By Terence Gomez
When Najib Razak assumed office as Prime Minister in 2009, a core issue he had to oversee was the repercussions of the 2008 global financial crisis. Malaysia was then spiralling into a deep recession and, by the government’s own admission, the economy was stuck in a high middle income trap. With foreign investments in decline and in order to generate growth, there was an urgent need to respond to the longstanding problem of the low volume of domestic investments.
Najib’s first response was his Government Transformation Programme (GTP), an astonishingly critical assessment of the problems plaguing Malaysia. The GTP outlined Najib’s “National Transformation Plan”, a ten-year socioeconomic reform and development strategy. To attain the GTP’s goals, Najib admitted that Malaysia needed a “new model” of development. His ideas about his different development strategy were subsequently presented in other major policy documents, including the New Economic Model, Parts I and II and the 10th Malaysia Plan, 2011-2015 (10MP).
When Najib embarked on this mission to create his new model, he was confronted with debates about the efficacy of the policy of affirmative action, first introduced in 1971 as the New Economic Policy (NEP). The 20-year NEP was an ethnic-based social restructuring plan, the government’s response to the riots of May 1969. The NEP’s initial primary objective was to provide high quality education to poor children, a key contributor to Malaysia’s successful creation of a vibrant Bumiputera middle class. However, in 1981, when Mahathir Mohamad became Prime Minister, he shifted the NEP’s focus to wealth redistribution, specifically to nurture a Bumiputera Commercial & Industrial Community (BCIC) through affirmative action in business and the practice of selective patronage. This BCIC policy was renamed the Bumiputera Economic Community (BEC) in the 11th Malaysia Plan, 2016-2020 (11MP).
Dr Mahathir Mohamad
In 2003, just before Mahathir relinquished his premiership, he publicly admitted that his developmental and redistributive policies had failed, generating a “crutch mentality” among recipients. Mahathir further admitted that affirmative action had compelled non-Bumiputeras to compete even more industriously. What was not disclosed was that non-Bumiputera enterprises had not technologically upgraded themselves through investments in research and development (R&D). Investments in R&D as a percentage of GDP in Malaysia has long been quite low, less than 1%, a serious shortfall for a country aspiring for highly-industrialised nation status. In spite of this, Prime Minister Abdullah Ahmad Badawi retained affirmative action in business even though he introduced a number of major economic reforms.
As the recession deepened in 2009, Najib realized that in order to effectively re-model Malaysia’s economy he had to make a decision about whether to persist with affirmative action. Najib decided to bring an end to the policy, a decision that was carried as headlines in the Chinese-controlled newspaper, The Star. There was soon a backlash to this announcement from right wing groups as well as, interestingly enough, Mahathir. It is quite probable that members of Najib’s party, Umno, were also unhappy with his decision.
Najib Abdul Razak
Subsequently, when the 10MP was released, the government revealed that it would persist with affirmative action, though it would now be “market friendly”. Najib’s new model was anything but novel, repeating policies of old that were outdated. Indeed, there was no insight in the 10MP into how affirmative action would be market friendly, apart from an assurance that the policy would no longer be abused through “patronage” and “rent seeking”.
My research on affirmative action, completed in 2013, confirmed what was then probably known to the government: one reason for the inadequate channelling of funds to R&D as well as for poor domestic investments was the fear of businesspeople that their enterprises, as they grew, would be appropriated through affirmative action. Businesspeople had inadequate trust that their property rights would be protected by the government if this policy remained in place.
Interestingly, when the 11MP was released, in its review of the policies implemented under the 10MP, there was no mention of the effectiveness of this market friendly affirmative action policy. In fact, the 11MP does not mention affirmative action at all! This is also probably why the government did not reveal the latest ethnic-based corporate equity ownership figures in the 11MP, the issue I discussed in my last article. These figures would indicate the results of market-friendly affirmative action in terms of increasing Bumiputera ownership of corporate equity as well as non-Bumiputera investments in the economy. What is in the 11MP is a lengthy discussion of the government’s BEC agenda. With the Malaysian economy still grappling with the need to draw domestic investments, including for R&D, the 11MP’s clear omission of a review of market friendly affirmative action is shocking, if not irresponsible.
Ironically, a core agenda of the 11MP, in order to lift the economy, is its stress on R&D which the Plan acknowledges has not been sufficient enough to generate technological upgrading that can enhance productivity. The government’s response to this problem is to now promote not merely R&D but also Productivity & Innovation (P&I)! It is unlikely that the 11MP’s new R&D and P&I thrust as well as its BEC agenda will be fruitful unless there is an open and honest debate about the viability of affirmative action in business. If Najib hopes to generate his goal of economic growth in an equitable, sustainable and inclusive manner, he must show the political will to allow this debate.
________________________________________________________________________
Terence Gomez is Professor of Political Economy at the University of Malaya. He is the co-editor of The New Economic Policy in Malaysia: Affirmative Action, Ethnic Inequalities and Social Justice (National University of Singapore Press, 2013).
You must be logged in to post a comment.