Triple Failures of the New Economic Policy calls for new directions in nation-building.

Speech by Parliamentary Opposition Leader, DAP Secretary-General and Mp for Kota Melaka, Lim Kit Siang, in the Dewan Rakyat on the debate on the Mid-Term Review of the Fourth Malaysia Plan on Monday, 2.4.1984.

Triple Failures of the New Economic Policy calls for new directions in nation-building.

The Prime Minister, Dr. Mahathir Mohamed, has said that the Mid-Term Review of the Fourth Malaysia Plan heralded new direction in development and implementation of strategies to take into account the structural weakness and constraints of the Malaysian economy highlighted by the severe global economic recession, and that the details of the contents of the policies, strategies and programmes of new thinking on development would be elaborated in the Fifth Malaysia Plan, 1986-90.

The prolonged global economic recession has made it impossible to attain the major growth targets in the Fourth Malaysia Plan and shown up the problems and perils associated with the over-dependent structures of the Malaysian economy and the need for a more self-reliant type of development strategy.

The structural transformation of the Malaysian economy long-overdue, just as it is also long-overdue for the country to seek new directions in the task of nation building.

This is because the New Economic Policy, after over 13 years of operation, is a triple failure. The NEP has failed in its two-prong development strategy to reduce and eventually eradicate poverty by raising income levels and increase employment opportunities for all Malaysian, irrespective of race; and to restructure Malaysian society to correct economic imbalances to reduce and eventually eliminate the identification of race with economic function. It has also failed in its overriding objective of achieving national unity.


One of the most remarkable aspects of the Mid-Term Review is the attempt for the first time since the launching of the NEP in 1970 to downplay the problem of poverty in Malaysia. The Prime Minister in his speech when introducing the Mid-Term Review last Thursday virtually dismissed poverty Malaysia as a ‘statistical problem’ in his attempt to explain that the ‘absolute poverty’ of Malaysian households below the government poverty line is not ‘absolute’ after all!

The Prime Minister was probably on the psychological defensive knowing fully well that the set of poverty figures given in the Mid-Term Review is the stark contradiction to another set of poverty statistics released by Cabinet Ministers four months ago.
The Mid-Term Review states that the overall incidence of poverty, which had dropped from 49.3% in 1970 to 43.9% in 1975 and 29,2% in 1980, had increased slightly to 30.3% in 1983.

But last December, the Minister of Youth Culture and Sports, Anwar Ibrahim, and later the Minister of Trade and Industry, Tunku Rithaudeen, released a different set of poverty figures.

According to them, 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 differences in the poverty figures for the various socio-economic groups between the Mid-Term Review and SERU findings are even more startling:

FMP 1980 MTP 1983 SERU 1982
Rubber smallholders 41.3% 61.1% 69.2%
Oilpalm smallholders 7.7% 1.5% 56.7%
Cocunut smallholders 38.9% 32.7% 77.6%
Padi farmers 52.7% 54% 76.2%
Fishermen 45.3% 44.7% 72.8%

The SERU figures, which differ so greatly from the Mid-Term Review figures, were given by Anwar Ibrahim and Tengku Rithaudeen are were quoted in the press. At a forum in ‘Dasar Ekonomi Baru Kebimbingan Menjelang 1990’ at the Universiti Sains Malaysia on 10th March, I quoted the SERU poverty figures while the government representative, the Deputy Minister for Finance, Datuk Saburrudin Cik, quoted the Fourth Malaysia Plan poverty figures. When I asked him which set of figures was correct, Datuk Sabaruddin Cik said there was no conflict, for the Fourth Malaysia Plan figures were for 1980 whole the SERU figures were for 1982!


In the circumstances, the Government must give a clear and satisfactory explanation for the different poverty figures in the Mid-Term Review and he SERU finding.

Ever since the use of the poverty line by the Third Malaysia Plan, its credibility had been questioned as the non-disclosure of the data used makes it open to statistical manipulation. If the Government fails to give a credible explanation for the great discrepancy in the MTR and SERU figures, then all credibility on the government’s poverty line would be destroyed.

In this light, the MTR claim that the overall poverty situation in Sabah and Sarawak had improved significantly since 1976 must be taken with a pinch of salt, especially as Tables 3-4 shows that the incidence of poverty in Sabah had declined from 58.3 per cent in 1976 to 41.1 per cent in 1979 and further to 29.2% in 1982; while in Sarawak, the incidence of poverty had decreased from 56.5 per cent in 1976 to 47.7 per cent in 1979 and 31.3 per cent in 1982.

In view of the fact that both Sabah and Sarawak could reduce the incidence of poverty by some 25-29 percentage points in a matter if six years while Peninsular Malaysia planners are still struggling to bring the incidence of poverty down by 20 percentage points after 13 years probably Peninsular Malaysia planners should all be sent to Sabah and Sarawak to learn the techniques from their more effective counterparts in Sabah and Sarawak who must rank as the most successful anti-poverty planners in the world.

Again, unless the government released data to explain the poverty line of Sabah and Sarawak, the MTR claims of the phenomenal fall in the incidence of poverty in these two states is not likely to have much credibility.

A great failure of the NEP in its anti-poverty prong 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 income of the poor be increased absolutely but also that they be increased relative to the average income level.

The only occasion when the Government referred to the need to redistribute income was in the Mid-Term Review of the Second Malaysia Plan in 1973 where ‘the reduction of existing inequitable distribution of income between income classes and races’ was listed as one of the sever ‘policies, programmes and projects’ to achieve the New Economic Policy objectives in the Outline Perspective Plan 1970-1990.

The Mid-Term Review of the SMP was also the occasion where the Government gave some figures about the distribution of incomes in Peninsular Malaysia, showing that in 1970, some 60 per cent of the households in Peninsular Malaysia had incomes below $200 a month. In 1970, the top one-tenth of all household accounted for nearly 40 per cent of the total income earned in the economy, while the share of the lowest two-fifths of the households amounted to only 12% of total income.


Inequality in the distribution of income in Malaysia despite high economic rate of growth and high per capita income could also be show by the period between 1957 and 1970, where the top 5 % of the population increased their share of total income from 22% to 28% and the bottom 40 per cent of the population suffered a drop in their share from 15.7% to 11.7%. The top 5% of the household in 1970 in fact obtained more than the income of the bottom 60% of households.

I am sure that the Government has the latest figures on the distribution of income and wealth among the various social classes, but the Government is not releasing these figures because it is not committed to the elimination of poverty and the inequality of income. It would find it embarrassing for the people to know under the NEP, intra-ethnic inequalities and in particular among the Malay community, had worsened, and for data about the small percentage of the Malays who really benefit and become NEP ‘instant millionaires’ at the expense of the Malay masses, to become public property.

During the debate on the Mid-Term Review of the SMP I had suggested that the NEP should have 20-year plan objective to create a more equitable society by ensuring that in 1990, the lowest 40 per cent of the Malaysian households would account for at least 30 per cent of total income.

But this was ignored completely. Various studies have shown that the under the NEP, the disparity of income, in particular among each intra-ethnic group, has greatly worsened. 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.

The comparative allocations of the Second, Third and Fourth Malaysia Plans for the two NEP prongs is also 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 affect some 50% 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 to become ‘ instant millionaires’ or the ‘instant rich’.

Furthermore, the main beneficiaries of anti-poverty programmes in the absence of structural changes in the economy as in land reforms for the padi farming sector, are not the really poor but the better off who are positioned to reap the benefit from these programmes.

This is why although more than two billion ringgit have been spent by the government since Merdeka on the padi sector, and the production had more than tripled, yet 76.2% according to SERU or 54% according to the MRT of the households still constitute the’ hardcore’ poverty group below the poverty line.

As one of the new strategies of development, the Prime Minister announced that the padi farmers would consolidate their uneconomic small plots into an estate which would be run as a co-operative with each landowner getting his share, based on his land size.

What is surprising is that an official Universiti Sains Malysia-Muda Agricultural Development Authority study on the land tenure in the Muda Irrigation Area lasting for six years from 1975 – 1981 had recommended against the proposal of group farming among the padi growers to solve the problem of persistent absolute poverty among a sizeable proportion of padi growing households in the Muda area, despite the successful implementation of double-cropping.

Before the Parliament approves the government’s new proposal of co-operative estate schemes for padi-growing sector, we should pay heed to the USM-MADA Land Tenure Study’s conclusions and recommendations, including its views on group farming:

“Group Farming”

“Efforts to promote group farming among padi growers in Malaysia are a recent policy initiative which is still at the pilot stage. However, given the design of the projects and the way they are being implemented, we feel that they are likely to be of little, if any, benefit to small farmers. The basic reason for this is that the projects do not appear to be economically sound. What they appear to be in fact are state farm on which the former padi farmers (or rather a few of them) are at most employed as agricultural labourers. The majority of former farmers (and in some cases all of them) are not employed at all and do not take part in the management of the farm. This is in the hands of government agricultural staff. Overheads and operating expenses are high, especially if fully accounted, and returns do not appear to match them. Thus government has had to subsidize these projects rather heavily. Even then, however, they have not improved the situation of small farmers very much. This is because the return to the farmer ‘participant’ has been in proportion to the amount of land he contributed to the project. Thus those with only with small amounts to contribute have obtained only small returns, and those with nothing to contribute former tenants, have not received anything except possibly wages for seasonable labour. Without a preceding or accompanying increase and equalization in the size distribution of farms such a program even if heavily subsidized will be of little benefit to small farmers and may even aggravate the position of small tenants. This would be the case even if the farm was managed and operated collectivity by the owners of the padi land, as long as they stood to benefit according to be proportion of the land they owned.”

The study also ruled out the feasibility of any reforms to legislation for control of rents and security of tenure to protect tenants and reduce poverty among them as all tenancy reform legislation to control the level of rents and ensure security of tenure of tenants in the padi-growing sector passed as early as 1955 had proved to be ineffective because of the greater political power of the landowners to block their implementation.


The study concluded that as the basic cause of the persistence and increase of absolute poverty of padi farmers in the MADA area is the increasingly unequal size distribution of padi farmers and the consequently large number of farms which are too small to produce an income above the rural poverty line for their households, the solution lies in some redistribution of ownership and operation of padi land to small farmers (including tenants) and landless agricultural labourers.

The redistribution of ownership and operation of agricultural land, where they are distributes quite unequally, would serve the dual objectives of efficiency and equity. Increases in productivity are likely to take place with a more equal distribution of agricultural land because productivity tends to be higher on small farms, provided there is equality of access to new inputs, technology and credit. Greater social justice should result from a more equal distribution of agricultural land because access to such land is the most important determinant of household income in predominantly agricultural societies. In practice, this would mean the imposition of a ceiling on the amount of padi land that could be owned and operated by one household and restriction on the ownership of padi land by member of non-cultivating households.

The Study finds that there is sufficient padi land in the Muda Scheme area to enable each cultivator, after redistribution of ownership to small farmers and landless agricultural labourers, subject to suitable ceiling er capita, to have enough land to provide an adequate level of living for each household.

In one estimate, the Study calculated that it would cost the government some $384 million to carry out such a land redistribution programme by compensating landowners whose land are affected. When we take into account that the governmnet had given out more than $608 million in padi subsidies since 1980, clearly a land reform scheme would in the long run be cheaper for the country and more beneficial for the padi farmers themselves.

The DAP therefore calls on the Government to deal with the root cause of persistent and rising absolute poverty among the padi farmers by a land redistribution programme which should precede and accompany the proposal for do-operative estate padi farming.

The snag is whether the government would be able to find the political will to help the poor as the affected landlords are the traditional political backbone of the UMNO and occupy positions of leadership at various levels of the party.


Another blemish of the NEP’s anti-poverty prong is its blind spot to the universality of the problem of poverty among all races, although its pronouncement had included the recognition that poverty, regardless of race, must be eliminated.

In practice, however, poverty among non-Malay group had been virtually ignored, the poor among non-Malay group were completely left to their own devices ever since the lauching of the NEP in 1971.

The Second Malaysia Plan divided the Malaysian economy into five sectors, the traditional rural sector, the modern rural sector, the traditional urban sector, the modern urban sector and the government sector, and identified the traditional rural and traditional urban sectors where about 60 per cent of the workers were to be found, as the lowest income sectors who suffered the most from economic imbalances.

The traditional rural sector comprise uneconomic smallholder rubber, single-cropped padi, traditional livestock and other agriculture, gathering of jungle produce, inshore fishing, and dulang washing and small gravel-pump mining for tin, the modern traditional urban sector comprised those parts of manufacturing, construction, commerce, transport and services, in which work was done with little benefit from modern equipment or techniques; included were small artisans, pretty traders, hawkers, stallholders, household servants, trishaw-riders , and other persons pursuing a multitude of activities requiring little or no initial skill or training.

Malays outnumbered non-Malay by a factor of nearly 3 to 1 in the traditional rurbal rural sector but in the traditional urban sector, the position was reserved.

Although the Second Malaysia declared that those who lived in poverty, particularly in the traditional rural sector and traditional urban sector of the economy, must be equipped with the training and resources needed to improved their economic position, the Government in the last 13 years is guilty of disregarding the lot of the non-Malay poor in both these sectors, including giving them greater access to higher education through scholarship and bursaries in colleges and universities in Malaysia and abroad.


It is the same blind spot which has caused the restructuring prong of the NEP to fail in its objective to eliminate the identification of race with vocation or location because of the selective way it is being conducted.

Although of the cardinal pledges of the NEP is that it would be implemented in such a way so as to ensure that no particular group experiences and loss or feels any sense of deprivation in the process, the fact is that an entire generation of young Malaysian are growing up feeling deprived of their educational, economic, political, cultural and citizenship rights.

One outstanding feature of the Five Year Plans and Mid-Term Review Reports is that economic imbalances are only elaborated upon, whether in the text or in tables and charts, where there is an under-representation for Malays; but areas where there is Malay over-representation, the Reports become conspicuously silent or loss over them

The Third Malaysia Plan 1976, for instance, devoted a special section on ‘Racial Balance and Education’, where it stated that during the period 1971-1975, “the share of Malays and other indigenous people to total enrolments in domestic tertiary institutions increased from 50% to 65% or from 6,622 to 20,547” while the share of other Malaysian students declined from 50% to 35% (or from 6,702 to 10,982).

The Mid-Term Review of the Fourth Malaysia Plan had done away with the section of ;’Racial Balance and Education’ altogether, although it gave a table on the breakdown of enrolment in tertiary education in local institutions and overseas.

If we follow the Third Malaysia Plan example and exclude figures for local private institutions and those overseas, confining ourselves to government institutions like the local universities, the polytechnics, the MARA Institute of Technology and including Tunku Abdul Rahman College, we will find that the disparity in the enrolment between bumiputra and non-bumiputra students had widened, using the revised 1970 tertiary enrolment figures as given in the Fourth Malaysia Plan, we get the following total enrolment figures for certificate, diploma and degree courses for 1970, 1980 and 1983:-

Enrolments in Tertiary Education for certificate, diploma and degree courses

1970 Bumiputra Chinese Indians Others Total
Certificated 151 209 9 369
Diploma 2,871 393 32 22 3,318
Degree 3,084 3,753 559 282 7,677
6,106 4,354 600 304 11,364
53.7% 38.3% 5.3% 2.7%
1980 Bumiputra Chinese Indians Others Total
Certificated 1,590 907 96 10 2,603
Diploma 11,427 1,993 161 21 13,602
Degree 13,604 5,161 1,193 234 20,192
26,621 8,061 1,450 265 36,397
73% 22.1% 4% 0.7%
1983 Bumiputra Chinese Indians Others Total
Certificated 2,480 1,628 158 5 4,271
Diploma 18,570 2,479 250 42 21,341
Degree 19,143 7,865 1,967 485 29,460
40,193 11,972 2,375 532 55,072
73% 21,7% 4,2% 1%

Thus from 1970 to 1983, the enrolment of bumiputra students in the domestic tertiary institutions funded by government had increased from 53.7% to 73% in (or from 6,106 to 40,193 which is an increase of 65.8%) in contrast to the enrolment to non-bumiputra students which had declined from 46.3% to 27% ( in absolute terms, an increase from 5,258 to 14,879 which is only an increase of 280 per cent).

By adding private student enrolment in local and overseas institutions, the Mid-Term Review states that the total enrolment in 1983 is tertiary education works out to 43.3% for bumiputra and 46.7% for non-bumiputra students. This, however, is unacceptable, for Malaysia have a right to expect all government institutions to be guided by the principle of racial balance, apart from the fact that out of the 58,000 students pursuing various courses of studies overseas, 12,899 are government sponsored students.


The DAP calls on the Government to immediately rectify the gross imbalance in the enrolment of students for the certificate, diploma and degree courses in the domestic tertiary institutions,

Another blatant example of the selective restricting process of the NEP is the omission from all Five-Year Plan and Mid-Term Reports about the imbalance of FELDA schemes which, as the main instrument of rural land development, should set the example in restricting
Malaysian society to eliminate the identification of race with vocation or location. It was however done the opposite.

Thus from 1970 to 1980, the Malay percentage of FELDA settlers rise from 94.3% 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; Indians and others also fell from 2.4% or 446 settlers to 1.2% or 1,273 settlers.

The Third Malaysia Plan made a valiant attempt to dispel what is describes as a ‘dangerous misconception’ that the national goals of poverty eradication and restructuring society are the objectives intended to benefit only the Malays and other indigenous people.

Thus it declared that as the Malays and other indigenous people show progress in their involvement in the modern sector, the other Malaysian should be encouraged to play a greater role in modern agriculture so that the identification of the Malays are other indigenous people with agricultural pursuits is eliminated. The basic objective, it affirmed, is the creation of a socio-economic environment in which a united nation would evolve out of daily interaction of Malaysians of all races in all sectors of the economy across the geographical regions of the country.

These noble sentiments, however, have not been followed up by deeds and government has itself to blame if more than ever, the NEP or construed in ethnological interests, as illustrated by the call by some UMNO leaders for the extension of the New Economic Policy (which is based solely on ethnological interests and considerations) and the reaction to the call.


In fact, this is a double misconception, for it is not the Malays as a whole who are benefitting from the NEP, but a small group of well-connected Malays who are making use of the policy to become instant millionaires even though it is built on a great disparity of income and wealth in the Malay community itself.

This is why the NEP has become a triple failure, not only in the eradication of poverty and restructuring of society, but most important of all, in creating the national unity which is its overriding objective.

The NEP is in fact a major cause of increased polarization 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 Malaysian 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 Malaysia is made to realize the difference between a bumiputera and a non-bumiputera.

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

The result of NEP, however, are going to provide compelling political reasons as to why this policy bumiputraisation is not going to be abandoned, but would be perpetuated. 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 equalization of opportunities are also going to be greatly disappointed when the NEP policy is continued with the new communal goals and objectives

As the overriding objective of the NEP is the achievement of national unity among the diverse peoples in Malaysia, its success or failure must be judge by this criteria alone.

This is why I had said that this is time not only for new thinking about development and its strategies, but even more important, for new thinking about laying the a sound and healthy basis for nation building.


The Mid-Term Review, in discussing new directions in development strategies and policies and their implementation have elevated to the status of official government policy various 2M proposals like privatization Malaysia Incorporated, Look East, etc.

The success or otherwise of these new policies will be judge as to whether they result in a more self-reliant and less dependent Malaysian economy and the promotion of economic growth with distributional equity, or whether they lead to new forms of Malaysian economic dependence and become the instrument for the subjection of the working and peasant classes by New NEP capitalists and privateers,, who are making their transition from Ali-Baba to Ali-John and now Ali-Masushita relationships.

The $313 million Dayabumi Phase III project where a Malaysian tender which was $84 million lower was rejected in favour of the successful Japanese contractors, is not only the symbol of the Government’s look East Policy, it is also the symbol of Japanese economic and financial conquest in Malaysia – a belated success in the economic and financial field where it had failed on the battleground in its attempt to establish the Greater East-Asia Co-Prosperity Sphere with its military might forty-three years ago.

The Dayabumi Phase III project would have become an expensive white elephant if it had been a private sector project for it would not have been viable, especially in view of the recession and the office glut in Kuala Lumpur. As it is, Dayabumi is depending on public agencies, especially Petronas which is taking up three-quarters of the Dayabumi tower’s 35 floor, to take up the office space.

But the question Malaysian want to ask is whether public monies should be spent so extravagantly, and whether the $84 million Dayabumi experience in terms of additional costs is justified by the transfer of technology acquired by Malaysian?

The Dayabumi complex (mentality) of the government represents one of the new development thinking of the NEP, where ‘small is beautiful’ is discarded for ‘big is sublime’.


This is why it is essential that we should subject all the new development thinking of the NEP as foreshadowed by the Mid-Tern Review to rigorous examination and study, for we do not want to jump from the frying pan into the fire.

Although the Government has spoken of the need for new development strategies and policies, it has not committed itself to a long-term strategy to make Malaysia less dependent on external economies and male Malaysia more self-reliant, as this would involve structural changes in Malaysian economic development, which would involve reducing Malaysia’s dependence on foreign capital, external trade and foreign technology and the creation of a new life-style which is not so consumer- good oriented and capitalistically-based.

We must immediately eschew policies which will make Malaysia even more dependent in the future, as in the unprecedented rise in the external debt in the last three year to cover up the huge budget deficit and current account deficit. 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, when the total external debt servicing for the ten years from 1971 – 1980 is less than $5 billion.

The total national external debt servicing would be higher when we take into account the foreign borrowings of public agencies and the private sector, which was some $31 billion as of last year.

We should also seek ways to reduce the continued foreign dominance in the ownership and control of the new 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 amounting to $7,772 million from 1967-1981), but also in the hidden profits by way of transfer pricing, royalty payments and other accounting methods of transnational companies.

Finally, we must admit that we have failed to fully mobilize the resources and talents Malaysians themselves possess, in particular in the Malaysian human potential, because of short-sighted political policies which was the main cause of the brain-drain of Malaysian professionals abroad, and which would defeat any effort to instill basic and progressive values of hard work, self-reliance and striving for excellence. The government must create the political, economic, social and cultural conditions whereby these basic and progressive values can flourish so that together, al Malaysian, irrespective of race, could make Malaysia a great nation for everyone in the country.