Social Economic Policies of Malaysia

Candidate no: 89051 CONTENTS Abstract Introduction Literature Review Methodology 1 1 4 6 Part 1 : Theoretical Analysis 7 1.1 Institutional Framework: The Developmental State 1.2 Social Policy influence in Industrial Policy 1.3 Inequality and Growth 7 8 10 Part 2 : Historical Analysis 11 2.1 Class Nature of pre-colonial Malay society 2.2 British Colonial Policy 2.2.2 Economic Development and Labour Structure 11 12 12 Part 3 : Social and Economic Development of Post Colonial Malaysia (1957-1969) 15 3.1 Political Elites & Social Bargain 3.2 Economic Policy: Malaysia’s Import Substitution Industrialization 3.2.1 Early Development of Malay capitalists and Rent Seeking 3.2.2 Urban-Rural Development Disparities 3.2.3 Income inequality and employment Structure 3.3 Socio-economic instabilities and Ethnic Riot of 1969 15 16 18 19 20 23 Part 4 : Institutional Restructuring and New Economic Policy (1970-1979) 24 4.2 NEP solution to Redistribution, Stability and Growth. 4.3 Shift to Export-oriented Industrialisation & Foundations of Developmental State 4.2.2 Labour Policy and Labour intensive industries 4.2.3 Human Capital Development and the Malay entrepreneurial empowerment 25 27 27 Conclusion 30 Bibliography 32 28 Candidate no: 89051 Abstract The colonial history of Malaysia marked the change of its demographic composition from a homogenous Malay to a multi-ethnic society. Ever since, the element of social stability had always played a main role in the formation of social and economic policy. The politics of Malaysia is composed of a concoction of various ethnic interests, which then determine the formulation of state policies in achieving economic development. In a developing country like Malaysia, social policy is almost indistinguishable from areas concerning economic policy. This is because the state’s overarching priority of economic growth is in line with the aspiration of building a peaceful and stable society. That is why, the adoption of New Economic Policy in the early 1970s could be seen as a shift from import substitution industrialization (ISI) to exportoriented industrialization (EOI), and the adoption of holistic social policy which implicates the basis for more equitable rural-urban development, strengthening the economic position of the Malays, and the harnessing of state capacity to spearhead development. Introduction There are so many ways on how development could be viewed, measured and critically assessed. For a developing country like Malaysia, its economic growth and development could be viewed from various angles. More interestingly, Malaysia’s development as a country is well rooted in its colonial history, where modern economic structure was introduced. This dissertation seeks to analyze the historical aspect of Malaysia’s socio-economic background. It is important to highlight the colonial legacies left by the British, which is fundamental for the development path of Malaysia. It is also important to identify the roles played by the nature of political structure mainly of the Malays; British involvement in modernizing the economy; and, finally, a newly independent state’s capacity to dictate its own development trajectory. All of these aspects are closely related to each other and almost surely influence the trends of how the Malaysian economy and society have evolved. This dissertation seeks to carefully analyze a selection of aspects that may contribute to the development path of Malaysia, particularly in the areas regarding social and economic policy. There are four parts to this dissertation, with the first part dealing with theoretical frameworks proposed by previous authors that attempt to clarify certain aspects of Malaysia’s development. This includes the role played by a ‘Developmental State’ proposed by many new structural economists such as Joshi (2012) and Chang (2004). The major highlight of the dissertation are the areas where social policy 2 Candidate no: 89051 influences economic policy which determines the characteristic of industrialization particularly in formation of employment structure and capital accumulation. The theoretical framework would not be complete without distilling the aspect of inequality and growth, two importantly intertwining aspects that determines industrialization and patterns social capital accumulation. The other three parts of this dissertation take a more chronological approach, covering a period of late 1950’s to late 1970’s. This is important in order to understand the dynamics and changes occurring to political structure of the elites, social policy and industrialization trends. Starting with the historical analysis, one will be able to see how the British colonial rule and the establishment of modern economy has led to both importation of foreign labor and restriction of industrialization. This is followed by Malaysia’s transition to Independence, mirrored by the collective negotiation made by various ethnic elites that led to formation of a political settlement, the Alliance party. It is argued in later parts of this paper, that the negotiations between the political elites and the British in achieving Independence would also have a significant influence the trend of industrialization in the 1960’s. The economy was primarily driven by ISI in an effort to ‘catching up’ with other developed countries. This policy appeared to create economic problems that would have greater social implications, mainly in the failure of the state to deal with poverty and high level of ethnic inequality. The ethnic riot that happened in 1969 greatly undermined the economic system inherited by the colonial structure that bred social instability. The political decision taken in response to the riot was a drastic and swift measure of structural reforms, paying attention particularly to the issue of redistribution. Despite the lack of distribution and the state’s inability to regulate the market (which led to elements of market failures that sparked the 1969 riot) the ISI period showed high growth rates.1 The last part of this dissertation deals with institutional restructuring encompassed in the New Economic Policy (NEP) in achieving more growth and equitable distribution. The NEP laid down the foundations of export-oriented industrialization, particularly by increasing the state’s capacity to intervene in the economy. The state was entrusted with a plan to promote Malay economic participation, and to reduce poverty created by the urban-rural biased industrial development. This was done through two aspects: i) relating to the role held by a Developmental State; the ability for the state to regulate and monitor labor thus the ability to promote labor-intensive industrialization and ii) is the 1 Needs to be substantiated. 3 Candidate no: 89051 more active role of state to invest in human capital development in relation to the Malays, all in hope of achieving a more equitable, sustainable economic development of the nation. Literature Review There is a stark difference in the development of social policies and the framework for a welfare state between Asian developing countries and developed countries in West. It is thus intriguing to ask what determines the kind of social policy adopted in these developing countries, and how there were successes and failures behind them. This dissertation intends to distill this question by laying the general historical progress of developing countries, particularly the Asian countries in highlighting the main drivers of social policy that developed across time (Midgley, 2000) . A literature on Developmental State helps identify the framework to relate to institutional economics’ view on the role of states. Malaysia in particularly, shares a number of features enlisted for a Developmental State. This reiterates to the structuralist stand of the state shared by Wade (1990), Lin & Chang (2009) and Mkandawire (2007). All these authors have different but consistent views on the role of state in development. Wade and Lin share identical views on the primary importance of industrialization as means to develop, although Wade argued that the state’s ability to industrialize is determined by the global economy. Lin and Chang favor the institutional capacity of the state whilst highlighting areas of which the economy should rely on its comparative advantage or to diversify. All of this can be linked to Malaysia’s industrialization process. Works done by Faaland (1990), and Jomo’s (1985, 1986, 1989) provide a critical review of the objectives projected by the NEP in this regard. The economic structure of Malaysia highly correlates to the social structure established in the colonial era, and has always been an integral factor to the formulation of policies in the country. Jesudason’s perspective on ethnic factor to development explains greatly the dynamics of both the society and the areas of polices in which it influences. In this dissertation however, the issue of ethnicity is narrowed down to the emphasis of economic and social development of the Malays, who were not only the majority of the population but also held legitimate political authority. This dissertation attempts to link the types of industrialization that prevailed during the relevant period, ie. from Malaysian Independence in 1957 to the late 1970’s. There was indeed a shift in industrialization trend, in line with the shift of social policy marked by the establishment of the NEP. Here, there has been limited literature that links the two factors conclusively, although this dissertation 4 Candidate no: 89051 attempts to explain the connection between social and industrial policies. In doing so, it focuses mainly on the endogenous factors of development2, but has not taken into account of other factors that may have well influence the formulation of social and economic policy such as global political trend during the cold war, flows of foreign capital or even the taxation regime practiced by the state. Subject to the forgoing, this dissertation nonetheless seeks to define the framework where shifts of industrialization trend may be related to the demands for structural reforms socially as well as economically, posed after the ethnic riots of 1969. Methodology Table I shows the parallel linkage between areas of social and economic policies, which influenced the industrialization plan during the relevant period. This dissertation attempts to follow the changes of these two aspects in a chronological manner so that distinctive characteristics of both areas could be seen over time. The change of industrialization trend is most distinct after the country’s Independence, represented in the shift from ISI to EOI. Table I : Areas of Social & Economic policy in relation to Characteristic of Industrialization. Social + Economic Policy Characteristic of Industrialization Note: 1 Colonial Period1 Post Independence (1957 – 1969) Post 1969 riot (1970-1979) Identification of ethnicity to economic function Laissez-faire Priority on sociopolitical stability. Maintains status quo NEP Developmental State approach to industrialize ISI Reliance on foreign investment + capital intensive industrialization EOI State led industrialization + labor policy + human capital development - Importation of migrant workers - urban-rural bias. - Restricted industrialization Social and Economic policy in the Colonial Period was erratic and haphazard. Pattern of Industrialization was mainly in response to British commercial interest. 2 Identify what are the areas of development which is considered as endogenous. 5 Candidate no: 89051 Research Question: The social structure established prior and during colonialism greatly affects the development path of the nation, particularly in the post Independence era where politics, economics and the society became more institutionalized. Certain areas of developmental policies were intended to address the issue of inequality and economic growth. Therefore this inevitably led to the establishment of vigorous prodevelopment policies and reflected elements of a ‘Developmental State’ as stated by Joshi (2012). It is possible that social and economic policies were designed to ‘kill two bird with one stone” by reducing poverty and inequality which were highly related to the element of ethnic-social differences, as well as pro-growth policies that had many political implications. Therefore industrial policy became part of a tool for social and structural reform. Part 1: Theoretical Analysis 1.1 Institutional Framework: The Developmental State The study of Developmental States has been commonly associated with the ability of developing countries to combine various areas of policies as a tool to achieve economic aspirations of ‘catching up’. Four aspects of the Developmental State that fits in Malaysia’s development path includes the state’s ability to bypass narrow interest (Migdal, 1988) thus ensuring the public commitment to achieve economic development. States also usually have control over mobilization and financial allocation under which politically protected technocrats could perform their tasks without interruption of the changing of government (Krieckhaus, 2002. p1697-1712). In Malaysia, the political dominance of the ruling coalition since Independence made this possible. The state’s reliance on strong ideological component and nation as well as reputation building initiatives (Huff, 1999. p214-42) in instilling what Gainsbourough (2009. p1324) would call ‘paternalistic attitude that ‘state knows best’ gives the state strong capacity to implement heavier demanding economic development policies. Finally, in relation to industrialization, the state ability to regulate domestic capitalist and foreign capital would make strategic developmental projects possible in the long term. The role of state could be seen when a state decides to handle and monitor economic development by actively participating in industrial policy and making effective amendments to social policy. The effort to withdraw the economy’s reliance on foreign investment and to spur capacities for endogenous growth led to a proliferation of state-led or government-linked companies (GLCs) as known in Malaysia. In the case of Malaysia, endogenous growth is highly reflected in the initiative of the 6 Candidate no: 89051 state to increase Malay capital accumulation. Jesudason (1989) in his book Ethnicity and the Economy sees the role of the state as an entrepreneur propagating the economic interest of the ruling elites determined under an ethnic based politics. The mixed economy of a Developmental State dictates a pragmatic approach of the state’s intervention with a good combination of authoritarian technocracy together with egalitarian distribution of income and wealth. Radice (2008 p. 1154) could not have put it better in saying that the state’s intervention was an effort that “harnesses rather than suppresses the private sector and profit motive”. 1.2 Social Policy influence in Economic Policy The main role social policy highlights in this dissertation is in its core function in human capital development and the removal of barriers to economic participation. This is because for many developing states, economic growth and development is fundamental as part of the ‘catching up’ process3. Social policy is not secondary, but rather ought to work hand in hand with economic development indirectly influencing the industrialization trajectory of a country. Chang (2004) states that social policy is related not just to economic growth but also to political stability. The development of social policy in Malaysia has a distinct ethnic centered character. The highlight of state's role in development, along with redistributive functions of social and economic policies, is quite central to the idea of developmental welfare according to Midgley (1994). Developmental welfare theory is in contrast with NIE, in that it views social and economic policies functions to be intertwined and correlating to each other. NIE regards social policy as area of altruism and social care, to be an antithesis to capitalism. Both Midgley (2001) and Chang (2004) seek to invalidate this view, in the belief that developmental welfare has a dynamic sense of social progress and welfare, with "the desirability of change and the prospect of social improvement"(Midgley and Tang 2001, 244). Polanyi (1957) too supports the idea of not dividing the spheres of economics and social policy, in that he views the market as political, and therefore inseparable from economics. Employment 3 This is the elementary engine for economic growth is industrialization. The main objective is the increase economies of scale, producing higher value added products that would ensure employment (along with right allocation of resources) and to generate sustainable domestic demands for goods. 7 Candidate no: 89051 Midgley (2001) calls for the need of 'productive employment' and for social policies to be designed for people to have an option outside the 'perpetual dependency' type of employment.4 Although there are many instances that self-employment, or accumulation of wealth through business and commerce can appear to be more rewarding and also help the economy to diversify, it is hardly the case to expect a significant portion of the society to move towards self-employment. What is inferred by Midgley (2001) is that, while securement of jobs is important, that alone is not enough and people should also be readily able to harness their entrepreneurial skills. As we will see later, the establishment of a New Economic Policy (NEP) in Malaysia following social instability of the late 1960’s was targeted not just to provide employment for the economically isolated Malays, but to strengthen the capacity of the Malays to engage with the economy productively, mainly through entrepreneurialism. Social policy in relation to capital accumulation and state investment Programs that promote the accumulation of social capital have beneficial impact on economic development, incomes and standards of living. Methods of social capital formation are seen through the encouragement of civil society and communal efforts of establishing social and economic integration. For a country that was new to industrialization, the fragmentation of economic development through the focus of local businesses was unfavorable in Malaysia. Here, the state's central planning in economic policy was seen as instrumental for the growth and development of the economy and society as a whole.5 This does not mean that such initiatives were excluded entirely from economic policies in Malaysia, rather it was an active policy implemented in the late 1980's in the promotion of small medium enterprise (SME). This is why the use of market is fundamental tool for resource allocation. Lin (2010) proposed that governments should intervene, so as to play an active role of facilitating industrial diversification and improvement of hard and soft infrastructure.6 He adds, "infrastructure is critical to the viability of domestic firms: it affects the individual firm's transaction costs and the marginal rate of return on investment" (Lin 2010, 12). Whereas works done by Robert Wade (1990) focuses on the industrialization featured in East Asian countries, the case of Malaysia does not fall far from that of the Asian tigers. The central role of the government is crucial in the development of the economy and regulating the trends of industrialization. Although Malaysia did have a fair share of very liberal market economy in the early 4 in Malaysia, the strong association of ethnicity to economic functions exacerbate this problem of perpetual employmenttype dependency 5 See Jesudason (1989) in State as Entrepreneur, p.84 6 Explain briefly what soft and hard infrasturctures are, check notes on DV400 8 Candidate no: 89051 years after Independence, the role of the state and, in particular, how the political structure was formed, had never left center stage and thus remains the main factor influencing industrial policy. 1.3 Inequality and Growth Inequality has been a feature of Malaysian economic growth and development both as a problem as well as a factor that influences investment, savings, and industrialization. There is a tendency for late developing states to reflect strong inequality of wealth and income. It is common for development to take place in an "unbalanced growth approach" where investments were acquired in concentrated projects in key economic sectors, spearheaded by few wealthy and well-connected elites. This strongly relates to Kaldor’s hypothesis that the marginal propensity of the marginal elites to save is more significant and important for the development of the economy. This is true to Malaysia’s laissez-fair period and hesitance of the state to tax the rich and private firms. According to Mkandawire and in parallel with Kaldorian hypothesis, income distribution plays a role of determining the wage-profit shares. Inequality shaped by concentration of wealth within the capitalist class has made this segment of the society powerful, not just economically but politically. In the context of a developing country, it is very often that the class that enjoys status and privileges bestowed through cultural history is also the same one calling shots in influencing the economy.7 Generally, the initial level of inequality also leads to forms of investment that favors capitalintensive goods and the importation of technological machineries for industrialization. Here, inequality tends to influence types of industrialization and how savings are being invested in accordance with the interest of the capitalist class. Felix (1974,1977) then argues that this would sometime disrupt the learning process of industrialization leading to a more unsustainable modernized consumption patterns. In the formative period of the Malaysian economy, decisions of the capitalist class’s choices of investment were based on political negotiations for Independence, which influenced the industrialization trend at the time. Two aspects of inequalities are being focused in this dissertation: Firstly, the existence of (intraethnic) wealth inequality shaped by rent-seeking and political elitism which is rooted in socio-economic structures that go back to the colonial period. Secondly, income inequality, which became apparent during industrialization periods and reflected the distinction of types of employment (inherited from economic function), as well as a product of urban-rural development disparities. Concentration of 7 This can also be related to a hierarchical society build through the preservation of the feudal-peasant class distinctions. 9 Candidate no: 89051 industries in urban areas meant that more Malays had to migrate to cities to find jobs, competing directly in the labor market with the non-Malays. Part 2 : Historical Analysis Understanding the socio-political structure prior to Independence is important in analyzing the nature of state building, political economy and the influence it had on the developmental trajectory of Malaysia. In retrospect, the issues highlighted in this dissertation such as the ethnic politics, inequalities and the formation of social policy has a lot to do with the socio-economic matrix that exist before as well as during British colonialism in the country. Only through distilling the historical periods of Malaysia, as far back as the pre-colonial Malay society right up to Malaysian Independence, can the impact of the colonial policy on the employment structure and political economy be understood in the crucial years of Malaysian industrialization. 2.1 Class Nature of pre-colonial Malay society The Malay peasantry’s economic activity greatly reflects the ‘moral economy’ explained by James Scott (1977). Scott explained that ‘moral economy’ in communities that emphasized on subsistence ethics, patterns of reciprocity and forced generosity structured in a more communal society. A “safety- first” precautionary principle lies behind a great many of the technical, social, and moral arrangements of a pre-capitalist agrarian order.’(Scott, 1977). Indeed, there was also a native version of redistributive mechanism central to the village societies in which Polanyi (1957) argues “ the absence of the threat of individual starvation which makes [the] primitive society, in a sense more human than market economy, and the same time less economic.” These theories explain a lot about the Malays’ lack of engagement with economic activities in the later periods. In a structuralist perspective, the socio-cultural element of the Malay society had made them economically impaired against a more economically aggressive immigrant community, yet were very sustainable in isolation. The lack of private ownership of land, according to Jomo (1990) had led to a collectivized cultivation on the abundance of arable land.8 As long as there was land not cultivated, there is land distributable to the cultivator. 8 As long as there was land not cultivated, land would be distributed equitably. The political structure of the Malay society was also weak, since the elites were unable to coerce the peasant yeoman for labor or capital extraction, in fear of loosing 10 Candidate no: 89051 2.2 British Colonial Policy The class-based nature of pre-colonial Malay society contributed to the relative ease of British conquest of the Malay states. The British took full advantage of intra-ruling class weaknesses and disputes, such as through succession struggles, to advance their own interests (Jomo 1988, p.20). However, the main feature of the British colonial policy was 'soft administration' in that the colony was administered at the lowest cost possible, and "the mere possession of colonies, and the prevention of someone else from acquiring them" (Havinden 1996, 45). Jesudason (1989) argues that British imperialist intervention in the Malay states was due to the political instability of the Malay states that threatened economic and governance of the Straits Settlements. This led to the introduction of ‘good government’ in the Malay states through pacification of the local politics and the introduction of the “Resident system”9 established under the Pangkor Treaty in 1874. The British intervention and the eventual submission of the Malay states under the colonial governance meant that economic development was dictated and formed under colonial policy, securing the trade and economic interests of the British capitalists. 2.2.1 Economic Development under British rule During the British rule, there existed a modern economic sector characterized in vent-forsurplus and a relatively isolated agricultural sector mainly dominated by the Malay peasants. Unlike suggested under Lewisian dual economy10, there was little or no developmental spillovers between agricultural and urban sectors. There was limited urban-rural migration and labor structures were distinctly ethnic based. In addition to that, the economic policy practiced by the British was rather erratic and responsive only towards the timely needs of British commercial interests. According to Havinden (1996, p.59), " …since Chinese and European merchants, planters and the miners were spontaneously, ‘opening up’ the interior of Malaya in the late nineteenth century, it was not necessary for the colonial government, to have any very well worked out policies for economic development, other than trying to encourage and facilitate what was already happening". British hesitance to hire from the Malay community as labors in the vent-for-surplus economy was due to social structure of the Malay peasantry itself, as reflected by Jomo (1990, p.3) in that the "Malay peasants controlled the land [albeit collectively] which they cultivated and were not obliged to their loyalty and manpower altogether. According to this view, Jesudason (1989) explained why the British were unable to utilize the Malay as labors to their economic interests because the Malays need not to rely on harsh conditions to secure sustainable means of income. 9 a system under which British official were put in charge of economic matters on a state basis 10 See Lewis, W.A. (1954) on unlimited supplies of labor. 11 Candidate no: 89051 work for any employer… it was difficult and expensive to induce them to work for capital". This was another reason for the lack of Malay involvement with the modern economy under the colonial rule, whereby it was much easier and cost efficient for the British colonial administration to import immigrant workers. The importation of Chinese and Indian immigrants were focused in effort to supply labor in sectors such as mining and rubber plantation, whereas Malay peasant farmers remained in their semisubsistence economic activity of producing rice, vegetable and fruits. According to Hassan (2004), the Malays stayed on as farmers and rice producers because it was a lucrative sector by virtue of supplying food to the new migrant labor force. In addition to that, the British also introduced institutional legal aspects related to land that deprived the Malays of full integration with commercial sector.11 Another aspect of economic underdevelopment under the British rule can be seen through the absence of an industrial sector. Industrialization did not fully occur in the Malaysian economy, except for rudimentary processing of raw materials made ready for export. Here, Huff (2003) argues that the nature of vent-for-surplus economy meant that the abundance of resources had attracted capital accumulation from abroad, in the same time leaving the local manufactures deprived of those capital. A laissez faire economy together with the repression of indigenous capital accumulation meant that it was almost impossible for local industries to compete with European and British commercial interests. Huff rightly pointed out that it was ‘government policy, not finance, that proved binding constraint to development in colonies’ (2003, p. 336). European colonials simply did not want competitors for manufactured goods and therefore had great incentive to repress any effort for the native economies to industrialize. Note that by 1910, Malaya had various valuable primary commodities for export such as rubber, palm oil and tin, but no development in industrialization let alone manufacturing (Huff, 2003, p.336). Even if industrialization or manufacturing were to develop, a great measure of mercantilist policies would have been required to protect the infant industries. This would have of course been almost impossible since such policies would have been contradictory to the colonial policies that were mercantilist with their own exports. The sentiment of developing the economy for the sake of the state 11 Malay Reservations Enactment : designated Malay reservation land (which could not be owned by nonMalays) covered much of the agricultural land already owned by the Malays. This means that the Malay credit market is exclusive within the Malay community and money lenders, since non-Malay creditors could not claim such assets in cases of default.(Sundaram 1988, 49) 12 Candidate no: 89051 and its people was missing and this was the main reason for the scale of underdevelopment of many of the countries in the region, which were similarly under colonial powers. It would only be through selfgovernance, did any policies to support industrialization and modernization made real sense. Part 3 : Social and Economic Development of Post Colonial Malaysia (19571969) 3.1 Political Elites & Social Bargain The early years following Independence showed that political compromises were made by Malaysia’s founding fathers to preserve national unity and maintain social stability. The focus was not for distribution or even an active government's role in promotion of Malay capitalist class, but rather the strengthening of the current status quo, where the elites (of both Malays and non-Malays) had an almost exclusive right to engage with lucrative modern commercial sectors and industrialization. It was due also to the similar philosophy practiced by the British - through 'noblesse oblige' paired with strong sense of patrimony towards the ruling elites - that the development strategy adopted was seen as part of an aristocratic project. For instance, the United Malay National Organization (UMNO) was established by a few Malay conservative elites, many of whom were royalists and already had strong ties with the British colonial government. This is seen through a typical British colonial practice, in educating and gentrification of the Malay elites, offering them government posts in the British administration in Malaya. This further reinforces the theory of specialization of economic and occupational roles held by the different ethnicities. The creation of the Alliance coalition party was seen as the first successful inter-ethnic cooperation for the achievement of a similar goal - the Independence of the country. UMNO, being the biggest component of the coalition were vocal against the British proposal of a Malayan Union, especially on issues related to the sovereignty of the Malay rulers and the question of citizenship. The coalition, under the leadership of the prime minister at the time, Tunku Abdul Rahman, rejected the principle of jus soli proposed under the Malayan Union that would grant automatic citizenship to the Non-Malays. Other component parties within the coalition, which represented the interest of the nonMalays, were silent on this matter. 13 Candidate no: 89051 The British agreed to the demands made by the UMNO leader, simply because the Alliance coalition had become more appealing as more leftist parties (which were seen as communist threat to British current and future interest) were established. The British effort to contain and limit communist ideological proliferation meant that any opposition to UMNO's political objectives were conveniently undermined. It was argued that the British, who wanted to protect British commercial interest and maintain continual access to lucrative vent-for-surplus economy of their periphery, engineered the ethnic politics inherited in the Malaysian political system. Jomo refers to the formation of the Alliance party as a reflection of a class fraction of 'statist capitalists'(Jomo, 1988, p. 244). Whereas authors like Guyot (1971) prefer the term 'ethnic corporatism' practiced by the coalition in crisis management as well as political mobilization of different ethnicities under one banner. Moreover, there was a clear contrast of the social backgrounds represented in the coalitions of the parties. For example, the Malaysian Chinese Association (MCA), was a party formed by Chinese businessmen. This reflected the fact that Chinese elites in Malaysia were created not through social entitlements, but through wealth and occupational prestige. A famous generalization of the functions of the different ethnicities is reflected in a overstated assumption that 'politics are for the Malays, the economy for the Chinese'. Jomo argued against this, in pointing out that it was only a small group of Malays that wielded political power, so as also to the small group of wealthy Chinese bourgeoisies that was economically influential. Although he later added that “[the] development policies and plan allocation as well as implementation reflect the nature, role and orientation of the state, the dominant class fractions and their political and economic interests"(Jomo K. S 1990, 102). 3.2 Economic Policy: Malaysia’s Import Substitution Industrialization According to Jomo (1988, p.219), the post Independence Malaysia had little incentives for industrial growth. This was due to two factors: i) institutional limitations reflected in financial and capital inadequacy and, ii) politically motivated decisions made between the ruling elites and the British. Institutionally, Malaysia inherited much of the bureaucracies and governance of its British predecessor. For instance, the economic practice of the post independence Malaysia still followed a strict fiscal budget, minimal taxation and strong laissez-faire market established by the colonial economy. There has been a reasonable argument proposed by Jesudason (1989) that if it was not due to 14 Candidate no: 89051 Malaysian struggle against communist insurgency and the heavy reliance on British aid and expertise12, Malaysia could have gone on a nationalization spree, converting private firms to state ownership as would many newly independent states at the time. Therefore, it is argued that the protection of British commercial interests and the maintenance of an unregulated market were actually in return for assistance from the British in fighting communism in the country. This of course had greater economic and social implications in the long run, mainly through the subjugation of the Malaysian economy to principles of laissez-faire. This was at the benefit of foreign investors (mainly British), through the encouragement of tax exemptions and the unregulated market to spur foreign investments in the country. This became a feature of Malaysia’s early attempt to industrialize and in conjunction with the effort to diversify the economy away from primary commodity export13. Characteristic of Malaysian Import Substitution Industrialization (ISI) ISI was practiced in Malaysia, through an industrial effort to develop forward linkages, ensuring finished and final product to be produce in the country. This was reasonable, since reliance on manufactured produce from developed countries at the time was heavy despite the fact that most of the materials were actually produced domestically. However, Malaysia was blessed with extensive raw materials, which led to it’s potential in labor resources being overlooked within the context of economic development. The First Malaysia Plan14 articulated this concern in by highlighting the lack of skilled labor was a barrier to the industrialization of Malaysia. Industrialization in the 1960’s therefore mainly reflected capital intensive industries, low corporate social responsibility, and above all else very weak government intervention and regulation of the market. According to Alexander Gerschenkron (1962), there has been a tendency of countries to neglect the supply-side determinants to development, especially regarding technological progress often forgoing country’s comparative advantage. Contrary to Lin's (2010) view that it is unprofitable for firms to directly move to capital intensive industries because of the inadequacies of soft and hard infrastructure, Malaysia's initial 'jump' to capital intensive industrialization was rather reasonable, thanks to relatively well developed 12 According to Hawkins (1969), the fight against communists in Malaya posed a tremendous drain to the finances of the economy of both Malaya and Britain. Britain was spending at least £200 million yearly in maintain military aid to the region. 13 See, Chang (2009) debate against Lin (2009) on defying comparative advantage. 14 See, First Malaysia Plan (1965) p.13. The problem with this assumption is that the economic plans made underutilized the country’s comparative advantage in cheap labour by going after capital intensive industrialization. 15 Candidate no: 89051 infrastructures inherited from the British, as well as significant raw material wealth and export surplus which made capital cheaper. Malaysia is a classic example that supports the new structural economics perception of the dichotomy between developing and developed countries. With the rejection of a linear developmental path and resource-dependency propagated by old structuralist thinkers, Malaysia actually benefited from backwardness by choosing to diversify its economy15. An article in The Straits Time in 1968 reported that Tun Abdul Razak, the then Deputy Prime Minister, justified Malaysia’s heavy reliance on foreign investments in that “The Alliance Government feels that as a young and developing nation, it is necessary to keep the economic field open to encourage foreign investment here not only to provide employment for the people but also raise the per capita income”16. Alas, the lack of government regulation and influence with the private foreign firms led to, firstly, insufficient employment creation and, secondly, to the concentration of industrialization in urban areas. Reliance on foreign investment thus did not give a beneficial progress to the society as a whole, further limiting the process of ‘trickle down effect’ thus increasing inequality. Malaysia's only limitations to ISI, was in the assumption that the country's comparative advantage still lay in the export of primary commodities while neglecting the ability to diversify by harnessing human capital development. 3.2.1 Early Development of Malay capitalists and Rent Seeking The political elite relationship with the industrialist was shaped by the industrial lobbyists’ aggressive lobbying, trying to achieve more tax cuts and exemptions. This was often compensated with the offer of lucrative titles and posts to Malaysian political elites to head Boards of subsidiary companies in Malaysia. This practice was prevalent in that Jesudason (1989) claimed “the politico administrative elite were the only stratum in Malay society with the political influence and economic means to think about business”(Jesudason 1989, 65). The culture of ‘know-who’ rather than ‘know-how’ was cultivated by the relaxed grant of licenses to Malays close to the bureaucrats and politicians. This resulted in the enrichment of those few Malays which was not able to contribute to economic growth and progress for the Malays and consequently nation. Despite the growing inequalities of income and wealth of the 1960’s, there was little political upheaval or even resistance to the economic policy passed by the Government, which had failed to 15 See Sollow model, Malaysia’s economy gains from being backwards and faced higher growth rates. (see GDP growth from 1950's to late 1960's) 16 Straits Times, 10th September 1986. 16 Candidate no: 89051 alleviate the Malays from rural poverty. Inequalities that existed within the Malay community showed that Government related jobs were seen as a gateway for business. This resulted in the creation of rentseeking bureaucrats, which only encouraged the Malay inclination to be employed within the civil service instead of attempting to develop any true entrepreneurial skills. 3.2.2 Urban-Rural Development Disparities The urban-rural development disparities were not only part of a residual effect of the type of industrialization practiced in the 1960’s, but was also an issue of ethnic inequality and poverty, particularly in relation to the Malays. The demographic structure of rural areas is mainly composed of the Malay ethnic. Therefore, the lack of development in the areas directly translates to the impoverishment of the Malays and the continued neglect of the Malay population in relation to economic development and growth. Poverty in Malaysia was measured both through absolute and relative terms, which in both cases poverty is burden carried out by the rural Malays following the history of colonial neglect of the agricultural Malay peasantry. According to Faaland (2003), " [rural] Malays were subsidizing the urban population as a result of the pro-urban policies of the British colonial government and their extension after Independence and also the unfavorable terms of trade which the agricultural sector suffered"(Faaland 2003, 44). In some ways, the ISI was also a continuation of the colonial outlook on economic development and industrialization. There had been already bias development of infrastructure during colonial periods. It also seemed costly for a newly independent government to contribute to the development of rural infrastructures. The underlying assumption was that investments should be made in a dynamic urban sector, at a lesser cost whilst inducing the rural development either through urban-rural remittances, or through demands for rural products.17 Government spending on social and infrastructural development of the rural areas was thus undermined, relying on a ‘trickle down assumption’ of gradual urbanization. 17 See, Jesudason (1989) p. 50 17 Candidate no: 89051 3.2.3 Income inequality and employment Structure In addition to urban-rural disparity, there was also an element of income inequality that was tied in with the employment structure of the time. There was a significant degree of dualist economy that still persisted under ISI, where the traditional sector did not fully integrate modern economy. However, the affiliation of ethnicity to a specific economic function further aggravated the dichotomy of the dualist economy, where "ethnic differences often coincide with class and occupational differences"(Jomo K. S 1990, 9) further limiting upward occupational mobility. The overall inefficiencies of economic policies mirrored the implications brought by the ISI. The exacerbated inequalities in income together with increase of unemployment was due to the ethnic segregation inherited from the colonial periods. The Chinese business elites promoted the private capitalist sector amongst the Chinese, whereas the Malay political elites further strengthened the proMalay government recruitment for administrative jobs. This meant that the Chinese and the Malays were conformed to specific sectors of employment. Jomo (1990) pointed out that the state policies too began to take an ethnic character, and this further intensified the dichotomy of types of employment between the Malays and the non-Malays. Table 1 : Distribution of Household Income By Ethnicity & Theil index and It’s Decomposition 1957/58 1967/68 1970 Mean Income* 134 154 170 Median Income* 108 113 119 0.342 0.400 0.466 Mean Income* 288 329 390 Median Income* 214 246 265 0.374 0.391 0.455 0.0748 (20.3%)1 - 0.0671 (13.0%)2 0.3692 - 0.5161 Malay Gini Coefficient Chinese Gini Coefficient Theil Index Inter-ethnic Overall Notes : * 1959 RM prices Sources: 1 Ikemoto (1985) 2 Anand (1983) Perumal (1989) and Snodgrass (1980) 18 Candidate no: 89051 Table 1 shows income differentials between the Malays and the non-Malays stipulated from the disparities of both urban-rural distinction and the identification of ethnicity with economic function. The Malays have lower mean income than the Chinese because most employed Malays resided either in the civil service or remained as rural agricultural farmers. The concentration of the Chinese population in urban areas, where most economic development and activities took place, meant that not only the Chinese had better paid jobs, but could also depend on commercial sector (self-employed businesses) in the cities. However, Anand (1983), Ikemoto (1985) and Ishak & Rogayah (1978) reported that nearly 90% of overall income inequality in Peninsular Malaysia till the 1970s was due to the differences within ethnic groups, rather than between them. Kusnic and Da Vanzo (1980) added that this disparity of income was also reflected by the rural-urban levels of development and the demographic composition of the two areas. This meant that the income differential between the Malays and Chinese were more structural and less intentional. In other words, the amount of poor rural Malays seemed to match proportionately to that of poorer Chinese in the urban areas. However, there are other more critical arguments made sympathizing on Malay entrepreneurial failures, linking it to the existence of discrimination of employment in the professional and private sectors usually run by the non-Malays. Just Faaland in his book Growth and Ethnic Inequality stated that "The non Malays discriminate against the Malays in business in term of contract, in employment, etc., in favour of their own kind. . . At the most, Malays were given decorative posts for cosmetic and public relations purposes, particularly if the company concerned had dealings with government departments in which the majority were Malay officers"(Faaland 2003, 21). This view of economic strangulation of the Malays at best a redundant argument since equal blame had been apportioned on both the quota-ridden civil servants and the discriminatory employment in the private sector. This led to a more controversial outlook; the Malays as a group did have lesser income than the minority Chinese, and at the same time had to endure higher inequality of wealth and income within their own group. Why did the Malays at least, tolerate this inequality (within their own group) and ultimately look upon the disparity of income collectively against the prosperous Chinese in fueling their resentment? 19 Candidate no: 89051 There appeared to be two explanations to this. The first is a sense of group worth, as seen through Albert Hirschman’s (1973) 'tunnel effect' in conjunction with Horowitz’s (1985). The Malays tolerated the in-group inequality due to the strong sense of group belonging. Efforts to enrich a few Malays were seen as a symbolic move of uplifting the general status of the Malays. Strong support and association of the masses with the few wealthy Malay elites also meant that these successful figures ought to be implicitly responsible for the generation of wealth and prosperity of the Malay community as a whole. There was an over simplistic assumption of the ‘trickle down effect’ to function, at least within the same ethnic group18. However, it is due to this assumption that question of inter-ethnic differences and inequalities have been played over, especially when the elites failed to fulfill their ‘responsibility’ of enriching their own kind. 3.3 Socio-economic instabilities and Ethnic Riots of 1969 The election results of 1969 (explained what happened) led to a lost of confidence in the dynamics that the Malays were politically powerful whereas the non-Malays controlled the economy. UMNO and its coalition lost most of its urban constituencies to the leftist and Chinese dominated political parties. An insignificant interracial triggered an argument that blew out of proportion, fueling the Malays’ insecurity of political dominance and existence as an ethnic majority of the nation. There were endless factors that led to the devastating ethnic riots in 1969, ranging from political mobilization of the non-Malays against the ‘Malay-centric’ government, to the manner in which the industrialization had affected the socio-economic inequalities and urban-rural development disparities. The decade of ISI had generated relatively scarce employment, meager rural industrialization, and the avoidance of "distribution in favour of the poorly capitalized land-hungry peasantry"(Jomo K. S 1990, 10). It is no wonder that implications of the industrialization was seen through a "growing classbased contradictions fueled the ethnic riot of May 1969, which leads to the opportunity fo a more assertive faction within the ruling party to take over the reins of state power"(Jomo 1988, 106). 18 Forms of demand for ‘redistribution’ of wealth within the Malay community often rely on government subsidies, networks from within the bureaucracy and expectation of easier access to government projects and licenses. (This was later institutionalized under NEP, where economic quotas and licenses were made explicitly for the Malays). 20 Candidate no: 89051 Part 4 : Institutional Restructuring and New Economic Policy (NEP) Soon after the 1969 ethnic riots, the Government implemented the NEP for the purpose of improving the inter-ethnic socioeconomic imbalances, to restructure the employment regime and to close the gap between rural and urban development. The riots had a devastating effect and almost paralyzed the nation economically and socially. The Government had to call forced measures of Emergency to contain the conflict. The state of emergency gave the head of state (then acting Prime Minister Tun Abdul Razak) unchallengeable power constituted under the martial law. The political elites in the government therefore decided to exercise their authority to solve the problem of economic imbalance and to utilize organizations and government functionaries to promote the entry of Malays into the modern sector. This became the basis of the structural reforms poised to the government of post 1969 riots and was constitutionally drafted into the NEP. Politically, the ruling coalition began to realize that their reliance on the Chinese elite class as an economic base for funding the party was unsustainable, and would further exacerbate the interethnic tension. UMNO, the main component in the Alliance coalition sought to utilize all its Malay support and to overcome the reliance on the smaller non-Malay party components. It was also clear that the existing economic policy and employment structure had been inadequate in garnering equitable growth and development of the country, and had led to unsettling political and social stability. The call for empowering the Malays’ economic stand attempted to expand the Malay capitalist class as well as encourage state’s active involvement in the development of the economy. The Second Malaysia Plan, in conjunction with the newly drafted New Economic Policy, was set to restructure the employment rigidities of the past and at the same time to eliminate poverty regardless of ethnicity. As expressed by Jesudason (1989), the move of the state and economy away from laissez-faire to a more ‘interventionist state’ paved the way for the Malays’ expansion of their political and economic base19. The residual effect, which materialized years after the implementation of the Second Malaysia Plan, was a shift of economic policy that favored export industrialization. This became the basis of future industrial policies of Malaysia, with a distinct element in the need to address racial imbalances, while promoting a progressive and equitable economic growth for the nation as a whole. 19 See, Jesudason (1989) p. 72 . Here he states that the function of state as an entrepreneur to encourage Malay capital accumulation, to increase their capital holdings and rely less on the foreign investments. 21 Candidate no: 89051 4.2 NEP solution to Redistribution, Stability and Growth. NEP was formulated through the influence of the Department of National Unity rather than the Economic Planning Unit, and thus the response was weighted more on the restructuring of the socioeconomic matrix, reflecting an urgent need to address areas within the framework of social policies. The NEP took a much stronger stand as a social policy representing the need to restructure the society, with heavy elements of economics. The NEP had two major objectives that sought to address the short-comings of early industrialization initiative and the unsustainable socio-political structure inherited from colonialism. The first objective was for the reduction of poverty regardless of ethnicity. This objective related closely to the efforts for economic development and implied that the state ought to provide enough of the ‘right’ employment to fight poverty 20 . Secondly, NEP was designed to reform inter-sectoral factors of instabilities, mainly the association of ethnicity to economic functions. The effort to reduce urban-rural development disparities and to produce economic sectors that could cater employment for the Malays came under the initiative to move out from ISI, encourage a stronger state expenditure and investments towards a more equitable industrialization and human capital development. At the same time, reliance on foreign capital was reduced, followed by an increase of taxation. This made state-led industrial development and formation of government linked corporations possible in providing employment and more distributive development in rural areas. Government also took a more proactive stand in the regulation of labor, which led to the foundations for labor intensive industries. Table 2 shows the rise of Malaysian ownership of capital from owning just 37.9% in 1969 to almost double in 1983, reducing the dominance of foreign control over productive assets and capital in the country. 20 ‘Right’ employment referred to the creation of opportunities for the Malays to advance into the economy. The focus on rural poverty for example, meant that development initiative to eradicate poverty in the rural areas is about helping the Malays getting jobs, or to be more economically competitive with the urban Non-Malays. 22 Candidate no: 89051 Table 2 – Malaysia: Ownership of Share Capital (at par value) of limited Companies 1969 1983 RM mil. % RM mil. % 1746.3 37.9 33010.6 66.4 70.6 1.5 9274.7 18.7 1958.0 59.6 23735.9 47.7 Foreign 2909.8 62.1 9054.3 18.2 TOTAL 3286.0 100.0 49708.2 100.0 Malaysian Bumiputera 1 Non-Malays Notes: 1 the Malay ownership of share capital is mainly (>90%) held by Trust agencies such as National Equity Corporation (PNB) and The Council of Trust for Indigenous People (MARA). It also includes equity owned by the state identified under the Transfer Scheme of Government Equity to the Malays. Source: Second Malaysia Plan, 1971, p.40; Mid-Term Review of the Fourth Malaysia Plan, 1984, p.101. The NEP’s move on employment restructuring was more focused in opening new employment avenues in the private sector for the Malays, mainly either by policy driven directives towards firms to include Malay quotas, or by introducing entrepreneurial opportunities to the capable Malays21. This was done by taking several measures such as removing the barriers of movement of labor from rural to urban areas; investments in infrastructural projects to facilitate the movement of labor and also to have better industrial network linkages with the underdeveloped east coast region of Malaysia22. Moreover, there was also enforcement of quota employment in private firms. This effort was a joint collaboration between private firms and Ministry of Commerce and Industry at the time to "ensure that firms employed a certain portion of workers of specific ethnic group, [mainly the Malays]"(Faaland 2003, 53). A more progressive measure to encourage Malay participation with the modern productive economy was to introduce several incentives and facilitation of ownership or shares of a particular firm and sector. 4.2.1 Shift to Export-oriented Industrialization & Foundations of Developmental State The implementation of the NEP had greater repercussions extending beyond the aim of achieving social balance, sparking a shift of industrialization policy and bringing about a revamp of socioeconomic matrix of the country. The inter-sectoral and intra-sectoral23 reforms that took place not only 21 Capable Malays may be refered to as the Malay elite class, bureaucratic officers, and those of the ‘know-who’s Lin (2009) ; infrastructural upgrades as a state’s effort to facilitate firms in reducing transaction cost. 23 See, Faaland (1990) Inter-sectoral and Intra-secotral reforms. p.49-53 22 23 Candidate no: 89051 showed the capacity for the state to spearhead development as shown through Developmental State’s characteristic, but also to provide the framework for an export-oriented industrialization and the harnessing of the country’s comparative advantage. This dissertation looks at the two aspects of Developmental State achieved in the post-NEP era, mainly through formation of labor policies and trends of human capital development that reflected objectives propagated in the NEP. Labor Policies premise for Labor intensive industries The labor policies remained unchanged even after NEP was established. However, it was finally utilized by the state, instrumental to the shift towards EOI. This was because, the regulation of labor and the provision of a more holistic industrial policy that included wage control, meant that the state could actively be involve with processes of industrialization. State was also able to use labor obedience to garner compulsory savings which helped the state to accumulate capital. In return, the state was entrusted with the social capital mobilization to invest in human capital development24. Jomo (1990, p.88) argues that ". . . the labor policy and workers fund reflected the government’s view of a more subordinate role for labor in Malaysia's long term development strategy in the 1980s". The labor laws were amended in 1969, to facilitate and provide a favorable investment environment to attract foreign investors in setting up capital as well as labor intensive industries as done in Singapore. The Malaysian labor policy can be traced back to the colonial period. According to Jomo, the government used the 'state of emergency' as an opportunity to amend legislations affecting industrial disputes, especially relating to labor. The Industrial Relations Act of 1967 was designed to preclude certain issues pertaining to the "managerial rights of dismissals, transfers, - from negotiation"(Jomo K. S 1990, 87). Despite the weak labour union in Malaysia the welfare of the workers were not fully neglected. The Social Security Organisation (SOCSO) was founded in 1971, with the formation of a fund to be used for compensation of victims of industrial accidents and other industrial related negligence. It is important to note that SOCSO has been a precursor to the establishment of the Employees Provident Fund in the 1990's where the compulsory workers contribution to the fund led to a formation of collective savings, and often utilized by the government to invest in provision of public goods. 24 See PNB, Khazanah. And their plans in provision of scholarship, and skill development progams etc. 24 Candidate no: 89051 4.2.2 Human capital development and the Malay entrepreneurial empowerment A part of the NEP’s objective is the development of the capabilities of the Malays. Vigorous programs of education and training of the Malays would be undertaken so as to enable them to participate actively in the development process. Efforts for human capital development could be categorised into two parts: promotion of Malay capitalism and, secondly, the long term investments made in education and skill upgrading programs - both related to industrial policy, driven by social policy set up by the NEP. For all Malaysians, the education system was assigned the important role of laying the foundations for the creation of a new common value system amongst the younger generations for the attainment of national unity and racial integration. Limitations to this initiative however was is the creation of a Malay centric education system on the higher education. Most universities today still maintain the preference enrollment of the Malays, creating just another influx of uncompetitive Malay graduates. Initially, the government under the coalition of the Alliance Party used such agencies like RIDA (rural industrial Development agency) to promote Malay capitalism. However according to Jomo, RIDA's initiatives remained meager and ineffective during the 1960s "As was to be expected, the limited Malay advances in the capitalist sector were by then already wealthy" (Jomo 1988, 248). This implied that, instead of introducing a new batch of Malays to be involve with entrepreneurial and commerce, projects and corporate ownerships remained in the hands of the Malay elites. MARA, (Council of Trust for the People) remains till today the quintessential government body that formulates programmes for enriching skills and nurturing the human capital development of the Malays in the same time providing entrepreneurial workshop for the rural population. Although the results of the government's initiatives in enhancing Malay economic engagements may seemed disappointing at first, the establishment of such institutions made it possible for Malaysia to industrialize in full gear during the 1980's. In other words, it was unreasonable to expect that a significant segment of the Malay population would rise in the commerce and industrial sector within a very narrow period of ten to fifteen year. Human capital development programs designed for the Malays were proven to be more beneficial in the long run as more skilled Malays were able to hold jobs outside of the civil service. 25 Candidate no: 89051 CONCLUSION The historical analysis of Malaysia’s development had brought to the attention of important role played by types of social structure that existed and its influence on social and economic policies. Again, this dissertation seeks to emphasize on the inseparable role of social and economic policy, particularly in a multiethnic society like Malaysia. A crucial aspect of a multi-ethnic society is the preservation of peace and social stability, which would secure economic growth of the country in a long run. In addition to that, the formulation of economic policy can never be truly isolated form socio-political aspects. That is why Midgley (2012) would argue for the diffusion of the two policies. Malaysia proved to be a case where the social element, especially in relation to inter-ethnic equality and stability had always played a major role in its economic policy. It is only by referring to practical application of the economic policy, especially in reference to industrialization initiatives, can we see the role of ethnic factors be involved. The ISI period showed a relative neglect on the social aspect of economic policy, as practiced before by the British. This was because the political decisions made at the time was in response to economic and political interests of the British and political elites. There was also an oversimplified view that the pursuit of economic growth would automatically be beneficial for the society. In the case of Malaysia, it was a grievous mistake to overlook the social aspects to economic growth and development and this brought to worrying level of inequalities that bred social instabilities. The adoption of NEP, and the move to EOI signifies the different approach to economic development learning for social implications reflected by the 1969 riots. Economic development was to be planned carefully under NEP, with greater consideration on social aspect to economic development. Again, the ethnic politics of Malaysia determined the direction of social and economic policy by emphasizing the importance to incorporate the Malays into the economy, in hope that social stability could be achieve along with a more sustainable long term economic development. However, it should be noted that the application of a social policy with strong ethnic sentiment may not be effective if unchanged in a long run. The NEP was genuine and noble policy formulated to help alleviate the Malay’s economic standing under the overarching objective of economic growth. But over time, it had proven to be a rigid and discriminatory policy in an ever progressive and dynamic society. 26 Candidate no: 89051 Social policy and economic policy’s function as ‘soft infrastructure’ as pointed out by Lin (2009) meant that it too should be modified to accommodate the demands and aspiration of the society. Alas, it is difficult to task a state to continuously change its social and economic policy mainly due to the factors related to political interests which often hamper the renewal of those policies. Unfortunately, Malaysia is still riddled with an ethnic-based political structure, and the preservation and the call for the abolition of social policy like NEP has been a tug-o-war between the interest of different ethnic groups. The call for renewal of a political system, moving away from ethnic politics is seen as the step to achieve a more effective formation of social and economic policy, which would then favor a more equitable and sustainable economic growth and development. Bibliography • • • • Anand, S. (1983), Inequality and Poverty in Malaysia: Measurement and Decomposition, Oxford University Press Chang, Ha-Joon. 2004. “The Role of Social Policy in Economic Development: Some Theoretical Reflections and Lessons from East Asia.” In Social Policy in Development Context. Houndmills, Basingstoke, Hampshire ; New York: Palgrave Macmillan. Faaland, Just. 2003. Growth and Ethnic Inequality: Malaysia’s New Economic Policy. 2nd ed. Kuala Lumpur: Utusan Publications & Distributors. Felix, David, 1974, ‘Technological Dualism in Late Industrialisers: On Theory, History and 27 Candidate no: 89051 • • • • • • • • • • • • • • • Policy’, Journal of Economic History, pp.204–09. o 1977, ‘The Technological Factor in Socio-Economic Dualism: Toward an Economy of Scale Paradigm for Development Theory’, in M. Nash (ed.), Essays on Economic Development and Cultural Change in Honour of Bert Hoselitz, Chicago, IL: University of Chicago. Gainsborough, M. (2009). The (neglected) statist bias and the developmental state: The case of Singapore and Vietnam. Third World Quarterly, 30(7), 1317–1328 Gerschenkron, A. (1962) Economic Backwardness in Historical Perspective: a book of Essays. Boston, Mass: Harvard University Press. Guyot, J.F. & Wriggins, W. H. (1971) Population, politics, and the future of southern Asia : papers presented at a conference convened by the Southern Asian Institute of Columbia University. New York. Hassan, A. Ali Golam (2004) Growth, Structural Change and Regional Inequality in Malaysia. Ashgate: Burlington. Havinden, Michael. 1996. Colonialism and Development: Britain and Its Tropical Colonies, 1850-1960 [...] [...]. London [u.a.: Routledge. Hirschman, A. (1973), ‘The Changing Tolerance for Income Inequality in the Course of Economic Development’, with mathematical appendix by Michael Rothschild, Quarterly Jounral of Eocnomics, 87(74): 544-66 Huff, W.G. 2003. ‘Monetization and Financial Development in Southeast Asia before the Second World War’. Economic History Review. Vol. LVI, no. 2 (2003): 300–45. Huff, W.G. (1999). Turning the corner in Singapore’s developmental state? Asian Survey, 39(2), 214–242. Horowitz, Donald L. (1985), Ethnic Groups in Conflict, Berkely: University of California Press. Ikemoto, Y. (1985), Income Distribution in Malaysia: 1957-80, The Developing Economies, vol. XXIII, no. 4, pp. 347-67. Ishak & Rogayah (1978) Some Aspect of Income inequality in Peninsular Malaysia 1950-1970. Jesudason, James V. (1989). Ethnicity and the Economy: The State, Chinese Business, and Multinationals in Malaysia. East Asian Social Science Monographs. Singapore ; New York: Oxford University Press. Jomo K. S. (1990). Growth and Structural Change in the Malaysian Economy. Houndmills, Basingstoke, Hampshire: Macmillan. (1993) Industrialising Malaysia: Policy, Performance, Prospects. London ; New York: Routledge. (1988). A Question of Class: Capital, the State, and Uneven Development in Malaya. New York: Monthly Review Press. (1978) in Kamal Salih et, al. Rural-Urban Tranformation and Regional underdevleopent: The Case of Malaysia (Nagoya: United Nations Center for Regional Development) (1980b) ‘Consequences of Adopting an Export-oriented Industrial Strategy in Malaysia’ ASEAN Business Quarterly, 4, 3. Joshi, Devin K. 2012. Varieties of Developmental States. Journal of Developing Societies 28 (3): 355-378. Krieckhaus, J. (2002). Reconceptualizing the developmental state: Public savings and economic growth. World Development, 30(10), 1697–1712. 28 Candidate no: 89051 • • • • • • • • • • • • • • • Kusnic, M.W. & Da Vanzo, Julie (1980) Income Inequality and the Definition of Income (Santa Monica: The Rand Corporation for the Agency for International Development). Lewis, W.A., (1954) Economic Development with Unlimited Supplies of Labour, The Manchester School of Economic and Social Studies, vol. 12 no. 2, p.139-191 Lin, J & Chang, Ha-Joon (2009) Should Industrial Policy in Developing Countries Conform to Comparative Advantage or Defy it? A Debate Between Justin Lin and Ha-Joon Chang in Development Policy Review, vol. 27, no.5. p.483-502 Lin, Justin Yifu. (2010). “New Structural Economics: A Framework for Rethinking Development.” Policy Research Working Paper 5197. http://elibrary.worldbank.org/deliver/5197.pdf?itemId=/content/workingpaper/10.1596/ 1813-9450-5197&mimeType=pdf. Midgley, James, and Kwong-leung Tang. (2001). “Introduction: Social Policy, Economic Growth and Developmental Welfare.” International Journal of Social Welfare 10 (4): 244–252. Midgley J, Sherraden M (2000). The social development pespective in social policy. In: Midgley J, Tracy MB, Livermore M, eds. The Handbook of Social Policy. Thousand Oaks, CA, Sage Publications. Midgley J (1994). Defining social development: Historical trends and conceptual formulations. Social Development Issues 16(3): 3–19. Migdal, J.S. (1988). Strong societies and weak states: State–society relations and state capabilities in the Third World. Princeton: Princeton University Press. Mkandawire, P. Thandika (2004) Social policy in a Developmenta Context. Palgrave Macmillan: New York. Perumal, M. (1989), Economic Growth and Income Inequality in Malaysia, 1957- 1984, Singapore Economic Review, vol. 34, no. 2, pp. 33-46 Polanyi, K. (1957) The Great Transformation. Boston : GowerBeacon Press Radice, H. (2008). The developmental state under global neoliberalism. Third World Quarterly, 29(6), 1153–1174. Snodgrass, D. R. (1980), Inequality and Economic Development in Malaysia, Kuala Lumpur: Oxford University Press. Scott, J.C. (1977) ‘The Moral Economy of the Peasant: Rebellion and Subsistence in Southeast Asia’ Yale University Press. Wade, R. (1990), Economic Theory and The Role of Government in East Asian Industrialization. Princeton University Press, New Jersey. Documents: • • • Malaysia. (1965) Government, First Malaysia Plan 1966-1970, Kuala Lumpur: National Printing Department. Malaysia (1971) Government, Second Malaysia Plan 1971-75, Kuala Lumpur: Government Press. Malaysia (1973) Government, Mid-Term Review of Second Malaysia Plan 1971-75. , Kuala Lumpur: Government Press. 29 Candidate no: 89051 • Malaysia. (1976) Government, Third Malaysia Plan 1976-1980, Kuala Lumpur: Government Press. 30