The New Economic Policy (NEP) ( (DEB)) was a social re-engineering and affirmative action program formulated by the National Operations Council (NOC) in the aftermath of the 13 May Incident in Malaysia. This policy was adopted in 1971 for a period of 20 years and it was succeeded by the National Development Policy (NDP) in 1991.
Policy overview The New Economic Policy (NEP) which began with the Second Malaysia Plan (1971–1975) and lasted until the Fifth Malaysia Plan (1986–1990), had three main objectives, namely:Jeong Chun Hai @Ibrahim. (2007). Fundamental of Development Administration. Selangor: Scholar Press. To achieve national unity, harmony and integrity Through socio-economic restructuring (of the society) To minimize the level of poverty in the country (poverty eradication)
The NEP was conceived as a two-pronged strategy for eradicating poverty for all Malaysians as well as reducing and subsequently eliminating identification of race by economic function and geographical location. The policy sought to achieve its objectives through rapid expansion of the economy over time and set its target of substantially reducing the incidence of absolute poverty by 1990. To achieve this, the policy called for aggressive improvement of economic status and quality of life for all Malaysians through: Access to land Physical capital Training Public facilities
Concurrently, the policy also called for fairer distribution of opportunities to participate in the widening range of economic activities. The policy opined that the core problem that stood in the way of national unity was the division of racial groups by economic function; particularly the association of Malay and other indigenous races with subsistence agriculture. To dissociate Malay and other indigenous races with traditional agriculture, the policy called on the Malaysian Government to provide assistance to all Malaysians in: Finding employment Securing participation in economic activities Acquiring ownership in various economic sectors
As Malay and other indigenous races progressed in the modern economic sector, other Malaysians were encouraged to introduce modern agriculture to eliminate the identification of Malay and other indigenous races with subsistence agriculture.
The overarching principle of the policy was the creation of "a socio-economic environment in which individual Malaysians find self-fulfilment within a system which provides for proportional participation, management and control in the economic life of the nation".
Policy development context
Colonial period During British colonial rule in Malaya, the Malays had always been in close contact with British officials by virtue of being the subjects of the Sultans. Administratively, Malays displayed a highly structured system, which enabled the British to embed themselves into the existing structure with ease. To communicate effectively with the Malay Rulers, Malays were employed by the British to work in Resident's Offices as clerical staff. However, Malays were mostly educated in Islamic madrasah, with little exposure to Western education. To ensure a competent administrative workforce, the British established Malay schools to teach to basic clerical knowledge.
The discovery of tin in Malaya in 1820s led to an influx of Chinese miners. This discovery led to disputes among the Malay Rulers, Chinese miners, affluent chieftains and villagers, resulting in formal British colonial rule in 1874. By 1885, Malaya became the largest tin producer in the world, accounting for 55% of global tin output. The prosperity brought about by tin mining was primarily shared between the British and the Chinese. As mining towns grew larger and became more economically important, urban infrastructure improved and these mining towns became the seat of administrative power for the British and traditional Malay capitals became insignificant.
In 1839, the vulcanisation technique was discovered by Charles Goodyear, which marked the beginning of the extensive use of rubber in industry. In Malaya, Henry Nicholas Ridley, Director of Singapore and Penang Botanical Gardens, introduced rubber plantations in the early 1890s when he convinced the Kinderly Brothers of Inch Kenneth Estate in Selangor and a Chinese tapioca planter, Tan Chay Yan in Malacca to adopt rubber plantations as a commercial enterprise. By 1911, labour imported from India involved in the rubber plantation sector totaled 126,665 people and Malaya became the world's largest producer of natural rubber. Educated Indians were employed in the estates' hospitals and clinics while the majority worked as rubber tappers.
Malaya's economy pre- and post-independence Before independence in 1957, Malaya's economy was recovering from the destruction brought about by World War II, entailing huge reconstruction costs to the British colonisers. As the British sought to consolidate Malaya's economic policy between the Malay States, the Malayan Union was proposed to unify the Federated and Unfederated Malay States into a single entity. This proposal was met with objection from the Malay community as they were angered by the way in which the Malay Rulers' assent was sought. Furthermore, there were concerns about citizenship and economic policies if the proposed union were to materialise.
After a short period of union, the British dissolved the Malayan Union and replaced it with the Federation of Malaya, with Tunku Abdul Rahman as its first Chief Minister. By that time, rubber and tin were the main source of income for the federation and it was one of the more prosperous economies in the region. Its per capita income was ranked third in Asia, after Japan and Singapore.
British corporations dominated the lucrative rubber industry and large tracts of land were dominated by British corporations such as Dunlop Plantation, Guthrie Plantation and Harrisons & Crossfield. However, the British agricultural policy during that period discouraged the participation of indigenous communities in the export crop economy, despite interest in smallholding rubber plantations. This development left the indigenous population in subsistence agriculture producing largely for domestic production and consumption, while the British and other communities expanded their interest in commercial agricultural production and dominated the export crop economy.
After independence, the Federation of Malaya government pursued a diversification policy to promote other economic activities. The government also acknowledged that dependency on rubber and tin as the main contributors to the national income could not be immediately reduced. The poverty rate up to 1970 was high at 49%, with the indigenous communities holding less than 3% of the national economy.
Racial riots of 1969
The racial riots of 1969 occurred against the backdrop of high poverty rates among the indigenous population and was compounded by communal political tension. Perceptions among the communities persisted and helped fuel mistrust, especially between the Malay and Chinese communities. At the more affluent neighbourhood of Petaling Jaya, it was evident that people with similar socioeconomic status were the least affected by the riots.
The precursor to the racial riots of 1969 occurred in Singapore in 1964, which led to the expulsion of Singapore from the Federation of Malaysia. The People's Action Party (PAP), Malaysia's main opposition party, called for equality for all Malaysians and challenged the domination of the ruling Alliance Party coalition in the federal election of 1964. This was known as the 'Malaysian Malaysia' campaign. As communal tension threatened to turn violent, the federal government decided to expel Singapore from the Federation of Malaysia.
Suspension of Parliament and formulation of the New Economic Policy In the wake of the riots, the government declared a state of national emergency and Parliament was suspended. A caretaker government, the National Operations Council (NOC), was formed and chaired by Tun Abdul Razak. After restoring order and setting the constitutional framework, the New Economic Policy was announced in the Second Malaysia Plan. The socio-political justification for NEP was:
Policy benchmarks The NEP had the stated goal of poverty eradication and economic restructuring to eliminate the identification of ethnicity with economic function. The initial target was to move the ratio of economic ownership in Malaysia from a 2.4:33:63 ratio of Bumiputra, Other Malaysian, Foreigner ownership to a 30:40:30 ratio. This was to be done by redistributing the wealth to increase the ownership of enterprise by Bumiputra from a 2.4% to 30% of the share of national wealth. The 30% target for Bumiputra equity was proposed by Ismail Abdul Rahman after the government was unable to come to a consensus on an appropriate policy goal."Snag in policy implementation", pp. 8–9. (31 December 2006). New Straits Times.
Alongside this redistribution of wealth was the goal of increased economic growth. This economic growth would allow the non-Bumiputra share of the economy to decrease, while permitting the growth of non-Bumiputra business interests in absolute terms. In some quarters, this was referred to as "expanding pie theory": the Bumiputra share of the pie would increase, without reducing the size of the non-Bumiputra slices of the pie. This theory was first enunciated in the Second Malaysia Plan.Long, Atan & Ali, S. Husin (ed., 1984). "Persekolahan untuk Perpaduan atau Perpecahan?", p. 281. Ethnicity, Class and Development Malaysia. Persatuan Sains Sosial Malaysia. No ISBN available.
In 1975 the government created incentives to expand large-scale manufacturing industries and energy-intensive industries, targeting these industries and building policies around them. The Heavy Industries Corporation of Malaysia (HICOM), for example, was formed to assist in the manufacture of pig-iron, aluminium die casting, pulp and paper, steel, cement, motorcycle and heavy engineering. At the same time, export incentives were initiated.
Implementation The abstract policies and goals of the NEP were implemented by the Second, Third, Fourth and Fifth Malaysia Plans.
Some specific requirements were introduced to achieve the 30% Bumiputra equity target set by the NEP. Among these was a requirement that all initial public offerings (IPOs) set aside a 30% share for Bumiputra investors. These investors could be selected by the company being listed on the stock exchange, or the Ministry of International Trade and Industry, which would normally recommend such state-owned trust agencies as Permodalan Nasional or the Armed Forces pension fund. These shares were initially heavily discounted, as IPO prices were often significantly lower than prices after the listing had taken place. However, this advantage has disappeared in recent years. Nevertheless, this regulation has been criticised, especially as the 30% target continues to apply after the IPO has occurred; if the Bumiputra investors divest their shares, the company must issue new shares to maintain the proportion of Bumiputra shares above 30%.Jayasankaran, S. (25 December 2006). Time to scrap equity requirements. The Business Times.
Results Wealth in the hands of the bumiputras went from 4% in 1970 to about 20% in 1997. The overall wealth of the country grew; per capita GNP 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%.Funston, John (2001). "Malaysia: Developmental State Challenged". In Government and Politics in Southeast Asia, p. 193. Singapore: Institute of Southeast Asian Studies. . It is unclear what role the NEP played in these changes.