Comment on “Social Justice and Affirmative Action in Malaysia: The New Economic Policy after 50 Years”

The debate on affirmative action and the New Economic Policy (NEP) in Malaysia is controversial, and often attracts mixed and emotional responses to its relevance and achievements. Lee (2022) is an attempt to reset the affirmative action agenda in Malaysia by anchoring it on the principles of equality and fairness, and deserves serious consideration by policy makers.

Some of the key points of Lee (2022) are worth highlighting. First, the NEP policy design has unintended deficiencies. While the first prong of the policy (the reduction of poverty) has a specific target of reducing the poverty rate from 49% in 1970 to 16% in 1990, the targets for the second prong, the “restructuring of society,” are omitted, apart from increasing Bumiputera equity ownership to 30% by 1990. Other indicators, such as participation in higher education and professional occupations, were overlooked. The 20-year timeframe set for the policy is also impractical.

Second, public discourse often misguidedly portrays the NEP as a zero-sum game. The “terminate or continue” debate ignores the fact that the policy enjoys support from the Bumiputera community, and it is politically impractical to terminate it without political negotiations, at the same time disruptive to the recipients. While the argument that given the majority of the poor are Bumiputera and thus focusing on need-based would still help predominately Bumiputera, it “errs in viewing the NEP's two prongs as substitutes rather than complements.” Race-based and need-based policies are complements, not replacements.

Third, the focus of the NEP during the past decade has been mostly on the bottom 40% of households (irrespective of race) via mostly a cash transfer program and on micro and small enterprises, which are targeted mostly for the Bumiputera. The group-targeted policies have expanded beyond Bumiputera to include Indians, Orang Asli, women, and marginalized groups.

Fourth. Lee (2022) proposes that the policy be anchored on the principle of equality, and fairness to targeted groups. Lee also correctly argues that any policy changes to the NEP must go beyond household income.

However, there are some issues that warrant explanation or elaboration in Lee (2022). First, while it is generally assumed that the Bumiputera agenda started with the NEP, actually the pro-Malay economic agenda began during the latter part of the colonial period. The first official attempt by the British colonial government to address the Malay economic backwardness was institutionalized in the Draft Development Plan (1950–1955) It continued in the First Five-Year Malaya Plan (1956–1960), which included setting up the Federal Land Development Authority in 1956 to address poverty, especially among the landless Malays. The Malay-focus of the economic agenda by the British was a deliberate strategy to ensure that Malay nationalism post-independence would not nationalize British commercial interests in Malaya.

Second, while it is vital that the focus on Bumiputera-owned small and medium-sized enterprise development must be anchored in capacity and competitiveness, it is not totally incorrect to have a proxy indicator of Bumiputera participation, control, and ownership in the economy. The 30% target for Bumiputera corporate ownership was a means to an end, to create a Bumiputera commercial and industrial class on a par with others. It is also important to acknowledge that the NEP policies on capital ownership have been severely reduced, there has been no equity requirement for export-oriented companies since the 1980s, and for those with multimedia super corridor status since the late 1990s. In 2009, the requirement for public listed companies to ensure 30% Bumi equity ownership has been reduced to 12.5% of the paid-up share capital upon listing. The key Bumiputera asset management agency, PNB, also allowed non-Bumiputera to subscribe to some of its unit-trust schemes since 2000.

Third, Lee correctly points out that the NEP needs to go beyond income, and the income gap has narrowed and is almost on parity between Bumiputera and Indians. However, while the relative income gap is important, the absolute income gap equally matters. Although the relative income gap has narrowed between Bumiputera and non-Bumiputera, the gap in absolute terms is widening. The median income gap between the Bumiputera and the Chinese has further widened to four times in 2019 compared to that during the 1990s. A short discussion on relative and absolute income inequality would add another perspective.

Fourth, while the concept of equality is important, equity is also vital to ensure inclusive growth and that no one is left behind. Equality of opportunity is not enough given unequal starting points and challenges; there is a need for equality of outcomes as well. It would be interesting to see how these concepts fit into Lee's new framework of social justice and affirmative action.