Looking Back at Malaysia’s New Economic Plan

malaysia is an interesting country located in southeast asia its population is made up of the native malay people along with substantial minorities of chinese and indians

malaysia has one of the largest populations of overseas chinese actually in the world it's also one of the more successful economies in southeast asia growing at an average of 6.5 percent per

annum over the 50 years after independence the malaysian economy fueled by oil is doing well on the whole social stability between those

three races are decent it was not always like this in the late 1960s the country found itself gripped in racial turmoil then in 1971 the malaysian government

embarked on a 20-year radical restructuring of its economy well not not just economy its entire society the plan was called the new economic policy

nep the ndp rewrote the social contract between the malays and the chinese especially it's pretty intense yet the wikipedia page is also dry in this video i want to talk a bit about

it but first i want to talk a little bit about a new thing that i've been working on the agenometry email newsletter and give you kind of brief thing what i've been working on recently

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at 1am taiwan time much thanks in 1951 there were 2.6 million malays 2 million chinese and half a million indians exiting british colonial rule after

world war ii the country was gripped by race riots between the malays and the chinese the malays have the majority race were granted a privileged political position in the malaysian constitution however

most malays lived in rural areas and were quite poor by 1970 malays made up 74 of poor households in malaysia the chinese were the junior political

partner but dominated the country's wealth and economy they were more likely to live in urban areas and enjoyed higher incomes with a mean monthly household income of 387

dollars uh malaysian currency ring it has compared to the 178 from the malays more significantly chinese owned more equity share of malaysia's companies

34.4 percent as compared to the malaise 2.4 percent of course both populations pale compared to what the former british colonialists owned

63.3 this inequality engendered resentment between the two populations triggering riots race riots had also led to singapore's expulsion from a federal

malaysia five years earlier in 1964.

singapore as you might recall is a chinese majority state tensions between singapore and malaysia's ruling parties could not be resolved singapore's people's action party called

for equality for all malaysians the united malays national organization the malay political party in malaysia saw this as challenging the malays privileged position

the resulting discord would lead to singapore's expulsion and foreshadow the much larger rash of race riots five years later the 1969 riots would require the

intervention of the military and lead to dozens dead at this point it became clear that work needed to be done to ameliorate and rebalance this massive inequality within malaysian society

the umno the party representing the native malays took the lead in creating this plan politically you can define them as generally hard-line economic nationalists specifically looking out

for the interests of the malay natives such hardline feelings toward the chinese minority were pretty dangerous considering the recent race riots so the umno saw some not a lot

but some feedback from the chinese business community about how these reforms would be done in addition many of the umno top leadership including former prime minister tunku

abdul rahman had strong liberal tendencies from their british upbringing and early education they would not condone the idea of quote robbing peter to pay

paul end quote raiding the chinese community's interests for the benefit of the malays exclusively thus the new economic plan was first

presented to the malaysian parliament in july 1971.

the nep is a complicated hairy thing after all it lasted 20 years the government implementation evolved and adjusted has times changed but the core goals stayed the same so

let us boil away the meat and try to get to the bones of the matter as presented in 1971 the nep had two major goals the first was the eradication of poverty for all

malaysians regardless of race or ethnic group this is pretty simple and easy to get behind sounds like something any politician would say in an election campaign

the second goal simply sought to restructure the entirety of malaysian society the government reclassified every malaysian into roughly two groups the first group are made up of the

malays and the ethnic indigenous people dubbed the and i'm going to screw this up the bumiputra this literally means sons of the soil everyone else would be the non-booby

putra the basic idea of the second goal was to lift up the economic positions of the bumiputra with special focus on the malays to bring them on par with the non-bumiputra this would be achieved

in two ways affirmative action employment patterns and the restructuring of corporate stock ownership up until that last point nothing which an american audience might be unfamiliar

with affirmative action as a concept americans can probably recall from school applications and the like the calls for poverty reduction also very familiar

but what is that thing about corporate stock ownership what the nep proposed to do was to have the state actively intervene into the economy and over time raise the share

ownership from the aforementioned 2.4 percent uh to 30 by 1990. chinese ownership would be allowed to rise

from 34.4 percent to 40 but no more it is the foreign stock ownership that's probably going to take the biggest hit

having from 63.3 to 30 now this is pretty radical i would say imagine if joe biden or trump if that's how you roll said that in order to abolish inequality between white and black

americans the government will intervene into the economy until share ownership by black americans match that of their proportion in the u.s population thirteen percent as white americans are seventy percent

of population i don't even think there are statistics that show how much the value of the shares owned by black americans in the united states this is the closest i was able to get

the malaysian chinese community at the start of the nep accepted its implementation for a few reasons not saying that they were super thrilled and were dancing in the streets about it but they grudgingly went along first

reason why like the rest of the malaysian population they wanted racial harmony they wanted the race riots to end secondly like i mentioned above the malaysian government

explicitly ruled out a communist style redistribution these share percentages would be achieved through growing the pie not recutting it several senior politicians

made this publicly clear they tried to spin it as a win-win and thirdly the ndp got off to a slow and measured start it began with a broad declaration of

ideas without hard numbers behind it after all it kind of sounds ridiculous how would you be able to literally redistribute all of malaysia stock shares from one race to another

no numbers mean no t it's indeed a hard problem and the government tried a few schemes first without much excess those early schemes required local companies to issue and sell

stock shares 10 to 30 percent specifically for the bumiputra they largely did not succeed as few companies participated as they were not required to

at this point the nep seemed to be on shaky ground a new generation of umno economic hardliners as well as members of the malay private sector

pushed the government to do more and so in 1975 it came up with the industrial coordination act the ica this would finally put real enforcement and teeth to the nep's

second goal passion to law after the resignation of ethnic chinese finance minister tan sin the ica required every business of a certain size applying for a manufacturing license to

present to the government a written report of their activities making evasion much harder they were then required to divest 30 percent of their shares in the booming putra and hire malay employees

such to match the malays proportion in the general population these restrictions were later amended and softened as the chinese minority strongly objected to them

but still eventually implemented shares acquired for the boomi putra were also no longer to be kept by trust organizations these trust organizations had gotten

extremely rich over 1971 to 1975 conceivably theoretically raising boomi putra share ownership from 4.3 percent to 9.2 percent but the average actual

you know buputra person on the ground did not actually benefit since the shares were held quote in trust but not distributed the new laws ameliorated this forcing

the trust to sell the shares directly and exclusively to the bumiputra so the ica heralded hard times with the chinese minority as the nep not only meant wealth was

taken away from them even as the oil field economy was growing as fast as it was but also meant a subordination of chinese influence and culture

in malaysian society the nap was more than just an economic policy there were social changes too it made malay the main language of instruction

and promoted islamic values and schools chinese political participation was curbed and tough times were for all the the chinese community malay firms began emerging and competing

against chinese ones especially in the industrial and construction fields some of this is fair competition but others were not construction projects from the government for example were heavily

slanted for malaise certain licenses like printing logging and fishing were reserved exclusively for the malays with the 1975 ica bringing things to a nadir

the unmo revised the policy to loosen its requirements and lighten its burdens tax cuts were doled out to firms in compliance with nep adding a carrot to the stick a few years

later in 1984 further liberalization policies were carried out in response to a weak economic recession over time these adjustments would loosen the malay nationalist sentiment in the

nep for example by 1985 foreigners can now once again own 80 percent of a malaysian company's stock if a malaysian company exported over half of its good abroad

then it did not need to reserve any shares for the bumiputra these adjustments were well received by 1991 the government announced the end of the 20-year nep

and taking stock of its results we need to have a lot of nuance as with everything the nap sought out to rebalance economic wrongs essentially buying peace between the races

it fell short of the 30 percent stock ownership goal by 1990 but share ownership did rise from 2.4 percent like i said to 20 with the entire stock market

having grown from 530 million ringgit in 1970 to 110 billion in 1990 bumi stock value exploded 22 times

over a new malay middle class and entrepreneur class was able to emerge from this and in many ways so this is a huge success and on the chinese side some chinese got very rich

chinese business leaders realized that the nep could be an advantage for their businesses and struck joint ventures with malay money including umno political leaders

robert kwok scion of the shangri-la hotel's empire among others is one such notable example nep helped make him vastly richer the social stuff would be harder for the

chinese community to accept first in mind would be the education initiatives malaysian chinese schools lost priority in funding and became overcrowded chinese were also increasingly locked

out of tertiary education opportunities dropping from 48 in 1970 to 26.5 in 1980 at the top three malaysian colleges they got less scholarships for

their education and studying abroad opportunities for a chinese community that emphasizes education this was a serious problem many families would send their children

overseas to study in the anglosphere taiwan or japan working class and poor chinese suffered the most the nep helped malays get jobs in which they were traditionally underrepresented but did not do the equivalent for

chinese over a million chinese lived under the poverty line in 1980s malaysia squatting in small villages their political participation and government employment opportunities were also

greatly eroded chinese discontent would trigger a brain drain over 40 000 malays immigrated to the u.s

canada and new zealand from 1983 to 1990.

150 000 malaysians started working in nearby singapore singapore especially would benefit from taking in these chinese um well at least economically but that's

a story for another day as you might recall i'm extremely interested in historical events of economic redistribution and inequality reduction in a previous

video i wrote about guamindan taiwan's land reform efforts which radically remade the taiwanese economic landscape and made way for future growth i also wrote a bit about the taiping rebellion

which helped reduce economic inequality by killing everyone it was not the society's intention of course when the war kicked off but it happened nevertheless economic inequality has gotten a lot of

press as one of the great issues in american society today many people on both political parties have presented their own solutions i like studying previous situations in which governments tried to actually make

it happen and for what it's worth what i've learned is that so far is that economic reform and inequality reduction is a complicated

difficult nuanced and long-lived quest with many consequences whenever it doesn't involve killing everyone of course and i guess it just leaves me wondering

if america can pull off such a thing all right everyone i'm uh gonna head out for a little bit hope all of you guys enjoy your evening

see you later