THE New Economic Policy or NEP was introduced in 1971 in the aftermath of the May 1969 race riots as a policy tool to rectify racial imbalances, which was thought to have been one of the main causes of racial disharmony in the first place.
There were three main tenets of the policy which have been diluted through administrative details which emphasised other aims.
The first of these was the eradication of poverty irrespective of race and the second was to eliminate the identification of economic function with race.
The third was that the first two distributive aims were to come from an increase in wealth rather than redistributing the existing cake itself. That meant rapid economic growth was necessary to achieve distribution goals so that no community felt deprived.
While no one had problems with the broad tenets of the NEP (and the subsequent policies which took the name of the NEP), many practical difficulties arose. The problem was not the NEP but its implementation.
Of these, the main ones were quotas and the effective reservation of jobs, mainly in the public sector but also in many sections of the private sector and government-linked companies or GLCs, for bumiputras.
Over the years, these quotas were often abused. For instance, the 30% equity quota resulted in many bumiputras becoming shareholders in name only without contributing to management.
Bumiputra firms obtained contracts only to turn them over to others to complete, merely earning a commission, oftentimes hefty, for merely being the conduit to getting the job.
In government and GLCs there is a large over-representation of bumiputras, thus inhibiting the process of cross-fertilisation and competition so necessary to improving the quality of people and processes.
While the Prime Minister’s revocation of bumiputra equity quotas on 27 service sub sectors is to be applauded and will definitely increase incentives for investments in these areas, a holistic review of the implementation of the NEP is still necessary.
One corporate personality who has called for a review of the NEP is CIMB Group chief executive Datuk Seri Nazir Razak, the Prime Minister’s brother.
“I hope the Government will embark on a holistic review of the NEP and all its instruments of implementation towards a framework for affirmative action that today’s Malaysians can accept and unite behind,” he had said.
The key thing that is objectionable in the NEP is the method of implementation. The first tenet with regard to eradication of poverty irrespective of race is not being adhered to if bumiputras continue to be given privileges even if they are no longer poor.
And by employing too many bumiputras in government and in GLCs, there is now clear identification of economic function with race, which violates the second principle of the NEP.
Ideally, as employment of bumiputeras increased in the private sector, there should have been a concomitant decrease in the government sector. But that did not happen.
The system of setting quotas was a very crude one and did not in most cases help increase bumiputra capability but offered some of them a quick means to riches, in the process depriving non-bumiputras of existing wealth. That violates the third tenet which states that distribution should come from growth.
All that is now in the realm of history. But in the here and now, things have changed considerably. Bumiputras have been lifted out of poverty a long time ago. They, together with state-owned entities set up for them, account for a significant amount of business activities in the country.
GLCs account for more than a third of market capitalisation of listed companies. If government companies, including national oil corporation Petronas, have their ownership broken up proportionately according to race, bumiputras would own far more than 30% of corporate wealth.
That would imply that there no longer is any need for quotas, whether for equity ownership, government jobs or private sector jobs, university admissions, government contracts etc. The time has come for a paradigm shift towards meritocracy.
Essentially, that means a shift towards a needs-based affirmative action plan rather than one based on race because the gap between the races has actually narrowed considerably over the years. The poor and the under-privileged need to be helped – across the board.
If indeed the bumiputras are the poorest they will automatically be helped the most. That kind of policy also considerably reduces the race element in our politics, which remains shockingly high even after more than half a century of independence.
This will not be an easy shift to make, and even if the necessary policy steps are taken much resistance at all levels in government will have to be overcome. Building consensus on such a policy and plan will be crucial as will explaining its principles to the people.
The collection and distribution of information has to be revamped to make it more accurate, to ensure that it measures the right things and that it is above any bias. The methodology and details must be disclosed to enable independent assessment of facts and figures.
The review is likely to show that it is not the NEP that has outlived its usefulness – the original key principles are in a sense timeless and are a good set of socio-economic principles to continue to hold on to.
What has to go are, to use Nazir’s term, the “instruments of implementations”, some of which have been flawed right from the start while others have long since outlived their usefulness.
Time to review the NEP