Malaysia reaping inequality, corruption and racial envy from race-based policies

Inequality in Malaysia now goes beyond race, says a prominent economist, who also pointed out the failure of Malaysia's affirmative action policies. – The Malaysian Insider file pic, November 25, 2014.

Malaysia's affirmative action policies in the past 40 years have created a culture of dependency, corruption and racial envy, a prominent Malaysian economist said today.

‎Tan Sri Dr Kamal Salih, an adjunct professor of Economics and Development Studies at Universiti Malaya (UM) said that the‎ benefits of the development policies did not truly extend beyond the first 20 years of the New Economic Policy's (NEP) implementation.

"The problem over the decades involved has not been with the intent nor the content of the NEP and its successors, but the manner of their implementation, which have produced new inequalities, poverty and vulnerabilities in the development process.

"While no further progress has been made in reducing inequality in income distribution over the last decade, the NEP had resulted instead in creating a culture of dependency, corruption and racial envy."

Successive policies after the NEP, like the National Development Policy (NDP) and National Vision Policy (NVP), also had the same consequences as inequality in wealth distribution was not addressed, he said.

Kamal said this in his keynote speech at the launch of the Malaysia Human Development Report (MHDR) 2013‎ at the Pacific Regency Hotel in Kuala Lumpur today.

Kamal was the lead author of the report, which revealed that‎ the formation of the middle class was fastest during the implementation of the NEP in the 20-year period involved.

"However, throughout the entire‎ period until now, the size of the middle class... has remained relatively small for Malaysia, trending around the 20% when in comparison in a typical developed country situation, the percentage is closer to 50-55%."

He said the middle class was defined by the World Bank as those households positioned between 20% of the median income.

Kamal added that NEP-based ethnic classification was becoming less relevant when tackling equity in development, noting that inequality in Malaysia went beyond race.

The policies were aimed at bringing Malays and Bumiputeras to be on a par economically with other ethnic groups.

But the study showed that inequality had also grown within ethnic groups. Wealth gaps between ethnic groups as a whole did close, but resulted in the creation of a class divide.

"While the bottom 50% has wages/salaries making up 97% of their purchasing power, the upper part of the middle class would exhibit a similar pattern to the upper 50% with contribution from wealth effects approaching 11% and increasing as they climb the income ladder.

"In other words, on the basis of household fiscal capability Malaysia essentially exhibits a two-class social stratification, with inequality diminishing between ethnicities but within-group income gaps rising more and more to obliterate the NEP-based ethnic classification as a relevant issue of equity in development.

"Income inequalities then become essentially a question of class. This would be good news for some, while not so for others!"

He added that the New Economic Model's (NEM) emphasis on the bottom 40% overlooked "vertical and horizontal equity" in development, such as institutional issues, corruption and rent-seeking behaviour.

"In my view, a piecemeal and project-oriented approach will not do the job, only a comprehensive reform of policies and institutions will set the course of the country's development in its proper path onwards to economic growth and social justice."

- TMI