Reflections on the NEP after 50 years
*Reflections on the NEP After 50 Years*
By
Tan Sri Mohd Sheriff bin Mohd Kassim
Dated 14 Sept 2021
The introduction of the NEP in 1970 and its incorporation into the development programmes started from the Second Malaysia Plan 1971-75. There were mixed views. While most welcomed the NEP, others had misgivings what it would mean especially for the business community, local as well as foreign. As Malaysia had always been a free enterprise economy, there were fears that economic growth would suffer under the NEP.
At the end of the 1970-90 twenty-year period of the NEP, the government set up a National Economic Consultative Council to discuss the post 1990 policy. Despite the recommendations in the NECC for a change in the post 1990 policy, the cabinet in the end decided the NEP should continue as in the original form. But along the way, especially after the twin deficit recession in 1985/86 and the more serious recession following the East Asia financial crisis in 1997/98, the government began to realise that the NEP rules and regulations regarding restructuring of equity ownership to create a Bumiputera Commercial and Industrial Community were too rigid on the private sector and not market friendly. There were double standards in the equity restructuring rules as foreign companies were exempted, giving rise to complaints about unfair treatment of local companies. Finally, the govt decided to abolish the regulatory committees like the ICA, FIC and CIC to improve the investment climate in the country.
Today, we find many Chinese and Indian owned companies having Malay partners and board directors and Malay executives not because of government directives but because it makes business sense for them to have diversity of race in their operations, particularly as Malays are now more visible than before in the market place as customers, suppliers, distributors.
From the beginning, the govt focussed its attention on the first prong of the NEP on reducing unemployment and poverty as this was most fundamental for strengthening unity among the various races. This was also the view in the EPU. Right from the start in 1970 as we were preparing for the Second Malaysia Plan, the EPU pushed for a much bigger public sector role in the economy by increasing sharply the public expenditure programme. EPU economists believed that, with higher government spending on development, this would make our growth prospects stronger.
The objective was to achieve a high average GDP growth of 8 p.a over the 1970-1990 period to create jobs, reduce unemployment and eliminate absolute poverty. By 1990 all these key NEP objectives were achieved. The regional disparities between rural and urban areas narrowed down as the big expenditures on development brought more public services such as education, health, water, roads, bridges, electricity, telecom to the less developed states and the interior regions, giving all Malaysians better access to the amenities of modern life styles.
And the country achieved these targets with financial stability, unlike many developing countries, Malaysia was able to finance its development without much foreign borrowing. We had enough domestic savings, thanks to the country's rich natural resource base and its strong exports sector with primary commodities, forestry products and oil as well as manufacturing exports generating the trade surpluses.
The rising levels of rural incomes not only benefitted Malay households. The shopkeepers in nearby towns also benefitted from the rising purchasing power from rural areas. For example, Sg Patani and Alor Star in Kedah benefitted from the large Muda Irrigation scheme for double cropping of padi, while in Pahang, FELDA'S big Jengka Triangle new land settlement project made Bentong and Mentakab into more prosperous towns.
With rural household incomes rising and strengthening the domestic market, and as the urban centres became better served with modern infrastructure, the industrial, commercial and service sectors grew to enable the country to become one of the fastest growing countries among the Newly Emerging Countries.
However, as noted in the New Economic Model Report, while the country can be proud of its achievements, other East Asian countries, which once were poorer than us, have climbed up to become high income advanced countries. While they have become Asian Tigers, Malaysia remains trapped as an upper middle-income country. This suggests that although we achieved high growth rates, there was not much improvement in the skills of its human resources and the productivity levels of its work force to produce quality growth.
Our productivity is lower than in the Asian Tiger countries. In addition, there is brain drain due to outmigration of talent and professionals to other countries esp. Singapore. This can be partly attributed families migrating to English speaking countries for the sake of their children's education. Another reason is that well qualified Malaysians are looking for better salaries abroad as salaries in Malaysia are too low for their high qualifications. Some migrated because they felt there is racial discrimination under the NEP, especially in the public sector.
Whatever the reason for the slowdown in growth in the last twenty years, the facts suggest Malaysia needs to do a lot of reforms to take the country to a higher level of development based on science, technology and English proficiency as these are the basic requirements to raise productivity and efficiency in order to sustain the growth momentum and make us a high-income country.
The East Asian financial crisis in 1997/98 and the recession which followed exposed the structural weaknesses in the implementation of government policies. Many of these weaknesses were attributed to the system of governance which allowed the nepotism, cronyism, favouritism and corruption to spread with little checks and balances from the institutions. The lack of transparency and accountability in the award of contracts, licences and business permits especially to political favourites, relatives and friends made many question the growing costs to the taxpayers in implementing the NEP.
I agree with the view that after fifty years of implementing the NEP, and with the vast expansion of education and training opportunities and the increasing number graduating from top universities, the Malays are now better able to find their own way to success in the modern industrial and commercial sectors of the economy. So, the policy of preferential treatment for Malays should be reviewed so that they will be encouraged to compete on their own merits. In fact, from what I can see, young Malays today don't like to apply for office jobs anymore like in the old days. They prefer the rough and tumble of doing their own thing. With the digital transformation in the country, I see them doing amazing things to earn a living in partnership with other races. So, I believe the new generation can take care of their own life.
One area which needs urgent reform is the GLC sector. Some of the GLCs are important to the country because of their developmental role and their strategic importance to the economy. The top 20 GLCs are also a good training ground for Malays to become corporate executives. These good GLCs should be retained but those that are not essential and are non performing should be closed down. Many of these bad GLCs are at state level under the SEDCs and are not self-funding. Lately, some GLCs are becoming too politically connected in the appointments to board positions. The country's reputation in good corporate practices will go down if the politicisation of GLCs is not stopped.
Hopefully, when the 12 the Malaysia Plan is tabled, the government will announce the Shared Prosperity vision 2030 to do away with the negative aspects of social engineering and focus instead on an inclusive policy based on needs, instead of race. All Malaysians recognise the need for government intervention to help the poor and the needy because in any country, despite the high growth rates in the economy, there will always be certain segments of the population who need help because of circumstances beyond their control. Where the need is justified, help should be given, irrespective of race or religion.
Sent from my iPhone
By
Tan Sri Mohd Sheriff bin Mohd Kassim
Dated 14 Sept 2021
The introduction of the NEP in 1970 and its incorporation into the development programmes started from the Second Malaysia Plan 1971-75. There were mixed views. While most welcomed the NEP, others had misgivings what it would mean especially for the business community, local as well as foreign. As Malaysia had always been a free enterprise economy, there were fears that economic growth would suffer under the NEP.
At the end of the 1970-90 twenty-year period of the NEP, the government set up a National Economic Consultative Council to discuss the post 1990 policy. Despite the recommendations in the NECC for a change in the post 1990 policy, the cabinet in the end decided the NEP should continue as in the original form. But along the way, especially after the twin deficit recession in 1985/86 and the more serious recession following the East Asia financial crisis in 1997/98, the government began to realise that the NEP rules and regulations regarding restructuring of equity ownership to create a Bumiputera Commercial and Industrial Community were too rigid on the private sector and not market friendly. There were double standards in the equity restructuring rules as foreign companies were exempted, giving rise to complaints about unfair treatment of local companies. Finally, the govt decided to abolish the regulatory committees like the ICA, FIC and CIC to improve the investment climate in the country.
Today, we find many Chinese and Indian owned companies having Malay partners and board directors and Malay executives not because of government directives but because it makes business sense for them to have diversity of race in their operations, particularly as Malays are now more visible than before in the market place as customers, suppliers, distributors.
From the beginning, the govt focussed its attention on the first prong of the NEP on reducing unemployment and poverty as this was most fundamental for strengthening unity among the various races. This was also the view in the EPU. Right from the start in 1970 as we were preparing for the Second Malaysia Plan, the EPU pushed for a much bigger public sector role in the economy by increasing sharply the public expenditure programme. EPU economists believed that, with higher government spending on development, this would make our growth prospects stronger.
The objective was to achieve a high average GDP growth of 8 p.a over the 1970-1990 period to create jobs, reduce unemployment and eliminate absolute poverty. By 1990 all these key NEP objectives were achieved. The regional disparities between rural and urban areas narrowed down as the big expenditures on development brought more public services such as education, health, water, roads, bridges, electricity, telecom to the less developed states and the interior regions, giving all Malaysians better access to the amenities of modern life styles.
And the country achieved these targets with financial stability, unlike many developing countries, Malaysia was able to finance its development without much foreign borrowing. We had enough domestic savings, thanks to the country's rich natural resource base and its strong exports sector with primary commodities, forestry products and oil as well as manufacturing exports generating the trade surpluses.
The rising levels of rural incomes not only benefitted Malay households. The shopkeepers in nearby towns also benefitted from the rising purchasing power from rural areas. For example, Sg Patani and Alor Star in Kedah benefitted from the large Muda Irrigation scheme for double cropping of padi, while in Pahang, FELDA'S big Jengka Triangle new land settlement project made Bentong and Mentakab into more prosperous towns.
With rural household incomes rising and strengthening the domestic market, and as the urban centres became better served with modern infrastructure, the industrial, commercial and service sectors grew to enable the country to become one of the fastest growing countries among the Newly Emerging Countries.
However, as noted in the New Economic Model Report, while the country can be proud of its achievements, other East Asian countries, which once were poorer than us, have climbed up to become high income advanced countries. While they have become Asian Tigers, Malaysia remains trapped as an upper middle-income country. This suggests that although we achieved high growth rates, there was not much improvement in the skills of its human resources and the productivity levels of its work force to produce quality growth.
Our productivity is lower than in the Asian Tiger countries. In addition, there is brain drain due to outmigration of talent and professionals to other countries esp. Singapore. This can be partly attributed families migrating to English speaking countries for the sake of their children's education. Another reason is that well qualified Malaysians are looking for better salaries abroad as salaries in Malaysia are too low for their high qualifications. Some migrated because they felt there is racial discrimination under the NEP, especially in the public sector.
Whatever the reason for the slowdown in growth in the last twenty years, the facts suggest Malaysia needs to do a lot of reforms to take the country to a higher level of development based on science, technology and English proficiency as these are the basic requirements to raise productivity and efficiency in order to sustain the growth momentum and make us a high-income country.
The East Asian financial crisis in 1997/98 and the recession which followed exposed the structural weaknesses in the implementation of government policies. Many of these weaknesses were attributed to the system of governance which allowed the nepotism, cronyism, favouritism and corruption to spread with little checks and balances from the institutions. The lack of transparency and accountability in the award of contracts, licences and business permits especially to political favourites, relatives and friends made many question the growing costs to the taxpayers in implementing the NEP.
I agree with the view that after fifty years of implementing the NEP, and with the vast expansion of education and training opportunities and the increasing number graduating from top universities, the Malays are now better able to find their own way to success in the modern industrial and commercial sectors of the economy. So, the policy of preferential treatment for Malays should be reviewed so that they will be encouraged to compete on their own merits. In fact, from what I can see, young Malays today don't like to apply for office jobs anymore like in the old days. They prefer the rough and tumble of doing their own thing. With the digital transformation in the country, I see them doing amazing things to earn a living in partnership with other races. So, I believe the new generation can take care of their own life.
One area which needs urgent reform is the GLC sector. Some of the GLCs are important to the country because of their developmental role and their strategic importance to the economy. The top 20 GLCs are also a good training ground for Malays to become corporate executives. These good GLCs should be retained but those that are not essential and are non performing should be closed down. Many of these bad GLCs are at state level under the SEDCs and are not self-funding. Lately, some GLCs are becoming too politically connected in the appointments to board positions. The country's reputation in good corporate practices will go down if the politicisation of GLCs is not stopped.
Hopefully, when the 12 the Malaysia Plan is tabled, the government will announce the Shared Prosperity vision 2030 to do away with the negative aspects of social engineering and focus instead on an inclusive policy based on needs, instead of race. All Malaysians recognise the need for government intervention to help the poor and the needy because in any country, despite the high growth rates in the economy, there will always be certain segments of the population who need help because of circumstances beyond their control. Where the need is justified, help should be given, irrespective of race or religion.
Sent from my iPhone
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