Strategies to reduce economic gaps between ethnic:

Affirmative Action through Government’s Economic Policies

Since the majority of the population who are poor or low income are Bumiputera. The
government should through its economic policy is able to perform actions to help
Bumiputera to increase their economic level. Government through its agencies can
provide financial assistance, incentives, fund, technical assistance, advice and
subsidies. With the situation is conducive to economic growth, will be able to improve
Bumiputra economy and thus reduce the income gap between ethnic groups.

For example the New Economic Policy (NEP) was first announced in 1970 are slightly
reduced the economic gap between the races. Although this policy is facing many
challenges, and had not reached 30% by Bumiputera economic domination, but
managed to raise slightly the Bumiputera economy level.

The NEP had two prongs, namely “poverty eradication regardless of race” and
“restructuring society to eliminate the identification of race with economic function”. The
NEP was supposed to create the conditions for national unity by reducing interethnic
resentment due to socioeconomic disparities. In practice, the NEP policies were seen as
pro-Bumiputera, or more specifically, pro-Malay, the largest indigenous ethnic
community. Poverty reduction efforts have been seen as primarily rural and Malay, with
policies principally oriented to rural Malay peasants. As poverty reduction efforts had
been uncontroversial and had declined in significance over time, the NEP came to be
increasingly identified with efforts at “restructuring society” efforts to reduce interethnic
disparities, especially between ethnic Malay and ethnic Chinese Malaysians.

The NEP has been associated with the First Outline Perspective Plan [OPP] for 1971–
1990. The OPP sought to reduce poverty from 49% in Peninsular Malaysia in 1970 to
17% in 1990, while the national rate was slightly higher. Most significant was the rural
poverty rate decrease from 58.7% to 21.8% within the period because the majority of the
rural population is Bumiputera. Urban poverty rate reduce from 21.3% in 1970 to 7.5% in
1990.
The NEP’s main restructuring target was to raise the Bumiputera share of corporate
stock ownership from 1.5% in 1969 to 30% in 1990. The government’s data suggest that
Bumiputera ownership rose to about 18% in 1990 and slightly over 20% in 2000.
Although the government originally envisaged that much of the Bumiputera corporate
wealth would be held by trust agencies, private individual Bumiputera ownership has
risen from less than a third to over 90%.

The NEP has since ostensibly been replaced by the National Development Policy (NDP)
associated with the Second Outline Perspective Plan for 1991–2000, and then by the
National Vision Policy linked to the Third Outline Perspective Plan for 2001–2010.

The level of income increased substantially accompanied by the reduction in the

incidence of poverty. Real per capita income increased by 47% from RM5,616
(RM6,298 in current terms) in 1990 to RM8,234 (RM13,708 in current terms) in 2002. As
indicated by the Gini coefficient, income inequality increased from 0.442 to 0.461.
Despite this slight widening of income inequality, all income groups recorded increases
in gross household income. The incidence of poverty declined by almost 70 per cent
from 16.5% to 5.1% during the same period. Urban poverty decreased from 7.1% to 2.0
per cent and rural poverty declined from 21.1% to 11.4%. The incidence of hardcore
poverty was reduced from 3.9% in 1990 to 1.0% in 2002 with rural areas registering a
decline from 5.2% to 2.3% and urban areas from 1.3% to 0.4%.

Although the new policies have put far greater emphasis on achieving rapid growth,
industrialization and structural change, there is the widespread perception that public
policy is still dominated by the NEP’s interethnic economic policies, especially wealth
redistribution or “restructuring” targets.

These policies are believed to be especially important in terms of influencing public

policies affecting corporate wealth ownership as well as other areas, notably education
and employment opportunities. In other words, ethnic discrimination primarily involves
the business community and the middle class, where interethnic tension is most acute.
Interethnic business coalitions have become increasingly important over time, often with
an ethnic Malay partner securing rents for gaining access to government-determined
business opportunities, and the ethnic Chinese partner with access to capital and
business acumen getting the job done. Such joint ventures have generated considerable
resentment, especially among those denied access to such business opportunities.

Poverty Reduction

Malaysia experienced rapid and almost continuous year-to-year economic growth during
the NEP and NDP periods and achieved greater income equality by the end of each
period. At the same time, there was a large reduction in the incidence of poverty and
marked progress in meeting targets for the restructuring of society.

The result of development efforts was marked increases in real national and per capita
income, accompanied by declining income inequality. Related to these efforts was a
considerable reduction in the incidence of poverty, while the Malay or Bumiputera racial
group made notable progress in the modern sectors of the economy.

Achievements in poverty reduction were driven by a comprehensive program that

incorporated eight critical strategies:

(1) agreeing on the definition and measurement of poverty;

(2) increasing productivity and diversifying sources of income;
(3) targeting the hardcore poor through a special program focused on their needs and
delivering other appropriate assistance to improve their situations;
(4) involving private sector and nongovernmental organizations;
(5) improving the quality of life of the poor by providing infrastructural and social
amenities, such as piped water, electricity, roads, medical and health services, and
schools for the rural population;
(6) providing welfare assistance directed at the poor who were aged or disabled and
therefore not employable;
(7) maintaining stable prices, a strategy that involved government intervention in the
markets of a small number of food and other essential items; and
(8) reducing or eliminating income tax rates for the poor.

The poverty program, combined with Malaysia’s rapid economic growth, helped to
reduce poverty and improve the quality of life of all Malaysians.
Restructuring Society

The Elimination of identification of race based on economic function and the

restructuring of ownership will continue to be an important program under this
strategy. In this respect, the NDP aims to improve social and economic status of
the Bumiputera community to a more viable and robust. This position can be
achieved with the implementation of strategies to increase employment and
participation of Bumiputera in the modern sectors of management and develop
the Bumiputera Commercial and Industrial Community. Although government
policies and programs will continue to provide support to entrepreneurs, but
entrepreneurs hope the government will develop a business based on its own
efforts and less dependent on government assistance and subsidies. In this
respect training in property management and business ethics will prevail. As a
long-term measures, programs to develop young entrepreneurs will also be given
attention.

NDP will encourage Bumiputera participation in an extensive modern sectors

such as manufacturing and services. Special attention is given to the Bumiputera
participation in small and medium industries through the program sub-contracts
and franchises. Active Partnership between Bumiputera and non-Bumiputera will
be encouraged to enable Bumiputera companies improve business prospects. To
enable Bumiputera to compete in modern business, they will be exposed to the
latest technology in addition to capital facilities, market information and business
links with international markets. The objective employment restructuring will
ensure that the employment pattern in the various sectors of the economy
reflects the composition of the various ethnic groups in the country. In the past 10
years from now, this policy will ensure that the Bumiputera get a fair share of new
jobs created, especially in the professional, managerial and technical. From the
2.4 million new jobs are expected to be realized from the year 1991-2000,
approximately 55.8% will be taken by the Bumiputera (706.700 and 534.000 in
the services sector in the manufacturing sector.) In the rural sector, to improve
the labor mobility, actions will be taken to improve education and skills.

In respect of the restructuring strategy of ownership and controlling in the private

sector, specific quantitative targets are not set in the NDP. Steps will be taken to
complete the Bumiputera with appropriate skills not only to manage and conduct
business effectively but also to maintain their wealth. Trust agencies and public
corporations have to plan and coordinate their actions more effective in creating
new wealth and buying special interests on behalf of indigenous people. The role
of Permodalan Nasional Berhad (PNB) will be strengthened in mobilizing savings
and the development of Bumiputera entrepreneurship. Amanah Saham
Bumiputera (ASB) and Amanah Saham Nasional (ASN) is part of an overall
strategy to manage and continue mobilizing Bumiputera savings over the NDP.

Privatisation will be used as a way to accelerate and expanding the participation

of Bumiputera in the private sector and achieve equity restructuring. Foreign
Investment Committee will continue monitoring the process of restructuring the
share capital by encouraging more companies to comply with the conditions
prescribed.

Such as the NEP, NDP will continue its efforts not only to reduce economic
disparities among ethnic groups but also between rich and poor and between
regions. These economic imbalances will be reduced based on the principle of
balanced development and equitable distribution to achieve social justice and
strengthening national unity.
References:
Jomo K.S. 2004, The New Economic Policy and Interethnic Relations in Malaysia,
Programme Paper Number 7, UNRISD, viewed 20 March 2011, <http://www.unrisd.org>.

World Bank, SHANGHAI POVERTY CONFERENCE: CASE STUDY SUMMARY, viewed 20 March
2011, <http://info.worldbank.org/etools/docs/reducingpoverty/case/25/summary/case-
summ-Malaysia-PovertyReduction.pdf>

Jabatan Penerangan, Dasar Pembangunan Nasional (DPN), Pusat Maklumat

Rakyat,, viewed 20 March 2011, <http://pmr.penerangan.gov.my/index.php?
option=com_content&view=article&id=241:dasar-pembangunan-nasional-dpn-
&catid=88:dasar-dasar-negara>