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PART III: The unheard story behind the New Economic Policy

In Part Three of our six-part series, TAN SRI RAMON V. NAVARATNAM takes us back to the beginnings of the NEP, looks at some of its successes, and critically examines the rationale behind the extension of the NEP. Read on to find out more about the NEP’s eerie similarities to the 1969 riots…

Impact of the NEP on national unity

In my presentation of my paper to the National Unity Advisory Panel, of which I am a full member, I gave my analysis of the impact of the New Economic Policy on national unity since 1970. I took into account some of the views of Professor Rahman Embong and Professor Lim Teik Ghee in finalising my essay, for which I took full responsibility.

What we need to do is to examine the analysis and recommendations herein to improve my assessments and to draw some consensus as to what specific recommendations should be made to the government to enhance national unity and integration in our country. We cannot allow the underlying currents of polarisation to continue to flow and even grow in the future.

A. Background to the NEP

The New Economic Policy (NEP) was introduced in 1970 in the aftermath of the tragic and traumatic 1969 racial riots. The riots shocked and shook the very foundations of the new Malaysian nation, then only 12 years old.

The basic assumption made at that time was that the Malays had expressed their deep-seated fear that they were being marginalised in their country. They were mainly settled in the rural and agricultural areas where they were essentially farmers and fishermen.

By contrast, the Chinese were primarily in the business sector and mainly resided in the urban areas of Malaysia. The Indians were largely in the rubber estates or working as lower-level employees in the British Administration.

The outcome was that the Malays were the poorest racial group with only about 2.4 percent of corporate equity ownership in 1970. However, the Malays had the political power and dominated the civil service, the armed forces, and the police.

Review of the NEP’s achievements

The NEP, by all accounts, had brought a strong degree of peace, stability and prosperity to Malaysia. The healing process after the 1969 riots was accelerated with the speedy implementation of the NEP, and the economy recovered and progressed.

Stability and confidence returned, and the economy became more industrialised. It was export-led, with a fresh inflow of foreign capital coupled with an increase in domestic, private and public investment.

This brought about a gradual shift away from agriculture and spurred faster rural-to-urban migration. Thus poverty was reduced as incomes rose and the pressure on the rural land gradually declined.

All these developments gave rise to a new psychology of Malay confidence and some assurance of stability for the non-Bumiputeras. Indeed, Malaysia has been the envy of many multiracial societies elsewhere, and the “Malaysian Model� is often studied and emulated by the World Bank and other international organisations, as well as many developing countries.

However, despite all these efforts and huge public investments, the NEP targets have not been fully attained. Hence the NEP, which was supposed to end in 1990, has been extended with the introduction of the National Development Policy in 1991, the New Vision Policy, and now the proposed New National Agenda.

Rationale for the NEP extension

The NEP was extended for two main reasons:

Poverty

Poverty was not completely eradicated, although the objective was largely achieved. Poverty today is estimated to be around five percent, as compared to about 50 percent in 1970!

The poverty income line was RM529 per month for a family of 5.2 before the ninth Plan. It was only slightly higher in Sabah and Sarawak, where the cost of living is higher. Nevertheless this low income is adequate - especially in urban areas - to provide a decent standard of living and quality of life.

The question often arose as to whether the poverty line should be raised to perhaps around RM750 per month per family.

The expectation was that absolute poverty would be eradicated by 2008, where the poverty income line was about RM265 per month per family before the ninth Plan. This target could well be achieved by 2008, but the absolute poverty income line was recognised to be grossly inadequate to meet even the basic needs by human rights’ standards.

The bulk of the poor are still the Bumiputeras, especially in Sabah, Sarawak, Kelantan and Terengganu, although there are many “pockets of poverty� throughout the country encompassing all racial groups.

The new phenomenon, however, is urban poverty, and this is found in all towns and new villages. They constitute the so-called “flash points� or “hot spots� for future potential “flare-ups,� like the incidents we experienced in 2004 in Kampung Medan, off Jalan Klang in Kuala Lumpur. (The comparisons are ominously similar to what happened in Kampung Kerinchi, Kuala Lumpur in 1969!)

To be continued in Part Four…
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Tan Sri Navaratnam was directly involved in the formulation of many major public policies during his distinguished career in the civil service, from the New Economic Policy in 1970 to the preparation of annual budgets and economic plans. He retired from the government in 1989.

Since then he has continued to serve in the National Economic Consultative Council and the National Economic Action Council working groups, as well as other non-governmental agencies like Transparency International Malaysia, of which he is president.

The articles he shares with theCICAK are from his latest book, Quo Vadis: Where to, Malaysia?. The book addresses these hard issues and provides solutions for the challenging management of our nation. Click here to learn more about him, and Where to, Malaysia?

He is on the judging panel for theCICAK’s “Write It!” Competition 2006.