Reviving the NEP: The Great March Backwards?

I found this post at Farish Noor's site. Dr. Dzulkifli Ahmad's analysis is very interesting and relevant in the present context of rising cost of living for Malaysians. As the BN-led federal government grapples with a global phenomenon of rising costs for basic necessities such as food and fuel, we have to consider very seriously the impact of rent-seeking behaviour and outright corruption on the Malaysian economy's ability to deal with rising costs.

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From an economic perspective, rent-seeking behaviour and corruption adds to the cost of doing business in Malaysia. It has aggravated the problem of rising food and fuel costs. We must urgently identify and remove the linkage between the NEP (particularly, its implementation) with endemic rent-seeking behaviour and corruption. Successful action on this will have a positive effect on the Malaysian economy's ability to deal with rising costs.

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Written by Dzulkifli Ahmad
Sunday, 15 July 2007

The debate on the NEP has again taken centre-stage in Malaysian politics. The opening session of the RTM’s ‘Debat Perdana’ hosted by Dato’ Johan Jaafar, now into its Seventh Season, witnessed the writer representing PAS, Dato’ Mukhriz Mahathir from the Umno Youth, and the Member of Parliament of Muar, Razali Ibrahim, slugging it out on the NEP -- lively yet not as fiercely as some may have wanted. The writer, however, has no qualms in admitting that despite whatever others have to say about the moderator, he was quite gracious to the only opposition panelist in that debate.

Though he has had his fair share of the air-time, the writer still felt that, given the constraint of time, a lot had not been amply debated. This piece aims to highlight various issues that have not been exhaustively propounded, both in terms of breadth and depth.

Political Backdrop to the NEP

Despite achieving independence in 1957, income disparity apparently worsened between 1957 and 1970, with the rich getting richer and the poor becoming poorer, especially among ethnic Malay Bumiputeras. The deteriorating socio-economic disparity, largely a legacy of the British “Divide and Rule” tactic, came to be interpreted primarily in ethnic terms. While ethnic Malay Bumiputeras were suspicious of the Chinese economic hegemony for Malay underdevelopment, ethnic Chinese conversely were accusing the Malay-dominated Alliance government of discriminating against them.

Given that political backdrop, Malaysia’s New Economic Policy (NEP) was essentially a social interventionist policy, in response to the problem of poverty, unemployment and inter-ethnic economic imbalances that had emerged well before the racial riot of 13 May 1969. Like any other nations around the world that practice ‘affirmative action’ , be they developed or developing countries, it is meant to correct the socio-economic imbalances or disparities. Quoting from the author, “in too many countries, such policies have turned out to be ways of producing relatively minor benefits for a few and major problem for society as a whole”. In Malaysia though, it has produced immense benefit for a few and a major problem for all.

While acknowledging the historical impact of the colonial rule, I wouldn’t put all blame on the 13th May racial riot as the underpinning rationale for the NEP. Endorsing this premise logically justifies it to be a historical ‘bogey’ and baggage to be expediently used by politicians for ‘Malay Dominance’ (read Umno Hegemony). The actual cause of 13th May as indicated by analysts were multi-factorial, which included the notion of a ‘palace coup’- with greater military-police role, to marginalise the Tunku’s leadership seen as being too conciliatory toward the ubiquitous Chinese business community, by the Young Turks within Umno, led by the late Tun Razak. The latest writing of on May 13th, based on declassified documents of the worst Malaysian Riots, is perhaps more revealing and deserving of a critical reappraisal.

NEP’s Broad Sucessess Recognised

Understandably, the NEP had two-prong objectives, namely to ‘eradicate poverty regardless of race’ and to ‘restructure society through eliminating the identification of race with economic function’. The overall aim was to achieve ‘national unity’ through ‘redistributive justice’. A noble objective indeed it was. For the record, the first Outline Perspective Plan (OPP) for 1970 -1990 was chalked out to identify medium and long-term targets designed to achieve the objectives of the NEP on the basis of sustained economic growth.

Needless to say, the first prong of the poverty eradication objective received an all round support and provided the legitimacy it both required and deserved. The NEP has arguably succeeded in reducing poverty in absolute terms. Absolute poverty within the Malay community was reduced dramatically from 65% in 1970 to less than 7% by 2000. Relative poverty however persisted and is particularly evident in urban areas. The Malay-bumiputeras have now made a significant presence in all the various professional occupations. Success on this score must be duly credited to the NEP.

NEP’s Relevancy Question Reanswered

When the first question was thrown at the writer in the debate about whether ‘the NEP is still relevant,’ he wasn’t able to cough up with a crispy and cogent answer. This would be how he would like to have it answered, given the second chance.

NEP as a social development policy of the government was accorded specific time-line. Implemented by the first OPP, it started in the 1970 and should have ended by 1990. Few may be aware that the NEP was succeeded by the National Development Policy (NDP) with the subsequent OPP2 for 1991-2000 and later the National Vision Policy (NVP) with the OPP3, for the period covering 2001-2010. Hence we are under the regime or reign of the NVP. Bluntly put, NEP has in fact outlived its life-span, period. It was succeeded by the NDP and the NVP.
Therefore, on the issue of its relevancy or otherwise, perhaps the answer is quite obvious, as it should have ended in 1990. But since the question has been raised, let’s further the debate to really dissect its success and failures and the various causal relationships.

NEP - the Legitimating Ideology for Umno’s ‘Malay Supremacy’

Retrospectively, it doesn’t take a political pundit to tell the nation that the NEP is the legitimating ideology for Umno’s hegemony and legitimacy, which they now find difficult to ‘wean off’. Yes, NEP has overstayed its welcome perhaps, but there has never been an official repudiation of the NEP, especially not by the ‘powers-that-be’.

And quite conspicuously, what is overriding and paramount to Umno’s elite consideration of the NEP, is of the issue of the 30 % ownership of the corporate equity as opposed to the twin-prong objectives of eradicating poverty and eliminating identification of race with economic activities.

As far as the writer’s observation goes, it is the 30% rule for bumiputera participation that has ended in the ‘affirmative action’ being perceived, rightly or wrongly, as a ‘zero-sum’ policy that is working at the expense of other races. Although the NEP is premised on the projection of growth, hence in absolute term, the redistribution should not be affecting the ownership of the various ethnic groups, the reality on the ground didn’t reflect that scenarios. That claim deserved to be fully verified through empirical studies.

The persistence on Umno’s own underachievement, hovering at 18.9% corporate equity of Malay-bumiputera, despite others claiming to the contrary, is again mind-boggling and naturally smacks of their ‘sinister’ motive. The measurement, to make it worse, is shrouded in mystery, ending in endless dispute between advocates and critics.

Why Umno Failed To Achieve the 30% Corporate Equity and all?

Despite the reprimands against such practices, a lot of the bumiputera contractors were alleged to be mere rent-seekers (read cronies), spinning the contract out to non-bumiputeras in the infamous practice of Ali-Baba partnership. Time and again, the less eligible were given such huge privatization contracts or concessionares. Millions of Ringgit were wasted in inflated prices that didn’t make projects cost-effective at all to be pursued and billions more spent, in bailing them out during their failures. The list to cite is a very long one. This was grudgingly but honestly admitted by both Umno panelists. Thus Umno has come to admit that they have in fact bungled the opportunity to achieve the objective of 30 % corporate equity themselves.

Hence the primary reason why the ‘redistribution strategy’ failed is simply due to chronic inefficiencies, leakages, the unbridled practice of crony capitalism and nepotism. The rent-seeking activities of a few politically-well-connected Umnoputras have unscrupulously denied the right of a bigger pool of genuinely deserving Malay entrepreneurs and corporate outfits, competing in a very tilted-playing-field within the Malay community. This is immensely regrettable and has become the greatest stumbling block in achieving the various targets of the NEP. The now infamous case of AP kingpins stood as a clear testimony to such subversion of an otherwise commendable ‘redistributive programme’. Reports of differential treatment based on political affiliation were widely reported, as the writer had exemplified in the debate.

IDR – The End of NEP?

It is now a common knowledge that bumiputera contractors (read Umnoputera) are given special preference (60% of the contracts) under the Ninth Malaysia Plan. This is another multi-billion ringgit developmental programme already launched. Already some mega ones have been roll-out either through direct negotiation, again sidelining the need for an open-tender system. However, no such ‘affirmative policy’ is recommended in the Iskandar Development Region (IDR) in South Johor. Tun Musa Hitam, a member of the advisory council of the IDR, on the contrary, is insisting for an exemption from the ‘affirmative policy’ of favouring bumiputeras in the hope of attracting foreign investors to the region. This has caused quite a mixed response and anxiety from the Malay constituency.

Bridging the Yawning Income Divide

Going by the UNHDP Report 2004 and after 37 years of NEP, Malaysia has become the worst country in income disparity between the rich and poor, in South East Asia. The report shows that the richest 10% in Malaysia controls 38.4% of our economic income as compared to our poorest 10% controlling only 1.7%, while the Malay suffers the greatest intra-ethnic income disparity.

Quite frankly, an ethnic approach in interventionist policy that doesn’t cut across racial divide and not premise on genuine needs, is principally and fundamentally flawed. Giving handouts and continuing rent-seeking activities to non-deserving entities, be they bumiputera or non-bumiputera cronies and only adding cost without increasing productivity to any economic activities, spell doom for the nation’s future, in the face of global competition. Continuing the affirmative action for the ‘super rich Umnoputeras’ will eat badly into our national resources and produce deleterious knock-on effects on our nation’s integrity and competitiveness. Surely this cannot and must not be assumed forever.

The already capable Malays, after 5 decades of independence, must no longer be beholden to an ‘affirmative mindset’ that entrapped them into an unrelenting ’crutch mentality’ that will disallow them to be truly competent, competitive and enterprising.

We must not repeat our mistakes. Otherwise, it will be ‘the Great March Backward’ for the nation.
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Dr. Dzulkifli Ahmad is head of the Research Bureau of the Pan-Malaysian Islamic Party (PAS)