NEP : The Scarlet Letter

“Critics argue that the NEP is a failure, citing that it impedes investments, retards growth and benefits only a small number of well-connected bumiputras. Their arguments are not supported by data.

The Heat Online. NEP HELPS CHINESE AND INDIANS TOO, NOT JUST MALAYS' 

By Pauline Wong . 11/28/2014 4:45:00 PM

Link :here

Nathaniel Hawthorne’s literary classic, The Scarlet Letter, tells the tale of a woman, Hester Prynne, accused of adultery, forced to wear the red “A” to signify “adulterer” and shamed.

In what is considered his magnum opus, Hawthorne explored the themes of sin, guilt and innocence, and shame – how a person, having committed a wrong, is publicly vilified for it and bears the “scarlet letter” for all her life.

Could the often-criticised New Economic Policy (NEP), which was conceived in the aftermath of the racial riots of 1969, be our version of the scarlet letter – something which, for its flaws, when pinned on someone leads to the person being “judged” for the rest of his life?

It is unlikely that author of The Colour of Inequality, Dr Muhammed Abdul Khalid, had in mind this 19th-century classic when he wrote about the NEP, but in many ways, it has become the scarlet letter of our time.

A Malay who has gone to Oxford to study is perceived to have got there because the government gave him the “boost” because he is Malay.

Another Malay who has made a name for himself in business has people whispering that he is the product of the NEP, preferences being given due to the colour of his skin. All the NEP did was create a “rich Malay elite”, they say.

It is the elephant in the room that we refuse to address, this bad reputation of the NEP and all who are associated with it.

Debunking NEP myths

Muhammed (pic), who is also former senior analyst at ISIS Malaysia and a research fellow at Universiti Kebangsaan Malaysia never fully supports the NEP in his book, but it is clear he thinks its bad reputation is neither warranted nor supported by data.

The NEP, he says, has been successful in increasing the wealth of the Malays in general, creating a sizeable Malay middle-class where once there was none, yet it has not impeded the growth among other races.

“Critics argue that the NEP is a failure, citing that it impedes investments, retards growth and benefits only a small number of well-connected bumiputras. Their arguments are not supported by data.

“During the period of the NEP, average Malaysians saw nominal income growth (income unadjusted for the effects of inflation or deflation) of 9.3%,” he wrote in his book.

“High income growth was also recorded for all ethnic groups, the bumiputra, Chinese and Indians saw income growth of 10.6%, 8.7% and 8.6% respectively.

“Data shows the highest income growth accrued to the middle and lower income classes rather than the upper class. For the period of 1970 to 1990, the compounded nominal average annual income growth of the bottom 40% was 9.4%, while for the middle 40% was 8.5% and top 20% was 7.6%. This applied for all ethnicities, meaning the poor enjoyed the highest income growth during the period of the NEP,” he said.

Muhammed also says the relative disparity between the bumiputras and the Chinese has been getting smaller – it dropped from 1:2.29 in 1970 to 1:1.43 in 2012.

“This means that the NEP target of reducing income gaps between ethnic groups has been met,” he said.

Muhammed says the NEP is also touted as the main reason for declining foreign direct investments (FDI) – again, he says, this is not true.

“It is empirically erroneous because most foreign companies that have set up operations in Malaysia are no longer constrained by NEP’s equity shareholding requirements. In fact, export-oriented companies have been allowed to be fully owned since 1986. Similarly, the services sector was partially liberalised in 2009, with no equity conditions imposed. High-tech industries are also allowed to be fully-owned by foreign investors.

“All this points to two things: that subdued FDI growth in the past few years is due to other factors than the NEP. Furthermore, had the NEP really constricted FDI inflow, Malaysia would not have seen the influx of FDI towards the late 1980’s and 1990’s, up to the crisis years of 1997,” he added.

Not the cause of brain drain

In other areas, he says, such as brain drain, evidence show that if pro-bumiputra policies are to blame, then there would be no migration of bumiputras to other countries. In many instances, he opined, the reason for migration is economic incentives – higher pay overseas.

“In a study by Gregory Foo of Harvard University on Malaysian migrants in 2011, it was noted that the key drivers of the rate of highly-skilled migration are better career prospects and more attractive salaries,” he says.

In conclusion, he says that based on statistics, NEP’s policies have performed well for all groups – not just the bumiputra but the Chinese and Indians also.

So is the bad reputation of the NEP deserved? Or are there more factors at play here than just affirmative policies?

Malaysia’s sluggish wage growth – in general – and rising costs of living and inflation is not a race-based problem, so it may be time to move away from blaming the NEP for everything.

The Heat Online. NEP HELPS CHINESE AND INDIANS TOO, NOT JUST MALAYS' 

By Pauline Wong . 11/28/2014 4:45:00 PM

Link :here