From the NEP to the NEM

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Tracing the evolution of the New Economic Policy into the New Economic Model, Dr Jeyakumar Devaraj presents a  critique of Malaysian economic policy plus some preliminary thoughts on the way forward.

The NEP and the NEM

The NEP or New Economic Policy was promulgated by Malaysia’s second Prime Minister, Tun Abdul Razak in the early 1970s. Essentially, the NEP had two major policy objectives – the eradication of poverty and the restructuring of the economy to ensure that the Malay community was fairly and proportionately represented in the modern and more productive sectors of the economy. Elements of the NEP were already being implemented by the government even in the 1960s, but Razak’s policy statement consolidated and gave further legitimacy to these measures. The NEP saw a slew of affirmative action policies premised on ethnicity, ranging from special schools for Malay students to quotas for University admission and preferential promotion of Malays in the civil service and educational institutions to licences, permits, loans and grants to encourage Malay participation in business activities.

The NEP has made an impact on Malay society. Though many Malay families are still mired in poverty, there has been a rapid expansion of the Malay middle class, with significant participation in all the professional and technical fields of the modern economy. I would argue that the Malay income distribution would have been similar to that of the Kadazans if not for the NEP and the affirmative action initiatives taken by the government.

The NEM was announced earlier this year by Najib Razak, Malayisa’s sixth Prime Minister. The Malaysian political elite are now very concerned that Malaysia’s economic growth has seemed to have stalled. Poorer neighbours are succeeding in attracting more foreign direct investments (FDI) than Malaysia has been for the past 10 years. Private sector investment has fallen from 30 per cent of GDP in the 1990s to its current 10 per cent. Professional talent has continued to flow out from Malaysia. Malaysian corporations are also investing abroad! In their words – “Malaysia runs the risk of being stuck in a middle income trap.”

The following analysis which appeared in the 10th Malaysia Plan document captures the essence of the BN elite’s assessment of what needs to be done:

Globalisation has intensified competition. This is not the time to withdraw but to accept and embrace the rules of the game in terms of global competition. It will require greater effort to ensure that Malaysia continues to be a beneficiary of global-isation. It requires a united effort and policy alignment towards a relentless pursuit of global competitiveness and economic growth.

Transformation (of the economy) involves some temporary short term economic dislocation. Potential short term dislocation will need to be viewed as an investment towards medium term and sustainable gains in higher income and quality of life for all.

Specific policy initiatives to be undertaken towards driving the competitiveness of the domestic economy includes the removal of distortionary price controls and advancing liberalisation, especially in the services sector. The government will continue to review and modernise regulations such as labour laws, towards facilitating a well functioning market economy where appropriate price signals will lead to efficient allocation of resources.

Priority will be given to regulations that can materially improve the ease of doing business in Malaysia, towards facilitating greater private investments and enabling the private sector to be the engine of growth

– 10th Malaysia Plan Document. Pg 9 – 10

Is the NEM, a break from the NEP?

On the face of it, there is a huge change in the policy orientation of the BN elite. The table below summarises some of these contrasts.

The Father (NEP) The Son (NEM)
Massive land schemes to provide agricultural lots to thousands of landless Malay farmers Involvement of the corporate sector in agriculture. Small farmers are being crowded out.
Massive expansion of roads to serve rural areas Toll highways with favourable terms for the concessionaries
Massive expansion of the public health services Cannibalisation of the public health Sector in the form of lucrative contracts for favoured companies
Restriction of the scope of the private sector to outpatient clinics Massive expansion of the private sector in health, spearheaded by GLCs. Strong emphasis on health tourism as a major growth sector.
Public provision of subsidised tertiary education Massive expansion of private education with very lax quality control by the government
Employment provident fund set up to provide for workers after retirement EPF funds used to bail-out crony companies; Benefits to members reduced.
Progressive taxation. Companies taxed 40 per cent of profits up till 1988 Company tax has been reduced in stages to its current 25 per cent. We appear to be chasing Singapore’s 19 per cent! Government intent on bringing in the GST.
Premised on an assessment that the free market will not be able to achieve certain societal goals, thus necessitating the intervention of government Premised on neo-liberal position that the unfettered market is the only way to advance the economy of the country.
BN leaders represented the socio-economic elite. But they were not direct major beneficiaries of government’s policies. BN leaders are deeply embroiled in business activities. They are the primary beneficiaries of government policies.

Many of the initiatives listed under the “NEM” were actually started by Tun Dr Mahathir about 20 years back. But these have been accepted and endorsed in the economic policy prescription put forward by Najib.

Bu an important underlying similarity

While there is a huge difference in the stance of the BN elite towards the unfettered market and the role of government intervention, one should not make the mistake of thinking that the BN elite of the 1960s and 1970s were all closet socialists! The BN elite of the 1970s were merely espousing positions that were held by policy makers in the US and Britain at that time. It was a different situation then. The Cold War was at its height. The USSR seemed to have won the race to space by putting the first man into orbit via the Sputnik. Cuba, Vietnam, Nicaragua, Chile, Guinea Bissau – the periphery seemed in danger of defecting to the Soviet camp in large numbers. It was imperative at that time to give concessions to the working people – social democratic policies had to be enacted. Capitalism had to put on its most human face!

The team around Razak strongly supported the “Free World” against the Communist Bloc – just as Najib and his team embrace the dictates of corporate-led globalisation. The difference in policy prescriptions from father to son are mainly due to the fact that the Cold War was won by the “Free World” and a new unipolar global order has been created. With the vanquishing of the Communist Bloc, corporate-led globalisation no longer needs to hide behind the veil of social democratic welfare programmes. These can be dispensed with and are being dismantled the world over – the attempt to reduce pension entitlements in France is just another marker of that ongoing process.

Criticism of Najib’s NEM

The NEM is being criticised by many parties, and for quite different reasons. Lets take a quick overview.

The DAP/Keadilan position is that they are not convinced that the government has the commitment or ability to combat the corruption and cronyism that has become part of the standard operating procedure of the Malaysian government. But DAP and KeAdilan do not have any major disagreement with the neo-liberal thrust of the NEM – they accept the need to canvass for FDI; they accept health tourism; they accept the privatisation of tertiary education; they believe that Malaysia can compete and succeed in certain “niches” of the global economy (one of the NEM strategies); and they see the ‘logic’ of bringing in the GST so that corporate taxes can be reduced.

The Pas position is more complex. While they share the DAP /Keadilan criticism mentioned above, given their grassroots connections, Pas is more warier of measures such as the GST and the removal of subsidies. Their perception of the US as the oppressor in Iraq, Palestine and Afghanistan dampens their enthusiasm for Free Trade Agreements with the US and Europe. They are ambivalent with regard to developing the financial sector which is premised on riba or the charging of excessive interest, however much one repackages it to seem like ‘profit sharing’. I may be wrong, but I do not think that Pas has harmonised these different strands of reaction into a coherent policy position, and this again is due to the fact that there are differing positions within Pas itself regarding these issues.

The Umno contractor–Perkasa position is much simpler. They see the attempts to liberalise the economy as an attack on the privileges that they are enjoying now. Greater transparency and rationalisation in the giving of contracts might adversely affect their chances of getting contracts. The removal of the 30 per cent equity requirement for investment in 27 service sub-sectors is particularly ominous for it indicates the government may actually put some of these ideas into practice! Many people do not realise the extent to which Malay businessmen are tied to the apron strings of the government.

Let me just cite a few examples:

  • the Public Infrastructure Coordination Project (PIA) and the Basic Infrastructure Project (PIAS) programmes which have been giving contracts totalling RM1 billion each year to Bumiputra Class F contractors from 2006 till now;
  • SMiDEC or the Small and Medium Industry Development Corporation gave out 4,270 grants totalling RM 143.3 million in 2009;
  • the Defence Ministry has issued a letter of intent to DRB-Hicom to buy 257 armoured personnel carriers (APC) at a cost of RM31 million per APC. The catch is that the most expensive APC on the market is only about RM10 million!
  • the GLC vendor programme.

Given the extent to which this small but influential stratum of Malay businessmen are benefiting from the current pro-Bumiputra policy, it is not difficult to appreciate that they will fight tooth and nail against anyone who tries to dismantle their net of privileges, even if he happens to be the Prime Minister! And they will be prepared to play dirty – using race, the issue of special privileges, and religion.

The PSM’s critique of Najib’s NEM, is somewhat different, for it takes a much wider historical perspective. It is premised on three overlapping analyses. These are:

  1. The world economy is facing serious problems and one of the main causes of the problem is the failure of aggregate demand to provide adequate investment opportunities for the growth of capital. Aggregate demand has been undermined by the migration of manufacturing and even services from higher wages economies of the West to China, India and other Third World countries. The reduction of subsidised government social services is another cause for the failure of demand to expand. This problem of under-consumption is beyond the power of national governments to regulate, and thus will remain a feature of the world economy, forcing surplus capital into speculative investments, while also predisposing the global system to recurrent recessionary cycles.
  2. Succeeding within the framework of corporate-led globalisation will require Malaysia to join in the ‘race to the bottom’ – the race to shift the tax burden from the economic elite and the corporations to the ordinary people; the race to lower protection for workers; the race to commodify basic needs such as health, housing and education and rely on the market to supply these. It is a race that will make the ordinary people of all countries losers!
  3. The global capitalist economy is reaching the physical limits of growth: oil reserves will be running down within the next generation and global warming is a dangerous possibility. We just cannot strive to have the global economy expanding at 5 per cent per year for the next 50 years. The ecosystem just will not take it. And if there is significant climatic change, the poor in Asia and Africa will be among those who will starve in the millions. We will see the barbarism that Rosa Luxemburg talked about when the elite of the world use force to keep the starving masses from their stocks of food, and out of the agricultural land that they claim is theirs!

Therefore the PSM would argue that we need a Green-Left approach to the issue of economic development of the country and the world. We would argue for a smaller, less wasteful economy. We would argue for productive assets to be held by the community and not individuals and corporations. We would argue that the concept “Intellectual Property Rights” should be consigned to the dustbin – knowledge is the heritage of humankind and cannot be claimed by individuals! In short we would argue for a socialist economy!

A hegemonic shift required

A groundswell of anger has been ongoing over the process of corporate-led globalisation that is withdrawing in stages, more and more elements of the welfare concessions granted by the elite to the ordinary people during the period of 30 years after World War II. The current protests in France over the curtailment of pension benefits is an example. But until a significant number of people come to see that an alternative social order is possible, these protests will only delay the neo-liberal cut being proposed, or at most lead to a regime change (as opposed to a system change). They are akin to the peasant revolts that only changed the king, but left the system of feudalism in place.

Too many people the world over believe Thatcher’s proclamation that “there is no alternative” to corporate led-globalisation. We need to shape up and compete on the terms offered by the current neo-liberal system or risk being left out of economic development. This belief is coupled with the perception that the socialist alternative is defunct – it was given a fair try in the 20th century but was not practical and led to terrible human right abuses.

If we want to promote a socialist alternative as the way forward for humanity, we need to take these “Thatcherite” perceptions on and explain, without too much heat (without getting angry and calling anyone names!), in language that can be understood by those who have not attended ‘ideology classes’, why we believe these positions are wrong. We need to work towards a hegemonic shift in people’s perceptions on what kind of society is possible!

This obviously will have to be a major undertaking, but let me just sketch out what I think will be among the major issues that we would have to deal with in Malaysia.

The reactions most ordinary Malaysians would have to the proposal that we need to work towards a socialist transformation of society include the following:-

  • Malaysia has done fairly well participating in the global free enterprise system. Why not readjust ourselves to continue participating and benefiting in the free enterprise system? Otherwise we run the risk of becoming isolated and backward like Burma or North Korea.
  • The socialist system is an economic failure.
  • You need entrepreneurs to grow the modern economy.
  • Central planning is unwieldy, bureaucratic and inefficient.
  • There are serious disincentives to hard work in the communal system of production.
  • Even socialist countries such as China and Vietnam are turning to capitalism to further develop their economies. They are so keen to join the WTO, and they are also seeking to bring in FDI.
  • The socialist system will lead to a totalitarian state. It is not compatible with democracy. The free enterprise system is the only economic system that will facilitate the democratic political process.
  • The requirements of a socialist system are contrary to human nature. So the regime will need to use authoritarian measures to compel the population to follow the laws of the socialist state.

The hegemonic shift we need to bring about requires that each of these perceptions has to be addressed honestly and in a rational manner that the majority will find convincing. Getting angry with “these reactionaries” and blustering or just throwing out socialist jargon will certainly not help win adherents to our cause! And addressing these perceptions convincingly requires that we have to accept that certain aspects of these perceptions are true – for example the first one above stating ‘Malaysia has done fairly well’ within the global capitalist system. I think we need to acknowledge that. My reasons for saying so: there are currently more than 3 million foreign workers from Indonesia, Bangladesh and Nepal working here. In terms of creation of employment opportunities and wage rates, Malaysia is better that these countries, which were also former colonies that attained Independence at about the same time as Malaysia. That is why so many of their workers come here to work.

My understanding is that Malaysia emerged from the colonial period in a much better state economically compared with Indonesia, Nepal and Bangladesh. And the main reason for this was that the colonialists were able to integrate Malaya into the global capitalist economy much more thoroughly as compared to Indonesia (which was colonised by a weaker, less vibrant capitalist power), Bangladesh (because there was relative scarcity of land there, given its huge population) and Nepal (land locked).

However despite conceding that there is some truth in this perception, I think it is still possible to argue that we need a paradigm shift in Malaysia’s economic trajectory, and here arguments based on the three points (in the critique further above) need to be put forward in a consistent and convincing manner.

Similarly, working towards this ‘hegemonic shift’ in popular imagination requires that we need to re-examine some of the sacred cows that characterised ‘socialist’ economies. The issue of a centrally planned economy is one of these. I think it is undeniable that it led to shortages and the production of poor quality consumer goods for the population. We need to study exactly how Centralised Planning functioned in the USSR and what the real problems were. We need to study the Yugoslavian experiment with the use of the market to facilitate and regulate distribution of consumer goods.

In attempting to do all this we need to develop more precise terms – at present the term “free market system” is used as a synonym for “capitalism”. What then should we call a situation where production units are controlled and managed by workers but the distribution of the products among themselves and to the general public is through the mechanism of prices determined by supply and demand? Such a system of production and distribution does not require centralised planning of every single item of the economy, but would be a clear departure from production for the profit of individuals or corporations. Some of the ‘old school’ would consider this idea “sacrilegious”. We need an internal debate to clarify our thoughts about this issue before we can turn to convincing the general public that the system we are putting forward is not some pie in the sky kind of a thing.

The issue of the system of incentives for workers in a socialist economy also has to be addressed. Collectivisation in the USSR in the late 1920s led to a massive drop in agricultural output. Agricultural output went up markedly in China when Deng’s reforms led to the allocation of part of the land held collectively to individual farmers. We have to study examples such as these to be able to say how we would order things differently in the socialist society we are proposing as an alternative to the neo-liberal mess we are living in.

All these are huge issues, and it is not within the framework of this commentary on the NEP and NEM to address all of these. However these and the other issues listed above (and perhaps several others) have to be addressed by those of us who believe that the socialist alternative is not only viable, but that it represent the only hope for mankind if we wish to forestall the descent into barbarism Rosa Luxemburg spoke of. We have to seriously turn our minds to these issues and clarify our positions such that we can present a coherent, well thought out alternative to convince the general public that we are not some angry anarchic misfits but are well connected to reality, and are espousing an alternative model of human society that is both desirable and attainable.

Jeyakumar Devaraj is the Member of Parliament for Sungai Siput

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Jeyakumar Devaraj
Dr Jeyakumar Devaraj, a long-time Aliran member and contributor, is the Member of Parliament for Sungai Siput. A respiratory physician who was awarded a gold medal for community service, he is also a secretariat member of the Coalition Against Health Care Privatisation and central committee member of Parti Sosialis Malaysia.

3 COMMENTS

  1. >My understanding is that Malaysia emerged from the colonial period in a much better state economically compared with Indonesia, Nepal and Bangladesh. <
    Nepal Is not British former coloni

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