Business

Saturday February 21, 2009

The good of the NEP

WITHOUT FAVOUR WITH TERENCE GOMEZ


RECENTLY, Datuk Seri Nazir Razak, one of Malaysia’s leading bankers, made a pertinent and controversial statement about the New Economic Policy (NEP), the country’s long-standing affirmative action policy. Nazir is quoted as saying: “It is timely to examine the NEP, look at how the NEP retards national unity, investments and economic efficiency and develop a new, more relevant framework for economic policy-making.” One reason why Nazir’s statement has generated much public discussion is that his brother, Datuk Seri Najib Tun Razak, will assume the post of Prime Minister on April 1.

Other prominent critics of the NEP include former prime minister, Tun Dr Mahathir Mohamad, who has claimed that the policy has resulted in a “crutch mentality” among bumiputra business people. Prime Minister Datuk Seri Abdullah Ahmad Badawi has concurred with Dr Mahathir, but has gone on to add that the problem with the NEP is merely the way it has been implemented, a contention adopted by other government leaders. According to Abdullah, the policy remains relevant because income disparity between ethnic communities persists.

The NEP paradox

There is a rationale for such differing views about the NEP. This is a policy fraught with paradoxes. On one hand, affirmative action in Malaysia is widely viewed by other countries as a “success story”, a policy to be emulated. Developing countries such as South Africa and Zimbabwe have looked to the “Malaysian model” in an attempt to foster affirmative action for their majority ethnic communities who had endured discrimination and exclusion under repressive colonial and post-colonial regimes. In India, where the policy targets ethnic and class minorities, there is reportedly much interest in replicating the business dimension of affirmative action employed in Malaysia involving the aim of creating a bumiputra commercial and industrial community.

Undoubtedly, too, the NEP is responsible for reducing poverty appreciably and creating a new, independent, well-qualified and articulate bumiputra professional middle class.

On the other hand, this same policy is widely derided in Malaysia, primarily because it is reputed to have severely undermined inter-ethnic social cohesion, inhibited genuine entrepreneurial capacity and contributed to serious new intra-bumiputra inequities, issues Nazir has correctly touched on. Although inter-ethnic wealth and income inequality have decreased, such inequality among bumiputras have increased, even when overall poverty has fallen. And, poverty remains particularly rampant in Sabah as well as the Malay heartland areas of Kelantan, Terengganu, Kedah, Perlis and northern Perak. This also confirms that NEP implementation has exacerbated regional inequalities.

There is, however, an important lesson from Malaysia’s implementation of affirmative action that has not been sufficiently acknowledged in debates about this policy. This issue pertains to the provisioning of quality education at an early stage in a person’s life.

Affirming early education

In a number of countries where affirmative action has been introduced, programmes have devoted much attention to two key areas: improving access to tertiary education and to positions in government employment. In countries such as Malaysia and South Africa, where the policy has been targeted at the majority – not minority – community, these groups have also received concessions to encourage their ownership and control of corporate equity.

In most countries, the access of targeted groups to policy incentives has been at a “late stage” of human and financial capital accumulation. In India, targeted minority groups have received preferential access to universities. But many such group reservations go unclaimed because the beneficiaries have not received adequate primary and secondary schooling to meet the relaxed requirements.

In Malaysia, because an ethnically-based quota system allowed less than qualified students entry into universities, this is said to be a major reason for the serious decline in the quality of public tertiary institutions. But, Malaysian history also indicates that when the NEP was first introduced and the emphasis then was on providing poor children with quality education, the outcomes had been laudable. Young bumiputras were plucked out of rural areas, sent to well-equipped residential schools and then provided preferential access to tertiary education. The early beneficiaries of such quality education from an early stage of their life have now emerged as the new middle class who are a growing presence as a community with entrepreneurial capacity. This system remains in place, but an inadequate number of young bumiputras are recipients of high quality primary education.

Affirmative action programmes targeted at the highest levels of education, adult employment and enterprise development are not resulting in productive outcomes because the Malaysian government has not ensured that quality education is accorded at primary and secondary schools. Regional differences have also been exacerbated by the limited capacity of the rural poor to make good use of their access to higher education, an issue reliant on a sound primary education. Importantly too, there are few adequate provisions within the policy to overcome the poor quality of education received by beneficiaries of the NEP after they leave the universities, an issue contributing to growing graduate unemployment.

Focus on education, not business

Studies have shown that those well-equipped with sound education at an early age don’t merely fare well in tertiary institutions. These beneficiaries have shown the capacity to then venture into business and as being quite capable of coping with competition. This is an important lesson for technocrats still grappling with their failure to promote bumiputra entrepreneurship.

What is evident about the implementation of the NEP is that the government’s attempt to promote the rise of bumiputra capital as a redistributive mechanism has not led to the de-racialisation of society. Other long-standing problems that have emerged remain unresolved and are a major dent on the credibility of the policy. The creation and distribution of economic privileges through selective patronage has led to serious allegations of corruption and to the dissipation of increasingly scarce resources. Selective patronage has been justified on the grounds that this is a mechanism to identify, pick and groom “winners”, who will emerge as Malaysia’s new corporate captains. This policy has failed miserably, evident in the small number of bumiputra-owned firms among the country’s leading publicly-listed firms.

The important good of the NEP was its provision of quality education at an early age to poor bumiputras. What has to change, however, is that, if the government hopes to foster national unity and reduce regional inequities and poverty, such incentives have to be accorded to all needy Malaysians, irrespective of their ethnic backgrounds.

  • Terence Gomez is with the Faculty of Economics & Administration, University of Malaya

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