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internatiU PDAFFIRMATIVE ACTION IN MALAYSIA - COSTS AND BENEFITS

Mike Muller is Divisional Manager (Policy) at the Development Bank of SouthernAfrica. H e recently visited M alaysia to review that country's development planningprocesses. The views expressed in this article are his own.

Malaysia was shocked into taking affirmative action seriously by race riots in 1969. Theirthree-pronged approa ch to affirmative action in ownership, emp loyment andpoverty alleviationhas been successful in reducing ethnic inequalities while achieving substantial economicgrowth over the past twenty Jive years. Tension now evident between the different strands ofaffirmative action policy has yet to be resolved. Malaysia should thus be seen as a model forSouth Africans to learn from rather than to emulate.

INTRODUCTION: BACKING BUMIPUTERASThe glossy full page ad for a new townhousedevelopment could be for Waterkloof, the price(R225.000) is about right. In fact it is in Petaling Jaya,garden suburb of Malaysia's capital Kuala Lumpur.There is jus t one difference. In small print you areinformed that there is a 7 % discount for Bumiputeras,the sons of the soil as the m ajority M alay community isknown.At the privatisation office in the Prime Minister'sdepartment, another approach is taken. Y our innovativeproposals are welcomed. The office aims to privatiseanother 100 enterprises, to put into the private sectormore than the 86,000 jobs already privatised in the pastthree years. Just don't bother to come with a proposalthat does not include at least a 30 %, preferably larger,bumiputera interest.Then there is the minor matter of land reform.Government is currently pausing, having changed theface of land tenure in favour of small holder farmers -the vast majority of whom are Malays.This is affirmative action at work, Malaysia style. Andit has relevance to South Africa in a number of ways.

OUR PLACE IN THE W ORLDWhite South Africans have understandably tended tolook north for their cultural inspiration to the developedeconomies of Europe and North America. Inevitably,even the broader society reflected this bias.The current political transition, coming as it does at atime of international realignment, serves to emphasisethat we cannot continue to see ourselves as an island ofEurope in Africa. We are not however a typicallyAfrican economy, certainly not as a sub-Saharan one.Our base of industrial, natural resource and socialdevelopment sets us clearly apart.To whom then do we turn as a role model? It has beenargued1 that we should see ourselves as a typical middleincome developing country with all the problems andthe prospects of our peers . It is in this context thatMalaysia has always made a compelling compa rison forSouth Africa.With its 1991 GNP per capita reported by the WorldBank at US$2,520, Malaysia is ranked close to SouthAfrica ($2,560) in the Bank's performance tables. At18.2 million, its population is smaller than ours but stillcomparable. It has a sound natural resource base,though not one as dominant as that of the major oilproducers.

THE SOUTH AFRICAN INSTITUTE OF INTERNATIONAL AFFAIRSJan Smuts House p o B o x 3 1 5 9 6University of the Witwatersrand BraamfonteinBraamfontein Johannesburg 2017South Africa ^ T e l . ( 0 1 1 ) S 3 9.2 02 1Teiex: 4-27291 SA F a x ; (on) 339.2154

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A good reason for considering its policies is that theyhave, in terms of traditional measures at least, beenrelatively successful. The Malaysian economy hasenjoyed high levels of growth over the past twenty fiveyears (GDP growth 7.9% 1970/79, and 5.7% 1980/91)interrupted only briefly by the recession of 1985.

AN ETHNIC MELTING POT

What makes Malaysia particularly special for SouthAfricans is its ethnic make-up. It is one of thosecultural melting-pots of colonialism. To tap the rubber,mine the tin and administer the civil service, the Britishimported Chinese and Indians in numbers that, whilenot outnumbering the native Malays, are substantial.

POPULATION (PENINSULAR MALAYSIA) 000sCKOUP

BumtpuleniChineseIndiiuiOihcrTOTAL

19704,3413.285

911173

9,182

198H8,0504,43S1,386

ea11,959

action to reduce levels of poverty in the societysince the Malays comprised the majority of th epoor.

AFFIRMATIVE ACTION IN OWNERSHIP

One of the burning issues confronting government wasthat of ownership in the economy. Malay corporateownership w as a tiny proportion of Chinese ownership.Equally, ownership by nationals was small relative toforeign ownership.That changed dramatically between 1970 and 1990, asevidenced below:

OWNERSHIPBumipulera IndividualsBumiputera Tni.tl AgenciesChineseIndian*Foreign residentsNominee compiinieji

1970-l.f i0.8

27.21.1

63.46.0

I9O14.06.3

44.91.0

25.18.4

Also relevant to South Africa is the fact that theseethnic groups found themselves at independence in 1957on very different steps of the economic ladder. Thusconcern was focused on the fact that the bumiputerawere dispossessed in the land of their birth.Despite the good will expressed by the first inter-ethnicruling coalition, an episode of civil unrest on ethniclines occurred in 1969. This focused the attention ofpoliticians on the need to address explicitly potentialconflicts between ethnic groups. Provision for thisexisted in the constitution but, until 1969, it had notsystematically been used.

TH E NEP: EXPLICIT AFFIRMATIVE ACTIONTO AVERT CONFLICTThe result was the production of the New EconomyPlan (NEP) which included certain specific socialobjectives which have guided Malaysian policy for thelast quarter century.These included:* an increase in the Malay ownership of theeconomy to 30%;* action to ensure that Malays were betterrepresented in the main professions;

What the table shows is not just the dramatic change inownership patterns between 1970 and 1990. It alsoindicates just how little had changed betweenindependence in 1957 and the outbreak of civil unrest in1969. While the conventional interpretation focused onMalay-Chinese rivalry as the underlying cause, thefailure of Malays to dent the foreign ownership of theeconomy was clearly also a factor.The mechanisms to achieve that change were multiplealthough what needs to be emphasised is the politicaldetermination to effect the change. The mechanismsincluded:

creation of non-financial public enterprises,often linked to the implementation of othergovernment programmes such as land reform;preference in allocation of governmentcontracts;entrepreneurial support;requirement of Malay participation in listedcompanies.

One area of experience of relevance to South Africa isthe vulnerability of areas of 'protected ownership'.During the economic recession of 1985, so many smallBumiputera enterprises encountered difficulties that anEnterprise Rehabilitation Fund had to be established tosalvage them.

Another lesson which South Africa would do well toheed is of the complications caused by the entry of

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political parties directly into business. This, combinedwith the promotion of affirmative action, has created abusiness environment in which, to quote a recentauthor, has been opened 'new and numerousopportunities for corruption and conflict-of-interestsituations' .2 This, he wa rns, 'm ay m ake it more difficultfor the state to impose or implement policy preferencesin future'.A F F I R M A T I V E A C T I O N I N E M P L O Y M E N TThis policy translated relatively easily into two distinctstrategies. The first was to ensure access for Malays tothe education needed to enter the professions. Thesecond was to impose an element of affirmative actionin the hiring policies of both the private and the publicsector. A related although less obvious strategy was tocreate opportunities for Malay employment through thecreation of new institutions.All three of these strategies have been energeticallypursued although the m echanisms have not always beentransparent. Thus in terms of bumiputera employment,one commentator has noted that 'i t seems thatadministrative pressure rather than formal legislationwas used to ensure that Malays were employed inappropriate numbe rs' and it was noted that bureaucraticfeatures of the Malaysian economy gave manyopportunities for the app lication of such p ressures.The employment profile of government in 1990reflected population profiles reasonably well. This wasnot yet true in other sectors however and Malays onlyrepresented 2 5 % of the total numb er of professionals inthe country. That was still a substantial advance on thesituation in 1970.

AF F IR MATIVE AC TION AND P OVER TYWhere the issue of affirmative action in ownership hasbeen contentious, that of affirmative action to addresspoverty has been m uch less so. This is hardly surprisingsince, in 1969, over 65% of the rural population (49 %of the total) lived in a state of absolute poverty. Sincemost were Malays, this aggravated the ethnic disparitiesand called for targeted action.While in the long run, it was recognised thaturbanisation and industrialisation would do most to liftthe rural bumiputera from poverty, it was alsorecognised that a generation of economic developmentand education would have to intervene. Since povertycould not wait, specific interventions were needed andthese focused on increasing rural incomes by giving thepoor access to more land as well as to the supportneeded to use it effectively.

The scale of land development under the NEP isillustrated by the fact that an area of 1,5 million ha.(50% of the total land under cultivation in 1970) wasbrought into production over 20 years. This was donewith the objective of creating the conditions to increaserural production and the incomes of poor ruralhouseholds. The focus was on sma llholder cultivation soas to maximise benefits to the poor. Most of thedevelopment was done by Federal and state governm entagencies (which also provided opportunities for thedevelopment of Malay professionals).This focus on state supported rural developmentachieved remarkable results. Available data for 1973and 1987 indicates that not only did average incomesgrow overall but the gap between rich and poor andbetween rural and urban narrowed over the period - aremarkable example of growth with equity.What remains to be addressed are quality of life issues,access to basic services, standards in services such ashealth and education, housing and urban transport.These affect relative rather than absolute poverty andrequire a public policy focus of a different kind.Malaysia's Vision 2020 commits governmen t and nationto achieving the status of a developed country within 25years. There are however doubts about the mechanismsfor achieving this - and their costs.

T H E C O S TS AN D B E N E F I T S O F A F F I R M A T I V EAC TIONTo some extent, the costs of affirmative action werelimited by a policy decision to achieve an improvem entin economic status through an expansion of theeconomy rather than through a mere redistributionwithin it . While active redistribution occurred, it wasredistribution of new resources created in a growingeconomy.While economic growth was thus not a direct casualty,the policies adopted to address affirmative action haveproved to be expensive in a number of ways. Theycannot however be seen in isolation. Other costs havebeen imposed by the federal political compromise leftby the departing British to accommodate the traditionalsultans. The efficiency costs .of initial dec isions onpowers and functions have to be reckoned along withthe further inefficiencies caused by the proliferation ofaffirmative action agencies.This has been acknowledged although it has beenargued that the creation of new agencies was anappropriate mechanism to achieve affirmative action.One test of this has been the willingness of governmentto relinquish control over public 'affirmative action'institutions and this is in fact occurring at a substantialrate.

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The complex ethnic and federal political structurehas imposed a further cost. To fund it, an approach tobusiness has arisen where political parties participatevery actively in the economy. Businessmen have tocontribute to party ventures to obtain political supportbut within the complex w eb of contributions it is neverquite clear wh ether contributions are politically directed,in support of affirmative action or simply corruptpaym ents. In the long run, this is unlikely to be healthyfor either the economy or the political structure.Beyond this, and even more difficult to quantify is thesuppression of dissent. Partly in order to maintain thedelicate political balance, but increasingly a response todisquiet over financial deals, a level of intolerance hasarisen which is not supportive of a critical and activecivil society.This limits opportunities for obtaining greatertransparency in government and some review ofgovernment performance in its own activities and asregulator of the private sector. If this is in part aconsequence of affirmative action, then one cost of thatprocess will be the impact on Malaysia's ability toprogress into the next stage of its development on thebasis of social consensus.

OTHER FACTORSOther factors wh ich should be noted are the Islamic andthe regional dimensions. Religious issues overlie ethnicdifferences and a strong Islamic focus guides thecountry although it is emphasised at the highest levelthat Islam should not be imposed on non-believers.This is one component of a complex foreign policyapproach in which Malaysia manages to position itselfboth as a pro-Western country as well as a proponent ofgreater South-South cooperation in managing relationswith the developed world.The foreign policy approach is further complicated bythe fact that, like South Africa, Malaysia is a smallisland of relative prosperity surrounded by a poorer sea.Given the low levels of unemployment, it has welcomedmigrants on a m ore or less formal b asis. These migrantshave an im pact on both poverty profiles and on povertyalleviation strategies which are still not fullyunderstood.The regional issue highlights another important point.Malaysia is well situated in the most dynam ic region inthe world. In Asia, in the 1970s and 1980s, there wasroom to make mistakes and many rewards for thosewho made less than others. M alaysia, as an historic allyof the West and a staunch member of ASEAN, hadsomething of a head start. To their credit, its leaderstook full advantage of it.

C O N C L U S I O N ; A M O D E L T O L E A R N F R O M ,N O T T O E M U L A T EGiven Malaysia's history, ethnic make-up, federalstructure and general level of economic developmen t, anunderstanding of its development dynamics can p rovideinvaluable insights for South Africans. We shouldhowever see it as a model to learn from rather than tobe emulated in every detail - a caveat emphasised bymany Malaysians.Both the learning and the cautions apply in the case ofaffirmative action strategies. The goals of affirmativeaction remain important and guide much policy and itsimplementation. These do however have two distinctemphases. And there appears currently to be moreemphasis on addressing the participation in the economyof a minority of bumiputeras rather than on addressingthe poverty in which many of the bumiputera (and otherethnic groups) still find themselves.Some observers believe that this latter trend could limitthe future successes of Malaysia in achieving its socialobjectives which is now to achieve the status of adeveloped nation by 2020. Whatever its futureproblems, South Africans can only hope that we will beas successful in addressing our social conflicts andeconomic development as the Malaysians have beensince 1970.

NOTES1. Muller, M., 'Third World Role Models for a SouthAfrica in Transition: Some Pointers from Brazil',

South Africa International, 2 1 , 2, October 1990,pp.66-77.2; Gomez, E.T. , Political Business: Corporate

Involvement of Malaysian Political Parlies.Queensland: James Cook University, 1994.

STATEMENT OF PURPOSEThe South African Institute of International Affairsis an independent organisation which aims topromote a wider and more informed understandingof international issues among South Africans.It seeks also to educate, inform and facilitatecontact between people concerned with SouthAfrica's place in an interdependent world, and tocontribute to the public debate on foreign policy.