New Economic Policy: Kebimbangan Menjelang 1990

Speech by Parliamentary Opposition Leader, DAP Secretary-General and MP for Kota Melaka, Lim Kit Siang, at the forum on ‘Dasar Ekonomi Baru: Kebimbangan Menjelang 1990’ organised by the Persatuan Sains Kemasyarakatan, Universiti Sains Malaysia, at Dewan Tuanku Syed Putra, USM, Penang on Saturday, 10.3.1984 at 8 p.m.

New Economic Policy: Kebimbangan Menjelang 1990

Although there are six more years, the question of the extension of the New Economic Policy after 1990 had become a major political and economic issue ever since the Asian Forecast interview with the Deputy Prime Minister, Datuk Musa Hitam, in June last year, with the follow-up pronouncements on the subject by UMNO Ministers and leaders and the resolution by the Wanita UMNO Assembly urging the government to extend the period for the implementation of the New Economic Policy from 1,990 to 2,000.

The year 1990 will be an important milestone for all Malaysians for the 20-year New Economic Policy was promulgated in 1970 to lay the socio-economic foundation for a new Malaysian order, and its outcome and public perceptions and reactions to it, would have far-reaching consequences on the future political, economic, educational, cultural and religious life in the country.

The NEP declared as its overriding objective the achievement of national unity in 20 years, through a two-prong development strategy to reduce and eventually eradicate poverty by raising income levels and increase employment opportunities for all Malaysians, irrespective of race; and to restructure Malaysian society to correct economic imbalances to reduce and eventually eliminate the identification of race with economic functions.

Looking back on the 14 year history of the NEP, one must conclude that the NEP had not only failed in its overriding objective of achieving national unity, but also in its two-prong development objective of eliminating poverty and restructuring society.

Thus, although the Fourth Malaysia Plan (Table 3.2, p.33) claims that the overall percentage of incidence of poverty had reduced from 49.3% in 1970 to 43.9% in 1975 and 29.2% in 1980, the Minister of Youth, Culture and Sports, Anwar Ibrahim, revealed in December last year that a survey by the socio-economic research unit (SERU) of the Prime Minister’s Department in 1982, based on a poverty line of $384 for a five-member household, found 42.8% of the population below the poverty line.

The SERU findings on the incidence of poverty for the various socio-economic groups are even more shocking. Thus for the largest poverty group, the rubber smallholders, the incidence of poverty in 1982 was the all-time high of 69.2%, as compared to 64.7% in 1970, 59% in 1975 and 41.3% in 1980.

The incidence of poverty for the coconut smallholders in 1982 was also all-time high at 77.6% as compared to 52.8% in 1970, 50.9% in 1975 and 38.9% in 1980.

Other figures are:
Padi farmers – 76.2% in 1982, as compared to 88.1% in 1970, 77% in 1975, and 55.1% in 1980;
Fishermen – 72.8% in 1982, as compared to 73.2% in 1970, 63% in 1975, and 45.3% in 1980.
Oil palm smallholders – 56.3% in 1982 as compared to 30.3% in 1970, 9.1% in 1975 and 7.7% in 1980.

It is commentary on the lack of Malaysian consciousness transcending narrow racial considerations (the objective of the NEP) that the findings of the SERU on the 1982 incidence of poverty on estate workers, urban workers in mining, manufacturing, construction, trade and services, had not been disclosed.

In the light of the SERU findings, the optimism of the Fourth Malaysia Plan on the NEP’s Outline Perspective Plan target of reducing the incidence of poverty to 16.7% in 1990 is misplaced.

In fact, the Fourth Malaysia Plan was so confident that it projected that the incidence of poverty would decline to 15% of total households in Peninsular Malaysia in 1990, which is even lower than the OPP target of 16.7% (para 417).

Another failure of the NEP is its disregard of the problem of income inequality and the relative concept of poverty, where success in eradicating poverty implies a distributional aspect which demands not merely that the incomes of the poor be increased absolutely but also that they be increased relative to the average income level.

In the period 1958-1971, Peninsular Malaysia’s Gross Domestic Product grew by an annual average annual growth of 6.4% in real terms, but the distribution of income became much more unequal. Between 1957 and 1970, the top 5% of the population increased their share of total income from 22% to 28% and the bottom 40% of the population suffered a drop in their share from 15.7% to 11.7%. In 1970, the top 5% of households (with 28% of the total income) obtained more than the income of the bottom 60% of households (whose combined share was only 24%).

Various studies have shown that despite the reported reduction in the absolute incidence of poverty in the Fourth Malaysia Plan in 1980, the disparity of income, in particular among each intra-ethnic group, has greatly widened. With the SERU findings on poverty in 1982, both the absolute and relative poverty of about half of the households in Peninsular Malaysia would have worsened.

Thus, although vast sums of development funds had been spent on agriculture and rural development, they had failed to reach and benefit the really poor. It is the owners of the means of production who become richer from public expenditures, while the poor, the landless, or owners of uneconomic holdings, become poorer.

The padi sector is a good example, where although more than two billion ringgit have been spent by the government since Merdeka, and production had more than tripled, yet 76.2% of the households still live below the poverty line in 1982. If a small portion of this sum had been used to redistribute padi land to the cultivators at market value (one study had estimated the cost at $45.6 million), it would have greater and more lasting benefits in raising incomes of the hard-core poor padi farmers and reducing income inequalities.


The restructuring prong of the NEP has failed in its self-professed objective to eliminate the identification of race with vocation or location because of the selective way it is being conducted.

For instance, from before 1970 to 1980, the Malay percentage of FELDA settlers rose from 94.6% to 96.2% or 17,729 settlers to 61,663 settlers, Chinese fell from 3% to 1.8% or from 558 settlers to 1,127, and Indians and others also fell from 2.4% or 446 settlers to 1.2% or 1,273 settlers. The total number of Felda settlers before 1970 increased from 8,733 to 64,063 in 1980.

As the main instrument in rural land development, FELDA should set an example in restructuring Malaysian society to eliminate the identification of race with vocation or location, but it has done the opposite.

Such selective restructuring is to be seen in other areas like the armed and police forces for instance. Excuses that the non-Malays are not attracted to Felda schemes, police or armed forces are simply not acceptable, for earlier similar excuses to explain the paucity of Malay participation in commerce, industry and professions did not prevent the adoption of special plans to rectify such imbalances.

The restructuring objective with regard to corporate stock ownership has benefitted only a small fraction of the Malay population to make those with the proper political and administrative connections the new Malay capitalist class, while the majority of the Malay masses live under the poverty line.

The comparative allocations of the Second, Third and Fourth Malaysia Plans for the two NEP prongs is an indicator of the NEP bias towards the Malay rich in contrast to the Malay poor. Thus, in the three NEP plans, $9,319 million were allocated for eradication of poverty programmes, which is in 1982, affect 42.8% of the households in Peninsular Malaysia; while a total of $4,397 million was allocated in the same period for restructuring which would benefit some 5% of the Malays. It must also be borne in mind that the main beneficiaries of the anti-poverty programmes, in the absence of structural changes in the economy as in land reforms for the agricultural sector, are not the really poor but the better off who are better-positioned to benefit from these programmes.

The emphasis on the creatioh of a Malay capitalistic class in the second prong of the NEP has led to the further capitalistic development of the Malaysian economy, the dominance of the capitalistic values of acquisitiveness, profit-motivation, individual greed above public interest, and the subordination of the interests of the consumers, the workers, the peasants as reflected in the following;

1. The $2,500 million Bumiputra Malaysia Finance loans scandal in Hong Kong, where funds meant to remedy the lack of capital among Bumiputeras were used for dubious loans transactions overseas. What is shocking about the BMF scandal is not merely the magnitude of the loans involved, but the attitude and philosophy of those in power towards such abuse of trust and power. The public good does not feature prominently in their thinking, but the motto of not being caught with the hand in the till. There was a prolonged attempt to cover up the BMF scandal, and even now, with the establishment of the in-house inquiry into the BMF scandal, there is doubt whether there would be a full and frank inquiry and disclosure of the BMF scandal in view of the restricted terms of reference and jurisdiction of the BMF inquiry committee.

2. The BMF scandal highlights another disturbing aspect of the NEP development. The BMF as a fully-owned subsidiary of a wholly public-funded Bank Bumiputra, should have no difficulty in accepting the principle of public accountability for the stewardship of public funds and the exercise of public trust. If the Government puts up such great resistance to make the BMF accountable to the Malaysian public, then one can imagine how very much more difficult it would be to make private companies and corporations accept the principles of public accountability, especially with the new NEP policy of privatisation. Every privatisation proposal should be subject to the closest scrutiny to ensure that the public welfare, in particular of the poor and weak sections of the population, are not sacrificed to the of profit maximisation of the NEP ‘privateers’, although this would speed up the achievement of the NEP prong of increasing Malay corporate ownership in the hands of few.

3. The continued foreign dominance in the ownership and control of the key industrial, financial and commercial sectors of the Malaysian economy as seen not only in the free repatriation of profits by foreign companies (one study computed that there was a net outflow of capital of $7,772 million from 1967-81), as well as hidden profits by way of transfer pricing, royalty payments and other accounting methods of transnational companies, but also in Malaysia’s highly vulnerable dependence of its exports and imports on the developed countries, and Malaysia’s mounting national debt situation. According to World Bank’s latest international debt report, the Malaysian Government’s foreign debt servicing (repayment of interest and principal) would rise to $3.35 billion in 1986 and $3.69 billion in 1988, as compared to $2.48 billion last year. Malaysia’s economic dependence will worsen, as illustrated by the recent paper by the Deputy Governor of Bank Negara, who estimated that our current account deficit with Japan would double from $1,735 million in 1983 to $3.56 million in 1985-one result of the ‘Look East’ Policy.

These capitalistic developments have not not only failed to eradicate poverty, achieve greater equity in income distribution, a balanced restructuring of Malaysian society, but even more important, failed to achieve the national unity which is the overriding objective of the NEP.

The NEP is in fact a major cause of increased polarisation of the various ethnic groups in the country apart from causing greater class polarisation through the widening disparity of income distribution.

A whole generation of Malaysians have grown up under the NEP nurtured on the division of Malaysians into bumiputras and non-bumiputras. Whether in education, employment, commerce, industry and the professions, every Malaysians is made to realise the difference between a bumiputera and non-bumiputera.

As the NEP is designed to achieve national unity within its 20-yearperspective plan, one would have hoped that in 1990, the divisive differentiation of Malaysians into bumiputras and non-bumiputras would end and every citizen would be treated and regarded as a Malaysian.

The results of the NEP, however, are going to provide compelling political reasons as to why this policy of bumiputraisation is not going to be abandoned, but would be acdentuated. This is because the continued poverty of the substantial Malay rural households would be given a communal explanation and used as a justification for the continuation of the NEP policies of racial quotas and percentages.

The non-Malays, on their part, who had looked forward to 1990 for the equalisation of opportunities are also going to be greatly disappointed when the NEP policy is continued with new communal goals and objective.

The divisive nature of the NEP could be seen by the massive brain drain of professionals overseas since 1970, as these doctors, engineers, dentists, lawyers, see no hope of an educational future for their children, which constitute a loss of human resources for Malaysia. I do not agree with the migration of these professionals, nor do I agree with the attacks on them for being ‘disloyal’ to the country, but we must not forget the root cause of their migration which stands as a judgement on the NEP.

As the overriding objective of the NEP is the achievement of national unity among the diverse peoples in Malaysia, its record must finally be judged by this criteria.

If the NEP is to achieve national unity, then it must move away from ethnic policies and measures. Poverty must be treated as a socio-economic problem and the duty of the government to eradicate, not on any ethnic consideration, as at present, where there is a lot of publicity about help to the bumiputra poor, which failed to tackle the root cause of the problem, while the non-Malay poor are neglected and left to them own means.

Secondly, the NEP must have as its primary objective the eradication of poverty and the distribution of income to reduce economic inequality, through institutional and structural reforms as land reforms and the removal of exploitation ameliorate both the relative and absolute poverty of the poverty groups.

Thirdly, Malaysia must develop a more self-reliant economy, which is not so acutely dependent on foreign capital and external economies, by developing the local human and natural resources of the country, through a common communal effort to create a new life style which is not so consumer-oriented and capitalistically-based, where Malaysians treat each others as equals and are inspired by the ideal of service and co-operation instead of self and competition.