My post today is about a country that doesn't usually get much attention in debates about global economic issues – Malaysia. But don't be too quick to click to the next webpage. What's going on these days in that small, tropical nation is raising interesting questions about the relationship between social justice and economic development.
Malaysia's prime minister, Najib Razak, is in the process of overhauling what is likely the world's most extensive and intensive affirmative action program, called the New Economic Policy, or NEP. First instituted in the early 1970s, the NEP was designed to expand the role of the impoverished Malay community in the national economy. The Malays represent the majority of the population, but back when the NEP was launched, Chinese immigrants and foreign firms owned the vast majority of the country's assets. To fix that, the Malay-dominated government adopted all kinds of rules and regulations that gave special perquisites to Malays. Malay-owned companies received preferential treatment when bidding for state contracts, for example, while the government mandated Malay investors receive 30% of initial public offerings on the local stock market. It was an amazing experiment in social reconstruction.
The nature of NEP policies has been altered over the years, with some of the stricter requirements being softened or even eliminated. But now Najib and his government have come to believe that Malaysia's affirmative action policies need further reform to ensure the future competitiveness of the Malaysian economy. He outlined his views a few days ago in a speech (you can read the whole text here), in which he said:
For the long-term strength of our nation, we cannot afford to duck these issues any longer. If we are to truly tackle inequality and become a beacon of progress in our region, we must bring a sense of urgency to reform.
Before I go any further, I'd like to make something clear. I fear that at this point in the post some readers are already warming up their fingers to type me some nasty comments. However, I want to state categorically that I am not – repeat, not – against affirmative action. In the theoretical world of classical economics, there is no need for affirmative action policies, since everyone gets equal opportunity in a market system that rewards and punishes entirely based on the wisdom of ideas and hard work. In the real world, however, economic decisions are sadly influenced by all kinds of prejudices and social networks, and sometimes laws are necessary to ensure fairness.
Clearly, the Malaysians (or at least the Malay segment of Malaysian society) believe that the NEP was necessary to achieve social justice and communal peace. The NEP was developed after race riots in 1969. That horrific event led the leadership to conclude they'd be unable to defuse tensions in Malaysia's multiracial society without rectifying the economic balance between the diverse communities and lifting the Malays out of poverty. As Najib said of the NEP in his speech:
Its affirmative action policy has served the nation well, balancing the economic growth strategies of our nation with the need to address structural inequalities and promote social harmony…As a nation we should be proud of this achievement. It is one that many other multi-racial nations would like to emulate.
Yet at the same time, Najib acknowledged that there has been a cost to these policies as well. As he said:
We can no longer tolerate practices that support the behavior of rent-seeking and patronage, which have long tarnished the altruistic aims of the New Economic Policy. Inclusiveness, where all Malaysians contribute and benefit from economic growth - must be a fundamental element of any new economic approach.
The reason such inclusiveness is necessary, Najib said, is to make the Malaysian economy more competitive by capitalizing on the talents of all ethnic groups. He said:
We must recognize the imperative that we harness the potential of all Malaysians, and that all share in the proceeds of increased national prosperity…While perfect equality is in reality impossible to achieve in an open, global economy, an inclusive society will ensure that we can narrow inequalities in our nation, help those who need help most and engage all of Malaysia's talents in our effort to build a competitive economic workforce.
What can this tell us about the impact of affirmative action policies on economies? I've been struggling with that question since reading Najib's speech. It's hard to take lessons from Malaysia that can apply elsewhere. The Malaysia case of affirmative action is an extreme one. Other countries that have instituted some affirmative action programs usually don't do so on such a widespread, sweeping scale. Affirmative action in Malaysia has thus had an exaggerated impact on its economy.
Yet at the same time, it is interesting how even the supporters of these policies believe that in some ways there is a kind of trade-off between affirmative action and economic competitiveness, that they may have to choose between their affirmative action policies and what's good for the overall economy. Najib's current planned reforms aren't the first time the Malaysian government has been confronted with this dilemma. In the mid-1980s, when Malaysia fell into a recession, the government identified the NEP regulations as a key impediment to investment growth. The then prime minister, Mahathir Mohamad, suspended parts of the NEP to allow certain foreign investors to have full ownership of their Malaysian operations in the hopes of attracting more capital and creating jobs. (It worked.) I think it is also interesting how the Malaysian government's idea of social justice seems to have changed, from the redistribution of wealth to wealth generation for all. As Najib said:
Our first priority must be to eradicate poverty, irrespective of race. We cannot have the high income, sustainable and inclusive economy we seek when disparities in income are not addressed. So there will be a renewed affirmative action policy…with a focus on raising income levels of all disadvantaged groups.
Well said, Prime Minister.
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1Malaysia is no longer eligible for full membership in the liberal, democrat, socialist and communist group of camp followers. As a result you can expect to see much condemnation here from these closely aligned groups.
2I miss Justin, he usually got this stuff on his own.
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Look, its like this: The affirmative action campaign in Malaysia was so extreme that while it worked to funnel work and experience to deserving Malays who might otherwise be denied it, the program ended up denying opportunities to deserving non-Malays.
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Theoretically, affirmative action programs are only supposed to correct for the biases in the market created by human prejudice, they're not supposed to pro-actively favor one group over another. The NEP took this concept about 10 steps too far, thus resulting in a less efficient, rather than a more efficient market. All they're doing now is correcting that overreach to line up with current and actual levels of discrimination and denied opportunity.
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AA programs aren't something that can be set in stone and just left alone. They have to be continually updated to reflect a societies' current levels and directions of bias. That's one reason many are calling for US affirmative action programs at universities to switch from race based to income/socioeconomic based criteria.
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So really, all Malaysia is doing is keeping up and re-affirming their affirmative action program. And while I know that isn't a great headline "program works well, is updated to reflect progress", when compared to "affirmative action: bad for growth". It'd be really nice if you could look past the obvious and provide some actual insight and analysis of trends and their historical context and reasoning. Thanks.
2.1Whatever the stated purpose of affirmative action programs, they all have a common goal -- to provide economic opportunity to the disadvantaged, usually those denied their proper opportunities based on race. This is at its heart a social goal to provide economic justice. The question is: Do such policies make economies work more efficiently or not? There's been a ton of debate on this issue. What makes the Malaysian case interesting is that the country's leadership is basically saying that its affirmative action program based on race is holding the economy back. They're doing more than updating their policies; they've been doing that for 25 years, trying to tweak and alter their policies to minimize any costs and maximize their benefits. What Malaysia is doing today is something much more fundamental. The government is saying that the economy can't face future challenges with its race-based policies, that they have to be reformed or replaced to make the economy more market-oriented and merit-based. Otherwise Malaysia won't be able to compete. For a country that has been so committed to affirmative action for so long, it's a major shift in policy. And thus a significant part of the debate on affirmative action.
2.2First off, thanks for replying to commentary Mr. Schuman, it is always appreciated.
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Second, did you even read the quotes you put up there?
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Najib closes his speech by saying they must renew, not destroy, RENEW, affirmative action policies.
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Since it's opening day, I'll use a baseball analogy. Before integration, the quality of competitive play was reduced because many of the most talented players were forced to play in the Negro Leagues. If there had been a "one black player per team" rule, the overall quality would have gone up, because clubs would have fired their least skilled white player and hired the most skilled black player they could find. If the rule had been "23 black players per team" then competitiveness would have been hurt just as much or more than it was being hurt by having only white players on each team.
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Previously, Malaysia had a policy like "23 black players per team", and when they reformed it, they'd do something like "you must have at least 18 black players per team, but you can go up to all 25 if you feel like it, and really, we don't mind if you do." In other words, they tinkered around the edges while keeping the whole-hearted spirit intact.
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Excessive AA is just as harmful to competitiveness as discrimination is, it just changes the direction of the opportunity losses. All they Malaysian government is saying is that they've figured this out and will now radically renew/modify their AA policies in an attempt to stop the discrimination those policies are now causing.
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Re-read his speech, Najib isn't saying "AA bad, no AA good", he's saying they're going to rewrite their AA policies to both reflect more socio-economic concerns than racial ones and to stop official discrimination against non-Malays.
2.3I think you finally got my point on your last sentence. What Najib is proposing is shifting the focus of policy away from race and towards income growth for all. You can call this "renewing" or "updating" or whatever you like. But he's talking about switching from a race-based system to something more open. In your baseball analogy, he's talking about no longer mandating a certain number of Malay players on each team; he's talking about not having racial quotas, period. Notice how he says the "first priority" is poverty alleviation, "irrespective of race." Granted, we don't know how far he'll go, or how long it will take. Remember, politics are at work here. Maybe in the end, Malaysia will still have race-based affirmative action policies, only with looser requirements (though that's already been in process.) But his direction is clear. Unless Malaysia's economy becomes more open, more accepting of everyone, no matter what his/her race, it's not going to get ahead.
2.4I see your point, but, I really don't agree with it. This isn't about the end of AA. It's about shifting it from an exclusive, quota and race based system into an inclusive, open-ness and opportunity based system.
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Which makes your headline and argument about the "end" of AA really, really misleading and sort of turns the argument into something its not. Good debate though.
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And I'm off to opening day. Go Royals!
2.5Thank you, Sean and jimc1004. What I find absolutely astonishing is the raw, unvarnished bias shown by Schuster, even in the title of the blog, "Affirmative Action: Bad for Growth?" Schuster ignores the reasons why the Malays instituted affirmative action programs and the reasons why they have decided to moderate these programs. Signifying that affirmative action is bad, either in Malaysia or the USA, he simplistically suggests that all should benefit from such efforts. Unfortunately, all should have not been excluded, intentionally or unintentionally, from the benefits of equal economic opportunity, either in Malaysia or in the USA. Affirmative action programs in the USA were never intended to be preferences, however, or quotas. The Labor Department's regulations make that clear. See 41 CFR Part 60-2. The key is opportunity, eliminating discrimination and overcoming the preferences that some have enjoyed for centuries (such as the legacy programs that enabled George Bush to attend Yale and Harvard Business School with a "C" average.) That kind of affirmative action has been good for growth in the US --enabling the growth of a black middle class and giving women an opportunity to excel, and I predict that it will be good for the Malays as well.
2.6Please notice the headline of my post ends with a question mark. That means I'm asking a question, to spark debate on the issue (which apparently I've achieved). The debate on the pros and cons of affirmative action programs has been around as long as affirmative action. That's because they are inherently exclusionary. They replace one exclusionary system (based on prejudice) with another (based on rules). Now I'm not saying such rules are wrong. In diverse societies where prejudices unfortunately exist, we need laws to ensure fairness and opportunity for disadvantaged groups. But the fact is that they still enforce the selection of one person over another, based on race, gender, etc. What affirmative action achieves is a much more fair and equal society. But the question is: what kind of economic cost is created in the process (if any)? Or at what point do the costs outweigh the benefits? This is an economic question only. What's interesting about the Malaysian case is that the government, after defending and supporting race-based affirmative action for 40 years, is now saying that the costs of that system are too high for the overall economy. We have yet to see what kind of reform they'll undertake. But they're suggesting a system that does away, at least to a certain degree, to rules that determine economic opportunity based on non-economic factors. We can argue if what's happening in Malaysia is relevant to other parts of the world. But it is interesting to note that the Malaysians themselves see a more open society as a more competitive society going forward.
3Well said, Sean!
4Quotas alone will never address decades or centuries of discrimination. The elite have had "all the advantages". You can not take raw talent like some high IQ slum kid and just stuff him/her into Harvard Medical school.Programs like Head Start, though never fully funded so that all eligible kids were enrolled, have proved that early childhood education intervention works to raise school performance [and is much cheaper than later alternatives like juvenile corrections]. Of course the enemies of public schools and affirmative action for the poor [but NOT for "legacies"] try to claim that post Head Start [ie in higher grades, when the funding ends and the schools are still horrible] the results don't last - which is like arguing that, "Feeding the dog doesn't work, I fed it for 3 years but as soon as I stopped the dog still died".What about the enourmous cost to society of not exploiting ALL the available talent pool? India and China and a few other countries are expanding their economies by graduating thousands of scientists and engineers, many drawn from the peasant class. In cultures where women are excluded from work opportunities outside the home they are tossing away half the raw talent. The same is true where there is widespread poverty and little economic mobility. That is also bad for growth.
5Author: "Clearly, the Malaysians (or at least the Malay segment of Malaysian society) believe that the NEP was necessary to achieve social justice and communal peace. The NEPwas developed after race riots in 1969. That horrific event led the leadership to conclude they'd be unable to defuse tensions in Malaysia's multiracial society withoutrectifying the economic balance between the diverse communities and lifting the Malays out of poverty."Me: 1969 riot is not a true race riot. The truth of the event wasn't allowed to be published and reported in the press.Government ordered newspaper to report so and so. Hence it got printed as fact and history. Many were misled of the truth. The summary of facts printed were the chinese won part of the election votes, the ruling UMNO-led alliance lost two third of seats losing the important states and territory like Kuala Lumpur and Selangor. The Chinese celebrated and the Malay got intimiated. Malay had own gathering to counter the celebration. Riot started when chinese supporters passed through some streets with malays and got beaten up.The fact was it was the party UMNO which led the riot. UMNO's Harun Idris, Selangor Chief Minister, called for a gathering of many Malay. He planned the riot with Abdul Razak. Abdul Razak wanted to come into power to be Prime Ministers taking down Tunku Abdul Rahman, the Prime Minister then. Harun Idris was abetting Abdul Razak for political gain. Malays were called to leave the cities. Non Malays were left dumb not knowing what happened, why many people were dissappearing. The malay just told their neighbours including chinese and indian ethnic, that they were going back to hometown. Harun Idris gets the supporters on truck armed with weapons to attack the supporters. Attacks began and soldiers and police were instructed not to stop the riot. Abdul Rahman knew everything was too late to stop.In many places like Kampung baru (a village name), many Malays were protecting their Chinese friends and neighbours by clothing them with sarung and malay clothes. Many attackers who came were unable to find the Chinese who were hiding in Malay's houses. Everyone loved peace. Only few bad ones spoilt the whole scene.When the riots is over, Malays moved back into their houses in the cities. Chinese see their neighbour coming back as if nothing happened. No one were allowed or even fear to talk about it. It had became a law to arrest anyone discussing about the incident - May 13th.NEP was introduced for self gain. It wasn't meant for the poor. It was only for the bumiputra.Technically, Malaysia NEP wouldn't be strong by granting benefits just to the Malays because they do not stand over 50%. Bumiputra terminology was introduced to cover Malays, muslims regardless of race, aborigines in east Malaysia (Sabah and Sarawak). Only then bumiputra represents 60% of Malaysia.As time passes, many articles are twisted and being misled to declare Malay stands at 60%. Come to think about it. If the Indian represents 9%, Chinese 30%, Sabah & Sarawak 20% of which a portion is chinese and Indian, which were already part of the 9% & 30%, it still leave more than half of them to be aborigines. Say 13%. The total non-Malays stand at 52%. How would Malay be 60%?As decades moved on, many Sabah and Sarawak residents proclaim Christianity, some got into mixed marriages and many of them lose the bumiputra status. Hence, bumiputra percentage dropped. Malaysia welcomes few millions of backdoor illegal poor immigrants from Indonesia, who are mostly Muslims. They then receive permanent residents and citizenship. Immigrants from Philipines settled in Sabah with fake local identity which could be purchased and had their data inserted into the federal registration system. They were only required to agree that they hold bumiputra status, claimed to be muslim and vote for the UMNO-led alliance. There are also many whom took over the identity of death people who were not reported. Registration process is poor and lack of transparency in Malaysia, especially in rural area.Isn't it amazing for Malaysia whom had a population of 22 million in 1990s to blossom to 28 million ten years later?The current Prime Minister Najib is the son of Abdul Razak. Do you think he doesn't know everything? Do you think a son will change the NEP what his father has brainchild? Think again.
6Where do you get the notion that affirmative action laws "still enforce the selection of one person over another, based on race, gender, etc."? There are significant legal restraints on using race or gender to form the basis on which one makes a selection. See, Johnson v. Transportation Agency, a Supreme Court decision that allowed gender to be taken into account only where there was a manifest imbalance in the job group in question. Affirmative action programs are primarily based on recruitment and outreach. The basic theory is if you diversify the pool of applicants with qualified persons, you will achieve a diverse workforce. "Casting a wide net" is what affirmative action requires, as well as removing discriminatory barriers to employment or educational opportunity. In that respect, affirmative action is in-clusionary, not exclusionary.
I also disagree that using exclusively economic factors achieves a more palatable form of opportunity and promotes growth. First, there is no such thing as purely economic rules in this complex, global economy. Since slavery, which was essential to the Ameican Southern economy, wealth distribution has depended on non-economic factors including labor, African and European. Even the selction of the nation's leaders via the vote determines our economic policies from banking to taxation. Moreover, the leaders of the legislative, judicial and executive branches of American government are, in many cases, graduates of elite institutions of higher education, who until the 1960s, explicitly limited access to white men (of wealth). It was the civil rights movement and the resulting laws that opened our economy to a higher level of participation by women and minorities. If affirmative action is unpalatable, it is because those who have enjoyed the privileges of wealth and exclusivity are threatened by the new diversity and competition. Given the changing demographics, however, diversity has become a matter of national interest.
7Apparently we need to understand that racial discrimination is so repugnant, so despicable and so completely unacceptable that the only solution acceptable to liberals is racial discrimination. It must be intellectually very difficult to be a liberal.
8As Supreme Court Justice Harry Blackmun wrote: "In order to get beyond racism, we must first take account of race. There is no other way." It is unfortunate that you consider remedying past discrimination to be discriminatory. Some think it's justice.
9The original post and discussion has suffered from the fact that it was a response to a well-orchestrated disinformation campaign from the Malaysian government.Of all the comments, only malaysiamanaboleh understands the real situation on the ground in Malaysia. Note that Malaysia does not have a free press, so what the outside world sees is for the most part the government party line. Only the online bloggers and other sources that have evaded censorship are left to tell the other side of the story. These includehttp://malaysiakini.com/ and http://www.malaysia-today.net/.Because I spent two years in Malaysia, including the time of the riots, and have visited there recently, I would like to share my first hand view of the actial situation, as follows:Firstly, the way the government uses the term "affirmative action" is give the impression that the Malays were discriminated against. This is not true -- in fact the discrimination, since Malaysia was created, has been against the non-Malay ethnic groups, chiefly the chinese and indians. This happened because when the British colony was transformed into Malaysia (1957-1963), the Malays were put in power, and they have been able to stay in power ever since. The 1969 riots were actually incited by the government so they could create a state of emergency and stay in power. The cynically-named Malaysian "affirmative action" is actually a system of ethnic preferences given to the Malay ethnic group by their Malay government, and includes an educational system that reserves almost all university admissions for Malays, almost all government positions for Malays, etc, etc, ad nauseam.Secondly, the one-party Malay regime is extremely corrupt. This has resulted in billions of logging and oil revenues winding up in the pockets of government officials and their cronies, the rainforests plundered, and the lands of native peoples taken away without any compensation.This situation, well known inside Malaysia, has resulted, with the help of the open Internet to get the real story out to the people, with a growing opposition party, PKR, that is threatening the Malay regime, and has caused foreign investors fear instability and to shy away. This is why we are seeing the big announcements from the government, like the one quoted in the original post. The regime is trying to convince the international investment community that they will be able stabilize the country and stay in power. But most of my malaysian friends, like malaysiamanaboleh, think this is just propaganda.
10Michael Schuma,The original goal of NEP is to achieve 30% Bumiputra ownership in Malaysian equities which has already been surpassed as proven by the study made by a former UN economist few years ago. It was somewhere around 38%. The NEP should been abolised or reviewed since the main goal has been achieved.The fact is Malaysia government has been excluding companies like Power Company (Tenaga), Phone Company (Telekom), Airline Company (MAS), Highway companies (PLUS and many) and many other big companies which have been privatised. The claim by the government that these are 'servicing people' company and thus should not be counted.Malaysian Government then released their own statistics which dismissed the report by UM economist. The economist has to go into hiding for fear of arrest.If current government can deny facts and manipulate statistics whatever reform is only propaganda.Besides this, all personal income are required to contribute 11%-21% to employee provident fund (EPF), so called individual retirement financial plans. This fund amounting to billions of ringgit. But this fund is held by goverment financial body instead of independent investment companies and banks as seen in many other countries. Government used this fund to own companies which represents a great portion capital of the market. This ownership is also excluded from the equity statistics above. Malaysia economy is based on capitalisation.Most of these rich funding will only flows back into rich Malay instead of all bumiputra or Malays. Other bumiputras receive a small fraction of the cake to keep them happy. Many instruments and method were brainchilded to ensure this success.Example, retirement pension is only available to the government workers, which has a 'reserved' quota over 90% to hire the Malays. In overseas, all workers, regardless whether they work in private companies, self-run business or government companies, each receive equal pension - everyone. In Malaysia, the monthly pension government workers receive is equivalent to half of their last paid monthly salary. Poor workers who had RM1000 as salary only receive RM500. It is sufficient for their living. But imagine head honchos whom had salary of something between RM5000 and RM10,000.Isn't this called a rip off? Is this equality? Is everything transparent?Non-government workers only retire and rely on their EPF, which retired government workers also have as additional savings. Malaysia culture has been shaped in the way that it encourages working children to support their retired parents. Press will portray parents who want to live independent from their children as a shame as if being kicked out by their children. Hence many retired parents continue to live with children and grandchilren. The burden on govermment is reduced by this way.Highway comnpanies which are own by the EPF is said by Government as private companies. Hence they needed to collect toll fare and the fare is allowed to be increased vastly every few years and burden the people. The profit highway companies made in the end are channeled back to Government in a way.Besides the above, there are many other means which reduced the burden on Government while at the same time generate financial in flow to them.It is a shame writers from TIME just write articles by collecting official information, instead of going to the grass root and seek information from the people. Foreigners who has work and lived in Malaysia for some time could see the whole picture if they are aware.
11Correction in first paragraph:
UN economist was mentioned. This should be University Malaya (UM) economist.
Read more: http://curiouscapitalist.blogs.time.com/2010/04/04/affirmative-action-bad-for-growth/?xid=rss-topstories#ixzz0kbWsz2IQ
