Malaysia’s Ethnic Reality Under Scrutiny
12 October 2006
A new report puts a three decade-old affirmative action program under fire
Malaysia is suddenly confronting the unsettling possibility that at least a thin crust of its ethnic majority population might be a lot better off than everybody thinks. A report published by a prestigious think tank challenges official affirmative action programs by saying that Malay ownership of public corporate equity is far higher than previously believed.
The resulting political brouhaha forced the head of the think tank to resign and now some politicians are calling the report rubbish while others say it is an attempt to incite racial tensions. In the long run, however, the controversy raises undeniable questions over how Malaysia will ever wean itself away from its long-running affirmative action programs, and how much the program has distorted its economy.
The government and particularly the United Malays National Organization, the ethnic party that represents Malays in the ruling national coalition, would prefer that “bumiputeras”, or sons of the soil, as Malays are known, remain officially economically disadvantaged enough to keep affirmative action in place.
The New Economic Policy, as it was first known, was created in 1971 in the wake of deadly 1969 riots between the country’s relatively rich minority Chinese population and what was then largely a rural, poverty-stricken Malay majority. Hundreds are thought to have died on both sides. It designed was to address the income disparity and calm racial tensions.
The NEP, though, has been widely criticized for allegedly creating a gilded and unproductive Malay elite who take their educations and jobs for granted while doing nothing for rural Malays. It is also criticized as markedly unfair to ambitious minorities who may be shut out of universities and government jobs.
It’s all a matter of who owns what. The government insists that ethnic Malays control only 19 percent of corporate equity, far short of the goal of 30 percent set by the NEP. Although the NEP officially ended in 1990, it was succeeded by a National Development Policy in 1991 designed to continue many of the affirmative action policies until bumiputeras attained their vaunted 30 percent share of publicly listed corporate wealth.
So imagine the chagrin of official in mid September when that 30% figure was turned on its head. The Asian Strategy and Leadership Institute, whose director is Dr Lim Teck Ghee, formerly a senior social scientist at the World Bank in Washington DC, delivered a report saying that Malays now own an eye-popping 45 percent of corporate equity.
Titled “Corporate Equity Distribution: Past Trends and Future Policy,” the study was undertaken after Prime Minister Abdullah Ahmad Badawi called for public participation in the formulation of Malaysia’s recently launched Ninth Malaysia Plan, a five-year blueprint for government development.
The reaction to the report, assembled by a multi-ethnic group of academics, was swift. It was dismissed by UMNO leaders, who said it was intended to incite anger and confuse Malays, according to Terence Gomez, research coordinator for the United Nations Research Institute for Social Development in Geneva and an associate professor of political economics at Universiti Malayu in Kuala Lumpur, writing in the online publication Malaysiakini.
The Asian Strategy and Leadership Institute (ASLI), which is headed by Mirzan Mahathir, the son of former Prime Minister Mahathir Mohamad, repudiated the report, which resulted in Dr Lim’s resignation. Mahathir himself was quoted as asking: “What kind of research has ASLI done? It doesn’t make sense.”
Almost any attempt to address ethnic issues in Malaysia results in controversy. Both Malays, who make up about 50 percent of the population, and Chinese, who are believed to constitute about 35 percent, often act as if the 1969 riots just happened. Despite decades of mostly peaceful coexistence, racial tensions bubble close to the surface and occasionally result in crackdowns and jailing of politicians and others who sail too close to the wind.
Malaysia has undergone an economic transformation that has largely lifted just about everybody’s boat but for more than 35 years the essentials of the New Economic Policy have remained in place. Unemployment is low enough that the country’s economy attracts hordes of Indonesians to take menial positions. Only five percent of Malaysians are classified as living under the poverty line. Per-capita income has increased nearly three-fold since 1990.
After the report was released, Prime Minister Abdullah said the wealth distribution figures were flatly wrong and could not be compared with the government’s own figures, which showed that bumiputera ownership is far below 30 percent. The government’s figures, he said, were based on a study of 600,000 companies nationwide, while the ASLI study, as it has come to be known, only appraised the market value of listed stock.
The big issue, however, was that the study attributed equity in government-linked companies to bumiputeras, which the government argues was wrong. There are about 40 listed GLCs, as they are known, accounting for as much as 35 percent of the total capitalization of Malaysia’s markets. Petronas, by far Malaysia’s biggest company, is fully government-owned.
The government holds a majority of the equity in seven of the top 10 listed companies, with so-called golden shares in Malaysian Airlines, Telekom Malaysia, and Tenaga Nasional, the power utility, among others. By and large, these companies are headed and run by Malays. They have often been run very badly.
Then there is the question of so-called Ali Baba companies, so nicknamed because in Malaysia private enterprises observe a largely unspoken rule that a Muslim – an “Ali” in local parlance will occupy a top position in the company and that Malays will get a certain number of positions while the “Baba” a nickname for the Straits Chinese – will often form the corporate backbones of the companies. Multinationals doing business in Malaysia also know they won’t be officially certified in a number of corporate ventures until high-powered Malays are seated on their boards of directors.
That has allowed rent-seeking Malays to take directorships and other posts with companies in exchange for equity – which adds to a false picture of how much equity bumis really own.
Bumiputra companies also receive the lion’s share of large government contracts. They are guaranteed 30 percent of the initial equity ownership in new market listings and privatizations. Companies involved in privatizations must offer employment to bumiputera individuals and a minimum of 60 percent of government procurement, contract work and other related projects must go to bumiputeras.
But, according to an Australian study titled Malaysia: An Economy Transformed, “Such policies can restrict business activity and focus entrepreneurial effort on rent-seeking behavior. To this extent, the policies may be counterproductive and thwart the development of a vibrant and resilient bumiputera business community.”
The real question is whether 30-years of preferential treatment for some well-placed bumis has done much good for rank-and-file ethnic Malays. Many people, Malay, Chinese or Indians, who make up the third of Malaysia’s main ethnic groups, complain among themselves that the NEP resulted in a gilded superclass of bumi corporate figures who do nothing but collect their salaries and stock options and let others do the work. The rank-and-file bumis, they say, remain at the lower end of the economic spectrum, living in rural communities or ramshackle parts of the cities.
But that is a subject no official seems willing to discuss.
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