New Economic Policy launch
How the New Economic Policy was launched in 1971, what its planning documents said it was for, what the official numbers show, and which parts of its record remain disputed.
What happened
In July 1971 the government tabled the Second Malaysia Plan, and with it the framework that has shaped Malaysian economic argument ever since. The plan was drafted in the period between the May 1969 election and its aftermath and the plan's tabling, under the administration led by Tun Abdul Razak, and the Economic Planning Unit's own later account traces its framing back to the Rukunegara, formulated after May 1969 as a basis for national unity.
The policy set out one goal and two prongs.
- Goal
- national unity, defined in the plan as loyalty to the nation over-riding all other loyalties.
- First prong
- reducing and eventually eradicating poverty among all Malaysians, irrespective of race.
- Second prong
- restructuring society to correct the economic imbalance among racial groups and to reduce and eventually eradicate the identification of race with economic function.
On the far horizon, the plan said Malays and other indigenous people should become full partners in the economic life of the nation within one generation, and that policy should above all create a Bumiputera commercial and industrial community. A twenty-year target was attached: that within twenty years they would manage and own at least 30% of commercial and industrial activity, shifting corporate ownership from roughly 2.4:33:63 in 1970 to 30:40:30 by 1990.
In 1976 the Third Malaysia Plan spelled the framework out at length as the Outline Perspective Plan, 1971-90, and split the 30% into 7.4% held by individuals and 22.6% held by trust agencies. Delivery ran through state agencies and government-linked firms, and through rules such as the Industrial Coordination Act 1975.
The record is partly agreed and partly not. Official statistics for Peninsular Malaysia show poverty incidence falling from 49.3% in 1970 to 16.5% in 1990, and the Gini coefficient falling from 0.513 to 0.442 over the same period.
Jomo K.S. accepts a large reduction but notes that Sudhir Anand's study put the 1970 figure higher, at 56.7%, that the poverty line was lowered at points, and that a household rather than per capita basis affects the count.
On corporate equity, the official par-value series has Bumiputera holdings rising to 19.3% by 1990 and never since reaching 30%. Lee Hwok Aun points out that within that total the individual sub-target of 7.4% was passed as early as 1985, a fact that dropped out of policy discussion.
The measurement itself is the live dispute. The official series includes foreign ownership and nominee companies while excluding Malaysian government holdings, a rule set when government held about 0.5% of corporate equity.
The Centre for Public Policy Studies argued in 2006 that once government and government-linked company shareholdings are counted, with 70% assigned as representing Bumiputera interest, the 30% mark has already been passed; Kua Kia Soong makes the same argument in stronger terms and cites the figure of up to 45%.
Lee Hwok Aun agrees the official picture is partial and says the exclusion is untenable when government-linked companies hold around 40% of listed shares, but also says the alternative calculations do not conclusively override the official account. The Economic Planning Unit's series continues to report below 30%.
Assessments of what the framework accomplished differ, and each rests on different evidence.
- Economic Planning Unit
- its case study presents the period as poverty reduction, growth and racial harmony achieved together, and notes that the governing coalition was returned at every general election from 1974.
- Jomo K.S
- writes that it is doubtful the policy created the conditions for national unity, while allowing that it probably mitigated Bumiputera resentment of non-Bumiputera dominance in business and the professions, with the sharpest friction among the middle classes.
- Centre for Public Policy Studies
- argues a community-wide equity share says nothing about how wealth is spread within that community.
- Lee Hwok Aun
- argues the single target biased the system toward acquisition and short-term gains and should give way to targets for Bumiputera enterprise development.
The framework's stated timeline ended in 1990 and was succeeded by the National Development Policy and then the National Vision Policy, but the 30% figure did not retire with it: it reappears in the Eleventh Malaysia Plan and in the draft Shared Prosperity Vision 2030.
What the sources say
The government’s Shared Prosperity Vision 2030 attributes the change in Bumiputera equity ownership between 2011 and 2015 in part to economic-liberalisation policies since 2002 and the abolition of the Foreign Investment Committee in 2009, which it says increased foreign equity ownership and crowded out Bumiputera ownership; this is the government document’s explanation.
What was launched, and when
The New Economic Policy was set out as a chapter of the Second Malaysia Plan, 1971-1975, tabled in Parliament in July 1971; the first chapter, "The New Development Strategy", ran to about nine pages.
The Economic Planning Unit, in a government case study prepared for a World Bank learning process, dates the NEP to 1970 and describes its detailed implementation through the Second Malaysia Plan, 1971-1975. Lee Hwok Aun records that the fuller Outline Perspective Plan, 1971-90 (OPP1), appeared in the Third Malaysia Plan in 1976.
The policy was formulated after the general election of May 1969 and the ethnic violence that followed it, under the administration led by Tun Abdul Razak; Lee Hwok Aun dates the deliberations to 1969-1971 and notes an early draft circulated in March 1970.
The government's own account traces the policy's framing to the Rukunegara, formulated after the May 1969 incident as "a basis for national unity," as quoted in the Fourth Malaysia Plan.
What the policy documents said it was for
The NEP named national unity as its sole overarching goal, defined in the Second Malaysia Plan as a situation in which "loyalty and dedication... to the nation should over-ride all other loyalties."
The first prong was directed at "reducing and eventually eradicating poverty among all Malaysians, irrespective of race."
Economic Planning UnitEconomic Planning Unit / Ministry of Economy
The second prong was aimed at "restructuring Malaysian society to correct the economic imbalance among racial groups and reduce and eventually eradicate the identification of race with economic function."
The Second Malaysia Plan and its Mid-Term Review stated the long-horizon aim that Malays and other indigenous people would, "within one generation," become "full partners in the economic life of the nation," and that policy should "above all, ensure the creation of a commercial and industrial community."
Lee Hwok AunLee Hwok AunBumiputera
The plan set a 20-year horizon and a stated target that "within a period of 20 years, Malays and others indigenous people will manage and own at least 30% of the total commercial and industrial activities," as quoted in the parliamentary debate of 14 July 1971.
The corporate-ownership target was expressed as a shift from a 1970 distribution of roughly 2.4% Bumiputera, 33-34% other Malaysians and 63% foreign, to 30:40:30 by 1990.
The 30% was originally split into sub-targets: 7.4% held by Bumiputera individuals and 22.6% held by entities representing Bumiputera interests, such as state economic development corporations and MARA.
The fuller version of the framework appeared in 1976 as Chapter 4 of the Third Malaysia Plan, the "Outline Perspective Plan, 1971-90" (OPP1), which ran to about 40 pages and set out the empirical basis for the policy.
Baseline conditions and instruments
Official figures for Peninsular Malaysia put poverty incidence in 1970 at 49.3%, with incidence of 64.8% among Bumiputera, 39.2% among Indians and 26.0% among Chinese, and a Gini coefficient of about 0.51.
The government was to take "an active and direct role in economic and business activities," and delivery ran through trust agencies and state-linked firms including MARA, PERNAS, UDA, the state economic development corporations, and later Permodalan Nasional Berhad, Khazanah Nasional, Petronas, the EPF and Lembaga Tabung Haji.
The Industrial Coordination Act 1975 required manufacturing firms above specified thresholds to obtain a manufacturing licence. A UNCTAD review records that, in the 1970s and 1980s, equity conditions could be imposed through the licensing process to encourage Bumiputera ownership; it distinguishes those conditions from the Act's licensing requirement.
The distributional targets were premised on the economy growing at an average of 8% a year over the plan period; actual real GDP growth averaged 6.7% during 1971-1990.
What followed
Official statistics for Peninsular Malaysia record poverty incidence falling from 49.3% in 1970 to 16.5% by 1990, and the Gini coefficient falling from 0.513 in 1970 to 0.442 in 1990. The World Bank/EPU case study notes that the earlier 1990 figure of 0.445 was corrected to 0.442.
Economic Planning Unit / Ministry of EconomyEconomic Planning UnitJomo K.S.
On the official par-value series, Bumiputera corporate equity rose from 2.4% in 1970 to 19.3% in 1990, below the 30% target; within that, the individual component reached 10.1% in 1985 and 14.2% in 1990, above the original 7.4% individual sub-target, while trust agencies held 5.1%.
The NEP's stated 1971-1990 timeline ended in 1990 and was succeeded by the National Development Policy, 1991-2000, set out in the Second Outline Perspective Plan and Sixth Malaysia Plan, followed by the National Vision Policy, 2001-2010; the Economic Planning Unit states the NDP retained the NEP's main elements while shifting the anti-poverty focus toward hardcore poverty and the restructuring focus toward a Bumiputera Commercial and Industrial Community.
Economic Planning UnitEconomic Planning Unit / Ministry of EconomyLee Hwok Aun
The 30% figure has continued to appear in later planning documents: the Eleventh Malaysia Plan (2015) restated it as 30% Bumiputera equity ownership "with effective control," and the draft Shared Prosperity Vision 2030 restated the target as a continuing shortfall.
Where accounts differ
The government publicly rejected and later retracted a separate 2006 equity figure, while public debate identified methodological differences including treatment of government ownership and par value; no verified government methodological document directly rebutting the Centre for Public Policy Studies estimate in full has been located.
Whether the 30% equity target has been met is disputed, and the dispute is largely about measurement. The official series, compiled by the Economic Planning Unit and reproduced in successive Malaysia Plans, places Bumiputera ownership below 30% throughout: 19.3% in 1990, 18.9% in 2004, 21.9% in 2008, 23.4% in 2011 and 16.2% in 2015.
The Centre for Public Policy Studies, in a 2006 report written for the Ninth Malaysia Plan discussion, argued the official figure of 18.7% for 2004 understates actual holdings because it excludes government and government-linked company shareholdings; assigning 70% of government shareholding as representing Bumiputera interest, it concluded the 30% threshold had been exceeded.
Lee Hwok Aun of the ISEAS-Yusof Ishak Institute argues the official account "provided a partial picture" because it includes foreign ownership and opaque nominee companies while excluding Malaysian government ownership, a practice he says was reasonable in 1971 when government held about 0.5% of corporate equity but is "untenable" now that government-linked companies reportedly account for around 40% of publicly listed shares. He also argues the alternative calculations "do not conclusively override the official account."
Kua Kia Soong, a former MP writing in Free Malaysia Today, argues the below-30% figure is an artefact of counting rules: that Petronas and other government-linked entities are treated as non-Bumiputera, and that nominee and locally controlled company holdings are placed under "other Malaysian residents." He cites the 2006 finding that Bumiputera corporate equity "could be as high as 45%, or RM325.08 billion."
Whether the reported fall in poverty reflects real gains of the size claimed is questioned by Jomo K.S., who notes that Sudhir Anand's 1983 study put 1970 poverty at 56.7% rather than the official 49.3%, that the household-based poverty line understates per capita poverty, and that "part of the decline in poverty may have been due to a lowering of the poverty line." The Economic Planning Unit presents the same series without those qualifications.
Whether the policy achieved its stated goal of national unity is assessed differently by different authors. The Economic Planning Unit's case study presents the 1970-2000 record as poverty reduction, growth and racial harmony achieved together, and notes that the governing coalition was returned at every general election from 1974. Jomo K.S. writes that it is "doubtful that the NEP has created the conditions for national unity," while adding that it "has probably mitigated bumiputera resentment of non-bumiputera domination of business and the professions," and that resentment is greatest among the middle classes.
Why the broad "full economic partnership" aim narrowed into a single 30% number is explained differently. Lee Hwok Aun cites Faaland, Parkinson and Saniman (1990), who record that specific targets existed in internal deliberations but were omitted in 1971 because of political resistance; he separately notes Heng Pek Koon's (1997) account that more aggressive restructuring measures were parried by Finance Minister Tan Siew Sin until his retirement in 1974, and adds that ownership data were simply easier to collect than enterprise data. Lee also points to pressure from Malay elites who stood to gain from equity redistribution. He does not adjudicate among these.
Whether the framework was meant to end in 1990 is disputed. Lee Hwok Aun writes that an implicit understanding developed that the policy would be "dismantled in 1990," which he attributes to inadequate specification in the 1971 statement rather than to any stated sunset clause.
Whether equity transfer was the right instrument at all is contested among economists who otherwise accept the policy's aims. The Centre for Public Policy Studies argued that a target expressed as a community share said nothing about distribution within the community, so that in principle "if just one Bumiputera came to own most of this corporate equity... the 30% target would still have been achieved," and that selective patronage produced intra-ethnic cleavages. Lee Hwok Aun argues the target "biased the system toward acquisition, profiteering, and short-term gains" and should be replaced by targets for Bumiputera SME development, noting that in 2015 Bumiputera-owned SMEs were 38% of Malaysian-owned SMEs.
Common questions
What was the New Economic Policy for?
The New Economic Policy named national unity as its overarching goal. Its two stated approaches were to reduce and eventually eradicate poverty among all Malaysians regardless of race, and to restructure society by correcting economic imbalance among racial groups and reducing the link between race and economic function.
When did the New Economic Policy start?
The policy was set out in the Second Malaysia Plan, 1971-1975, which was tabled in Parliament in July 1971. The Economic Planning Unit dates the NEP to 1970 and describes its detailed implementation through that plan, while the fuller Outline Perspective Plan, 1971-90, appeared in the Third Malaysia Plan in 1976.
What was the 30% Bumiputera equity target?
It was a 20-year target for Malays and other indigenous people to manage and own at least 30% of total commercial and industrial activity. The target envisaged corporate ownership shifting from roughly 2.4% Bumiputera, 33-34% other Malaysians and 63% foreign in 1970 to 30:40:30 by 1990.
Did the NEP reduce poverty?
Official statistics for Peninsular Malaysia record poverty incidence falling from 49.3% in 1970 to 16.5% in 1990. Jomo K.S. questions whether the reported decline reflects gains of the size claimed, noting a higher 1970 estimate in one study, the household basis of the poverty line, and possible effects from changes to that line.
Did Bumiputera equity reach 30%?
The official series places Bumiputera corporate equity below 30%, including 19.3% in 1990 and 16.2% in 2015. The Centre for Public Policy Studies says the official calculation excludes government and government-linked company holdings and concluded in 2006 that the threshold had been exceeded when it assigned 70% of government shareholding to Bumiputera interest; Lee Hwok Aun says alternative calculations do not conclusively override the official account.
Still open
- Whether, and how far, the NEP's planning documents invoked Article 153 of the Federal Constitution as legal authority.
- Whether the official equity figures are computed on par value or market value, and when any change of basis occurred; the sources here describe what is included and excluded, not the valuation basis in each year.
- Whether the government published a methodological document directly rebutting the Centre for Public Policy Studies estimate in full.