Malaysia's New Economic Model: An Assessment of Its Strategies for Inclusive Growth

Prof. Dr. Ragayah Haji Mat Zin Institute of Malaysian & International Studies Universiti Kebangsaan Malaysia 43600 Bangi Selangor, Malaysia rogayah@ukm.my , rogayahzin@yahoo.com

Paper to be presented at the Asia-wide regional workshop on

SOCIAL INCLUSIVENESS IN ASIAS EMERGING MIDDLE INCOME COUNTRIES

13 September 2011, Jakarta, Indonesia
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OUTLINE 1. Introduction 2. Previous Poverty and Income Distribution Policies: Lacking Inclusion? 3. Malaysias Achievements in Sharing the Economic Pie 4. The New Economic Model 5. Comparative Perspective for Redistribution: NEM versus Previous Plans 6. Concluding Remarks
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Introduction
Malaysia introduced the New Eco. Policy since 1971Outcome on growth, poverty eradication is relatively successful while on income distribution is mixed. Old growth model might no longer be relevant as the country is caught in a middle income trap New Economic Model (NEM) through the ETP that will propel Malaysia to become a high income nation with inclusiveness and sustainability. Inclusiveness: a prerequisite for fostering a sense of belonging. Pro-poor growth--no groups will be marginalized & their essential needs will be satisfiedlive, work & study in localities free from the fear of crime, indignity of discrimination, & anxiety of needenable all communities to contribute to & share in the wealth of the countryensuring that inequality does not worsen.
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Previous Poverty & Income Distribution Policies: Lacking Inclusion?

1. The NEP, 1971-1990to attain national unity by eradicating poverty irrespective of race & restructuring society so as to eliminate identification of race with economic functions & geographical locations. 2. The National Development Policy, 1991-2000to attain balanced development for a united & just society. Still emphasized NEPs strategy of growth with equity, with the private sector still being the engine of growth.
3. The National Vision Policy, 2001-2010incorporates critical thrusts of NEP & NDP to achieve national unity. Stresses on enhancing competitiveness, development of knowledge-based economy, strengthening HRD & environmentally sustainable development.
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Previous Policies

Selected Specific Policies and Programs to Eradicate Poverty & Restructure Society
Education and employment
Export-oriented industrialization Rural Development Restructuring of equity ownership and asset accumulation Others include:
o Entrepreneurship programs o Provision of basic services, infrastructures & housing o NGOs, eg. Amanah Ikhtiar Malaysia (AIM) & Poverty Eradication Foundation.
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Malaysias Achievements in Sharing the Economic Pie

Poverty Incidence by Strata
60 50 40 30 20 10 0
1970 1976 1984 1990 1993 1995 1997 1999 2002 2004 2007 2009
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Total

Rural

Urban

Incidence of Poverty & Hardcore Poverty by State, 2004- 2009 (%)

2004 State Johor Incid. of poverty 2.0 Incid. of HC poverty 0.3 Incid. of poverty 1.5 2007 Incid. of HC poverty 0.2 Incid. of poverty 1.3 2009 Incid. of HC poverty 0.1

Kedah
Kelantan Melaka N. Sembilan Pahang P. Pinang Perak Perlis Selangor

7.0
10.6 1.8 1.4 4.0 0.3 4.9 6.3 1.0

1.3
1.3 0.2 0.2 1.0 1.1 1.7 0.04

3.1
7.2 1.8 1.3 1.7 1.4 3.4 7.0 0.7

0.3
1.5 0.2 0.1 0.4 0.1 0.7 1.4 0.1

5.3
4.8 0.5 0.7 2.1 1.2 3.5 6.0 0.7

0.8
1.0 0.1 0.1 0.3 0.1 0.5 0.8 0.1

Terengganu
Sabah/F.T.L Sarawak F.T. KL

15.4
23.0 7.5 1.5

4.4
6.5 1.1 0.2

6.5
16.0 4.2 1.5

0.8
3.7 0.7 0.1

4.0
19.2 5.3 0.7

0.5
4.7 1.0 0.1
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Malaysia

5.7

1.2

3.6

0.7

3.8

0.7

Malaysias Achievements in Sharing the Economic Pie

Poverty Incidence by Regions: Pen. M'sia, Sabah & Sarawak, 1970 2009
70 60 50 40 30 20 10 0 1970 1976 1979 1984 1989 1993 1995 1997 1999 2002 2004 2007 2009 Pen Msia Sarawak Sabah

Malaysias Achievements in Sharing the Economic Pie

Poverty Incidence by Ethnicity, 1970-2009

70 60 50 40 30 20 10 0 1970 1976 1979 1984 1987 1989 1992 1995 1997 1999 2002 2004 2007 2009
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Total Chinese

Bumiputeras Indians

Malaysias Achievements in Sharing the Economic Pie

Monitoring Poverty Through eKasih

eKasih: a national poverty data base to improve the quality of data and information on the poor and hard core poor households to identify families who can then be targeted for financial and other assistance. The registered & qualified poor can increase their income through four channels o Azam Farmer (agriculture related activities monitored by agencies under Agriculture and Agro-based Industry Ministry); o Azam Business (provide business opportunities through training and micro credit facilities to participants); o Azam Service (self-employment full time or part time) monitored by agencies under Women, Family and Community Development Ministry and Amanah Ikhtiar Malaysia; and o Azam Work (job opportunities) monitored by the Human Resources Ministry.
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Malaysias Achievements in Sharing the Economic Pie

Income Distribution by Strata: Rural and Rrban, 1970-2009

0.56 0.54 0.52 0.5 0.48 0.46 0.44 0.42 0.4 0.38
19 70 19 76 19 79 19 84 19 87 19 89 19 92 19 95 19 97 19 99 20 02 20 04 20 07 20 09
Overall Rural Urban

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Malaysias Achievements in Sharing the Economic Pie

Ethnic Income Distribution: 1970 - 2009

Bumi Chinese

0.55

Indian Overall

0.5

0.45

0.4

0.35

19 70 19 76 19 79 19 84 19 87 19 89 19 92 19 95 19 97 19 99 20 02 20 04 20 07 20 09
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The Lack of Inclusiveness of the NEP

Claim of Indians being neglected on estates & when displaced due to urban development; absence of programs & budgetary resources provided to assist them. Claim probably due to: o With closure of several estates, they moved to the urban areas where many are poorly equipped to join the urban labor force. Since they are concentrated in certain locations, their poverty is relatively more visible; o The fact that their hardcore poverty incidence hardly changed over the last 15 years might also account for their dissatisfaction; o There are also claims that while the policies are inclusive, the Indians have been neglected in the policy implementation. However, this implementation discrimination is also said to be true among those Bumiputeras who are seen not to support the government. Gini remain stubbornly above 0.4, and while the ratio had been narrowing slightly in the last several years, the public still perceives that it is widening Other Bumiputeras in Sabah and Sarawak feel that they are neglected as they believe that the Federal governments eradication programs mostly benefited the Peninsula Bumiputeras or Malays.
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New Economic Model

Inclusive society Narrow inequalities with absolute poverty irrespective of race eradicated, assistance provided to those who need help the most renewed affirmative action policy with focus on the bottom 40% of Malaysias income strata: market friendly: allow resources to be optimally allocated & not cause, contribute or perpetuate economic distortions; needs based: targets bottom 40% of households regardless of ethnicity or location, based on their specific needs; merit based: competition will be encouraged and award opportunities to the most qualified individuals and businesses; and transparent: clear policies, procedures and criteria
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New Economic Model

Strategies to Raise Income of Bottom 40% of HHs (BHH40%)

Rural: increase the productivity and sustainability of agrobased activities through the adoption of modern agricultural technology and expansion of contract farming through: providing holistic support programs for micro-enterprises; linking rural talent pool to employers in nearby clusters and cities; increasing income sustainability through contract farming; opportunities for business ownership for capable rural entrepreneurs; land productivity and yield through land amalgamation; improving human capital productivity; and expanding the application of the agropolitan concept to other agriculture and agro-based industries.
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New Economic Model

Raising the Income Generation Potential BHH40% (contd)

Urban: income and quality of life of will be raised via capacity enhancement programs securing higher paying jobs & engage in skills-based businesses; ensure sustainability of business ventures by modernizing and scaling-up small businesses through:

establishing industry-specific skills centers based on targeted geographic areas; expanding micro-enterprise support programs for BHH40%; enhancing mentor-mentee programs to create additional business opportunities; extending the incubator concept to increase entrepreneurship and employment opportunities; and expanding anchor company programs to enable the formation of partnerships and clusters. 16

New Economic Model

Assisting Children in BHH40% Improve Education and Skills Attainment

More equitable access to education opportunitiesaddress cost, geographic barriers & conducive learning environment via: rural children with high academic potential to attend better schools in urban areas (continuation from 9MP) expansion of boarding school (1Asrama) programs assistance from the trust fund for poor students (Kumpulan Wang Amanah Pelajar Miskin), eg. allowances, scholarships, supplementary food, school uniforms, tuition & transport placements in boarding schools, matriculation centers and public universities students who have secured places in private education institutions will be given financial assistance based on merit.
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New Economic Model

Strengthening Social Safety Net to Reduce Vulnerability of Disadvantaged Groups Providing housing assistance programs to deserving poor households in rural and urban areas

Providing income support, subsidies and improved access to healthcare

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New Economic Model

Addressing the Needs of Special Target Groups with Integrated Programs

1. Strengthening the capabilities of Bumiputeras in Sabah & Sarawak and Orang Asli communities in Peninsular Malaysia: for the Orang Asli communities, a land development and ownership program will be implemented to enable them to become land owners and active farmers might also be implemented for the ethnic minorities in Sabah and Sarawak assistance will be given to Bumiputeras in Sabah and Sarawak to establish businesses, including entrepreneurship training, funding and strengthening linkages with established businesses in identified sectors improve access to education establish cooperatives to market their products more 19 effectively

New Economic Model

Addressing the Needs of Special Target Groups with Integrated Programs (contd)

2. Providing financial assistance to Chinese new villages residents to upgrade their homes and fund their business activities: Loan schemes by financial institutions to finance payment of premium and leasehold tenure renewal as well as financing the upgrading of their houses and business activities AIM and TEKUN for small businesses

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New Economic Model

Addressing the Needs of Special Target Groups with Integrated Programs (contd)
3. Enhancing Access to Basic Amenities and Infrastructure for Estate Workers to Improve Their Living Standards: supply treated water to estates that are 1,000 acres in size or smaller and are located less than five kilometres distance from the main pipeline establishment of village committees (Jawatankuasa Kemajuan dan Keselamatan Kampung) to foster closer ties between residents of estates and nearby villages with district offices collaboration with estate owners in providing access roads and basic amenities such as housing and school facilities training and re-skilling programs for displaced estate workers. 21

Approaches to Inclusiveness: Old versus NEM

Old Approach
1. Poverty eradication irrespective of race. Focus on those below the PLI and the hardcore poor. Implementation focused on Bumiputeras, and even then tend to be for those who are politically connected 2. Income distribution always analyzed from the ethnic and strata perspectives 3.

New Approach
Poverty eradication irrespective of race. Focus on the bottom 40 percent of Malaysias income strata based on needs

4. 5.

6.

While ethnic perspective still important, now income distribution also viewed from class perspective and as relative poverty Impose conditions to meet specific Market-friendly affirmative action programs quotas or targets.eg education focus on building capacity and capability of low-income households and small businesses Rent-seeking and patronage behavior Transparent, fair and empowering way, based on needs and merit Balanced regional growth. Cluster- and corridor-based eco. activities Towards more equitable income dist higher growth thru eco of scale & agglom. regionally effects, but risk rising inequality Almost free flow of foreign unskilled Retain and attract skilled professionals. workers. Implications : foreign talent displace local workers & widening of inequality ? 22

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