Country's Industrial Sector With Increased Public Investment example essay topic

With a population of around 22 million and a society which comprises of three main ethnic groups of Malay 59% or Bumiputras (sons of the soil) 1, Chinese 32% and Indians 9%, Malaysia was characterized by a high rate of development activity in the country upon gaining independence in 1957, with the fact that Malaysia is endowed with rich natural resources. Such activities was mostly evident in the agriculture sector with much emphasis given to land development, drainage and irrigation, rubber plantation, oil palm industry and tin industry. At the same time, Malaysia also encouraged local production of consumer goods which was previously imported, such as textiles and transport equipment. By implementing such policies, it was believed that Malaysia was able to continue to increase its agriculture exports activities and at the same time decreases its import commodities such as rice and consumer goods. However such policy has resulted in several economic imbalances in the country, for example, distribution of income and employment.

As stated in the Third Malaysia Plan, some of the social-economic problems were the unequal distribution in employment of various racial groups among the various sectors of the economy and the unequal distribution in the ownership and control of wealth in the country. The fact that the rapid growing agricultural sector was dominated by the Malays, however their per capita product was the lowest among all sectors and evidence of poverty was the highest accounting for over 70% of all households in poverty. The Chinese, on the other hand, per capita product was 167% higher than the agricultural sector and 60% higher than the average for the entire economy. For they were mostly concentrated on the much lucrative sector such as the manufacturing, mining and construction sector and the incidence of poverty for them accounted for only 9%. 4 Such in differences inevitably will cause some tension along the racial lines. In 1969, ethnic problems had begun to dominate Malaysian politics.

On May 13, race riots erupted between the Chinese and the Malays after the Chinese-dominated opposition (DAP) won several parliamentary seats from the Malay-dominated coalition ( UM NO, MCA, MIC). 5 Following the race riots which had such a great impact on the government, NEP (New economic Policy) a 20-year plan was enunciated. Its goal as outline in the Second Malaysia Plan comprised of two prongs, 'to reduce and eventually eradicate poverty, by raising income levels and increasing employment opportunities for all Malaysians, irrespective of race. The second prong aims at accelerating the process of restructuring Malaysian society to correct economic imbalances, so as to reduce and eventually eliminate the identification of race with economic function.

' 6 One could argue that the race riots actually acts as a catalyst to initiate this new programme. With the NEP programme, are the deeply divided ethnic communities of Malaysia able to avoid a communal breakdown after the eruption of the ethnic riots of 1969? Can the different policies under the NEP stabilize Malaysia's political, social and economic structure? As for the rest of the paper, I shall examine the merits and demerits of the different policies adopted by the Malaysia Government under the NEP programme. With the objective of restructuring wealth, in particular on creating a Malay business structure and achieving 30% Bumiputras ownership of the corporate and 22.6% by the trust agencies by 1990, state intervention and public sector expenditure were increased.

7 It is almost certain that Malaysia's Economy had shown a remarkable growth based on export-oriented industrialization under the different policies in the NEP programme. Standards of living were raising with the emergence of high growth rates and the problems of poverty and imbalance were diminishing. However, it is often argued that the NEP had hindered the economic growth in Malaysia. According to Adam & Cavendish, they suggested that the hindrance of fast growth has been the emergence of what they term 'cronyism', or the distribution of rentier opportunities to companies controlled by politicians, retired bureaucrats, parties in the ruling coalition and politically well-connected businessman. 8 Similarly, J omo had stated that 'the increased government intervention in the economy that has promoted statist capitalists has also promoted rentier activity and has led to an increased incidence of corruption and economic waste. 9 With the scheme of 'redistribution through growth', national unity was thought to be able to achieve by the community.

Thus, the government must be active in the participation of commercial and industrial undertakings by creating new industrial activities. By improving the standards of education, modernizing urbanization and focusing on regional balance, it was perceived that racial economic balance would be achieved. 10 Thus as part of the NEP programme, with the Bumiputras being targeted on the NEP agenda, as they constitute the largest section among the poor, they were often encouraged to participate in the modern sector of the economy and business. As stated in the economic congress to look into various aspects of national development on Feb 1989, 'The eradication of poverty to be carried out irrespective of race.

But it must be reminded that poverty is still a Bumiputras phenomenon both in rural and urban areas'. 11 A variety of programs were implemented to facilitate the access of Malays into business. For example, special training courses were implemented, loans were provided, business premises were made available and most important of all, they were given preference in obtaining contracts, licenses for business purpose. 12 There is no doubt that such policy had improved the distribution of income during the mid 1970's to 1990, where households in the bottom 40% of the population in Malaysia saw an increased in their total share of income from 11.4% to 14.5%. 13 However, such policy had overlook the interest of non- bumiputras mainly the Chinese.

Furthermore, with the introduction of the Industrial Coordination Act in 1975, the Chinese business were even more undermined. The Act initially, required all manufacturers to obtain a license except those with capital of less than $100, 00 and fewer than 25 employees. In order to be granted with the license, manufacturers must ensured that 30% of equity would be owned by Malay interest and as for the case of foreign enterprise, 70% of equity under Malaysians. During this period, the Chinese adopted different strategy in their business. For the larger businesses, they were able to seek alternative routes by diversifying their operations overseas. Others.

Such as the small and medium sized businesses either pool their resources together to reinforce their capital. While, the remaining groups were forced to take in Malay partners in order to obtain licenses, permits, leases etc. 14 One could argued that the way the policy has been implemented under the NEP has caused resentment among the races. In other words, such policy has caused uneven development within Malaysia's modern economy sector, particularly in the industrial sector.

Since the implementation of the NEP, there had been a major increased in public sector investment. According to statistics, 'In 1981, the value of investments undertaken by the public sector agencies amounted to M$2.527 billion or 27 per cent of the total public sector investments. In 1982, federal-government equity in government-owned companies amounted to M$1.28 billion, whilst loans advanced were M$7.2 billion and investments in federal statutory bodies were M 413.5 billion. The size of the government investment as at September 15, 1987, amounted to M$5.739 billion or 78 per cent of the total paid-up capital of these agencies. ' 15 Regardless of the substantial amount of investment the government had made, the speedy public sector expansion under the NEP programme was believed to have caused problems such as economic inefficiency, inferior services, low productivity and limited innovation. There were several reasons contributing to the lackluster performance of public enterprises.

One reason, being that, different objectives were to be met despite their variance. For example, under the NEP programme, state-owned enterprises are expected to fulfill the redistributive goals as well as the essential goals such as profit maximization and efficiency. Therefore, most public enterprises were deemed to be lack of a competitive entrepreneurial ethos which had the effect of retarding profitability. 16 Such losses or low profits of the state investment resources had cause the government's fiscal burden and inevitably slowed economic growth.

In order to tackled such problems, the government had decided to compensate the declining private investments by diversifying the country's industrial sector with increased public investment. However, this heavy industrialization program led by Mahathir had led to widespread criticism and protest. In order to finance this program, the government had resorted to massive borrowings from overseas which led to the government accumulating heavy foreign debt. 17 In 1983, the government came up with the notion of 'Privatisation' which was another policy to help save the domestic economic problems. Such move was thought to be radical as it involved a overturn of the state's earlier encouragement of public enterprises. Such plan had helped the government to transfer some of its outstanding debts to the private sector.

Also, privatization had stimulated competition among industry leading to decline in public expenditure, which also encouraged private entrepreneurship. However, it was often argued that privatization tends to have a unfavourable impact on the public, in particular to poor consumers. With priority usually given to profit maximization at the expense of social welfare and the public sector, non-profitable services which were often needed by the people were unlikely to be introduced. 18 Another important issue, which is often left out of the context is the Women's economic role. Over the years, the NEP programme had changed the economic role of women in Malaysia. With increasing job and educational opportunities for women, this also mean that women are taking on new responsibility outside their homes.

Often, women's participation in the industry are often associated with income differentials. Studies have shown that in 1980, the average monthly income to women workers was between $9.00 and $209.00 less then those paid to male workers. As compared to 1974, when the income differential was between $17 and $243, there was a marginal improvement. However, women's employment in the industry such as the manufacturing industry were often a representation of exploitation of cheap labor.

In addition, their working conditions were often deemed unfavorable. For example, studies had shown that in the electronics industry, workers often develop eye problems after one year of employment. 19 Throughout the last few decades, under the NEP programme, the major challenge for modern Malaysia was to create a common nation among the major ethnic groups that are deeply divided along economic, social, cultural, and religious lines. Although there are few signs of ethnic integration, the absence of ethnic violence over the last few decades is an achievement of considerable significance. The New Economic Policy implemented from 1970 to 1990 was intended to reduce the ethnic economic gap and to reduce poverty, but it has also created a Malay rentier class based on political and government patronage. In spite of all these problems, the government has continued to invest heavily in physical infrastructure and also in education and health.

And the Malaysian economy has kept growing through all these ups and downs. As Dr. Mahathir summed up the impact of the NEP, ' Many of the economic success were realized during the NEP period. Some quarters believed that the success would be more significant if there was no NEP. But the fact that is that Malaysia has achieved good economic success compared with other nations which had no elements such as the interfering NEP, as some people describe. ' 20.