Time on Malaysia’s New Journey

I am posting a Time magazine post on Malaysia, to be out in the next issue on 6th September 2010.

Malaysia’s New Journey

By Michael Schuman / Kuala Lumpur

Malaysia is that rare country with an unequivocal national narrative.
It goes something like this: Malaysia’s 28 million people, comprising
mainly Malays, Chinese and Indians, make up a moderate and modern
emerging democracy. Unlike members of other multiethnic countries,
they respect one another’s beliefs and values and share a commitment
to achieving prosperity. The official religion is Islam, but other
faiths are freely allowed and celebrated. This is one harmonious

Much of that narrative is true — but not all of it. Malaysia’s
economic miracle has stalled, and while the nation is, indeed,
somewhat pluralistic, it is no melting pot. Indeed, it is a society
where people define themselves first and foremost by race. (See
pictures of Islam in Asia.)

The country’s political leadership has in some respects reinforced
those ethnic identities. For the past 40 years, policymakers have
doled out special privileges — in education and business — to one
community: the majority Malays. The program is one of modern history’s
greatest experiments in social engineering and possibly the world’s
most extensive attempt at affirmative action. But the policies have
also bred resentment among minorities, distorted the economy and
undermined the concept of a single Malaysian identity.

Now a movement is gaining strength to finally change the system — and
it’s coming from the very top. Prime Minister Najib Razak, 57, has
surprised the country by advocating a fundamental reform of the
pro-Malay program first introduced, ironically, by his father, who was
Malaysia’s Prime Minister in the 1970s. Though the specifics of the
new policies remain hazy, Najib’s intent is not. “I want Malaysia to
be globally competitive,” he told TIME in an exclusive interview. “For
that, we need to get every single Malaysian to be together.”

Najib’s proposals have simultaneously raised hopes, ire and fear. The
mere idea of changing the affirmative-action system has reopened old
wounds in Malaysian society and reactivated the long-running debate on
how best to fuse Malays, Chinese and Indians into one nation. The
direction Malaysia takes, moreover, has repercussions beyond its
shores. The issues raised by Najib’s proposals are relevant to any
upwardly mobile developing economy, especially a multicultural one:
how to increase wealth and do so equitably. (Read “Why the Honeymoon
is Over for Malaysia’s New PM.”)

In confronting these sensitive challenges, Najib is taking enormous
political risks. The primary base of electoral support for Najib’s
political party, the United Malays National Organization (UMNO), is
the Malay community, and altering decades-old perquisites could cause
voters to defect to the opposition. But Najib believes he has little
choice. If Malaysia’s economy is to compete with China, India and
other rapidly emerging neighbors, Najib sees no other route but
reform. “The competition is much greater and some would describe it
even as cutthroat,” Najib says. “There is a realization that what has
worked in the past may not necessarily work in the future.”

The Malay Card
Najib is facing the same dilemma his predecessors have since the
earliest days of Malaysian independence: balancing the perceived needs
of the Malays, both political and economic, with those of the country
as a whole. At the heart of the problem is the reverse-pyramid shape
of the Malaysian economy. Though the Malays and other indigenous
peoples, together known as bumiputra in Malay, make up about 60% of
the population, they have traditionally been poorer than the Chinese
and Indian immigrants, who have long dominated the nation’s business
and trade. After Kuala Lumpur was struck by race riots in 1969, a
shaken leadership determined that communal peace was impossible
without economic balance. The result was the New Economic Policy
(NEP), introduced in 1971, which aimed to raise the Malays’ share of
the economic pie. Malays were given preferential access to public
contracts and university scholarships. Any company listing on the
stock market had to sell 30% of its shares to bumiputra investors.
Though some measures have been softened or eliminated over the past
two decades, many pro-Malay privileges remain. Certain government
contracts are available only to bumiputra-controlled firms, for
example. Malays even receive special discounts on home purchases. The
affirmative-action program has become so ingrained in the Malaysian
psyche that it is akin to a national ideology.

It is also controversial. Critics contend that the pro-Malay program
too often benefits the connected few over its intended targets: the
poor and struggling. All car-import permits, for example, are awarded
to bumiputra-controlled firms, a policy intended to foster
entrepreneurs in the community. But government audits have revealed
that Malay businessmen with access to the permits sometimes sell them
to minority traders who don’t — at an instant profit. (The Ministry of
Trade and Industry, recognizing the problem, says it will phase out
the permit system by 2020.) “Unfortunately, as [the NEP] was
implemented over time, some of the zealots, politicians and
bureaucrats included, tended to become more racial and emphasized more
on the people who have relationships with them,” says Razaleigh
Hamzah, an UMNO dignitary and former Finance Minister. “That’s where
it went wrong.”

Despite four decades of special aid, 3 in 4 of the poorest people in
Malaysia are still bumiputra. Adli Ahmad Ghazi, the Malay co-owner of
Malaysian Defensive Driving & Riding, a 70-employee driving school in
Kuala Lumpur, complains that the pro-Malay policies do little to help
a small businessman like himself. In 2008, Adli tried to get financing
from three agencies tasked with supporting Malay businessmen or small
enterprises, but got rejected. When he has to deal with the
bureaucracy, Adli says, he faces the same red tape as any other
businessman. It took him two years to buy a parcel of land for his
company from the local government. “The [NEP] rules don’t really apply
to people on the ground,” Adli says. “They say the NEP would help the
Malays, but it only helps a small percentage of the Malays.”

Comfort Zone
Affirmative action may not be helping the overall Malaysian economy
either. Though Malaysia has been among the best-performing economies
in the world since World War II and boasts a spectacular record of
improving human welfare — the percentage of the population living in
absolute poverty has plummeted from 50% in 1970 to less than 4% today
— the story is now stuck on the same chapter. Malaysia has fallen into
what is called the “middle-income trap.” Having elevated itself to a
comfortable level of income, Malaysia has been unable to take that
next leap into the realm of advanced economies. While growth has
slowed, Malaysians have watched other fast-paced Asian rivals zip by.
In 1970, the gross national income per capita of South Korea, at $260,
was below Malaysia’s $380, but by 2009, South Korea’s was almost three
times larger, at $19,830 vs. $7,230, according to the World Bank. (See
pictures of Malaysia.)

Malaysia’s struggles reflect those facing Southeast Asia as a whole.
The region’s economies once seemed among the world’s most promising
emerging markets, but in recent years, progress in almost all of them
has been stymied by upheaval and poor governance. Thailand remains
rudderless as its fragile democracy has degenerated into perpetual
factional strife. The promise of the Philippines remains unrealized as
its feeble government has continually failed to enact the tough
reforms needed to turn around the underperforming economy. Indonesia
is only now returning to its place as one of the world’s premier
emerging economies after a decade of political uncertainty scared off
foreign investors.

If it is able to change its economic system, Malaysia could show its
neighbors the way forward. Malaysia’s essential problem is that its
growth model — export-oriented manufacturing, often by
foreign-invested factories — has become mismatched with its needs.
Malaysia must become more innovative if its rapid development is to
continue. But that’s not happening. Private investment has fallen from
a third of GDP in the mid-1990s to only about 10% today,
labor-productivity growth has slowed, and R&D spending remains anemic.
Instead of developing new products with highly skilled technicians,
Malaysia’s manufacturing sector still too often assembles goods
designed by others, using imported technology and low-skilled foreign
workers. “There is a growing realization that Malaysia’s relative
position compared to other countries that are catching up very quickly
is not improving,” says Philip Schellekens, a senior economist at the
World Bank. “Relative to where they want to be, there is still a long
road.” (Read “Fortress Asia: Is a Powerful New Trade Bloc Forming?”)

Though it would be incorrect to blame the pro-Malay policies for the
economy’s woes — Malaysia did, once, achieve remarkable rates of
growth with the perquisites in place — they are nevertheless dampening
business sentiment, scaring off talent, curtailing investment and
stifling domestic competition. Chua Tiam Wee, president of the SMI
Association of Malaysia, a small-enterprise organization, believes
relaxing the NEP preferences would create a more level playing field
on which the most capable firms could advance, making the economy more
merit-based and upgrading Malaysian industry. The affirmative-action
policy is “a source of a lot of distortions to the economic system,”
Chua says. By limiting the opportunities available to minorities, the
NEP is likely contributing to a brain drain, in which some of the
country’s most talented people choose to work elsewhere. The
government estimates that more than half of the 350,000 Malaysians
working abroad have a college education. Stéphane Garelli, director of
the World Competitiveness Center at IMD, a business school in
Switzerland, believes that the affirmative-action regulations have
made Malaysia less attractive to foreign investors. Malaysia’s
“bargaining power to put such restrictions on foreign investors is not
as big as other nations’,” he says.

Chinese and Indian entrepreneurs in Malaysia certainly believe the
pro-Malay policies cap their business opportunities. Pardip Kumar
Kukreja, the Malaysian-Indian chairman of Grand Paradise Holdings, a
Kuala Lumpur — based firm that manages and owns hotels and operates
travel agencies, laments that he can’t get access to lucrative
contracts providing travel services to the government due to
regulations that favor Malay-owned enterprises. Removing such
restrictions, he says, can act as an incentive to invest. Kukreja
recently decided to launch an Internet-based business to sell travel
services worldwide because Najib’s administration liberalized
affirmative-action rules for the tourism sector last year. “There are
many things we’d like to do, which we hope we’ll be able to do in the
near future,” he says. “To a small and medium entrepreneur, he wants
to make his own decisions.”

New and Untested
Najib is convinced the old ways must go. The centerpiece of his
economic reform program, introduced in March, is called the New
Economic Model (NEM). The plan envisions reducing red tape to
encourage more private investment and internal competition, decreasing
the state role in the economy and improving the education system to
produce more skilled workers. “For us to move up a few notches, we
have to address the structural problems,” Najib says. “We cannot be in
denial.” Most of all, the NEM also proposes a major reform of
affirmative-action policies to phase out remaining racial quotas and
focus efforts on uplifting the poorest 40% of the population —
irrespective of race. Says Najib: “I don’t want anyone to feel that
they’ve been left out or marginalized.”

There are urgent political reasons he feels that way. UMNO, which has
ruled Malaysia in coalition since its independence from Britain in
1957, lost ground to opposition parties in a hotly contested 2008
general election, and Najib is faced with the daunting prospect of
expanding UMNO’s political base outside its core Malay constituency.
The NEM is an effort by Najib to turn stodgy UMNO into the party of
change and outmaneuver its rivals. Some powerful voices within UMNO
are egging on Najib to push his reforms. “We have to be bold and brave
to ensure [our] long-term competitiveness,” says Khairy Jamaluddin, an
UMNO member of Parliament. (Read “Will Sodomy Charges End Malaysia’s

Yet Najib has also come under pressure from conservative elements in
the Malay community to hold back. “The bumiputra are still lagging
behind,” complains Ibrahim Ali, president of Malay nationalist
organization Perkasa. “If the economy is not balanced, then everything
will lead to trouble.” As a result, Najib doesn’t have full support
from an UMNO worried about scaring off Malay voters. Najib’s reform
program “is a tough sell within the party,” admits Khairy. “There will
be people who resist the changes.”

The split in UMNO reflects the greater divide within the Malay
community over the future of affirmative action. Some Malays believe
that they still don’t possess the skills and resources to contend
against Chinese businessmen, making continued affirmative-action
policies indispensable. The program “should stay in place and
improve,” says Rizal Faris, president of the Penang Malay Chamber of
Commerce. “What [officials] want to achieve is a level playing field
where all parties are able to compete on their merits, but we need to
ensure that the Malay community has been sufficiently skilled and
pulled up.” But others believe the time has come for Malays to step up
and compete on their own, without special government aid. Akmal
Syahirah, a 21-year-old law student at the University of Malaya, says
that affirmative action should be eliminated, even though her family
has greatly benefited from it in the past. Her father acquired land to
produce palm oil through a pro-Malay development scheme, and her three
younger sisters received tuition for extra after-school studies. But
now, “I think we need to change,” she says. “We can’t just let Malays
stay in their comfort zone.”

Balancing Act
Faced with such contending forces, Najib is trying to please
everybody. Affirmative action won’t be eliminated entirely under the
NEM, but altered to weed out abusive practices, target money where it
is most needed and support the most worthy Malay businessmen, all the
while trying to open up opportunities for minorities. Najib sees no
contradiction in such a strategy. “Affirmative action remains in
place, but the way it is carried out would be different,” he says.
“When it comes to helping the poor and the vulnerable groups, it
should be irrespective of race. But there are certain affirmative
actions which are still necessary, because the bumiputra are still
very much behind and they must be helped. We want to help those
bumiputra who are potential winners.”

Even as he faces the daunting task of reforming Malaysia, Najib must
deal with the domestic and international fallout from the divisive
trial of Anwar Ibrahim, the opposition’s most prominent leader. In
2008, only months after the opposition’s electoral success, Anwar was
charged with sodomy, a serious crime in Malaysia. The trial has a déjà
vu flavor. Anwar was convicted of sodomy in 2000 (and abuse of power a
year earlier), but the ruling was overturned in 2004 and he was freed
after six years in prison. Anwar has pleaded not guilty to the latest
charge and attacked his trial as a politically motivated attempt to
discredit the opposition. The government denies that, saying the
courts have a duty to conduct a fair trial. Yet the case has tainted
Najib’s administration. In a joint essay in the Wall Street Journal,
former U.S. Vice President Al Gore and former Deputy Secretary of
Defense Paul Wolfowitz wrote that Anwar’s trial threatens “all those
in Malaysia who have struggled for a freer and more democratic

The biggest test for Najib still awaits. All eyes are watching for the
detailed policy prescriptions of Najib’s NEM, which could be released
in October. Some Malaysia experts expect the final package to be
underwhelming. Najib “doesn’t have the strength to follow through,
whether politically or personally,” says John Malott, a former U.S.
ambassador to Malaysia. “He’s not a transformational figure.” Najib
insists his critics underestimate him. “I want to transform Malaysia,”
Najib says. “I want Malaysia to be a 21st century nation and I am
determined to do that.” Malaysia’s future — and new narrative —
depends on it.

Monday, Sep. 06, 201

7 Comments (+add yours?)

  1. klm
    Aug 28, 2010 @ 17:24:31

    What more can we say. We can talk until our throats are dry. People like the shit 3 times and his patrons in UMNO will stop all progress. Najib may be determined but he is powerless.


  2. foo
    Aug 29, 2010 @ 11:29:13

    true,Najib is not a transformational figure, if at all he can make a transformation ,he will change into Rosmah.
    Since 1969/1971 Malaysian politics is about race ,race,race (not F1 in Sepang).Policies that have not worked well and which have a time frame must be STOPPED and not become never ending.Why after 53 years of independence the nation still have not achieved “FREEDOM” from narrowminded thinking? Do we need another century or some even greater catastrophy than May 13?
    With UMNO at the helm the nation is heading nowhere but the gutters, a FAILED nation.


  3. Chauncey Gardener
    Aug 29, 2010 @ 14:45:20

    Najib greatest opponents are from within his own party, not from the Opposition.


  4. Ken
    Aug 29, 2010 @ 18:18:06

    I reserve judgement on whether Najib is sincere or not but I agree with John Malott, he doesn’t have the strength or political will to follow through. As for the NEM, the outdated 30% bumi equity will be retained, so much for its high sounding good intentions. Under pressure from a nobody like Perkasa, Najib buckles, what more can we say?


  5. disgusted
    Aug 29, 2010 @ 19:47:02

    It is for all to see his track record. Najib is never a fighter, leadership with a silver spoon in his mouth, so to speak. Never challenged anyone for any post because he eventually gets what he wants just because his father was PM before. Like a adage saying, “don’t want to see Buddha’s face directly, at least see it side-ways”.

    Meaning, the shadow of his father do bring political mileage. Not only Perkasa but the sneezes from the old horse will give him a flu, figuratively.

    There you have it, I get the feelings we are having a woman as the national figure.


  6. John
    Aug 29, 2010 @ 23:09:58

    Look at the National speech in by Singapore Singapore for National day today and you can see how far they have progress. Malaysia need forward thinking and courageous leaders, not racist self serving politicans.


  7. petestop
    Sep 02, 2010 @ 18:33:06

    With the DPM strong statement he is Malay first, Malaysian second, whatever Najib intend to do is but moot.

    Just like Badawi time, asking us to “work with him, not work for him”…

    … all are sloganeering without any bite…

    The only bite is from the likes of Perkasa and Mahathir and their entrench self-interest.

    1Malaysia is a stillborn.


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