Understanding Equitability in Malaysia
There's been a lot of hoo-haa lately over UMNO Youth's call to revive the New Economic Policy (NEP)in Malaysia.
The NEP provisions had been laid out by the Razak administration in 1971, as a reaction to the racial riots of 13 May 1969. It had 2 main objectives - first, the eradication of poverty for all and secondly, the restructuring of society, to stop the identification of race with economic function.
Included in the latter is a target for the Bumiputras ("sons of the soil") to hold 30% of the corporate equity in Malaysia. And another main thrust was the creation of a Bumiputra Commercial and Industrial Community (BCIC) - to increase the number of Malay professionals and entrepreneurs.
The idea was for the Malays and the Bumiputras, which make up the majority of the population and regarded as the indigenous people of Malaysia, to have an "equitable" share of the economic pie.
Tun Abdul Razak had presciently recognised that the political stability and defusing racial tensions that came from such huge economic disparity between the races in the country, can only come with the creation of a large Malay middle-class.
One could only understand the importance of this measure if one reflected on the disparity between the races that existed back then - the Bumiputras only held 2% of the corporate equity in the country, made up the largest percentage of the impoverished, had negligible participation in all professions and made up the smallest group in university enrolment.
Even in sectors where it was predominantly Bumiputra, like agriculture - they lacked the capital and the control of the marketplace. They were at the mercy of the market middleman - which at that time, were mainly non-Bumiputras.
Much of the catalyst of this economic disparity had been due to colonial policies during the British administration - with their "divide and conquer" methods.
If the NEP was not around, I have no doubts that we would have experienced the bloodshed that Indonesia did, during the economic crisis, a few years ago.
In Indonesia, a country which is predominantly Malay, where only 3% of the population (mainly Chinese) controlled 80% of the wealth of the country - it was a time bomb waiting to happen. Thousands of the Chinese community were robbed, beaten, raped and killed, during the revolt that happened, beginning 1998.
And this is despite the fact, that they have a seemingly stronger national identity than we do.
Things are better now, in Indonesia - but they are beginning to keep their eye on the lynchpin of political stability - to address the economic growth of Indonesia and to ensure that racial economic disparities are bridged. If you observe the style of the Indonesian President, Susilo Bambang Yudhoyono, you would see how the emphasis has changed.
Back to Malaysia. Okay, so we agree, that racial economic disparities between major races in a country, should be kept in check. And perhaps for all races to have an "equitable" share of the pie.
And despite making up the majority of the population at any one time, since Independence (and currently at 66% of the population and rising) - an "equitable" share for the Bumiputras have been set at the magic number of 30%. (The assumption back then, was that the ratio between Bumiputras, Non-Bumiputras and foreigners would be 30%: 40%: 30%)
Personally, I think this is a fair target, considering the size of the Bumiputra population, relative to the corporate equity targeted. It is equitable FOR the Bumiputras. It is equitable OF the Bumiputras - they are not asking for dominance or percentages which correlate with their population - they understand that they share this country, with other Malaysians too.
But even at the inception of the NEP, the redistribution intent was never to take from Chong to give to Ali.
If we look at the early 1990's, the Chinese dominance in the economy did not suffer greatly, (corporate equity of the Chinese was at 46%, if I'm not wrong) even when Bumiputra corporate equity grew from 2% in 1971 to approximately 19%, in 1991.
This is because most of the corporate equity gained by the Bumiputras, were either at the expense of the share of the foreigners or gained via privatizations of large Government institutions and utilities(like Telekom and TNB).
And during the 1990's up till today, the successor to the NEP, which the National Development Policy (NDP) accentuated even further the "growth with equity" formula, though no new target date had been set for the end of the NEP. And Vision 2020 was born and it implied that the NEP would be scrapped by 2020, although Dr. Mahathir never specifically said this.
The formula under the Mahathir administration was simple: If you keep the economic cake growing, no one will begrudge the redistribution, as the absolute share your pie has grown. Prosperity will be felt by all races - and it was so, between the FDI economic boom years of 1991 up till 1997, where the GDP was averaging at least 8.5% per annum. And the redistribution of the remaining 11% of the corporate equity for the Bumiputras, would not be felt as greatly, if it was done over almost a 30-year period, up till 2020.
On the minus side: money politics became pervasive in UMNO, infrastructure, property development and construction projects and contracts drove the Malay thrust in business and "Ali Baba" practices mushroomed. There were more Malay millionaires than Malay-owned businesses, which were supposed to have made them rich.
But the Asian economic crisis changed all this. Large Bumiputra corporations fell from their grace, saddled with massive debts, dissipating large portions of Bumiputra corporate equity and wealth. It was believed that at one time in the middle of the crisis, the Bumiputra corporate equity came down to 14% from 19% - regressing at least, the economic efforts of 5-10 years.
And it changed the FDI landscape forever - this part of the world had become "taboo" for FDIs. The rise of China, hollowing out the low-level manufacturing base of other Asian countries, including Malaysia, made things even worse.
It was evident that a few things had changed - the heady days of strong FDI-driven growth was over as China was sucking the FDIs dry and Malaysia had to move up the value chain - whether it was prepared for it or not.
And globalization is unrelenting - nowhere is this more evident than in the automotive industry. As Proton stands alone and struggles with quality control and maintaining market share, cheap foreign cars (mainly from automakers that have merged and consolidated around the world) are flooding the market.
Luckily, Perodua wisely chose to partner with Daihatsu, to make high quality and internationally competitive cars, like the MyVi.
So, what is the current position? There's a few premises that we have to commonly accept, as a nation.
First, the 30% corporate equity target for the Bumiputras had ALWAYS been there - it had NEVER waivered as a national policy. Only the method, emphasis and timelines had changed - but even then, it is almost consistent that the NEP's "sell-by" date (since Vision 2020) would be the year 2020.
And we have to realize the realistic context of what it would probably be like, at that time.
Yes, there will still be poor people (although the poor in Malaysia is far better than the poor in other parts of the world). It is the nature of economic development to engender inequality - the only thing we can do, is to make sure that the gap is not excessive.
Yes, there will still be many rural areas but hopefully, each district will have its own economic specialization and industrial SME "clustering". And at least, they're not deprived of access to affordable latest technologies.
Yes, the Bumiputras will be wealthier - but the majority of their wealth will probably be in the hands of large Bumiputra corporates and institutions. Individuals have always proven to be a poor holder, of corporate equity.
Yes, the Bumiputras will excel and perhaps, dominate a few economic sectors - but a lot of other economic sectors, professions and businesses, will still be dominated by non-Bumiputras. And yes, perhaps, there will be more non-Bumiputra millionaires, still.
But NO, hopefully, the Malays will not be associated with economic backwardness and laziness. NO, they should not be mainly associated with drug addiction, social problems and breaking family structures. NO, they should not be seen to be joining politics, to financially enrich themselves. NO, they should not be linked to Islamic extremism. And NO, we will not have politicians that are fond of playing the race card, to gain political mileage.
The "expectation gap" must be handled, so that everyone is on the same page, of what 2020 will be like.
Secondly, unless there is enough economic growth generated, the impact of economic redistribution amongst the races, would be felt. And this is where things, will get tough.
Our commitments under WTO, the need for our Malaysian products, services and human capital to be internationally competitive, the difficulty in moving to the next engine of economic growth (like agriculture) or moving up the value chain (like biotechnology), the "reform vs Malay agenda" dilemma of the Government-linked companies (GLCs), the troubled education system, the inefficient civil service, the weak innovation ecosystem, all contribute to making the "growth with equity" formula, very challenging.
Thirdly, in the restructuring of Malaysian society, there is a need for UMNO to be realistic in its targets. The Malays cannot make up 30% of all professions and economic sectors, by 2020. That is impossible. What is more realistic, is to target a few professions and sectors which the Bumiputras would like to focus its strength on to dominate or be a sizable part of - and leave the rest to market forces.
Therefore, it is heartening to see that in the recent UMNO General Assembly, UMNO Youth suggesting the targeting of a few economic sectors for Bumiputras to focus on and dominate - like biotechnology, defence, farming, halal food manufacturing, aerospace, ICT, petroleum and gas, finance, automotive, services and tourism.
With the exception of biotechnology, ICT, services and tourism - I think the others are quite within reach for Bumiputras to excel in, as there is already a strong foundation to build on.
Fourthly, pushing the Malay Agenda, must be within the context of making them internationally competitive. In a globalized world, that is the context that matters - the local market is too small, to keep the economic cake growing. Awarding of tenders and contracts must be given to the most competitive of Malays, to make the redistribution effect, more permanent and exponential.
Political patronage and intervention must be lessened - unless it's to help the meritorious and the deserving. Political intervention within the GLCs (and the civil service, for the award of contracts) must be lessened as well - we cannot build world-class companies with blind-alley politicians meddling, in the business of GLCs.
For UMNO to make the Malays strong, they have to know when to stand aside and let the genuinely strong Bumiputra entrepreneurs, succeed. Regardless of whether the deprived ones are UMNO members or those strongly politically-connected. Politics is there to serve the people, not for politicians to serve themselves.
Within the next 15 years - there has to be a class of Malays that is regarded as "post-NEP" Malays - undeserving of scholarships and subsidies, meant for the underprivileged. It's time that some of these things are means-tested. They shall be the role models that others still under the NEP, should aspire to - a future life without crutches.
And this is why I hope that the words of UMNO Youth's Deputy Chief, Khairy Jamaluddin, in the recent UMNO General Assembly, when he was moving the economic resolution for a New National Agenda ("NNA") - of "creating a competitive and independent breed of Malays", will ring true.
Fifthly, the implementation of the NEP, must be done within the context of globalization and the need to retain competitive human capital. We need to curb the migration outflow of other Malaysians, especially amongst the professional class.
There was a time in during the mid-1980's when a Deputy Prime Minister commented that it was good for some Malaysians to migrate, because "they were thorns in the flesh". There was very little openness back then, to differing views from the Establishment - but that cannot be the case now.
On average, Malaysia loses 3,000 - 4,000 Malaysians per annum to Australia - mainly amongst the tertiary educated and professional class. If we take migration to other countries (like the United Kingdom and the US) into consideration, the numbers would probably at least, double or triple this, per year.
A country that is short on high quality human capital and on top of that, is suffering "leakages" in retaining good human capital - is a country that is fast losing competitiveness, regardless of its initial investment in education. The ROI will never be satisfactory. It's like training your people to succeed, as citizens of other countries - you do not reap the rewards. It's 2 steps forward and 3 steps to the back.
There must be more openness, for different opinions, perspectives and lifestyles. Unless we make the space for the best to think and be creative, other countries will.
The road ahead is long, hard and winding. It needs a leadership that knows how to prioritize and balance between the different ingredients, and to make difficult decisions that would keep Malaysia competitive and viable. And we need that sort of leadership at all levels. And to teach that balance to its citizens, and future generations.
If we want a different reality for our children, by 2020 - the current young generation must strive for the best and yet be tolerant, generous and conciliatory in their give-and-take. It's like what Dr. Mahathir used to say - "we are fair because no one gets 100% of what they want". Moderation is the name of the game. All of us, have to learn to be equitable - both Bumiputras and other Malaysians.
Regardless of how it looks, we must realize that we're all playing on the same side, against the rest of the world - to fight and retain the best, of what we have for the future.
We're playing for the Malaysian side.
The NEP provisions had been laid out by the Razak administration in 1971, as a reaction to the racial riots of 13 May 1969. It had 2 main objectives - first, the eradication of poverty for all and secondly, the restructuring of society, to stop the identification of race with economic function.
Included in the latter is a target for the Bumiputras ("sons of the soil") to hold 30% of the corporate equity in Malaysia. And another main thrust was the creation of a Bumiputra Commercial and Industrial Community (BCIC) - to increase the number of Malay professionals and entrepreneurs.
The idea was for the Malays and the Bumiputras, which make up the majority of the population and regarded as the indigenous people of Malaysia, to have an "equitable" share of the economic pie.
Tun Abdul Razak had presciently recognised that the political stability and defusing racial tensions that came from such huge economic disparity between the races in the country, can only come with the creation of a large Malay middle-class.
One could only understand the importance of this measure if one reflected on the disparity between the races that existed back then - the Bumiputras only held 2% of the corporate equity in the country, made up the largest percentage of the impoverished, had negligible participation in all professions and made up the smallest group in university enrolment.
Even in sectors where it was predominantly Bumiputra, like agriculture - they lacked the capital and the control of the marketplace. They were at the mercy of the market middleman - which at that time, were mainly non-Bumiputras.
Much of the catalyst of this economic disparity had been due to colonial policies during the British administration - with their "divide and conquer" methods.
If the NEP was not around, I have no doubts that we would have experienced the bloodshed that Indonesia did, during the economic crisis, a few years ago.
In Indonesia, a country which is predominantly Malay, where only 3% of the population (mainly Chinese) controlled 80% of the wealth of the country - it was a time bomb waiting to happen. Thousands of the Chinese community were robbed, beaten, raped and killed, during the revolt that happened, beginning 1998.
And this is despite the fact, that they have a seemingly stronger national identity than we do.
Things are better now, in Indonesia - but they are beginning to keep their eye on the lynchpin of political stability - to address the economic growth of Indonesia and to ensure that racial economic disparities are bridged. If you observe the style of the Indonesian President, Susilo Bambang Yudhoyono, you would see how the emphasis has changed.
Back to Malaysia. Okay, so we agree, that racial economic disparities between major races in a country, should be kept in check. And perhaps for all races to have an "equitable" share of the pie.
And despite making up the majority of the population at any one time, since Independence (and currently at 66% of the population and rising) - an "equitable" share for the Bumiputras have been set at the magic number of 30%. (The assumption back then, was that the ratio between Bumiputras, Non-Bumiputras and foreigners would be 30%: 40%: 30%)
Personally, I think this is a fair target, considering the size of the Bumiputra population, relative to the corporate equity targeted. It is equitable FOR the Bumiputras. It is equitable OF the Bumiputras - they are not asking for dominance or percentages which correlate with their population - they understand that they share this country, with other Malaysians too.
But even at the inception of the NEP, the redistribution intent was never to take from Chong to give to Ali.
If we look at the early 1990's, the Chinese dominance in the economy did not suffer greatly, (corporate equity of the Chinese was at 46%, if I'm not wrong) even when Bumiputra corporate equity grew from 2% in 1971 to approximately 19%, in 1991.
This is because most of the corporate equity gained by the Bumiputras, were either at the expense of the share of the foreigners or gained via privatizations of large Government institutions and utilities(like Telekom and TNB).
And during the 1990's up till today, the successor to the NEP, which the National Development Policy (NDP) accentuated even further the "growth with equity" formula, though no new target date had been set for the end of the NEP. And Vision 2020 was born and it implied that the NEP would be scrapped by 2020, although Dr. Mahathir never specifically said this.
The formula under the Mahathir administration was simple: If you keep the economic cake growing, no one will begrudge the redistribution, as the absolute share your pie has grown. Prosperity will be felt by all races - and it was so, between the FDI economic boom years of 1991 up till 1997, where the GDP was averaging at least 8.5% per annum. And the redistribution of the remaining 11% of the corporate equity for the Bumiputras, would not be felt as greatly, if it was done over almost a 30-year period, up till 2020.
On the minus side: money politics became pervasive in UMNO, infrastructure, property development and construction projects and contracts drove the Malay thrust in business and "Ali Baba" practices mushroomed. There were more Malay millionaires than Malay-owned businesses, which were supposed to have made them rich.
But the Asian economic crisis changed all this. Large Bumiputra corporations fell from their grace, saddled with massive debts, dissipating large portions of Bumiputra corporate equity and wealth. It was believed that at one time in the middle of the crisis, the Bumiputra corporate equity came down to 14% from 19% - regressing at least, the economic efforts of 5-10 years.
And it changed the FDI landscape forever - this part of the world had become "taboo" for FDIs. The rise of China, hollowing out the low-level manufacturing base of other Asian countries, including Malaysia, made things even worse.
It was evident that a few things had changed - the heady days of strong FDI-driven growth was over as China was sucking the FDIs dry and Malaysia had to move up the value chain - whether it was prepared for it or not.
And globalization is unrelenting - nowhere is this more evident than in the automotive industry. As Proton stands alone and struggles with quality control and maintaining market share, cheap foreign cars (mainly from automakers that have merged and consolidated around the world) are flooding the market.
Luckily, Perodua wisely chose to partner with Daihatsu, to make high quality and internationally competitive cars, like the MyVi.
So, what is the current position? There's a few premises that we have to commonly accept, as a nation.
First, the 30% corporate equity target for the Bumiputras had ALWAYS been there - it had NEVER waivered as a national policy. Only the method, emphasis and timelines had changed - but even then, it is almost consistent that the NEP's "sell-by" date (since Vision 2020) would be the year 2020.
And we have to realize the realistic context of what it would probably be like, at that time.
Yes, there will still be poor people (although the poor in Malaysia is far better than the poor in other parts of the world). It is the nature of economic development to engender inequality - the only thing we can do, is to make sure that the gap is not excessive.
Yes, there will still be many rural areas but hopefully, each district will have its own economic specialization and industrial SME "clustering". And at least, they're not deprived of access to affordable latest technologies.
Yes, the Bumiputras will be wealthier - but the majority of their wealth will probably be in the hands of large Bumiputra corporates and institutions. Individuals have always proven to be a poor holder, of corporate equity.
Yes, the Bumiputras will excel and perhaps, dominate a few economic sectors - but a lot of other economic sectors, professions and businesses, will still be dominated by non-Bumiputras. And yes, perhaps, there will be more non-Bumiputra millionaires, still.
But NO, hopefully, the Malays will not be associated with economic backwardness and laziness. NO, they should not be mainly associated with drug addiction, social problems and breaking family structures. NO, they should not be seen to be joining politics, to financially enrich themselves. NO, they should not be linked to Islamic extremism. And NO, we will not have politicians that are fond of playing the race card, to gain political mileage.
The "expectation gap" must be handled, so that everyone is on the same page, of what 2020 will be like.
Secondly, unless there is enough economic growth generated, the impact of economic redistribution amongst the races, would be felt. And this is where things, will get tough.
Our commitments under WTO, the need for our Malaysian products, services and human capital to be internationally competitive, the difficulty in moving to the next engine of economic growth (like agriculture) or moving up the value chain (like biotechnology), the "reform vs Malay agenda" dilemma of the Government-linked companies (GLCs), the troubled education system, the inefficient civil service, the weak innovation ecosystem, all contribute to making the "growth with equity" formula, very challenging.
Thirdly, in the restructuring of Malaysian society, there is a need for UMNO to be realistic in its targets. The Malays cannot make up 30% of all professions and economic sectors, by 2020. That is impossible. What is more realistic, is to target a few professions and sectors which the Bumiputras would like to focus its strength on to dominate or be a sizable part of - and leave the rest to market forces.
Therefore, it is heartening to see that in the recent UMNO General Assembly, UMNO Youth suggesting the targeting of a few economic sectors for Bumiputras to focus on and dominate - like biotechnology, defence, farming, halal food manufacturing, aerospace, ICT, petroleum and gas, finance, automotive, services and tourism.
With the exception of biotechnology, ICT, services and tourism - I think the others are quite within reach for Bumiputras to excel in, as there is already a strong foundation to build on.
Fourthly, pushing the Malay Agenda, must be within the context of making them internationally competitive. In a globalized world, that is the context that matters - the local market is too small, to keep the economic cake growing. Awarding of tenders and contracts must be given to the most competitive of Malays, to make the redistribution effect, more permanent and exponential.
Political patronage and intervention must be lessened - unless it's to help the meritorious and the deserving. Political intervention within the GLCs (and the civil service, for the award of contracts) must be lessened as well - we cannot build world-class companies with blind-alley politicians meddling, in the business of GLCs.
For UMNO to make the Malays strong, they have to know when to stand aside and let the genuinely strong Bumiputra entrepreneurs, succeed. Regardless of whether the deprived ones are UMNO members or those strongly politically-connected. Politics is there to serve the people, not for politicians to serve themselves.
Within the next 15 years - there has to be a class of Malays that is regarded as "post-NEP" Malays - undeserving of scholarships and subsidies, meant for the underprivileged. It's time that some of these things are means-tested. They shall be the role models that others still under the NEP, should aspire to - a future life without crutches.
And this is why I hope that the words of UMNO Youth's Deputy Chief, Khairy Jamaluddin, in the recent UMNO General Assembly, when he was moving the economic resolution for a New National Agenda ("NNA") - of "creating a competitive and independent breed of Malays", will ring true.
Fifthly, the implementation of the NEP, must be done within the context of globalization and the need to retain competitive human capital. We need to curb the migration outflow of other Malaysians, especially amongst the professional class.
There was a time in during the mid-1980's when a Deputy Prime Minister commented that it was good for some Malaysians to migrate, because "they were thorns in the flesh". There was very little openness back then, to differing views from the Establishment - but that cannot be the case now.
On average, Malaysia loses 3,000 - 4,000 Malaysians per annum to Australia - mainly amongst the tertiary educated and professional class. If we take migration to other countries (like the United Kingdom and the US) into consideration, the numbers would probably at least, double or triple this, per year.
A country that is short on high quality human capital and on top of that, is suffering "leakages" in retaining good human capital - is a country that is fast losing competitiveness, regardless of its initial investment in education. The ROI will never be satisfactory. It's like training your people to succeed, as citizens of other countries - you do not reap the rewards. It's 2 steps forward and 3 steps to the back.
There must be more openness, for different opinions, perspectives and lifestyles. Unless we make the space for the best to think and be creative, other countries will.
The road ahead is long, hard and winding. It needs a leadership that knows how to prioritize and balance between the different ingredients, and to make difficult decisions that would keep Malaysia competitive and viable. And we need that sort of leadership at all levels. And to teach that balance to its citizens, and future generations.
If we want a different reality for our children, by 2020 - the current young generation must strive for the best and yet be tolerant, generous and conciliatory in their give-and-take. It's like what Dr. Mahathir used to say - "we are fair because no one gets 100% of what they want". Moderation is the name of the game. All of us, have to learn to be equitable - both Bumiputras and other Malaysians.
Regardless of how it looks, we must realize that we're all playing on the same side, against the rest of the world - to fight and retain the best, of what we have for the future.
We're playing for the Malaysian side.
posted by Stingrayz | 7:16 PM
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