KUALA LUMPUR (Feb 22): Race-based affirmative action, specifically in business, has long had repercussions on the Malaysian economy but politicians from both sides of the divide are staying away from the contentious topic.
As Malaysia heads toward its most hotly contested general election, a myriad of issues – from religion, poverty, civil liberties and citizenship – have sparked highly charged debates.
But, Malaysia's affirmative action policies which have far-ranging consequences on the economy and society have curiously been overlooked, laments Universiti Malaya's Professor Edmund Terence Gomez.
Gomez believes that any policy discussion on economic reform is incomplete without an examination of Malaysia's long experiment with race-based affirmative action.
"We know the problems with the policy, the pros and the cons. How do we take this forward? It is an important policy because it dictates our economy and how our economy will move from here," he told fz.com in a recent interview.
Gomez and fellow academic Johan Saravanamuttu are editors of a book entitled The New Economic Policy in Malaysia: Affirmative action, ethnic inequalities and social justice.
The book, published last December, is a collection of academic essays on Malaysia's affirmative action policy and its impact.
The New Economic Policy (NEP) was introduced in 1970, a year after the racial riots, as a remedy for ethnic-based inequalities in the economy and society.
Its main goals were to eliminate poverty regardless of race and address the wealth disparities between the different ethnic communities.
Though the policy formally ended in 1990, subsequent national development policies retained elements of affirmative action for bumiputeras and continued to be known by its old name, NEP.
Gomez said both Barisan Nasional and Pakatan Rakyat have strategically avoided talking about affirmative action and are reticent about putting forth their respective policy agenda for Malaysia.
"The policy is so deeply racialised that politicians fear that if they put it out there, they may lose votes. Both sides are not willing to take the risk.
"As a result, core policies that need to be discussed are sidelined by both the opposition and Barisan Nasional for their own vested reasons, to maintain the support that they think they have," Gomez said.
Affirmative action is considered a political hot potato in Malaysia as parties seek to avoid sparking criticism for questioning or eroding the special rights of bumiputeras.
Bumiputera voters make up about 62% of the electorate, according to Election Commission data in 2012.
"If we don't talk about it before the election, it is not going to happen after the election," said Gomez, who is the dean of Universiti Malaya's Social and Behavioural Science Research Cluster.
Clear impact on economy
According to Gomez, the negative effects of race-based affirmative action policies have been visible in the Malaysian economy for the last decade, at the very least.
For one, the repercussions are manifested in low rates of domestic investment in the economy due to a lack of confidence in what is seen as an uneven playing field and a system lacking in transparency, Gomez said.
Gomez and Saravanamuttu's book noted that the phenomenal rise of patronage and corruption seriously undermined genuine entrepreneurship and domestic investment, a point which the government had acknowledged in 2010.
"The economy is the core issue. Investments are low. We have to rebuild the economy. We cannot be dependent on foreign direct investments (FDI) to drive this economy. There is too much competition out there," Gomez said.
In recent years, the Malaysian government has focused on promoting domestic investment although observers say a large portion of it is driven by government-linked companies (GLCs) instead of private sector entrepreneurs.
According to data from the Malaysian Investment Development Authority (MIDA), domestic investments in 2011 continued to exceed FDI at RM82.3 billion or 55.4% of total approved investment compared with foreign investments at RM66.3 billion.
Gomez adds that another impact of race-based affirmative action policies is that programmes aiming to create bumiputera entrepreneurs have inadvertently caused new problems such as intra-bumiputera wealth and power disparities as well as urban-rural spatial inequalities.
Many bumiputeras have complained that they too have been marginalised as only those who are well-connected benefit from affirmative action policies or concessions, Gomez said.
"Access (to affirmative action programmes) should be for people who really need it, the poor. But it was appropriated by people who didn't need it and became more wealthy and this lead to wealth disparity," Gomez said.
According to Gomez, the problems of cronyism and nepotism arose because the process of awarding concessions to bumiputera entrepreneurs was not transparent or accountable.
"Did it go to the people who were most equipped to use these concessions productively? What have been the outcomes of these distributions? Have they led to the rise of a new independent, vibrant bumiputera business elite? It hasn't," Gomez said.
Gomez notes that it is rather telling that Malaysia's top companies are mostly GLCs, in spite of the rampant privatisation of state enterprises in the 1990s by the then prime minister Tun Dr Mahathir Mohamad.
"Where are our major enterprises? Where are our SMEs that have created brand products and are of international repute?
But this isn't to say that the NEP was without success.
Many of the NEP's stated goals had been met albeit in part rather than in its entirety, according to data cited in Gomez and Savaranamuttu's book.
Absolute poverty among Malays had fallen to 20.4% by 1990 from 64.8% in 1970.
Corporate equity ownership by individual bumiputeras and trust agencies had risen from 1.5% in 1969 to 19% in 1990, albeit short of the 30% target.
Gomez acknowledges that the first ten years of NEP produced good outcomes when the policy was focused on poverty eradication and providing education to poor students.
"We saw important new reforms happening within society which manifested in the rise of the new middle class in the 1980s," Gomez said.
Gomez also pointed out that the NEP's focus on education was successful in creating an independent, professional Malay middle class which had great entrepreneurial capacity.
"This is a great case study to show that education is a powerful tool for reform," Gomez said.
But where the NEP went wrong was in the 1980s when they introduced it for business.
"There, it has been a monumental failure. You don't create entrepreneurial capacity by giving out rents," Gomez said.
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