Examining Past Policies – Assessing the NEP

ARCHIVES 2009

By admin-s On May 21, 2009

To his credit, Tun Razak had measurable objectives (30 percent Bumiputra participation in the equity market) and an endpoint (sunset clause). NEP was to end by 1990. As admirable as these quantitative goals are, the danger is that one could easily be obsessed with and distracted by the numbers alone and then lose sight of the underlying assumptions and overall objectives.

By M. Bakri Musa

If those numbers do not represent reality, or progress towards that reality, then the overall exercise could easily get sidetracked.

The NEP’s objective of 30 percent participation in the corporate sector is one such fallacy. That figure is meant to reflect active Malay participation in that sector, which in turn would reflect the Malay role in the modern economy. To invest in the stock market means not only that you have more than adequate disposable income, but also a certain level of financial sophistication. One has to be comfortably in the middle class and have some familiarity with the market and modern investments instruments. If people are still at subsistence living, forget about the stock market and other modern finances. The problem then would be much more basic, like having adequate food and shelter.

There is nothing magical about that 30 percent figure except that it would reflect a “critical mass.” From then on, the numbers would grow on their own momentum without further support. That figure is arbitrary; more important is to create the environment and momentum such that achieving the second 10 percentage points gain (decile) would be easier than achieving the first, and the third easier than the second.

That 30 percent figure was picked out from thin air with no good rationale. Why not 40 or 20 percent? However, if we remember that the 30 percent figure is meant to reflect significant Malay participation, than we should not be too concerned with the exact level as long as Malays are economically competitive. Artificially inflating that figure with state interventions would give a false picture; it would not accurately reflect reality. Worse, it may delude you.

Once Malays are economically competitive, that would automatically be reflected in the equity share ownership figures. When the 30 percent figure was not achieved, the immediate question that should have arisen was how we could effectively enhance the competitiveness of Malays, not simply pump more money and artificially inflate that figure.