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NEP: The good and the bad

June 21, 2012

FMT LETTER: From Anas Zubedy, via e-mail

What is the NEP?

In a simple definition, the New Economic Policy is Malaysia’s socio-economic affirmative action plan. It was implemented in 1971 in the aftermath of the 1969 racial riots, and the period set for the implementation of NEP was 1971- 1990. The overriding objective of the NEP was stated as national Unity. The goal of the NEP was two pronged – one, eradicate poverty; and two, restructure society to eliminate the identification of race with economic function through rapid expansion of the economy over time. However, it was clearly stated that this restructuring of the racial composition of employment and ownership of wealth was to be done without denying opportunities to others. The strategy was to accelerate economic growth, but at the same time, redirect the benefits more to the disadvantaged.

What is the background of the NEP?

The NEP has historical basis. Even from the colonial days before Merdeka, the Malays had been given certain privileges by the British, especially quotas for public scholarship and civil service employment.

The period of British rule left behind some remnant effects on our society and economy. The economic system and the geographical location of where we lived and worked were divided along racial lines. The Malays were largely concentrated in the traditional agricultural sector where per capita income was the lowest and poverty was the highest.

The Chinese were concentrated in mining, manufacturing and construction where per capita income was recorded as much higher. The Indians were largely labourers in estates and mining. The NEP was announced in June 1970 in the aftermath of the racial riots in 1969. Whatever is said about the immediate causes of the riots, the root cause for the unrest was socioeconomical imbalance. It was clear that the problem of poverty and the economic differences along racial lines were detrimental to social stability and national Unity and had to be addressed immediately. The NEP was formulated as a concerted effort to reduce poverty and restructure the economy.

What was the poverty level and distribution of economic wealth at that point?

At that point of time in 1970, the recorded number of households living in poverty was 49.3%. The top 5% richest households were obtaining 30% of the total income. It is recorded that of all households living in poverty, about 74% were Malay, 17% were Chinese and 8% were Indian. In terms of wealth distribution, it is recorded that the Malays had 2.4% of equity capital, Indians held 1.1%, the Chinese accounted for 27.2%, those categorised as Others had 6.0% and foreigners held 63.3%.


What was the target of the NEP?

The target of the NEP was to reduce overall poverty to 16.7% by 1990. In terms of restructuring the economy, the target was to increase Bumiputera share of corporate capital from 2.4% to 30%, the share of the Chinese, Indians and others to increase from 34.3% to 40%, while that of foreigners would be reduced from 63.3% to 30% — a 30-40-30 ratio of distribution among Bumiputera, other Malaysians and foreigners. To reach this target, it was projected that the Bumiputera share would have to expand at the rapid rate of 30% per annum while the equity shares of Chinese and Indians had to expand by 15.4% per annum.

Why was the NEP so important?

Affirmative action plans like the NEP are important because the disadvantaged in society must be helped. When one segment of the society is disadvantaged, to have an equal playing field in our economic system will not be fair. To use a simple analogy, it is like playing golf – a beginner must be given a handicap or he/she will stand no chance – it will be an unfair game skewed towards the experienced player. Socioeconomically, nobody should be left behind. This is imperative because history has shown that once there is a segment of

society left behind economically, there are greater chances of social unrest.

It is important for every society to have affirmative action plans, but it must be planned very carefully. Ours was called the New Economic Policy (1971-1990). The NEP was successful in many ways.

What were the good things that came from the NEP?

There have been many. I will outline seven here:

1 The NEP managed to reduce poverty.

According to official data, percentage of households living below poverty line across all ethnic groups has been reduced from 49.3% in 1970 to 17.1% in 1990, and in 2009 overall poverty had been reduced to 3.8%.

2 The NEP managed to restructure the economy.

Post-NEP, the wealth ownership of the Bumiputera had increased from 2.4% to 19.3%, the share of the Chinese, Indians and other Malaysians was 46.8%, surpassing the target; while the share of foreign ownership was reduced to 33.9%. By 2008, Bumiputera share had increased slightly to 21.9%, non-Bumiputera share was reduced to 36.7% and the share of foreigners, 41.4%. This is a much more equitable and sustainable distribution compared to the 2.4 – 34.3 – 63.3% ratio pre-NEP.

At the same time, after the NEP in 1990, the number of Bumiputera employed in the industrial sector like mining, manufacturing, construction and utilities also had arose significantly. Bumiputera representation also increased in professional and technical categories and at the administrative and managerial levels.

3 We have managed to create a large segment of middle class Bumiputeras.

Today, the Bumiputera account for a significant percentage of management and professionals. The NEP has played a huge part to make this happen.

4 We recovered from social unrest caused by poverty and economic imbalances.

The NEP has been instrumental in regulating a peaceful tenure in society.

5 It has played a big part in national Unity.

With increased movement of different ethnic groups into various sectors during the NEP, businesses are no longer exclusive to the membership of certain ethnic groups as they were prone to before. Malaysians of all races now intermingle both economically and socially and the NEP played a big part in allowing this to happen.

6 In fact, there is now more intermingling even within race groups.

Prior to the NEP, businesses not only employed people from their own ethnic group, they also limited employment to those within their clan. The Hokkiens would employ mainly only the Hokkiens, the Cantonese employed the Cantonese; the Gujeratis employed the Gujeratis. Signs of intra-race delineation can still be seen through the Hokkien, Cantonese or other foundations that were established historically and exist until today. We tend to see the NEP from an inter-racial angle, but before NEP, intra-race disparity was also an issue.

7 The most important positive outcome of the NEP is that communities were saved from poverty.

The real mean income of the bottom 40% of society has increased from $76 to $176 between 1970 to 1990. Those who suffer from hardcore poverty, who get less than half of the income on the poverty line, was reduced to 4% of total households in 1990. In 2008 the recorded percentage of hardcore poor was 1.8%. That millions of families were alleviated from the clutches of poverty – this is something that we should all be proud of; be deeply grateful for and celebrate.

What were the failures of the NEP?

One of the biggest failures of the NEP is that it failed to help many non-Bumiputeras who deserved to benefit from affirmative action. The Indian poor, especially from the rural estate communities, are one of the main groups that are still in poverty until today. The data of results from the NEP showed that the share of wealth of non-Bumiputeras increased to 46.8% in 1990; however of this 46.8%, 44.9% of the share belonged to the Chinese, only 1% to the Indians and 0.7% to Others.

We need to urgently address the poverty problems of the Indian poor community. We cannot let there be a segment still living in poverty in our society. The HINDRAF movement and the 2007 HINDRAF rally are signs of discontent and unrest that is caused by economic imbalance. With an affirmative action plan such as NEP, no community should have been left out.

At the same time, there has been some abuse of the NEP. There are some undeserving individuals who have enough capacity to fend for themselves but have been given a free ride on the NEP. I see this as the reason why many Malaysians are not happy with the NEP.


How did this abuse happen?

Firstly, we did not make things crystal clear from the very beginning. At the design stage of a public policy, we must state what we want and what we do not want. This must be clear. If our goal is to eradicate poverty, we must also state clearly that it is only for the poor and must not cover the rich. Failing to do so, it will be subject to abuse.

Secondly, we also need to define clearly that an affirmative action policy like the NEP cannot be made a permanent crutch. As the situation among the people gets better, we need to gradually withdraw aid, phase by phase. In this way, we help the poor out of poverty but do not create a society that is dependent on assistance.

Thirdly, it was a mistake to plan the NEP only for a twenty year timeframe. It is too ambitious to implement such a huge social engineering project in such limited time. We cannot reverse five hundred years of colonisation within a few decades. I will explain this later.

Why were some segments of Malaysians neglected?

One of the main groups which were neglected was the Indians from the estate communities. This happened because the data for the Indian poor were not carefully and accurately captured. The statistics from the richer Indians and the poor ones were grouped together, creating a distorted average. I am fortunate because from my experiences growing up among them in Penang, I know that the Indians are not one homogenous community. I have Indian friends who are very, very rich and I know many around my neighborhood who were very, very poor. The data used for the NEP failed to consider the very poor Indians in rural areas, estates and the urban poor. So because we did not capture that, a big segment of those who are poor and deserving of aid, especially the poor Indians, were neglected.

What were some other shortcomings of the NEP?

Two other serious shortcomings. Firstly, our children are too young to understand the

socioeconomic big picture of why we needed to come up with something like the NEP. As they go through school, they may feel that there are two different groups of people defined by ethnic background. We need to really deal with this issue. Secondly, the public sector needs to be restructured. The civil service did not go through the same rigorous restructuring. We need to ensure that our public sector is better represented by all the ethnic groups in this country. For example, in our national schools, students should be able to look at their teachers and see good people teaching them from various races. Our civil services should have people from all races who are able to connect to and empathise with the general population of Malaysians. Our civil service should be seen as reflective of the colorful Malaysian people.


Earlier, you mentioned 20 years is too short a time. Why?

Yes, a 20-year plan is too short a timeframe for a major social engineering plan. When we set such a big goal to implement so many changes, a longer process is required. When we force the process into such a short timeframe, people tend to cut corners. Achieving the numbers became the goal; not really making sure there is real social change. We forced those who are not ready and load money onto people who may not know how to make the best use of it; or to put it another way, we simply made millionaires out of thin air.

This is one of the main root problems with the NEP. We were in too much of a hurry to increase the share of wealth for the Bumiputera, rather than increase the knowledge, skills, culture and the ability to fend for one’s self.


The good and bad considered, did the NEP achieve its purpose?

There are many good benefits stemming from the NEP. On a micro level, we targeted the majority of rakyat, the Bumiputera, which made up 65% of our population. So it is not an elitist program just for helping a small group of people who are already rich. The NEP targeted aid for a large representation of Malaysians both from the Peninsular and Sabah and Sarawak – the impact is very wide ranging.

The country as a whole benefited because we made sure that millions of people got out of poverty. The NEP is one of the reasons why millions of people can now fend for themselves and millions of people had a chance to get education.

Our per capital income has grown manifold, seven to eight times since 1970 and the NEP has been instrumental in bringing us to where we are today. One of the biggest benefits is that it has helped regulate peace and harmony in our society.

Should affirmative action plans continue?

Affirmative action plans are important for every society, but we need to learn from our experience and take corrective measures. Whatever problems that arose with the NEP needs to be corrected. We need to do careful research to identify the segments of poor Malaysians who need to be helped, regardless of race. We must plan it carefully to make sure that anyone in need must not be left behind.

What is the status of NEP now, after the end of its term in 1990?

While the official term for NEP ended in 1990, its underlying principle has been continued in subsequent plans – the National Development Policy, National Vision Policy, and National Mission. Now there is the Tenth Malaysia Plan, 2011-2015. However, with the NEP, from 1970 to 1990 we had a clear vision, focus and a target for development that was defined in certain terms – to redistribute the share of wealth to 30-40-30 and to restructure society to eliminate identification of race with economic function. It was crystal clear and very precise – the nation was in agreement and heading in one direction.

After the NEP, however, we have been uncertain about where we are heading. We now have a nation in transition. One segment of society thinks that affirmative action should stop; the other side says it should be continued. One side has data which says we have achieved the target; the other has data which says that we have not yet achieved the target. We need to iron out these issues with maturity, reasonably and based on facts. We need to get to work, start setting a new target to move forward in development.


How should we look at the NEP?

Let’s view it in a balance. There are good points and bad points about it. It has contributed constructively to build up our country, and it has also brought some negative outcomes. Whatever we feel about it, the NEP happened and now we need to reflect on where we are as a society in reality. Let’s look at all the information and data objectively and identify what are the good points to take from the NEP and what lessons we can learn from it. When we see our past and present in a balanced, truthful perspective, it will help us to formulate a plan to move forward.

How should we move forward?

Moving forward, there is a need for us to clarify what affirmative action plans we have now for the poor and disadvantaged. We need to study and define current problems, set our target clearly and formulate a plan to achieve these targets. We need to make it clear to the nation what goals we are agreeing on and what strategies we are carrying out to achieve it.

Secondly, as we look ahead we need to deal with the emerging issues of urbanisation and the urban poor. While we made progress in uplifting the rural poor, now we need to also start giving due consideration to the urban poor. We need to study more about the impacts of urbanisation and the emerging challenges that come with an increasing urban poor population. We need to have structures and processes to deal with the situation, look into issues like housing – if too many people are packed into small areas, it will have negative social impacts. We need to create ways to aid the urban poor and buffer them from negative effects; or else urban social problems will continue to rise and bring in other implications. The configuration of what needs to be done will be different. In urban communities it is no longer one ethnic group but a multi-ethnic group – we have Malays, Chinese, Indians, Kadazans, Ibans, etc. and so many others.


What is the single greatest impact of the NEP and how has it affected Malaysians as a whole?

To a large extent, the NEP is a defining part in making our country what it is today. We are all products of NEP, whether we have received its help or not. We all need to spend time thinking about where we are now and where we are heading next. If we have yet to do so, we must accept what has happened in the past. To accept it does not mean we have to agree with it, but that we recognise where our society is as a result of it and find a way to move forward. The NEP happened; some have been impacted positively and some negatively. Let’s accept that, take what we can from it and move forward. This is what is important.

What should Malaysians do to understand affirmative action plans like the NEP better?

We need to start reading more. Read balanced, informative books on the NEP, not those written by politicians with political agenda or writers aligned with partisan politics. It is better to read books written by serious academicians.  When we look at the real numbers, we will see the real reasons and bigger picture behind the NEP. For example, many people would be surprised to learn that in 1970, the Bumiputeras had only 2.4% of the nation’s wealth.

Two, on the personal side, those who can afford it might want to implement your own affirmative action plans. Perhaps you can help your family members, your brother, your cousin, your colleague, your neighbour. Sponsor the education of those who need it, perhaps for the children of your neighbour or someone working in your office, maybe the cleaner or your maid. That is affirmative action at the ground level. When you do that, you, your family and your children will really understand how affirmative action plans work and why they are so important.


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