Mahathir’s business-first focus failed the Bumiputeras, says economist

(FMT) – The failure to sustain the quality of public education institutions has led to a breakdown in the effectiveness of affirmative action policies for Bumiputeras first slated under the New Economic Policy (NEP) in the 1970s, according to economist Edmund Terrence Gomez.

He attributed the “institutional decline” to former prime minister Dr Mahathir Mohamad’s first tenure in the 1980s, when the focus shifted from education to the development of Bumiputeras in the private sector.

Calling this the major turning point from the initial success of affirmative action, Gomez said: “Dr M was a prime minister who was deeply enamoured by business. He decided that all affirmative action should focus far more attention on developing a Bumiputera business community.”

He added that affirmative action was a noble public policy that had managed to alleviate poverty by increasing access to high-quality education for Bumiputera youth, creating a Bumiputera professional class.

However, history had shown that such preferential policies have not worked well when applied in businesses.

“In the contemporary period, the government has not given enough emphasis to sustain a high quality of education in public institutions and this has led to a situation of institutional decline. And now we’re seeing the consequences of that.”

Gomez was responding to a new study on affirmative action policies by economist Lee Hwok-Aun, who suggested that, beyond acquiring qualifications, Bumiputeras are still lagging behind in labour market mobility and educational achievements.

Lee had suggested “the rapid gains” in tertiary education and steady rise into high-level positions achieved by Bumiputeras as a result of preferential treatment had slowed in the past decades.

Gomez added that even if the poor were still a beneficiary to the system, the quality of the education was not as high as it was in the 1970s.

“We would find that the students in the public education system tend to be those who are from lower income families, and also from rural areas.

“As opposed to other ethnic groups who have alternatives, such as vernacular schools.”

He also placed some of the blame on the compromise in the quality of teaching staff, suggesting that the intake of academics and teachers into the public education system was now not so much based on merit, but on ethnicity.

Affirmative action doesn’t work for businesses

Gomez then pointed to former prime minister Najib Razak, who – in a controversial move – announced in 2009 that there would be no more affirmative action policies.

“He came in at a time when there was a global financial crisis. When he became PM, he looked into the state of the Malaysian economy and he consulted with many people to find out the issues. And his conclusion was, as he announced, no more affirmative action. It made the headlines.”

According to Gomez, Najib made such an announcement because the long-term implementation of affirmative action did not inspire business confidence.

“After much backlash, including from Malay-rights groups, Najib came up with the new economic model (NEM), which had contained some of the affirmative action elements of the NEP.

“The NEM was reportedly aimed at helping Malaysia catch up with high-income countries, such as South Korea and Singapore, by transforming the economy to become more competitive,” he said, adding that the revamped affirmative action became “market-friendly affirmative action” under the NEM.

“This was mentioned heavily in the 10th Malaysia Plan as well.”

Gomez suggests this too did not inspire business confidence, as there was little mention of market-friendly affirmative action when the 10th Malaysia Plan was reviewed under the 11th Malaysia Plan.

He attributed this lack of business confidence to the fact that affirmative action had become a policy that was widely captured by political elites. “For example, in the case of Umno, it had moved from being a party mainly comprising teachers to a party that became well-known for having a lot of business people.”

Bumiputera entrepreneurial class

Gomez also pointed to the 40 years of affirmative action not having fully realised its objective.

“There has been no evidence that the NEP created an entrepreneurial Bumiputera business class. If you look at the top 10, or top 20 companies in Bursa Malaysia, you won’t find any major Bumiputera companies.

“What you’ll find instead are government-linked companies (GLCs),” he said, adding that the government had previously described GLCs as Malaysian institutions, and not Bumiputera companies.

Gomez said that only a handful of Bumiputeras have emerged in the top 50 companies listed in Bursa Malaysia.

“Since 1970, we’ve had affirmative action, and since 1981, the focus had been on creating Bumiputera corporate captains. Yet, this clearly has not happened.

“If it has not happened after so many years, why do we still want to persist with this?” he said, suggesting that the government would rather keep them only for political mileage.

Meanwhile, Gomez lamented that the implementation of affirmative action policies had stifled innovation and growth among the Bumiputera small and medium enterprises (SMEs).

He said, based on his research, many SMEs often chose to remain small out of fear of expropriation.

“If you take a small company and you develop it and it becomes big, the affirmative-action policy allows influential people to expropriate their wealth and take over their companies.

“Companies prefer to stay small rather than invest in R&D to bring about innovation, which would then allow them to climb up the technology ladder and become bigger firms. This is all out of fear that when they do become big, they lose the firm.”

This was also evident through history, with many GLCs starting out as private enterprises. “This is part and parcel of how the policy is implemented. The problem is always in implementation,” he said.

“Affirmative action as a policy is a very noble policy. But you must implement it well and carefully.”