Malaysia has undergone quite a unique experience for
the last 18 years or so, under the New Economic
Policy (NEP). There is no country that has made such
a bold attempt at changing the socio-economic
structure of the country to such an extent, and with
such seriousness. The NEP, in many respects, is very
explicit in its over-riding objective: its vision is
of a country that is to be united, and nothing less.
In many ways the NEP is a form of a social contract
made between contending parties. The social contract
has been made for a definite period and it is now
due to come to an end in 1990. There is now a great
deal of concern whether the NEP would be extended or
whether a new social contract should be drawn up.
 
One over-riding factor about the NEP is that it is
equity driven. A concern with equity has always been
an outstanding characteristic of many societies
because of the intrinsic appeal of reaching out for
equality between mankind. Very few countries take
equality seriously in practice because it is easier
said than done. Malaysia seems to be an exception.
 
There is no doubt that the NEP and all its aspects
need an indepth review. It needs looking back and it
certainly needs looking forward into. In looking
forward, the simple question to be posed is, after
1990 what next? It is in this context that the
options need to be looked into.
 
 
LOOKING BACK: LESSONS Excessive OpUmism on Unity
 
One of the lessons that can be learnt from the past
18 years is that we have been somewhat too
optimistic on our earlier equity objectives. The
purely economic objectives are quite ambitious but
the non-economic ones are far more ambitious, i.e.
the over-riding objective of achieving national
unity. Despite the qualifications about how
economics is but one part of a larger effort to
foster integration, the economic programme, as
pushed by the NEP, gained ascendancy so that it then
became the major focus of attention. It was simply
assumed that economic equality or better racial
economic balance could do wonders to national
integration and unity. We should learn by now that
although economics can help it can also hinder the
process of national integration.  While it generates
benefits it also imposes costs.
 
There is little appreciation that the NEP can cause
people to feel more, instead of less, deprived and
so lead to a sense of deprivation and alienation. If
there was this awareness it was either left unsaid
or not explained very effectively. However, one
should not think that only the non Bumiputera feels
this, as such feelings are also real and pervasive
among the Bumiputeras themselves. It would seem that
the disenchantment with the NEP, in recent years,
has been felt more and more within the Bumiputera
community.  This should not come as a surprise as
economic measurements of inequality seem to show
that the level of inequality is much higher within
the Malays than they are among the other racial
groups.
 
We know too little about what really has been
happening to the society as far as inter-ethnic
integration is concerned. That the Bumiputera has
been given ample opportunities is undisputed and so
has been their socio-economic advancement. But this
fact should not lead us to conclude that there has
been genuine integration. The persistence of
enterprises which are overwhelmingly Malay or
Chinese, for example, is still very much with us.
 
 
Mixed Record of Successes and Failures
 
The record of alleviating poverty and the
restructuring of society has been a mixed one.
Overall, however, the strategies and policies seemed
to have had some desirable and beneficial effects.
The incidence of poverty has declined from about
half in 1970 to about 17 per cent in 1987. If the
figures are robust enough when subjected to further
verification, the Outline Perspective Plan target of
reducing the level of poverty for Peninsular
Malaysia to 17 per cent by 1990 has already been
attained. Income inequality, by conventional
measurements, also seemed to have been, narrowed. On
the other hand, there are some states where the
proportion of the poor, surprisingly, seemed to have
increased. These may not be enough for many when one
goes down the macro level and look at employment and
ownership restructuring where there has been a
qualified success; the Bumiputeras are still
over-represented in the unskilled occupations and
there is a shortfall in the Bumiputera ownership
target of 30 per cent. So while the means of
reaching towards these ends may have appeared to be
extensive and inequitable they have not fully met
the promises of the NEP.
 
Notions on Equity-Differences and Making Sense
 
Another lesson of the NEP has to do with the
differences in view of what really constitutes
equity, fairness and what is considered just. It
seemed to have meant different things to different
people and has created a lot of misgivings. There
seems to be a strong consensus on the need for the
NEP but a great deal of misgivings on its
implementation. There has been so much disagreement
over implementation that it gives rise to the
feeling that the NEP itself is not so agreeable and
acceptable. The different races have different
notions on what is considered to be equitable and
what is considered to be fair. To many Bumiputeras
even what is offered by the NEP is not enough and
they want more. To many non Bumiputeras the NEP is
already excessively generous to the Bumiputeras and
they consider it to be scandalous that the
Bumiputeras should want more. In between there are
all shades of options. When political factors come
into play, notions become more hardened.
 
One other lesson is that there is little to be
gained if we do not recognise the fact that
inequitable feelings may also be present within each
ethnic group. And some of these feelings may be
expressed in a variety of disguises. There is
evidence to suggest, for example, that income
inequality is higher within the Malays and has
worsened. These findings are telling us something
about the development and equity story within the
Malay community. It is perilous to ignore these
signals.
 
The decline in emphasis on "kampung" or rural
development should be looked into with all its
implications. The urban bias of current development
thinking inevitably raises various questions as to
its implications on the overall attempt to eradicate
poverty that logically require a hard look at the
rural sector, its impact on the development of the
agricultural sector and the negative implications of
rural-urban migration.
 
A much neglected aspect of inequality is the one
which persists between Sabah and Sarawak and
Peninsular Malaysia. There are all sorts of
imbalances which have not been given very serious
attention. Even the basis of comparing economic
imbalances appears not to have been resolved; should
Sabah and Sarawak be compared with the individual
states of Peninsular Malaysia or with the average
for Peninsular Malaysia as a whole? How 'special'
are Sabah and Sarawak? When there are misgivings
about the benefits of joining the Federation of
Malaysia and whether it has been worthwhile then all
is not well with the Federation.
 
The basis for the sharing out of the benefits from
growth and development is not clear and there are no
acceptable solutions to the dilemma. Those who are
attracted, or ideologically bent, to the workings of
the free market would simply allow market forces to
determine who gets what. For them whatever is given
by the market is considered to be fair. It seems so
fair when there is no human intervention and the
benefits are apportioned by the invisible hand. On
the other hand, there are those who would not put
faith on the workings of the market and would want
to intervene as much as possible in its workings and
there should be explicit programmes for sharing out
the benefits. The experience, so far, has been
somewhat mixed, but if the record of growth is
anything to go by Malaysia has managed to push on
with its equity programme without very serious
adverse effects on the rate of growth and
distortions to its economy. But there are costs and
we have, as yet, no idea on the actual costs of the
NEP. The bill has yet to be drawn up.
 
Growth and Growing Mistrust, Misunderstanding and
Discontentment
 
One other lesson that needs to be learnt is that we
have been somewhat naive in our assumption that
growth somehow, would leave most people quite
satisfied and that there would be little
discontentment.  Growth even with some sharing in
its benefits would, we now know, leave people
relatively discontented. It is difficult to be sure
what is the nature of the discontentment, whether it
is absolute or relative.  Overall measures show a
great deal of credit to the country: absolute
poverty has declined and inequality in income has
narrowed. The 1970s can be considered a period of
high growth when the economy grew at a rate of
almost 8 percent per annum, a record which is
difficult to repeat. Then the early 1 1980s was a
period of low economic growth. Even a high rate of
growth does generate discontentment because it
cannot be assumed that everyone is enjoying the
benefits of growth and even it they do they will
feel relatively worse off. Thus, although the level
of poverty is falling rapidly and income.inequality
is narrowed it cannot be concluded that there will
not be any feeling of discontentment. The
conventional measurements cannot tell us anything
about discontentment and the fact that both has
happened, i.e. falling poverty and narrowing in
income inequality, but that discontentment with NEP
is still widespread suggests that there are other
factors at work-political?-and equally if not more
important than economics in having E hand in causing
discontentment. There are limits to what can be done
to improve the standard of living by the government.
 
The fixation with numbers and race also has not
helped much the cause of desensitising the NEP, if
that can ever be done. The feelings of
discontentment have persisted because failing to
meet the targets has meant, to many, that there has
been failure in the efforts to alleviate poverty and
restructure society. But much has been done in a
number of areas that are not adequately reflected in
the statistics. This is unfortunate. The process of
restructuring and the opportunities that are opened
up have not been reflected very well by these
statistics. The fixation with income statistic and
on ownership has also contributed to this situation.
Also there is some degree of myopia an
self-selection in the use of statistics. It is so
fashionable to quote the statistics in the incidence
of poverty and the ownership of share capital but
not so chic to play up the fact that life expectancy
has increased for all. irrespective of race and with
this the statistics which show that the infant,
toddler and neo-natal mortality rates have declined.
We are hardly excited by the fact that there is
least starvation and no famine but get very
excitable and heated over ownership statistics.
 
 
LOOKING FORWARD: OPTIONS
 
Choosing the Options
 
What are the likely options for the post 1990
National Economic Policy. There are three first
level options:
 
- Continue with the present NEP
 
- Abandon the NEP
 
- Replace the present NEP with a revised Policy
 
Two of the options, continue and revise, accept the
need for some kind of an explicit equity policy,
while the remaining one rejects such a need.
 
The abandon-option presupposes that the current NEP
has been a failure or that there is no need to be
concerned with equity in its present form. The
continue-option presupposes that there is no
necessity with making any real changes and that the
current one is still a desirable option. The
revisionist-option is an option which not only
accepts the need for a continuing concern with
equity but agrees also to the need for making
changes to the present NEP. It would appear that the
option which is most acceptable is the revisionist
option. The revisionist option is based on the
promise that there is still a need to be concerned
with alleviating poverty and the restructuring of
society but what is required is to make changes to
the current NEP.  It is these changes which are now
the subject of some intense debate and discussion
and which presumably is to occupy the attention of
the NECC .
 
There are three second-level options:
 
- Maximising growth at any cost
 
Equity and racial economic balance at any cost
 
 
- Growth with racial economic balance
 
Two of the options are at the extremities; one goes
only for economic growth while the other is
relentlessly for equity and racial economic to
balance. Both are willing to incur whatever costs
and burden. There would, therefore, be political and
economic difficulties with both options.
 
Of the three options it would appear that the growth
with racial economic balance should be the one that
ought to be given serious consideration This option
is concerned not only with growth but also with the
inter-racial ethnic economic imbalances. In the end
there may be little satisfaction in achieving high
growth if the income imbalances still persist,
especially if the Bumiputera average income is still
a fraction of the average income of the
non-Bumiputera. If growth is seen to worsen the
inter-racial imbalances then the policies,
strategies and procedures that arc associated with
the worsening in racial economic imbalances must
then be reviewed. Similarly, excessive concern with
reducing racial economic imbalances is seen to lead
to dampening the prospects for growth, then the
policies and strategies for reducing racial economic
imbalances must then be reviewed. All this suggests
that there is a need to be concerned with getting
the right mix in policies and strategies There is no
full-proof way of laying down precisely what is the
right mix of policies and strategies of the growth
with racial economic balance option and policy
making will have to feel its way in reaching for the
right mixture. But the expedience over the last
eighteen years or so can give use some lessons and
guidance in trying to have the right mix for the
growth with racial economic balance national
economic policy after 1990.
 
Growth with Racial Economic Balance Doubling Income
and Achieving Inter-Racial Income Parity
 
In thinking about the post-1990 National Economic
Policy, it might be useful to consider the proposed
income doubling and distribution plan of the
Malaysian Institute of Economic Research (MIER)
which includes the following elements:
 
Any post-1990 national economic policy will have to
take into account the changing global economic
conditions. The global economy is undergoing, and
will continue to undergo, restructuring and growth
and world trade will not be as optimistic and
buoyant as in the 1 1950s 1960s and to some extent
the 1970s. New trade blocks will be formed and new
economic alignments will be forged; protectionism
will be a cause for worries and one of the most
worrying will be Europe after 1992, and its
implications for Malaysia, while increasingly,
whether we like it or not, economies in the
Asia-Pacific rim will be a major source of growth
and its impulse will be felt worldwide.
 
The major objectives of the Growth With Racial
Economic Balance Option are:
 
- to raise the standard of living of Malaysians
through a doubling of the nation's income and
ensuring, at least, inter-racial parity in average
income, by the year 2000.
 
- re-affirm the original goal of poverty eradication
irrespective of race and the restructuring of
society to correct the identification of race with
economic function.
 
- liberal promotion of steady growth through
economic restructuring and the establishment of a
liberal, orderly and competitive economic system.
 
- the greater sharing of economic opportunities
regardless of race for distributive justice and
fairness.
 
While growth is to be promoted it must be of a form
which not only can double the nation's income but at
the same time, at least, close the racial income gap
between Bumiputeras and non Bumiputeras within a
decade. The average per capita income of Malaysia in
1988 was about US$1,870 and by 1990 it will probably
reach about US$2,000. The target by 2000, therefore,
is a per capita income of US$4,000. The average
monthly per capita household income of the Malays
(M$181 ) in 1987 is about 59 per cent of the Chinese
average income (M$308). How fast the
income-disparity gap will be closed will depend on
how fast Malay and Chinese income will grow and also
on the redistributive policies that will be part and
parcel of the income doubling plan.
 
There are a number of policy dimensions to the
growth with racial economic balance option and they
are as follows:
 
- economic restructuring and liberalisation within
the context of global and regional adjustments
 
- eradication of 'hard core poverty' and reducing
social inequalities
 
- broadening the concept of wealth restructuring, in
the context of entrepreneurship, greater competition
 
and continuation of the role of trust agencies
 
- greater emphasis on employment restructuring
through human resource development
 
- reduced role of the government with a commensurate
increase in the role of private enterprise
 
Economic restructuring has many facets but one of
the most important has to do with reforming the
Non-Financial Public Enterprises (NFPEs) including
the trust agencies. The role of Permodalan Nasional
Berhad (PNB) will have to be re-assessed, as well as
the public enterprises and authorities in the states
e.g. the State Economic Development Corporations
(SEDCs). It is also timely that the 'trusteeship
philosophy' be reviewed.  When there is much
mistrust that the Bumiputeras will be able to behave
economically in a certain way then trust agencies
will flourish. If there are more and more
Bumiputeras now who are capable of venturing into
industry and commerce then the rationale for the
existence of the trust agencies will have to be
questioned. An excessive growth in trust agencies
would tend to perpetuate a 'fragmented Bumiputera
economy' in the sense that their growth may not be
integrated with the non-Bumiputera economy and also
of excessive insulation from the rigours of market
forces on an inward-looking mentality.
 
In the income doubling plan with redistribution, a
very important role will have to be put on the
restructuring of employment and the opening up of
economic opportunities for all races. Wages and
salary account for a very high proportion of total
income while income from the ownership of share
capital is very minimal. Thus, getting Bumiputeras
into growing and high paying productive economic
activities and accelerating their movements into
highly skilled occupations will be of great
importance in the efforts to close the income gap
between Bumiputeras and non Bumiputeras. For this to
happen the employment restructuring will have to go
hand in hand with the development of human resources
and the right kind of training. All this suggests,
too, that the educational system will have to be
geared and matched to the needs of employment
restructuring and the development of human resources
to match demand and supply.  There are already some
signs to suggest that the benefits to investment in
education may probably have declined. This decline
in the 'rates of return to education' may be worse
for some disciplines than for others but whatever
the truth many things are not right and there
certainly is a need for more careful planning for
education.
 
There certainly will be those who subscribe
religiously, to the belief, or doctrine, of equality
of opportunities, believing that everyone now is
fully robust and at the starting point. This
'starting point' argument has much intrinsic appeal
but must be tempered by socio-economic realities. In
many ways the competitors are still unequal in
fitness and some can hardly walk up to the starting
point. Equality of opportunity as a doctrine cannot
possibly have many converts if this reality is
accepted. The other approach is to be concerned with
'equality of outcome' such as in income. What is
required is a better mix between opportunities and
outcome; increasing opportunities for everyone with
some agreed equity rules on sharing the
oppportunities, while keeping a fairly firm
commitment to equitable outcomes.
 
Politics, patronage and business can form a deadly
brew. How far more the economy can sustain such
developments is uncertain, but the trend is worrying
and debilitating. Excessive political interference
with economic and business decisions will make a
mess of the aims to have an equitable society, more
efficient allocation of resources, raising
efficiency, productivity and so on. In the end the
nation's credibility will be undermined and the
noble visions will be mocked.
 
POLITICAL REALITIES
 
Any consideration of a National Economic Policy
after 1990 would be futile without accepting certain
political realities within the context of the
Malaysian political system.
 
Malaysia is multiracial and that different or even
divergent perceptions or prejudice still persist. It
would be unrealistic to expect otherwise. These
differences are in turn specifically represented by
the political party structures. While common goals
of national unity and integration unite, negative
perceptions of justice and fairness tend to threaten
the goals.
 
The Parliamentary Democratic political system
demands competition for votes. This makes
competition and rivalry so intense that more often
than not, the competing parties tend to fall into
the trap of exploiting racial emotions. Pressures
may then lead to fissures and even explosions. An
explosion did occur in 1969 and Malaysians need
reminding that it was this black mark in our history
that directed us to formulate the NEP.  There need
not be any explosion or even fissures to guide us
into formulating another long term National Economic
Policy. The avoidance of any attempt to "play to the
gallery" is indeed difficult but the dangers and
pitfalls that could blur our sights of the overall
goals are too costly for us to ignore.
 
The Parliamentary Democratic system also directly
increase higher demands and expectations. It would
not pay politically so much for the competing
parties to compare Malaysia with other developing
countries as to compare inter-ethnic and
intra-ethnic as well as social groups in Malaysia to
measure achievements.
 
In the final analysis thus, it has to be the
political powers that have to choose, be the choice
one of the options as enunciated in this Paper or
whatever. It is government. "To govern", wrote one
Western journalist, "is to choose. And choosing
produces disagreements, disappointments, even
enemies". The writer's sympathies are certainly with
the government.