Dr. Mahathir didn’t seem to be worried about the situation. It was about a year away from the end of the First Outline Perspective Plan (OPP), the twenty year timeframe from 1971 through to 1990, marking the formal end of the New Economic Policy, that was mandated by the National Consultative Council in 1970 to be implemented over the twenty years. The national consensus was to restructure Malaysian society and eradicate poverty on the back of the May 13th Incident. At this time the government was focussed on consolidating the nation’s recovery from economic recession of 1985. Foreign investors, however, and the nation were uncertain and anxiously waiting for what was to replace the NEP after 1990. Nobody it seemed was looking at the alternative new policy. Mahathir was asked the question by Baharuddin Alias, a senior partner of the legal firm Skrine and Co and a member with me on the Bank Bumiputera Malaysia Berhad board, while the Prime Minister was chairing the Yayasan Perdana Bumiputra, the ultimate governing body of the National Investment Corporation. Known as PNB (the Malay acronym for Permodalan Nasional Berhad), it was the lead government agency for mobilization and investment of bumiputera capital to enhance the bumiputera equity ownership of the nation’s wealth represented by stocks and shares of the corporate sector. Dr. Mahathir had confidently said that he had an ad hoc committee, not publicly announced, headed by Ghani Othman, then Deputy Minister of Telecommunications and Energy, with me as the secretary, looking into the matter of what was to replace the NEP.
In early 1989, Ghani and I had decided to form this committee, and to convince the Prime Minister of its necessity, to include experienced senior civil servants and corporate, academic and professional experts, to explore the achievements of the NEP and to chart the next course of action beyond 1990. Besides the two of us, the members included the late Zain Azraai, former permanent representative to the United Nations and later secretary-general of the Treasury; Halim Ismail, a UKM academic economist and later Managing Director of Bank Islam Malaysia, and a member of the PM’s Economic Panel; Shaari Jabbar, then chief of the Asia Pacific Development Centre; Khalid Ibrahim, chief executive of PNB; and Khadijah Ahmad, owner of KAF Discount House and former member of the UN Brandt Commission. Our modus operandi was to keep the core group small, and generate ideas through consultation with other significant players in the policy game through their operational responsibilities. These latter included the likes of Tun Ismail Ali, chairman of PNB, Ghazalie Shafiee, the former home affairs minister, Musa Hitam, who was on the verge of announcing his resignation as deputy prime minister, and Basir Ismail, chairman of Bank Bumiputera. Zainal Aznam from the EPU would occasionally join the group, when he was by that time on the point of becoming my deputy in MIER.
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| Ghazalie Shafie (1922-2010) |
Ghani Othman kept the Prime Minister informed of our progress. The government had set some of the direction of the future policy when implementing the economic recovery plan over the previous two years, following a path of economic liberalization and reform to encourage the reversal of private investment from its apparent decline due to the uncertainty over the NEP, both from domestic as well as foreign sources, and a shift away from state-driven programmes. The Paris Plaza Accord in 1985 engineered by Henry Kissinger and James Baker to realign the US dollar-yen currency exchange rates to deal with Japanese surpluses and the US twin-deficits problem, had set the tone of the global economy that would have significant impact on the future performance of the Malaysian economy. The investment codes under the Foreign Investment Committee were relaxed in the interest of inducing foreign investment and sustaining economic growth, as well as the raising of the threshold of the Industrial Coordination Act, a major instrument of restructuring equity ownership and employment in the private sector under the NEP. We also came to the conclusion that the planning horizon defined by the outline perspective plan should be reduced from twenty years in the first OPP to just ten years to enable a quicker adjustment to changing external and domestic policy conditions.
Two policy issues vexed the committee; whether to make restructuring targets explicit as in the previous NEP, or to make it implicit. The other issue was even more vexacious and split the committee, namely the issue of privatization. The explicit/implicit targets debate was over whether hard targets or soft targets would be sufficient to enable monitoring and evaluation of the impact of policy initiatives and programmes in the implementation of the new policy. In the first policy prong of the NEP, namely the reduction of poverty, use of the poverty line method enabled the EPU to track the incidence of household poverty regardless of race quite properly. According to this standard, household poverty was successfully reduced to under 6% overall from 50% of total households by the end of the NEP in 1990. The problem was in the delivery statistics: it turned out that of the nearly RM29 billion spent on poverty reduction over the twenty years in the implementation of poverty programmes, the actual explicit impact on target groups was only 20%, implying considerable leakage; the rest were spent on the delivery infrastructure of poverty reduction.
The issue which turned out to favour more implicit targetting was over the restructuring issues. While the measurement of the success of restructuring employment to reduce the identification of occupation with race was non-controversial, the targeting of 30% for equity ownership for bumiputeras became the subject of a raging substantive as well as statistical debate amongst academics, and administrators alike to this day, producing divisions of opinion along racial lines. The mode of implementation and impact of the NEP as a policy of affirmative action favouring the bumiputeras, on principle and by historical necessity generally accepted by all as a national goal, led to subsequent controversies on the measurement of success in reaching the targets in later reincarnations of the NEP. In the committee, the discussion focussed on the quota system (vs meritocracy) in the allocation of resources, and the issue of the 30% itself, and why 30% and not as some extreme view in UMNO posed, at a higher level to reflect the proportion of bumiputeras in the population (just above 50% at the time). In a separate interview with Ghazalie Shafie, we found out that no underlying principle was involved in arriving at that target except its achievability. But the 30% target became the mantra of both the advocates and the opponents in equal measure. As we saw later this issue of quota vs merit reemerged in the MAPEN consultations that followed. Twenty years after implicit targets won the day in the new policy replacing the NEP, the question of explicit/implicit targets returned with a vengeance in the implementation of the Key Performance Indicators (KPIs) in the New Economic Model (NEM) implemented under the Najib Administration.
The debate on privatization turned out to be less ideological than political. While the impact of the neo-liberal paradigm which reached its peak in the Washington Consensus that dominated development thinking in the nineties and the first decade of the new century, resulting in the shift in the balance between the state and the private sector toward the market mechanism, our debate in the committee was over who controlled the process and its impact on distribution and the masses. While the reduction of the government’s fiscal burden was a persuasive argument for privatization we were concerned about the impact of the transfer of “natural” monopolies and rent-seeking behaviour on the cost of such joint goods as utilities to the people. It must be remembered that the issues of privatization were emerging in the public consciousness at the time when the Mahathir-Anwar-Daim triumvirate was consolidating itself and money politics had taken root in UMNO. We resolved the concerns of both sides in favour of privatization by insisting on it being linked to the equity restructuring goals of the new policy (the equity target had only reached 21% by 1990 under the NEP), emphasizing the role of the trust agencies (now called government-linked companies, GLCs) acting as custodians of national assets on behalf of the people, and on a tight regulatory framework to prevent slippage from the noble restructuring goals of the new policy on the basis of merit.
Towards the end of the consultation process, and to consolidate our thinking, I organized a seminar (funded by IDRC) in Vancouver at the Institute of Asian Studies in the University of British Columbia headed by Terry McGee, to test the new ideas with a detached foreign audience of concerned scholars. Four members of the committee attended. One of the significant outcomes of the seminar was a concern for the reaction and the need for the cooperation of the non-bumiputera community to the issues and proposals raised in the new policy.
A 19-page draft report on the post-NEP policy was completed by the committee, and Ghani arranged a meeting with Dr. Mahathir in Parliament House to present him with the new proposals. “So, what’s new that you are proposing?” was his first question. I had the impression that the Prime Minister already knew what needs to be done, that he had chosen not to let on, and that it seemed to me the new proposals didn’t impress him as really that original. And on hindsight, it clearly came out that it was not the policy proposals themselves, adjusted in subsequent versions in pragmatic ways to deal with the problems of the day, rather the outcomes were determined by the manner of implementation of the policy that is important.
In charting the post-NEP course, the government leadership realised the need for a new consensus. I don’t really know whether the idea originated from Mahathir or his deputy, Tun Ghaffar Baba, or maybe even both, but in late 1989 it was decided that an all-party National Economic Consultative Council (or MAPEN, following the Bahasa Malaysia acronym of the body) be established to arrive at the new post-1990 economic policy. A total of 150 members were accredited to the Council with representatives from political parties including the BN components and the Opposition, business leaders, academics and NGOs. They were given two years to come up with and agree to a new development policy to be implemented over the next ten years to 2000. Ghazalie Shafie was elected the Chairman of this first NECC, and I was appointed the rapporteur-general, with the EPU as the secretariat. The UMNO team was led by Abdullah Badawi. Just after the launch of MAPEN, we received news that Mahathir had suffered a heart attack. Abdullah Badawi and I managed to get to GHKL to mark our personal concern, but the Prime Minister was successfully operated on and resumed his duties after a brief period of recovery. MAPEN continued to carry on with its mission.
Through plenary meetings held in PWTC throughout the first year (1990), and presentations and speeches by the different representatives speaking on behalf of their constituencies, the main issues of socio-economic imbalances, the Bumiputera Commercial and Industrial Community (BCIC), poverty eradication, human resource development and the environment were articulated by the different parties. The basic principles of affirmative action, the quota system, wealth accumulation and distribution, the role of the state and government delivery system, the foreign sector, and issues surrounding the private sector (liberalization and the costs of doing business) were all brought out and put on the table. They were all hotly debated, especially coming from the opposition (the 1990 general elections were only months away!) and independent NGOs. After nearly a year of open debate, and not being able to get their positions in, the opposition parties comprising DAP, Pas and PSRM together with a few NGOs such as Chandra Muzaffar’s JUST group, walked out and resigned en masse from the Council. Without further resistance in the debates, the Council broke up into four committees: one each on macro-economic imbalances; poverty eradication; human resource development and national unity, each tasked with getting deeper into the subthemes. A steering committee, chaired by King Ghaz (Ghazalie Shafie), was charged with organizing the proceedings and recommendations prior to endorsement by the whole Council, which duly appointed after the first year a drafting committee which I chaired comprising T. Marimuthu, Fong Chan Onn and Zainal Aznam as members. Mini-debates occurred even in the drafting committee – words and tempers flare up at numerous points. It was only professional trust and friendship that kept the group going and not lead to a breakdown. We finally managed to produce a working draft for consideration of the Steering Committee, incorporating amendments from the four committees, and finally adopted it at a plenary session of the Council. The final policy document called the Economic Policy for National Development, or DEPAN from its Bahasa Malaysia acronym, was presented to the Prime Minister in a closing ceremony at the end of 1991.
There was one issue that did not face any resistance from any quarter, government or opposition, and that was a consensus on economic growth. MIER had been working on long-term economic projections of the Malaysian economy for a year prior to the establishment of MAPEN, and in parallel to the ad hoc committee under Ghani Othman undertaking the consultations with business, government and political leaders leading to the report given to the Prime Minster months before he launched MAPEN. In the 1990 National Outlook Conference in November, I released the results of the work of MIER on the post-1990 economic scenario and announced an Income Doubling Plan proposal to power the growth of the Malaysian economy for the next decade after the end of the NEP. The Income Doubling Plan, building on the 10-12 year building cycle underlying the country’s economic growth, starting from the late eighties would lead to a doubling of gross national income at a real growth rate of 7% per annum, and of per capita income from USD2,000 to USD4,000 at the GDP growth rate of 9-10 per cent per annum to the year 2000. This was the paper submitted by MIER as our contribution to the deliberations of MAPEN. This actually turned out to be Malaysia’s era of high-speed growth between 1989-97, achieving an average of 8-9% per annum much like Japan’s in the 60s, but not of course like China’s twenty-year growth experience in the 90s and 2000s. And of course the Malaysian economy hit the brakes in the 1998 Asian Crisis.
Our search for the post-NEP policy (the son of the NEP) was very much conditioned by the fact that the NEP had failed to achieve its stated target of 30% for bumiputera equity in the national economy by the end of the stated period. Thus the need emerged to create a class of bumiputera entrepreneurs to catch-up with the achievements of their non-bumiputera counterparts. The nascentness of the BCIC initiative however meant that the government had to intervene through the creation of GLCs to mobilize capital through various schemes and to allocate investments in parallel with the private sector dominated by foreign entreprise and non-bumiptera businesses. This process raised considerable moral hazard issues, and the entire implementation of the BCIC plan was plagued through the subsequent reincarnations of the NEP in the National Development Policy (1991-2000), covering the Sixth and Seventh Malaysia Plan under Mahathir’s watch, the National Vision Policy (2001-2010) covering the Eighth and Ninth Malaysia Plans in the Abdullah Badawi adminstration, and the New Economic Model (2011-2020) covering the Tenth and Eleventh Malaysia Plans introduced by the Najib Administration, by rent-seeking behavior ending in what Kunio Yoshihara called "ersatz" capitalism (a term similarly recently adopted by Stiglitz to describe the current situation in the developing economies).
MIER played its part in the whole policy process to replace the NEP. The NEP’s legacy however continues to this day through subsequent rounds of achievement and controversy. Ghazalie Shafie, who received his Tunship several years before he died, confided in me one day at the end of one of the MAPEN steering committee meetings, that the success of the New Economic Policy, if ever it succeeds in reaching its targets, would be the demise of UMNO itself who had made the policy the basis of its political struggle. It may yet prove to be prophetic words. But the time of MIER’s first decade was a time of economic optimism and political hubris, even though it did not last.
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