Comment

Malaysia is deservedly regarded as among the relatively few countries which have made significant and sustained progress, while fairly successfully managing a multi-ethnic society.

The Malays and indigenous population (called Bumiputeras) constitute three-fifths of the total population of 24 million. The Chinese, who constitute less than a quarter of the population, hold dominant economic power. As Malays are politically not cohesive, the Chinese have also come to wield significant political influence, a development also helped by the rise of China.

The Indians constitute about seven per cent of the total population. Their socio-economic status is the lowest among the three ethnic groups, with little immediate prospects for improvement.

Malaysia’s international trade -dominated $130 billion economy, with a per capita GDP of $4,700 is currently benefiting from the favourable international macro-economic environment and the commodity boom.

But as it completes 50 years of independence, Malaysia is facing several challenges. It needs to develop it in the face of rising assertiveness by the Bumiputeras, and growing doubts among the non-Malays about their future role in Malaysia.

Many analysts have concluded that its past success notwithstanding, the annual recurrence of a haze due to forest fires is an apt metaphor for the nation’s future. Policymakers in Malaysia must address dilemmas arising from the entrenched political economy if they are to avoid a hazy future for Malaysia.

First, there are strong indications that Malaysia’s electronic exports (equivalent to 60 per cent of GDP in 2005) are facing increasing competition from China, Vietnam and other lower cost producers. In services, except for travel, Malaysia’s comparative advantage is declining, especially in IT and communications. Malaysia’s traditional advantage in the plantations sector is also eroding.

Second, there is increasing divergence between Malaysia’s political economy and the policies it needs to pursue to sustain economic competitiveness.

As Bumiputeras dominate political but not economic power, public sector expenditure has been high (30-35 per cent of GDP). Moreover, the public sector’s contracts have
been channeled to favored business groups, creating over-dependence on state patronage.

Third, Malaysia’s political economy has, since the late ‘60s, relied heavily on affirmative action programmes in favor of Bumiputeras (who by constitution must follow Islam as a religion), sharply reducing employment and education opportunities for the Chinese and Indians.

Inequalities in Malaysia are quite high and these programmes have increased inequalities within ethnic groups. Not surprisingly, the “creamy layer” is particularly evident among the Bumiputeras, the prime beneficiaries of these programmes.

The prosperity of the Chinese has permitted them to largely mitigate the adverse impact of these policies. But the Indians have been increasingly marginalised.

As the Chinese and Indians have traditionally emphasised professional education for socio-economic mobility; and they also exhibit strong entrepreneurial flair, their inequal treatment deprives Malaysia of the talent pool and dynamism needed to compete. This is an inescapable outcome of affirmative action programmes which are not time-bound, do not emphasise merit and become increasingly dysfunctional in managing globalisation.

India’s public policy debates, particularly concerning reservations, including for the creamy layer, should learn what to avoid from Malaysia’s experience. Polarisation and demoralisation in Malaysia among the non-Bumiputera groups runs deep. Their best and brightest are leaving the country, and even when the talented among them remain, their contribution is far below the potential.

Notwithstanding all its constraints, India should deepen its market-led economic engagement with Malaysia. The reported plans by Satyam to set up a 2,000 — strong software development centre in Cyberjaya is a positive step. Malaysia’s state investment company Khazanah should be encouraged to invest in India. India should judge Malaysia’s value as a partner by its actions and not just words.

The writer is Professor of Public Policy, National University of Singapore.