiputra workforce and participation in the management of modern sectors, and to form a Bumiputra Commerce and Industry-based Society. These steps will equip the Bumiputras with relevant skills to not only manage and run successful businesses but to maintain their wealth as well.


NATIONAL VISION POLICY

What is the National Vision Policy and why was it Created? The Third Long Term Plan Outline was drafted based on the National Vision Policy (NVP) with the main theme ÂIncreasing the durability and competitiveness of the countryÊ.

10.6.1 New Policy Dimensions Introduced in the NVP

The new dimensions are:

(a) Develop Malaysia as a knowledge-based society;

(b) Generate growth driven by local sources and strengths through the consolidation of investments in the country and development of local capabilities, as well as attract Foreign Direct Investors continuously to strategic fields;

(c) Make the agriculture, manufacturing and services sectors more dynamic through higher application knowledge;

(d) Eradicate poverty among the small groups of poor people in isolated areas, the Orang Asli and Bumiputra minorities in Sabah and Sarawak, as well as increase the income and quality of lives of the people in the lowest 30% income group;

(e) Achieve effective Bumiputra participation and at least 30% equity ownership by 2010;

(f) Increase Bumiputra participation in main economic sectors; and

(g) Re-orientate the development of human resources to support the forming of a knowledge-based society.

10.6

The poverty rates in the country were reduced to 7.2% in 2000 compared to 19.1% in 1990. The unemployment rate also dropped to 4% in 2000. What are your views on the ever-increasing number of unemployed graduates in Malaysia?

ACTIVITY 10.1


10.6.2 The Main Essence of the National Vision Policy

The aims of National Vision Policy are to:

(a) Build a durable nation by cultivating unity, stirring up patriotism, nurturing political maturity, building a more compromising and loving society that practises positive values, as well as improving the quality of life and economic durability;

(b) Encourage the creation of a fair society through eradication of poverty and reduction of imbalances between and in ethnic groups and territories;

(c) Maintain a high economic growth by enhancing growth sources, financial and corporate institutions as well as management of macroeconomics;

(d) Increase competitiveness to face globalisation and liberalisation challenges;

(e) Develop a knowledge-based economy as a strategic step to increase values added-on for all economic sectors and optimise the nationÊs thinking capabilities;

(f) Strengthen the development of human resources to produce an efficient, productive and knowledgeable workforce; and

(g) Continue sustainable development of the environment to strengthen long term growth.

OTHER NATIONAL ECONOMIC DEVELOPMENT POLICIES

10.7.1 National Industrialisation Policy

The industrial and manufacturing sectors function as the main economic source of the country. Other than providing work opportunities, these sectors are also expected to be the countryÊs main exporters and to provide technical training and skills to the people. Considering the governmentÊs policy to make the industrial sector as the primary economic sector in the long term, the government formed a study committee on the National Industrialisation Policy and Main Industrialisation Plan (PIP) to check and draft national industrialisation policies and to study investor confidence and increase of export.

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Main Industrialisation Plan (PIP) Established on 3 February 1986 to cover a period of ten years (1986-1995), this Plan outlined three important targets:

(a) Make the industrial sector as the catalyst for the growth of industries;

(b) Encourage the full utilisation of the countryÊs natural resources; and

(c) Increase the standards of education and local technology development as the basis of making Malaysia an industrialised nation.

The PIP managed to identify 12 sectors that need emphasis in the coming 10 years, which are:

(i) Sectors based on local resources rubber, oil palm, timber, food, chemicals, non-ferrous metals and non-ferrous minerals; and

(ii) Sectors or industries not based on resources like electrical and electronics, transport, equipment, machinery, engineering, ferrous metals, textiles and clothing.

Implementation Strategies To implement the aim of the PIP, several strategies are being formulated and encompass the following:

• Restructure existing industrialisation encouragement;

• Diversify exports and encourage imports- replacement sectors;

• Redevelop the imports-replacement sectors at the first stage for durable consumer goods and imports-replacement sectors at the second stage for example telecommunications goods;

• Encourage Malaysian consumers to use more ÂMade in MalaysiaÊ goods;

• Diversify export markets including finding new markets in socialist and developing countries;

• Expand industrial activities to less developed areas;

• Encourage research and development by the public and private sectors;

• Encourage heavy industries to drive the progress of the new industries; and

• Encourage the growth of small enterprises. Achievements Malaysia is the main destination for Japan and Newly Industrialised Countries to transfer their factory operations. This indirectly leads to the transfer of technology into the country. The entry of foreign capital managed to create factory-based


industries as the main industry in Malaysia, when it contributed 24.3% of the total Gross National Produce and 16.6% of the workforce in 1988.

10.7.2 Heavy Industries Policy

This policy aims to develop and expand heavy industrial activities in the country. This is due to the industrial sector contributing heavily to the national economic. Objectives

(a) Import and absorb more sophisticated technologies to develop its own technologies. Thus, Malaysia will produce raw materials and industrial machineries and imports-replacement goods for the needs of the country competitively;

(b) Prevent continued dependence on foreign goods and technology. Thus the country can save on foreign currency exchange and subsequently establish cautionary steps on price and supply uncertainty of strategic necessary goods;

(c) Diversify and strengthen export of Malaysian goods to overcome protective policies practised by developed nations on goods produced by labour intensive industries in developing countries;

(d) The heavy industries are expected to increase the capabilities of small industries and support industries as well as creating new mid-industries; and

(e) Creating opportunities for workers trained in engineering and related fields.

PIP3 was introduced to replace the PIP1 (1986-1995) and PIP2 (1996-2005). PIP3 functions to maintain the countryÊs capability to remain competitive in a more challenging economic environment especially with the emergence of new, expanding economies like China, India and Latin America. Other than competition, Malaysia also needs to develop individuals who are innovative, creative and highly skilled and capable of developing new sources of growth. (Utusan Malaysia, 18/8/2006). Based on the statement above, what are the necessary steps that need to be taken by the government to produce such individuals for the development of industrial sectors in Malaysia?

ACTIVITY 10.2


Implementation Strategies The government formed the Heavy Industries Corporation of Malaysia (HICOM) in 1980. The role of HICOM is to identify, initiate, implement and manage projects in heavy industrial fields. As a result, several government-sponsored projects were launched, with the cooperation of foreign investors. This includes cement, metal and steel pole factories, national car project, small engines factories, pulp and paper, as well as engineering complexes. Among the accomplishment of this policy are:

(a) The national car project implemented by the National Automobile Industry (Proton) which produced local car models like the Proton Saga and Iswara. This industry was further expanded with the production of the Perodua line of cars and motorcycles by Modenas.

(b) The setting up of cement factory, Kedah Cement Sdn Bhd, the Perwaja Steel Processing Plant and Perak Manjung Cement.

10.7.3 National Agriculture Policy

The agriculture sector plays an important role in the social and economic development in Malaysia. In the early stages, the cultivation of food crops like ÂpadiÊ, vegetables and fruits, fishing activities and livestock rearing provided the source of food, created work opportunities and income to the local population. The National Agriculture Policy was launched on 12 January 1984. It was created to form guidelines for the government and private sectors to develop the agriculture sector. The National Agriculture Policy was established to:

(a) Maximise income in the agriculture sector to contribute to the economic growth of the country;

(b) Maximise income of entrepreneurs/small farmers through increase in productivity and reduction in poverty rates; and

(c) Develop main commodities that have enormous potential to be exported. Strategies

(a) The opening of new lands which will be handled by FELDA (Federal Land Development Agency), development authorities and state governments;

(b) In-situ development in areas which have been utilised for agriculture activities, but have been low in productivity. Efforts are taken to rectify


these areas through projects carried out by the Kemubu Agricultural Development Authority; and

(c) Providing agriculture support services like the Palm Oil Research Institute of Malaysia (PORIM), the Rubber Research Institute (RRI), the Malaysia Agricultural Research and Development Institute (MARDI), the Rubber Industries Development Authority (RISDA), the Federal Agriculture Marketing Boards (FAMA) and Farmers Organisation Authority.

10.7.4 Third National Agriculture Policy (DPN3), 1998-2010

Objectives The main objective of the DPN3 is to maximise income through the optimum use of resources in this sector. This encompasses efforts to maximise the contributions of the agriculture sector to the Gross National Produce (GDP), income from exports and well as incomes of farmers, breeders and fishermen. Specifically, the objectives of the DPN3 are to:

(a) Increase food security;

(b) Increase productivity and competitiveness of the agriculture sector;

(c) Strengthen ties with other sectors;

(d) Create a new source of growth for the agriculture sector; and

(e) Complete industry cluster development approaches.

ÂThe Ninth Malaysia Plan (9MP) chartered a new golden era for the agriculture sector. The government wisely provided new approaches to bring back the excellence of agriculture as the driving force of the economy. As much as RM11.4 billion has been allocated to this sector, a 70% jump compared to the allocation under the 8MPÊ. (Fatimah Arshad 9MP Era of Agriculture). Based on the statement above, in your opinion, what are the approaches that need to be taken to restore the excellence of the agriculture sector and at the same time make the sector on par with other industrial sectors?

ACTIVITY 10.3


• The development of MalaysiaÊs economy has seen great results since

Independence. • Malaysia has now become one of the main targets of investors. • This is enough to prove that Malaysia has progressed in the economic sector

as a result of diligent planning by the government and support by the people of Malaysia.

Long Term Plan Outline National Development Policy National Vision Policy Natural Industrialisation Policy

New Economic Policy Post Period Pre-Independence Period

Official website of the Prime Minister Office of Malaysia. Retrieved March 2, 2009,

from www.edu.jpm.my Official website of implementation coordination unit, Prime MinisterÊs

Department. Retrieved March 2, 2009, from www.pmo.gov.my/Rancangan Web/Rancangan

http://www.icu.gov.my Datuk Seri Dr Mahathir MohamedÊs speech during the presentation of the

proposal on the Eighth Malaysia Plan (8MP) in the Dewan Rakyat on Monday, 23 April 2001 at 11 am.

Lim Hin Fui. „Dasar Wawasan Negara Asas Perpaduan‰. Utusan Malaysia, 6

April 2001. Laporan Khas Rangka Rancangan Jangka Panjang Ketiga, Utusan Malaysia, 3

April 2001.


ÂRole of the government in the national development policyÊ in the Seminar on development Indices from the perspective of Islam 28-29 August 2004.

Economic Report 2000/2001 Ministry of Finance, Malaysia Sixth Malaysia Plan 1991-1995 Seventh Malaysia Plan 1996-2000 Half-term report on the Seventh Malaysia Plan 1996-2000 Hasnah Hussiin & Mardiana Nordin. (2002). Pengajian Malaysia. (Edisi Kedua).

Fajar Bakti, Sdn. Bhd. Fatimah Arshad, RMk-9 Era Pertanian‰, Utusan Malaysia, 03/04/2006. Rencana, „PIP3 Tingkatkan Daya Saing Malaysia‰ Utusan Malaysia, 18.08.2006.

topic 10 economic development policy

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