Some of the parties in the coalition call for reform or reversal of the affirmative action program, but not all.
The affirmative action program began as the New Economic Policy (NEP) in 1970, after the bloody race riots following the May 1969 elections when the ruling coalition came close to losing its two-thirds majority. The NEP’s two main objectives were to eradicate poverty regardless of race and to eliminate the identification of race with economic function. This made sense at the time because 49 per cent of the population in Peninsular Malaysia lived in poverty and the vast majority were rural Malay farmers. Means testing would have been a useful addition to the policy program even then but may have proved largely redundant given the prevailing socioeconomic conditions.
The NEP ran for 20 years, and by 1990 poverty had tumbled to just 17 per cent. Bumiputra corporate share ownership also rose sharply from 1.5 per cent to 18 per cent (though this was still below the target of 30 per cent). The NEP was reincarnated as the National Development Policy, and although it focussed more generally on issues of growth and industrialisation, the race-based policies not only remained but actually grew in number and significance. And there was still no means testing, despite the growing numbers of middle-class and affluent Bumiputras.
Even though the affirmative action program has become so extensive and entrenched over the decades, most Bumiputras have not realised much benefit from it — but a very small minority have enjoyed superlative gains.
The program’s problems have been recognised at the highest levels of Malaysia’s government for some time now. When unveiling his New Economic Model in 2012, former prime minister Najib Razak noted that ‘it is time to review its implementation’ to make the program ’market-friendly, merit-based, transparent and needs-based’. Even Prime Minister Mahathir Mohamad has recognised its failings: ‘the protection and privileges accorded by the NEP may weaken the Malays further by lulling the next generation into complacency’. The new Economic Affairs Minister Azmin Ali has recently proclaimed that ‘economic policies should not be based on race, [but] on needs instead’.
The affirmative action program has failed its focus group while marginalising everyone else in the process. Rather than increasing social cohesion, it has contributed to disunity. As a result, Malaysia’s skilled labour and capital has tended to migrate overseas, compounding the costs of affirmative action.
It is clear that the system needs to be fixed. The only question is: how?
It should be recognised that change is not limited to a binary choice between the prevailing system and its complete overhaul. There is a broad spectrum of choices that lie between these extremes. Instituting a system of pure meritocracy is in many ways an unattainable ideal. Even the so-called beacon of meritocracy, neighbouring Singapore, has a rotating race-based president. Maintaining social harmony in a multi-racial community calls for striking a delicate balance between society and meritocracy. The problem in Malaysia is that the balance has moved too far away from meritocracy and requires rebalancing.
Change needs to be focussed and gradual. The drive towards greater meritocracy should be viewed more as a break with a system of patronage and cronyism than as a racial redistribution exercise. Patronage politics cuts across race, especially at the top end of the wealth distribution. If setting a quota based on race results in those most politically connected rather than the most talented within that community securing the advantages, then the costs of the affirmative action program are maximised while the benefits are minimised.
Removing the distortions induced by patronage politics and increasing transparency would be a useful first step towards a more meritocratic system. There is also a need for better targeting of measures to ensure that only those in need receive benefits. Policy and regulatory capture as part of affirmative action has produced many examples of misplaced subvention, but a favourite such example is that discounts to Bumiputras for housing acquisitions have led to government-subsidised purchases of luxury real estate.
Once the benefits from these changes can be demonstrated, it will pave the way for a gradual deepening of the reform program. The efficiency gains could then be used in a more targeted way to help the needy and to mitigate the temporary adjustment costs associated with the next stage of dismantling the long-standing system of racial preferences.
Reform could face resistance. After so long, a sense of entitlement may have set in. In its extreme form, Malay supremacists see preferential treatment as affirmation of their elite status rather than aid — such views have no place in any modern society and should not be tolerated. But these reforms could paradoxically eventually lead to an outcome that benefits the bumiputra majority in the long run. This would take place at the expense of a very small minority of political patrons and cronies of all races.
The most carefully designed affirmative action programs struggle to reach their intended recipients and achieve their goals. It would be difficult to find one more poorly implemented than the one in Malaysia. Affirmative action in its current form has failed and must change. This is no longer a choice as a dwindling minority cannot indefinitely support a growing majority. It is time to stop paying lip service to the need for change and to just deliver it. This time, the new government has a real mandate to do so. Their future, and that of the country’s citizenry, will depend on it.
As the New Economic Model once hoped: ‘The time for change is now — Malaysia deserves no less’.
Jayant Menon is Lead Economist in the Economic Research and Regional Cooperation Department at the Asian Development Bank, and Adjunct Fellow at the Arndt-Corden Department of Economics at the Australian National University.