Draft (not to be quoted)

Malaysia's New Economic Model: An Assessment of Its Strategies for Inclusive Growth
Ragayah Haji Mat Zin Institute of Malaysian and International Studies (IKMAS) rogayah@ukm.my , rogayahzin@yahoo .com

Paper to be presented at the Asia-wide regional workshop on

SOCIAL INCLUSIVENESS IN ASIAS EMERGING MIDDLE INCOME COUNTRIES

13 September 2011, Jakarta, Indonesia

1.

Introduction

For the past four decades, Malaysia has shown an impressive record of generating growth in real per capita income to reach the level of a high middle-income country, which resulted in the sharp contraction in absolute poverty incidence from some 52.4% in 1970 to 3.8% in 2009. The policy implemented during this period is the supposedly inclusive New Economic Policy 1971-1990 (NEP) that was launched with the objective of attaining national unity and fostering nationbuilding through poverty eradication irrespective of race and economic restructuring so as to eliminate the identification of race with economic functions. Often times the NEP was hailed as a successful model of redistributing income without sacrificing growth, but the record in income distribution has been mixed, achieving growth with equity in the 1980s but inequality fluctuating since the end of the NEP. Moreover, the level of inequality remained high1 throughout the period and poses a serious challenge to inclusive growth. Thus, there is a serious worry that old growth model that provided three decades of outstanding performance might no longer be relevant as the country is caught in a middle-income trap where economic growth has slowed down and prospects have weakened considerably. In order to overcome this and achieve Vision 2020 of being a developed nation, the government has introduced the New Economic Model (NEM) to be achieved through an Economic Transformation Program (ETP) that will propel Malaysia to being a high income nation with inclusiveness and sustainability. The NEM (NEAC 2010: 10) describes inclusiveness as:

a prerequisite for fostering a sense of belonging. Pro-poor growth will warrant that no groups will be marginalized and the essential needs of the rakyat will be satisfied. Families will be endowed with the opportunity and capabilities to pursue their aspirations in connected, sophisticated modern cities, townships and villages. They will live, work and study in localities free from the fear of crime, the indignity of discrimination, and the anxiety of need. Inclusiveness will enable all communities to contribute to and share in the wealth of the country. While perfect equality is impossible, an inclusive society will ensure that inequality does not worsen.

Thus the NEM seeks to improve the economic standing of everyone, irrespective of income level or ethnicity. The questions that come to mind are why does the NEP fail in its inclusiveness and how does the NEM compare with previous plans with regard to policies to correct income inequality and improve inclusiveness? Is the plan outlined in the NEM realistic? In order to answer these questions, the next section will describe Malaysian policies towards eradicating poverty and ameliorating income distribution prior to the NEM model. Section 3 will enumerate their achievements while Section 4 will describe the NEM and its strategies. Section 5 will compare the previous plans and the NEM while Section 6 concludes the paper.

Defined by UNRISD (2010: 65) when the Gini coefficient is more than 0.40.

2.

Previous Poverty and Income Distribution Policies: Lacking Inclusion?

Macro-economic policies for development in Malaysia can be broadly classified into three phases. The first is market-led development that was implemented between 1957 and 1970. When this is inadequate, then the state-led development phase was executed between 1971 and 1985, covering three quarter of the NEP period. However, with the onslaught of external factors, Malaysia had to move to the liberalization and globalization phase from 1986 onwards. 2.1 The New Economic Policy, 1970-1990

The aftermath of the ethnic riots of May 1969 saw a fundamental shift in public policies with the enunciation of the NEP in 1970. National unity was stated as the overriding goal, to be attained through the two-pronged strategy (Malaysia, 1976: 7). The first was to eradicate poverty by raising income levels and employment opportunities for all Malaysians irrespective of race and the second was to restructure society so as to eliminate the identification of race with economic functions and geographical locations. The premise of the NEP was that it would be implemented in the context of a rapid expansion of the economy so as to ensure no particular group will experience any loss or feel any sense of deprivation. 2.2 The National Development Policy, 1991-2000

The NDPs objective aimed to attain balanced development in order to create a more united and just society (Malaysia 1991: 4). Based on the NEP objectives of eradicating poverty and restructuring society, it still emphasizes the strategy of growth with equity. It encompasses, among others, the need to strike an optimum balance between growth and equity, ensure a balanced development of major sectors to optimize growth as well as reduce inequalities between regions and among Malaysians. However, it relies more on the private sector to be responsive and proactive in attaining these objectives. 2.3 The National Vision Policy, 2001-2010

The NDP has been succeeded by the current National Vision Policy (NVP) contained in the Third Outline Perspective Plan 2001-2010 (Malaysia 2001a). In essence, the NVP represents the consolidation of all past development efforts (NEP and NDP) to attain a united, progressive and prosperous Malaysian society. The quest of the nation is to become a developed nation in its own mould, and in meeting the challenges towards this end the same strategies expounded in the NEP and NDP of building a resilient, competitive nation and an equitable society to ensure national cohesion and social stability is also emphasized in the NVP. 2.4 Selected Specific Policies and Programs2

While the NEP, NDP and NVP have different tag lines and some slight variations in approaches and emphasis, in the main the policies and strategies for poverty eradication and income distribution remain pretty much the same, being pursued along the ethnic lines. In order to attain
2

Most of this section is described elsewhere, for example in Ragayah (2008a and 2008b), Ishak ( 2000); Zainal Aznam (1994, 2001).

social cohesion through poverty eradication and societal engineering, the Malaysian government has implemented several policies and programs that include: 2.4.1 Education and Employment The two main strategies employed to tackle poverty and restructure society were the universal provision of education and the creation of productive employment opportunities in the secondary (mining, manufacturing, construction, utilities and transport) and tertiary (commerce, banking, public administration, education, health, defence and public utilities) sectors. Education was given a central role in the NEP as a strategy to modernize society, attain social goals, equalize opportunities and promote national unity. Faaland et al (2003: 59) stress that education was of particular importance for the rural population and for the urban unskilled Malays, as well as for creating a leadership elite to enable the Malays to take their rightful place in society. Increased spending in the education sector supported rising enrolment in secondary school enrolment. More residential schools were established to cater for the Bumiputeras. Moreover, special efforts were directed towards increasing the level of education among the poor and among women (Bhalla & Kharas 1992: 72). Malay women were the main beneficiaries as education enabled them to work in the modern sector. The gain was due to a slight increase in their labour force participation rate, but more important was the structural shift from self employment in low productivity agricultural occupations to higher paying formal wage-earning jobs provided by the export-oriented labour intensive manufacturing sector (mostly generated by foreign direct investment) and the Government sector (Bhalla & Kharas 1992: 80). The first target of the NEP restructuring was an enormous increase in Bumiputera employment at all levels in the modern sector to reflect the social composition of the population. This was to be attained through the development of education and training programs to raise the supply of trained manpower and by direct incentives plus administrative measures to boost their participation in the modern sector. Further, the government set preferential quotas for Bumiputera admissions to public universities, and provided subsidies to cover Bumiputera university costs, including scholarships for full-cost coverage of those selected to study abroad. Two types of training programs, namely, training to augment the number of skilled and professional Bumiputeras so as to facilitate employment restructuring, and training to develop a Bumiputera commercial and industrial community (BCIC), were carried out. 2.4.2 Export-oriented Industrialization Bhalla and Kharas (1992) stressed that in creating opportunities for all, Malaysias development strategy played a major role in alleviating poverty. The rapid expansion of the export-oriented labour-intensive manufacturing sector (mainly through FDI) as well as the Government sector3, generated jobs for many. This absorption of increasingly educated rural labour into the higher income occupations in the urban industrial and service sectors was the most important avenue to reduce rural poverty. Not only did more people become employed over the period, but also

Through the implementation of Operasi Isi Penuh (Full Employment Operation) that raised the public sector workforce from 398,000 in 1970 to 804,000 in 1983.

significantly more people were employed full time. Substantial employment opportunities were created through labour-intensive industrialization, especially in electronics and textiles. The tightening of the labour market from the late 1980s, together with increased productivity of a more educated labour force, led to rising wage rates. Moreover, the percentage increases in government sector wages were inversely related to government salary levels: the lowest levels increased most rapidly. As a result, the rise in the share of wages in household income was fastest among the low-income groups in the urban areas, so that poverty incidence dropped in the urban areas. Transfer incomes remitted to the rural households by family members who migrated to the urban areas also played a significant role in mitigating inequality and poverty incidence. In fact, it was the ability of the rural labour force to find jobs in the modern sector and subsequent income transfers that helped to reduce poverty and improve the distribution of income in the rural areas, notwithstanding a number of rural development programs that had actually (albeit unintentionally) increased income inequality. 2.4.3 Rural Development The development and modernisation of the agriculture has always been associated with the objective of poverty eradication. The May 1969 riots were attributed to the existence of very high rates of inter-ethnic inequality perceived as caused by racial specialization in economic activities. Since the incidence of poverty in Malaysia had always been predominantly rural, it was critical that rural-based poverty reduction and income improvement programs be implemented. Hence, high priority has consistently been placed on agricultural and rural development throughout the NEP period. The various Malaysia Plans also emphasized rural development to raise the income of the rural poor. The core of the Malaysian rural development strategy encompassed two componentsthe Integrated Agricultural Development Programs (IADPs) and the regional development strategy. The IADPs were designed to revitalize and rehabilitate in situ or existing agricultural areas that faced problems of low productivity and poverty. This strategy centred on integrated, comprehensive programs of agricultural, socioeconomic and institutional development. The various development agencies specific to the IADPs provided a co-coordinated package comprising basic physical and economic infrastructure and social amenities. Regional development includes regional and land development including land consolidation and rehabilitation. The former were undertaken by regional and land development agencies such as Federal Land Development Authority (FELDA), while Federal Land Consolidation and Rehabilitation Authority (FELCRA) undertook the latter. Regional Development aims to redress economic and structural imbalances between regions, slowing rural-urban migration and promoting local agricultural and industrial development. In addition to the dual core strategy, rural development includes provision of more general institutional and agricultural support services and subsidies. Among these are extension services, research, training, subsidized credit and other essential farm inputs as well as price subsidies, processing and marketing support to reduce real costs of production and to increase efficiency in production. Other strategies to raise farmers incomes include replanting grants and subsidies to rubber, pineapple and coconut smallholders and traditional farmers, plus the promotion of rural industrialization to generate employment as well as supplementing rural incomes. Finally, social development programs have complemented these strategies. These

provide basic social amenities and community development through which positive values and self-help among rural households and youths are instilled and knowledge of better food and nutrition is communicated to rural households in order to improve health and nutritional standards. These rural development programs reduced poverty by raising rural income. However, since the general programs had little targeting, they probably benefited the non-poor more than the poor. Specific programs like the IADPs also probably had similar impact since the benefits favour households with a large amount of land. It is possible that the IADPs did little to mitigate rural inequality. 2.4.4 Restructuring of Equity Ownership and Asset Accumulation The second prong of the NEP also sought to redress the imbalances in the ownership of assets and wealth in the society. The NEP envisaged the creation of a BCIC in order that within one generation they would own and manage at least 30% of the total commercial and industrial activities so as to become full partners in the economic life of the nation. Restructuring of the ownership of assets included all financial and physical assets in all sectors of the economy. This was attained through enhancing the ownership and utilization of land by Bumiputeras for productive development as well as the provision of financial assistance to Bumiputera entrepreneurs to gain access to the ownership of other productive assets. In the beginning, the government bought over some notable foreign firms and established new ones, then staffed them with Bumiputera management and workers. Moreover, the government required non-Bumiputera firms to employ Bumiputera and to bring them on board as partners. However, as the economy developed and modernized, the role of the corporate sector would expand, and as the countrys financial structure became sophisticated the key to the ownership and control of wealth will be through the ownership of equity capital. Hence, the main control of assets would be through the ownership of share capital and effective management of various enterprises. It should be noted here that the acquisition of equity ownership by Bumiputeras was realized from the enlarged size of the economic pie and not through the redistribution of non-Bumiputera wealth to the Bumiputeras. The ownership of Bumiputera share capital was targeted to increase to 30% by the end of 1990, but the actual attainment fell short at 20.3%. This was attained through various means. Firstly, individual Bumiputeras have managed to step up their savings and acquire equity in the corporate sector. Secondly, the Government set up the Bumiputera Investment Fund to acquire shares reserved for the Bumiputeras. These shares were later redistributed to individual Bumiputeras when they could afford through the purchase of unit trust, known as the National Unit Trust (or Bumiputera Unit Trust after 1990) set up specifically for this purpose. Finally, the remaining shares meant for the Bumiputeras were acquired by the public sector agencies that were set up to create and/or purchase stock in trust for the eventual sale to them. 2.4.5 Labour Market Policies To encourage both foreign and domestic investment and production, Malaysia has long followed policies to restrain the organization of labour. The 1967 Industrial Relations Act prohibited unions from engaging in collective bargaining and from striking over issues such as job

promotion, job transfer, recruitment, retrenchment, dismissal, reinstatement and allocation of duties (Rasiah and Zulkifly 1998: 74). Moreover, unions lost the right to strike once a dispute was referred to the industrial court. These restrictions crippled labour unions, greatly reducing their influence over workers wages and welfare. While this policy proved attractive to foreign investors and meant that many poor people formerly engaged in traditional agriculture were able to find employment in factories, thereby eradicating a substantial amount of poverty, it did little to improve the quality of life of non-agricultural workers. In the 1980s, however, as unemployment fell, rural out-migration peaked and emigration of Malaysian labour to Singapore and elsewhere continued, pockets of labour scarcity began to emerge and real wages started to rise. To offset the pressure on wages and overcome the labour shortages, especially in the socalled 3D jobs (those that were difficult, dirty and dangerous) the government relaxed the restrictions on importing foreign labour. As the Malaysian labour market tightened in the late 1980s, many unskilled foreign workers entered the country, legally and illegally. According to Bank Negara Malaysia (2011: 46), the total number of registered foreign workers (including expatriates) in 2010 decreased by 5.6% to 1.8 million (2009: 1.9 million), accounting for 15.5% of total employment. The decline is in line with the Governments effort to discourage employers from depending on low-skilled foreign workers and help them shift to more technologically intensive methods of production and improve the skills of their workers, thereby keeping increase their productivity and wages. The relatively high incidence of poverty among Malaysias immigrant population has exacerbated urban poverty and created friction as these workers compete for housing and amenities. Moreover, some foreign workers have displaced Malaysian citizens in informal sectors such as night markets. In 1990, non-citizen immigrants constituted about 7.0% of the poor nationwide, rising to 12.6% in 1995 and 17.5% in 1997. Many foreigners were repatriated to their home countries during the Asian financial crisis, leading to a fall in their share in poverty incidence to 14.2% in 1999 (Ragayah 2002: 5960). However, both legal and illegal immigration resumed as the economy recovered. Since the late 1990s, government policies on foreign workers have become incoherent and run counter to the national objective of achieving high income status (NEAC 2010: 126). In particular, foreign workers are not subject to the same labour standards that apply to Malaysian nationals, and have access to health and some other social services whose cost is borne by the government. This has encouraged an excessive reliance on low-wage foreign labour. 2.4.6 Provision of Housing and Social Amenities One of the pressing problems in urban centres was the inadequacy of proper housing with appropriate social amenities. Thus, one of the strategies to alleviate urban poverty is the provision of low cost housing as well as social amenities to raise the standard of living and quality of life of the urban poor. In order to increase the stock of affordable houses, the government established the Low-Cost Housing Fund in 1993 to expedite the construction of lowcost housing. Then the Revolving Fund for Low-Cost Housing was also created as the government intensified its effort to provide affordable housing to the poorer section of society. During the 1997-1998 crisis, the government also allocated RM2 billion to the Special Scheme for Low and Medium Cost Houses. Apart from these special programs, the government also

requires housing developers to allocate 30% of their schemes to the construction of low-cost houses (Mohd Zin, 2001:149). However, due to the unaffordability or unavailability of low-cost houses, as well as the high rents charged for urban dwellings, squatter settlements have sprouted around the cities. Efforts were also made to upgrade the living environmental in these areas, including the amenities such as community halls, clinics for expecting mothers and kindergartens for provision of asphalt roads, water and electricity supply, and facilities for solid waste disposal. Certain local governments like the Kuala Lumpur City Hall (KLCH) also provide public preschool children (Mohd Zin, 2001:150). 3. 3.1 Malaysias Achievements in Sharing the Economic Pie Poverty incidence

On the whole, poverty eradication has received strong institutional and budgetary support at the federal, state and local level. Between a quarter and one-third of development expenditure in the Second to the Sixth Malaysia Plans were allocated to poverty eradication. The amounts for this purpose were not specified in the Seventh and Eighth Malaysia Plans, but are believed to be substantial. However, the share allocated tapered since then, reflecting the massive reduction in poverty incidence from 52.4% in 1970 to just 3.8% in 2009. 3.1.1 Poverty incidence by strata Incidence of poverty in Malaysia is estimated on the basis of the poverty line income (PLI) and data here refer to only Malaysian citizens. Prior to 2004, the PLI calculation utilized the 1977 Methodology4 (Malaysia 2001b: 58, Ragayah 2007), which was updated annually to reflect changes in the levels of prices by taking into account changes in the general Consumer Price Indices (CPIs). The outcome is that Malaysia has achieved outstanding progress in poverty eradication since the implementation of the NEP, shown in Table 1. For the whole of Malaysia, the total number of poor households decreased from one million in 1970 to 267,900 in 2002, resulting in the poverty incidence plunging from 52.4% to 5.1%. Over the same period, urban poverty incidence shrank to 2.0% and rural poverty incidence fell to 11.4% while urban poor households dropped from 111,800 in 1976 to 69,600 in 2002 and poor rural households shrank from 864,100 to 198,300 over the same period. In 2004, the Malaysian Government revised the methodology for determining the poverty line after taking into account weaknesses in the 1977 methodology as well as other evolving realities. The incidence of poverty under the revised methodology, known as the 2005 Methodology (see Malaysia 2006: 347, Ragayah 2007), is higher under the new methodology. However, the trend shows that poverty incidence is still falling, with poverty incidence for Malaysia as a whole falling from 5.7%, or 311.3 thousand households, to 3.8%, or 228.4 thousand households between 2004 and 2009.
4

Under the 1977 Methodology, there were only three PLIs for Peninsular Malaysia, Sabah and Sarawak, differentiated by prices for these three regions and slight differences in their consumption baskets.

3.1.2

Poverty incidence by state

Poverty incidence is not evenly distributed by region or state. In 1970, poverty incidence was particularly high in Kelantan (76.1%), Perlis (73.9%), Terengganu (68.9%), Kedah (63.2%), Sabah5 (58.3%) and Sarawak (56.5%). Poverty incidence by strata in every state have exhibited falling trends with the steepest fall experienced between 1976 and 1984 when it tumbled by more than half in most states, although Kedah, Kelantan, Perlis, Sabah and Terengganu continue to register high figures.

Under the 2005 Methodology, price differences between urban and rural areas of every state were taken into account and the PLIs are now updated by using the CPIs of the food PLI plus the CPIs of the non-food items of the lowest quintile of the Household Expenditure Surveys. The results are shown in Table 2. Sabah continues to record the highest incidence of poverty (24.2%) in 2004, followed by Terengganu (15.4%) and Kelantan (10.6%). The rest of the states have single digit poverty incidence for that year. By 2009, only Sabah has double digit poverty incidence (19.7%) and it has risen from 2007 (16.4%) as a consequence of the global economic crisis and falling commodity prices that had affected the rural areas relatively badly. Terengganu and Kelantan had the steepest decline in poverty incidence between these two years.
The states with continued high poverty incidence in Peninsular Malaysia are the Malay/Bumiputera heartland where relatively more of the population are still rural and where most of them are engaged in low productivity activities, such as small-scale agriculture, fishing and lower end services. Their lower level of human resource development also form a barrier to their being absorbed into higher value-added activities. Little foreign direct investment (FDI) and manufacturing activities are found in these states. While Terengganu, Sabah and Sarawak have oil and gas (and timber earlier on), the benefits do not really trickle to the bottom. Moreover, Sabah, Kelantan, Terengganu, Kedah and, for a short while, Perak are the only states in Malaysia that had ever been ruled by the opposition parties. The ruling Federal Government can delay the transfer of the Constitutional grants and reduce the transfer of other grants. For example, the opposition government ruled Sabah between 1985 and 1994. Poverty incidence rose slightly from 33.1% in 1984 to 34.3% in 1990. This increase was caused partly to the reduced allocation of to Sabah, plus the continued influx of illegal migrants from the neighboring Philippines and, to a smaller extent, Indonesia. Sabah is also encumbered with poor rural infrastructure, and this is reflected in it being the only state where its rural PLI for 2004 is higher than the urban PLI due to the high cost of transport in the rural areas.

3.1.3 Poverty incidence by ethnicity In Malaysia, a critical dimension of poverty is from the ethnic point of view. Table 3 shows that, although the incidence of poverty among all ethnic groups has been reduced, it is still relatively high among the Malays and other Bumiputeras6. Most of these are located in the rural
5

Figures for Sabah and Sarawak are for 1976.

Other Bumiputeras are those considered sons of the soil apart from the Malays. They include the Orang Asli and the original Portuguese in Peninsular Malaysia and various other ethnic groups in Sabah and Sarawak. In principle, they are also eligible for all the Bumiputera entitlements.

Table 2

Poverty Incidence by State, 1970 - 2009 State Johor Kedah Kelantan Melaka N.Sembilan Pahang Perak Perlis Pulau Pinang Selangor Terengganu Sabah/F.T. Labuan Sarawak W.P Kuala Lumpur Malaysia 1970a 1976 1984 1989b 1997 1999c 2002 2004 2007 2009 45.7 63.2 76.1 44.9 44.8 43.2 48.6 73.9 43.7 29.2 68.9 49.3 29.0 61.0 67.1 32.4 33.0 38.9 43.0 59.8 32.4 22.9 60.3 58.3 56.5 37.7 12.2 36.6 39.2 15.8 13.0 15.7 20.3 33.7 13.4 8.6 28.9 33.1 31.9 4.9 20.7 9.8 29.9 29.6 12.4 9.1 10.0 19.2 17.4 8.7 7.6 31.3 29.7 21.0 3.7 16.5 1.6 11.5 19.2 3.5 4.7 4.4 4.5 10.7 1.7 1.3 17.3 16.5 7.3 0.1 6.1 3.1 14.2 25.2 2.9 4.1 9.8 6.8 13.6 0.7 1.9 22.7 23.4 10.9 0.4 8.5 2.5 9.7 17.8 1.8 2.6 9.4 6.2 8.9 1.2 1.1 14.9 16.0 11.3 0.5 6.0 2.0 7.0 10.6 1.8 1.4 4.0 4.9 6.3 0.3 1.0 15.4 23.0 7.5 1.5 5.7 1.5 3.1 7.2 1.8 1.3 1.7 3.4 7.0 1.4 0.7 6.5 16.0 4.2 1.5 3.6 1.3 5.3 4.8 0.5 0.7 2.1 3.5 6.0 1.2 0.7 4.0 19.2 5.3 0.7 3.8

Notes: a Refers to Peninsular Malaysia only b Starting 1989, data is based on Malaysian citizens c From 1999 onwards, calculation of poverty is based on 2005 Methodology Source: Economic Planning Unit (2011), Socio-Economic Statistics: Household income and poverty, available at www.epu.gov.my/household-income-poverty, downloaded on 1 May 2011.

areas. Poverty incidence among the non-Bumiputeras temporarily increased in 1999 due to the impact of the Asian financial crisis on urban households while the rural households were less affected. Based on the two years for which data are available (1990 and 1997), poverty incidence, by ethnicity, is highest among the other (non-Malay) Bumiputeras. In 2002, a Household Income Survey of Bumiputera minorities in the eastern states of Sabah and Sarawak found that their poverty incidence was very high, with some groups exceeding 40%. However, the population of these groups was small and the absolute number in poverty is not as alarming as the incidence suggests.

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3.1.4 Monitoring poverty through eKasih In the Ninth Mal;aysia Plan 2006-2010 (Malaysia 2006: 34-35), it was stated that the government would set up a national poverty data base to improve the quality of the data and information on poor and hard core poor households. This was realised when the government started to use the eKasih program in June 2008 to identify the poor and reduce hardcore poverty incidence to zero by the end of 2010. The purpose of the program is to build a database of poor families who can then be targeted for financial and other assistance. At present, urban households earning less than RM1,500 per month and rural households earning less than RM1,000 per month are eligible to register for assistance, either directly or through the village head. Through this monitoring, the hardcore poverty incidence went down to 108 families by December 2010 and is considered meeting the target of zero hardcore poverty incidence, but as poverty is dynamic, the number of hardcore poor households rose to 3,000 in 2011. At the same time, those households with monthly income between the PLI and RM1,500 are regarded as the vulnerable and also monitored. Table 4 shows the distribution of hardcore poor heads of households by state and ethnic groups. As expected, states with high poverty incidence shown in Table 2 also registered high absolute numbers of hardcore poor head of households including Sabah, Sarawak and Kelantan. The majority of the hardcore poor in Peninsula Malaysia are the Malays while those in Sabah and Sarawak are the Other Buniputeras. As pointed out by the United Nations Country Team, Malaysia (UN2011: vii) that while Malaysia has achieved the aggregate MDG objective of halving poverty, rural Sabah is not on track to attain the MDG goal by 2015. It must be noted that this data bank also tries to include the Chinese and the Indians, the two other ethnic groups that often claim to be neglected by the government. The distribution of rest of the poor heads of households, that is, those household heads with income above the food PLI but below the PLI, by state and ethnic groups are shown in Table 5. The states with the highest number of absolute poor follow the same pattern as those shown by the hardcore poor, that is, they are Sabah, Sarawak and Kelantan. However, other states such as Kedah, Perak and Terengganu also registered high numbers of poor heads of households. The distribution of vulnerable heads of households, shown in Table 6, reflects some interesting features. The main concentrations of the vulnerable heads of households are now in Sarawak, Terengganu, Kelantan, Sabah and Kedah respectively. More notable is the fact that even states with the lowest incidence of poverty like Pulau Pinang and Selangor have considerable number of vulnerable heads of households. The government has provided various assistance to these registered poor and vulnerable heads of households. Under the 1Azam programme introduced last year by the Women, Family and Community Development Ministry as part of the Government Transformation Plan, those under the PLI and the vulnerable registered with eKasih can increase their income through four channelsAzam Farmer (agriculture related activities monitored by agencies under Agriculture and Agro-based Industry Ministry), Azam Business (provide business opportunities through training and micro credit facilities to participants) and Azam Service (self-employment full time or part time) monitored by agencies under Women, Family and Community Development Ministry and Amanah Ikhtiar Malaysia, and Azam Work (job opportunities) monitored by the

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Table 4: Distribution of Hardcore Poor Heads of Households by State and Ethnic Groups, as of 30 June 2011
State Johor Kedah Kelantan Melaka N.Sembilan Pahang Perak Perlis P.Pinang Sabah Sarawak Selangor Terengganu WP KLumpur WP Labuan WP Putrajaya Total Malays 86 348 1,843 223 69 715 211 1 60 694 343 362 143 32 2 5,132 Chinese 11 9 21 1 29 2 18 64 18 15 4 192 Indians 17 28 3 103 5 103 1 3 1 180 115 1 560 Other Bumis 10 3 5,651 1,906 1 1 54 7,626 Aborigines 1 7 4 12 Others 2 26 12 4 21 268 97 11 3 5 1 450 Total 115 378 1,881 376 75 854 235 1 6,000 2,762 556 363 277 96 3 13,972

Source: Data provided by the Implementation and Coordination Unit, Prime Ministers Department.

Table 5: Distribution of Poor Heads of Households by State and Ethnic Groups, as of 30 June 2011
State Johor Kedah Kelantan Melaka N.Sembilan Pahang Perak Perlis P.Pinang Sabah Sarawak Selangor Terengganu WP KLumpur WP Labuan WP Putrajaya Total Malays 2,798 5,542 13,717 747 1,274 2,669 4,926 1,882 1,290 943 4,929 2,929 7,366 821 178 5 52,016 Chinese 175 34 54 90 146 52 166 24 44 190 611 85 14 48 26 1,759 Indians 266 204 19 115 491 184 699 12 217 15 10 651 7 456 1 3,347 Other Bumis 15 2 3 4 20 2 4 1 3 28,190 19,235 7 2 264 47,752 Aborigines 20 9 34 18 13 5 1 30 130 Others 3 45 87 5 15 1 22 28 1,396 459 13 4 7 14 2,099 Total 3,277 5,827 13,889 995 1,964 2,921 5,822 1,947 1,554 30,734 25,245 3,715 7,393 1,332 483 5 107,103

Source: Data provided by the Implementation and Coordination Unit, Prime Ministers Department.

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Table 6: Distribution of Vulnerable Heads of Households by State and Ethnic Groups, as of 30 June 2011 State Johor Kedah Kelantan Melaka N.Sembilan Pahang Perak Perlis P.Pinang Sabah Sarawak Selangor Terengganu WP KLumpur WP Labuan WP Putrajaya Total Malays 6,648 11,012 20,328 2,646 4,234 7,769 8,980 4,157 8,706 645 5,532 6,228 21,414 2,227 396 10 110,932 Chinese 497 121 136 310 423 389 645 91 596 198 841 305 72 303 52 4,979 Indians 412 436 13 214 960 666 1,035 14 1,169 13 23 1,220 9 903 2 7,089 Other Bumis 11 3 10 2 9 7 6 6 12,679 16,554 18 3 8 384 29,700 Aborigines 13 18 52 1 22 8 1 31 1 147 Others 1 131 426 15 5 6 36 59 1 686 298 26 3 5 9 1,707 Total 7,582 11,703 20,931 3,239 5,632 8,859 10,710 4,321 10,478 14,222 23,248 7,828 21,501 3,447 843 10 154,554

Source: Data provided by the Implementation and Coordination Unit, Prime Ministers Department.

Human Resources Ministry. Table 7 shows the distribution of heads of households that have successfully raised their income to above RM1,500 in the urban and above RM1,000 in the rural areas. Terengganu, Kelantan, and Perak had the highest number of heads of households who have gotten out of poverty and vulnerability. 3.2 Income Distribution

Overall inequality in Malaysia rose between 1970 and 1976 and then fell till the Gini ratio reached 0.446 at the end of the NEP period (see Table 8). However, the Gini ratio rose again till 1997 before the inequality moderated in 1999 since the higher income classes lost relatively more than the lower income classes. The Gini rose again with economic recovery after the crisis to 0.462 in 2004 but managed to be brought down to 0.441 in 2007 and maintained at that level in 2009. 3.2.4 Income distribution by strata: rural and urban Table 8 also shows that the state of income distribution both in the rural and the urban areas also exhibit similar trends over the NEP period. The Gini ratio for rural households rose between 1970 and 1976 but fell thereafter to 0.409 by 1990. In the urban areas, the Gini ratio also

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Table 7 Distribution of Heads of Households That Have Exited eKasih by State and Ethnic Groups, as of 30 June 2011 State Johor Kedah Kelantan Melaka N.Sembilan Pahang Perak Perlis P.Pinang Sabah Sarawak Selangor Terengganu WP KLumpur WP Labuan WP Putrajaya Total Malays 4,172 2,819 6,446 1,431 1,741 1,372 4,500 2,285 1,816 135 1,174 1,281 10,771 911 89 68 41,011 Chinese 354 13 22 94 224 25 317 55 86 20 102 62 20 69 6 1 1,470 Indians 299 41 2 178 567 32 1,014 11 346 5 3 171 3 533 1 1 3,207 Other Bumis 8 5 10 2 4 2 2,734 3,582 7 3 3 122 6,482 Aborigines 12 36 25 17 40 3 3 136 Others 7 19 20 9 22 1 26 46 133 79 54 9 7 4 1 437 Total 4,852 2,892 6,526 1,742 2,581 1,472 5,864 2,397 2,250 3,027 4,940 1,578 10,806 1,523 222 71 52,743

Source: Data provided by the Implementation and Coordination Unit, Prime Ministers Department.

followed the same pattern. However, the trends in income distribution in the rural and the urban areas diverged during the 1990s. The direction in the rural areas replicates the overall trend, where there is also an increase in the Gini ratios up to 1997. Since then, rural inequality has moderated to 0.388 in 2007 but crept up again to 0.407 in 2009. Urban income inequality continued to fall up to 1999, after which it also started to rise to reach a local peak of 0.444 in 2004 before moderating to 0.423 in 2009. Income disparities between urban and rural areas remain high. It managed to come down to 1.7 in 1990 but rose again to 2.11 in 2002 and 2004 before falling to 1.85 in 2009. The decompositions of the inequality measures show that most of the inequality is explained by the "within group" component and a much smaller proportion is explained by the "between group" component, that is, within the urban or the rural areas themselves, rather than due to the urban-rural differences (Ragayah 2009). This is not surprising as the within group component will always be the most quantitatively significant as there will always be substantial heterogeneity across households even when they share common characteristics (UNDP 2007: 99). For example, if we look at GE(1) for 2007, the total inequality is 0.361. Of this, 89.55% is accounted for by the within group differences while only 10.45% is explained by the between group component. In 2004 the between group inequality by strata seems to explain or account for 3.88% to 16.01% of total inequality, and in 2007 the between group inequality by strata

14

accounted for 5.63% to 12.79% depending on the parameter of the GE and Atkinson indices being used. 3.2.5 Income distribution by region and states
In 1970, there was no information on Sabah and Sarawak, and thus for Malaysia as a whole as the PES was only limited to Peninsular Malaysia. The mean monthly household income was only RM264 (see Table 9). Selangor (which still included Kuala Lumpur then) had the highest mean of RM417 among the states, followed by Penang with RM299 and Negeri Sembilan with RM281 per month. States with the lowest mean monthly household income were Perlis with RM121, Kelantan with RM126, Kedah with RM184 and Terengganu with RM194 per month.

Examining the values of the Gini for the various states reveals that, with a few exceptions, there is a general positive correlation between the level of mean monthly household income and income disparity. In other words, the higher was the level of mean monthly household income, the more unequal was the income distribution. The most notable exception was Sabah and Kelantan. Similar situation seems to prevail in Terengganu. On the other hand, Johor and Malacca had relatively higher mean monthly household income but lower level of income inequality. Since 1990, inequality widened for the whole of Malaysia, although some states including Melaka, Perak, Perlis, Selangor and Kuala Lumpur experienced a narrowing in their income distribution. The 1997-1998 crisis had the impact of improving income distribution in all states except for Melaka and Perlis, and many suffered a contraction in the average mean monthly income. The exceptions were Terengganu, Kelantan, Sarawak and Kedah. However, between 1999 and 2007, income distribution worsened for all states except for Johor, Kedah, Kelantan and Melaka. Some of those states with worsening distribution also had relatively high growth rates between 1999 and 2007. 3.2.6 Ethnic income distribution In 1970, the degree of inequality among the major ethnic group in Peninsular Malaysia was highest among the Indians, followed by the Malays/Bumiputeras and lowest among the Chinese (see Table 10). Between 1970 and 1976, income distribution of all these ethnic groups deteriorated, with the inequality among the Chinese exceeding that of the Malay and Indian households. Since then, overall inequality among the Bumiputeras moderated till 1990 to 0.429 after which it fluctuated to 0.440 in 2009, while Bumiputera rural inequality narrowed throughout the period since 1976. Bumiputera urban inequality followed the same trend except it had an upturn in 2004. Overall and urban inequality trends among the Chinese fell from 1976 to 2004 while rural Chinese inequality fell between 1976 and 1990, then widened in the 1990s before narrowing in the new millennium. Note that the Chinese inequality matched that of the Bumiputeras in 2007, but Bumiputera inequality exceeded that of the Chinese in 2009 to match that of the overall Malaysian inequality. Overall inequality among the Indians shows a falling trend between 1970 and 1990 after which it oscillated on an upward trend till 2009, although the degree of inequality remained the lowest among the three groups. Indian rural inequality also

15

fell till 1990 after which it shows an upward trend, but Indian urban inequality narrowed throughout the period.
For most of the years since the implementation of the NEP where data are available, intrainequality is the highest among the Bumiputeras, reflecting the unequal distribution of the NEP benefits, although the trend is downward sloping compared to 1976. Given the general presumption that the benefits of the NEP programs have been highly skewed towards the better connected, it is surprising that the recent Ginis are not higher than the statistics have shown. This unexpected outcome might be explained in several ways. First, the random sampling of the Household Income Surveys, which are the sources of these data, might not capture those with extreme incomes. Hence, the very wealthy might not be included in the surveys. Second, the benefits may not be reflected just in income, but also in the form of wealth. At the same time, other policies, especially the provision of training and education as well as labour market policies, helped to create a substantial Bumiputera middle class that prevented the distribution of income from being too skewed. Table 10 also illustrates that non-Malay mean incomes continue to outstrip that of the Bumiputera mean income. However, the growth rate of Bumiputera household income exceeded those of the non-Bumiputeras during the New Economic Policy 1971-1990 (NEP), resulting in a narrowing of the inter-ethnic income disparities to 1.74 between Chinese and Bumiputera households and to 1.29 between the Indian and Bumiputera households. This decline in inter-ethnic income disparity, together with the reduction in inequalities within all major ethnic groups, accounted for the overall improvement in the size distribution of income during the NEP period. Nevertheless, in the 1990s the speed in the rate of increase of household income among ethnic groups changed again. As a result, the income disparity ratios between Bumiputeras and Indians as well as Chinese widened again in 1990s, but narrowing again in the new millennium. The decomposition indices for the ethnic inequality also reveal that most of the inequality in Malaysia is accounted for by the "intra-" or "within group" component and a much smaller proportion is explained by the "inter-" or "between group" component (Ragayah 2009). If we again use the GE(1) for 2007, the total inequality is 0.361. Of this, 94.6% is accounted for by the within group differences while only 5.4% is explained by the ethnic differences. This between group component has been declining since 1995 from 10.06% to 10.0% in 1997, 9.69% in 1999 and 9.32% in 2002, 6.29% in 2004 and 5.4% in 2007. This implies that the policies implemented to narrow inter-ethnic differences have been effective. It also means that some of these policies might have been causing the within group inequality, which in this case means intra-ethnic income inequalities, to widen. For example, the privatization of projects in favor of Bumiputeras has made some of them extremely wealthy while some Bumiputera communities in the rural areas still eke for a living. This situation enhanced the widening of income disparity within the Bumiputera group itself. At the same time, this policy narrowed the disparity between Bumiputera and non-Bumiputera communities.

3.3

The Lack of Inclusiveness of the NEP

ASLI (2005) Centre for Public Policy Studies claims that rural development programmes during the NEP period never reached the Indian poor because the plantations were classified as private

16

property and little was done to improve their lot. When these plantations were acquired for property and township development, little was done to assist them. It asserts that though the Government has acknowledged the seriousness of the socio-economic problems faced by these two groups, those still left in the estates and those displaced and joined the urban squatters, there has been a noticeable absence of programmes and budgetary resources provided to assist the community. However, most of the claims are not rigorously substantiated and a more serious, balanced study should be conducted. A similar claim was also made by HINDRAF7. While it is not really accurate to say that the Indians are economically marginalized, three possible reasons come to mind to explain the HINDRAF claim. First, since the closure of several estates where the Indians used to be employed, they have moved to the urban areas where many, especially the youths, are poorly equipped to join the urban labor force. Since they are concentrated in certain locations, their poverty is relatively more visible. Second, the fact that the hardcore poverty incidence and the urban poverty incidence (at 2.4 percent) have not changed over the five years between 1999 and 2004, together with the sluggish decline of the rural poverty incidence, might also account for dissatisfaction among the Indian community. Third, there are also claims that while the policies are inclusive, the Indians have been neglected in the policy implementation. This implementation discrimination is also said to be true among those Bumiputeras who are seen not to support the government. The lack of inclusiveness is also reflected by the upturn and erratic movements of the inequality trends after end of NEP while poverty is not completely eradicated. The Gini remain stubbornly above 0.4, and while the ratio had been narrowing slightly in the last several years, the public still perceives that it is widening, especially during these times of rising basic necessities, particularly food prices. At the same time, Other Bumiputeras in Sabah and Sarawak feel that they are neglected as they believe that the Federal governments eradication programs mostly benefited the Peninsula Bumiputeras or Malays. Another source lack of inclusiveness is the practice of rent seeking and corruption. This relationship has been documented by Gomez (1990, 1994), Gomez and Jomo (1997) and Saravanamuttu (2009). Saravanamuttu (2009) uses the term party capitalism to portray the system of ownership and control of the economy that has grown up among the main political parties especially the United Malays National Organization (UMNO), the Malaysian Chinese Association and the Malaysian Indian Congress. The leaders of these parties have exercised their political clout and influence and exploited their links with powerful business people or cronies to earn enormous rents for themselves and their political and business associates. This phenomenon transcends ethnicity, as Morishita (2007) makes clear in a case study of the timber industry in Sarawak. It has enabled a selected section of Malaysian society to become wealthy very rapidly, but concurrently neglecting the majority. Hence, the actual beneficiaries of the NEP are concentrated with a small fraction of Bumiputeras and their cronies, who need not be Bumiputeras. Most Bumiputeras are just left with small crumbs from the NEP cake, and have no access to government projects without the right political connection.
7

HINDRAF is a coalition of 30 Hindu non-governmental organizations committed to the preservation of Hindu Community rights and heritage in a multiracial Malaysia. It also also appears to be fighting for a bigger slice of the economic pie for the Indian community.

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4.

The New Economic Model8

The New Economic Model (NEM) recognizes the lack of inclusiveness. In order to move the economy forward and achieve Vision 2020 of being a developed nation, the government has introduced four of pillars of national transformation. The first is the 1Malaysia, People First, Performance Now concept to unite all Malaysians to face the challenges ahead launched in April 2009, while the second is the Government Transformation Program (GTP) to strengthen public services in the National Key Result Areas (NKRAs). The third, launched in March 2010, is the New Economic Model (NEM) to be achieved through an Economic Transformation Program (ETP) while the fourth pillar is the 10th Malaysia Plan 2011-2015 (10MP) unveiled in June 2010 that provides new policy directions, strategies and programs to enable the country to progress towards being a developed nation. The main goals of the NEM are that Malaysia will become a high income advanced nation with inclusiveness and sustainability by 2020. 4.1 Principles of Inclusiveness

According to the Prime Ministers speech (Najib 2010), a key challenge of inclusive growth is the design of effective measures that strike a balance between the special position of Bumiputera and legitimate interests of different groups. At the same time, inclusiveness must also be consistent with competitiveness and economic growth. As such, the Tenth Malaysia Plan 20112015 (Malaysia 2010: 140) states that the new approach is anchored on two objectives: Enabling equitable opportunities for all Malaysians to enable their participation in the economy according to their requirements and needs, requiring improving capacity and capability building, enhancing access to employment opportunities and adopting a more targeted approach in encouraging innovation-driven entrepreneurship; and Providing a social safety net for disadvantaged groups that stresses on access to health, education and basic infrastructure, while mechanisms for targeted income support will be enhanced as general subsidies are phased out. Inclusiveness will be addressed from multiple angles and various targets have been set from four perspectives (Malaysia 2010: 141): 1Malaysia: provide all Malaysians with equitable opportunities to participate in economic growth. The target is to have a more balanced economic composition in high paying jobs and ownership of higher value added businesses income: to raise the income of the bottom 40% of households so that their mean income will rise from RM1,440 per month in 2009 to RM2,300 per month in 2015 geographic: all citizens regardless of locations will be able to enjoy equitable access to basic infrastructure and amenities social perspectives: disadvantaged groups such as the disabled are supported to be valued participants in society.

Sections 4 and 5 are taken from Ragayah 2010.

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However, in this paper, we shall emphasize mainly the income aspect. From this perspective, an inclusive society is characterized by narrow inequalities with absolute poverty irrespective of race eradicated, while assistance will be provided to those who need help the most. The renewed affirmative action policy in the NEM is the focus on raising income levels of all disadvantaged groupsthe bottom 40 percent of Malaysias income strata, 77.2% of whom are Bumiputeras and many are located in Sabah and Sarawakwhich will be based on four principles (NEM 2010: 10, Malaysia 2010: 141-2): market friendly: the new affirmative action instruments will allow resources to be optimally allocated and not cause, contribute or perpetuate economic distortions; needs based: the targets of assistance will be the bottom 40% of households and disadvantaged groups regardless of ethnicity or location will be eligible for support and resources, based on their specific needs; merit based: competition will be encouraged and award opportunities to the most qualified individuals and businesses; and transparent: policies, procedures and criteria will be made clear and public to ensure equitable and fair opportunities. Moreover, it is also necessary to have sound institutional framework for better monitoring and effective implementation. Transparent and market-friendly affirmative action programs will focus on building capacity and capability of low-income households and small businesses, instead of imposing conditions to meet specific quotas or targets. 4.2 Strategies to Raise the Income Levels of the Bottom 40% of Households.

During the 10MP period, three strategies will be implemented to raise the income of the bottom 40% through: 4.2.1 Raising the Income Generation Potential of Bottom 40% Households As the characteristics of the rural households differ from the urban households, the programs to assist them are different from those of the urban households. In the rural areas, efforts will be undertaken to increase the productivity and sustainability of agro-based activities through the adoption of modern agricultural technology and expansion of contract farming through (Malaysia 2010: 153-4): providing holistic support programs for micro-enterprises; linking rural talent pool to employers in nearby clusters and cities; increasing sustainability of income in the agriculture sector through the concept of contract farming; providing opportunities for business ownership for capable rural entrepreneurs; increasing land productivity and yield through land amalgamation; improving human capital productivity within rural agriculture and agro-based industries; and expanding the application of the agropolitan concept to other agriculture and agro-based industries.

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In the urban areas, income and quality of life of will be raised via capacity enhancement programs through skills training and skills upgrading to enable them to secure higher paying jobs as well as engage in skills-based businesses. Moreover, to ensure sustainability of business ventures, efforts to modernize and scale-up small businesses will be implemented through various programs conducted by agencies such as AIM and TEKUN (Malaysia 2010: 156-7). These include: establishing industry-specific skills centers based on targeted geographic areas; expanding micro-enterprise support programs for bottom 40% households in urban areas; enhancing mentor-mentee programs to create additional business opportunities; extending the incubator concept to increase entrepreneurship and employment opportunities; and expanding anchor company programs to enable the formation of partnerships and clusters. 4.2.2 Assisting Children in Bottom 40% of Households to Boost Their Education and Skills Attainmentmore equitable access to education opportunities that involve addressing the cost, geographic barriers and conducive learning environment through (Malaysia 2010: 159): rural children with high academic potential to attend better schools in urban areas (continuation from 9MP) expansion of 1Asrama programs assistance from Kumpulan Wang Amanah Pelajar Miskin (KWAPM) such as allowances, scholarships, supplementary food, school uniforms and tuition and transportation fees placements in boarding schools, matriculation centers and public universities students who have secured places in private education institutions will be given financial assistance based on merit

4.2.3 Strengthening Social Safety Net to Reduce Vulnerability of Disadvantaged Groups (Malaysia 2010: 160-1) Providing housing assistance programs to deserving poor households in rural and urban areas Providing income support, subsidies and improved access to healthcare 4.2.4 Addressing the Needs of Special Target Groups with Integrated Programs (Malaysia 2010: 162-4) Strengthening the capabilities of Bumiputeras in Sabah and Sarawak and Orang Asli communities in Peninsular Malaysia: o for the Orang Asli communities, a land development and ownership program will be implemented to enable them to become land owners and active farmers o might also be implemented for the ethnic minorities in Sabah and Sarawak

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o assistance will be given to Bumiputeras in Sabah and Sarawak to establish businesses, including entrepreneurship training, funding and strengthening linkages with established businesses in identified sectors o improve access to education o establish cooperatives to market their products more effectively Providing financial assistance to Chinese new villages residents to upgrade their homes and fund their business activities o loan schemes by financial institutions to finance payment of premium and leasehold tenure renewal as well as financing the upgrading of their houses and business activities o AIM and TEKUN for small businesses Enhancing Access to Basic Amenities and Infrastructure for Estate Workers to Improve Their Living Standards o supply treated water to estates that are 1,000 acres in size or smaller and are located less than five kilometres distance from the main pipeline o establishment of Jawatankuasa Kemajuan dan Keselamatan Kampung to foster closer ties between residents of estates and nearby villages with district offices o collaboration with estate owners in providing access roads and basic amenities such as housing and school facilities o training and re-skilling programs for displaced estate workers

5.

Comparative Perspective for Redistribution: NEM versus Previous Plans

It is possible to distil the change in approach to address inclusiveness, and some of these changes are shown in Table 11. Although the NEP and its successors emphasized poverty eradication should be regardless of race, its implementation focused on the Bumiputeras, and even then tends to be for those who are politically connected. The focus was on absolute poverty, on those households that fell below the poverty line income (PLI) and the hardcore poor. The NEM also states poverty eradication should also be irrespective of race, but it is emphasizing the eradication of relative poverty, which is the right approach as absolute poverty becomes less important as we prepare to be a developed nation. However, can we expect the implementation will be neutral? It is not easy to change something that has been practiced for 40 years overnight, although the assistance dole out under eKasih seems to be inclusive. Prior to the NEM, income distribution has always been seen from the strata (rural and urban) and especially the ethnic perspective. While these perspectives will still be maintained, the NEM also takes into account the class perspective. When it is stressing on the bottom 40% of households, this implies it is emphasizing on relative poverty as well as income distribution. So now it is vertical inequality (inequality between individuals or households with respect to income, consumption and asset) instead of horizontal inequality (HI), which refers to inequality between groups, such as ethnic groups.

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Table 11 Approaches to Inclusiveness: the old versus NEM Old Approach Poverty eradication irrespective of race. Focus on those below the PLI and the hardcore poor. Implementation focused on Bumiputeras, and even then tend to be for those who are politically connected Income distribution always analyzed from the ethnic and strata perspectives New Approach Poverty eradication irrespective of race. Focus on the bottom 40 percent of Malaysias income strata based on needs

1.

2.

3.

4.

5.

6.

While ethnic perspective still important, now income distribution also viewed from class perspective and as relative poverty Impose conditions to meet specific Market-friendly affirmative action quotas or targets.eg education programs focus on building capacity and capability of low-income households and small businesses Rent-seeking and patronage behavior Transparent, fair and empowering way, based on needs and merit Balanced regional growth. Cluster- and corridor-based economic Towards more equitable income dist activities. regionally Almost free flow of foreign unskilled Retain and attract skilled professionals. workers. Implications : Fear that foreign talent would displace local workers and lead to a widening of inequality

While past policy sets targets and quotas, now the NEM states that it will employ marketfriendly affirmative action programs focus on building capacity and capability of low-income households and small businesses. Previously, for example in education, this action resulted in many well-off Bumiputeras benefiting while at the same time many low-income families, including Bumiputeras themselves, did not benefit for various reasons, such as the fact that they are disadvantaged or do not know how to access the benefits. Hopefully, the NEM with its transparent, fair and empowering way, and based on needs as well as merit can break the logjam of vested interests. Although the outcome is still unbalance development, poverty incidence and income distribution, the previous plans have always emphasized on balanced regional growth and trying to move towards a more equitable income distribution regionally. The NEM stressed on the cluster- and corridor-based economic activities. According to Gill & Kharas (2007), this approach in development would result in higher growth as it can take advantage of the economies of scale and agglomeration effects. However, they also claim that this approach would face the risk of rising inequality.

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In the past several decades, there seems to be an almost free flow of foreign unskilled workers into Malaysia. The easy availability of foreign workers discouraged employers from developing more technologically intensive methods of production and from improving the skills of their workers, thereby keeping wages but also productivity low. Thus, while immigrant labour helped maintain the competitiveness of Malaysian exports in the short and medium terms, there was a price to pay in the long run as firms faced increasingly severe shortages of skilled personnel and fell behind in technology development. The relatively high incidence of poverty among Malaysias immigrant population has exacerbated urban poverty and created friction as these workers compete for housing and amenities. Moreover, some foreign workers have displaced Malaysian citizens in informal sectors such as night markets. Thus, the NEMs objective of retaining and attracting skilled professionals will help us move up the technology ladder. However, in doing this, Malaysia should avoid what Singapore has done, whereby the skilled and professional foreigners are given lots of incentives at the expense of the locals. That is why some Malaysians have expressed fear that the foreign talent would displace local workers and lead to a widening of inequality. When the specific strategies and programs proposed to raise the income of the bottom 40% of households in the 10MP are compared to those that were laid out in the previous plans (see Appendix), they are not that significantly different or new. This does not matter as what can make a difference is the effective implementation of the effective and tested as well as the new programs to ascertain that no one is left out from gaining the benefits of development. In fact, the idea of raising the income of this group was already stated in the Sixth Malaysia Plan 19911995 (Malaysia 1991: 33) although for some unexplained reason this was reduced to the bottom 30% in the Seventh Malaysia Plan 1996-2000 (Malaysia 1996: 80). Most of the programs are extensions or improvements of previous programs. The difference is that now the Chinese from the new villages and the Indians from the estates are specially mentioned, in addition to the Orang Asli and the Bumiputeras from Sabah and Sarawak. The latter have been included in the plans since the NEP.

7.

Concluding Remarks

While the NEP has been hailed as a successful model of growth with equity based on the record during selected periods in the past 40 years, it has also resulted in the lack of inclusiveness. Although macro data appear to show inclusiveness, micro data in terms of region, states and ethnicity reveal that there are there are sections of society that have been left out. Hence, a more equal distribution of the economic pie is needed to ensure that growth would bring benefits to everyone and facilitate Malaysias transition to a developed nation by 2020. The New Economic Model launched in March 2010 addresses in stated policy terms some of the problems with income distribution and affirmative action by espousing inclusiveness through pro-poor growth as one of its three main goals. It proposes market-friendly affirmative action for the bottom 40% of households by income, to be achieved through equitable, fair and transparent processes for determining eligibility for government programs, access to resources on the basis of need and merit, and sound institutional frameworks for more effective monitoring and implementation of programs. In the area of wealth distribution and social justice, the New Economic Model

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emphasizes equality of opportunity to education, health and other services rather than the excessive focus on outcomes used in the past (NEAC 2010: 90). Many of the reform strategies in the New Economic Model are similar to those suggested previously (see, for example, Ragayah 2009a), and are long overdue. However, ate the policies recommended in the NEM realistic and implementable? Challenges like whether the government can change the mindset and attitude of workers to produce the expected productivity gains. Some workers are reluctant to be retrained or doing multi-skilling jobs. Another challenge is to assist low income households (LIH) who form the bulk of those in the bottom 40% of households as these households are clustered around the RM1,000-RM1,499 and RM1,500-RM2,000 income range (Malaysia 2010: 150). With the Government now paying attention to those households whose incomes fall below RM1500 and RM1000 in the urban and rural areas respectively, it seems that the LIH (those households whose income fall between RM1500 and RM2300 in urban and between RM1000 and RM2000 in rural areas) are left out of the radar screen, but they also need to be monitored and assisted. A bigger question is whether the embedded beneficiaries of previous policies are willing to reform? Already the government is facing resistance from the beneficiaries of rent-seeking and cronyism in trying to implement some of the policies recommended in the NEM. How can the government be serious about implementing the strategic reform initiatives in the face of resistance? History has shown that growth can cause income inequality to narrow or to widen, depending on structural factors as well as the policies implemented by the government of the day. Experience has also shown that a good plan may not necessarily be well implemented, especially if the whole government and the policy implementers do not claim ownership. More than a year on since the introduction of the NEM, the public has yet to feel the changes planned in the document although announcements in achievements of the NKRAs were reported in the media. The government simply has to have more political will to implement policies that are inclusive rather than just benefits the privileged sections of society.

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Ragayah Haji Mat Zin, 2002. The Impact of the Financial Crisis on Poverty and Inequality in Malaysia, in Shahid Khandker (ed.): Impact of the East Asian Financial Crisis Revisited, The World Bank Institute and the Philippine Institute for Development Studies, pp. 1562. ______, 2007. Understanding the formulation of the revised poverty line, Akademika, 70: 2139. ______, 2008a. Income Distribution in Malaysia. Asian Economic Policy Review 3: 114-132. ______, 2008b. Poverty Eradication, Development and Policy Space in Malaysia. In Nelson, Joan; Jacob Meermen and Abdul Rahman Embong (eds.): Globalization and Autonomy: The Experience of Malaysia, Institute of Southeast Asian Studies (ISEAS) and Institute of Malaysian and International Studies (IKMAS), pp. 116-158. ______, 2008c. Explaining the Trends in Malaysian Income Distribution. In Income Distribution and Sustainable Economic Development in East Asia: A Comparative Analysis, (eds. Ragayah H.M.Z.and Medhi K.), pp. 158-200. Bangi: Universiti Kebangsaan Press. ______, 2008d. Poverty and Inequality Reduction in ASEAN: Is Economic Integration a Possible Answer? In Tham Siew Yean, Lee Poh Ping & Norani Othman (eds.): Community in ASEAN: Ideas & Practices. Universiti Kebangsaan Press. Pp. 84-117. ______, 2009. Growth with Equity: Reality and Aspiration. Bangi: Universiti Kebangsaan Press. ______, 2010. Inclusiveness: A Fairer Way to Share the Economic Pie? Paper presented at the MIER National Economic Outlook Conference (NEOC) 2011-2012, Kuala Lumpur, 30 November 1 December. Rasiah, Rajah and Zulkifly Osman 1998. Economic Policy and Employment Growth in Malaysia, in Rajah Rasiah and Norbert von Hofmann (eds.): Employment and Development; Experiences of the OECD and Southeast Asian Economies, FriedrichEbert-Stiftung. Saravanamuttu, J. (2009) Party Capitalism in Southeast Asia: Democracys Bane? Bangi: Institute of Malaysian and International Studies, Universiti Kebangsaan Malaysia. UN. 2011. Malaysia: The Millennium Development Goals at 2010. Kuala Lumpur: United Nations Country Team Malaysia. UNDP. 2007. Malaysia: Measuring and Monitoring Poverty and Inequality. Kuala Lumpur: United Nations Development Programme (UNDP) Malaysia. United Nations Research Institute for Social Development (UNRISD). 2010. Combating Poverty and Inequality. Geneva: UNRISD. World Bank. 2004. 2004 World Development Indicators. Washington DC, The World Bank ______ 2006. World Bank Report 2007: Development and the Next Generation. ______. 2010. Malaysia Economic Monitor: Inclusive Growth, November. Zainal Aznam Yusof, 1994. Growth and Equity in Malaysia, in Malaysian Development Experience: Changes and Challenges, Kuala Lumpur: National Institute of Public Administration. ______, 2001. Income Distribution in Malaysia, in Colin Barlow (ed.), Modern Malaysia in the Global Economy: Political and Social Change into the 21st Century. Cheltenham, UK: Edward Elgar, pp. 74-93.

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Table 1 Malaysia: Incidence of Poverty by Rural-Urban Strata, 1970-20091 1970 Total Poor Househol ds (000) 791.8 705.9 85.9 n.a. n.a. n.a. n.a. n.a. n.a. 1,000 n.a. n.a. 1997 196.5 152.9 43.6 49.5 43.2 6.3 28.2 25.7 2.5 274.2 221.8 52.4 Incidence of Poverty % 49.3 58.7 21.3 n.a. n.a. n.a. n.a. n.a. n.a. 52.4 n.a. n.a. 5.2 9.4 2.0 16.4 22.5 5.8 7.3 11.8 1.5 6.1 10.9 2.1 1976 Total Poor Househol ds (000) 764.4 669.6 94.9 95.5 87.5 8.0 115.9 107.0 8.9 975.8 864.1 111.8 1999 264.1 190.5 73.6 68.4 55.7 12.7 27.6 24.8 2.8 360.1 271.0 89.1 Incidence of Poverty % 39.4 47.8 17.9 58.3 65.7 25.9 56.5 65.0 22.9 42.4 50.9 18.7 6.5 11.0 3.2 20.1 26.0 10.1 6.7 10.5 1.6 7.5 12.4 3.4 1984 Total Poor Househol ds (000) 483.3 402.0 81.3 76.0 68.5 7.5 90.1 85.9 4.2 649.4 556.4 93.0 2002 195.9 143.5 52.4 49.2 35.4 13.8 22.8 19.4 3.4 267.9 198.3 69.6 Incidence of Poverty % 18.4 24.7 8.2 33.1 38.6 14.3 31.9 37.3 8.2 20.7 27.3 8.5 4.3 10.3 1.7 16.0 24.5 8.5 5.8 10.0 1.7 5.1 11.4 2.0 1990 Total Poor Househol ds (000) 448.9 371.4 77.5 96.6 91.1 8.5 70.9 67.8 3.1 619.4 530.3 89.1 2004 162.3 n.a. n.a. 114.2 n.a. n.a. 34.8 n.a. n.a. 311.3 219.7 91.6 Incidence of Poverty % 15.0 19.3 7.3 34.3 39.1 14.7 21.0 24.7 4.9 17.1 21.8 7.5 3.6 n.a. n.a. 23.0 n.a. n.a. 7.5 n.a. n.a. 5.7 11.9 2.5 1995 Total Poor Househol ds (000) 260.6 192.1 68.5 66.9 56.3 10.6 38.1 33.4 4.7 365.6 281.8 83.8 2009 102.2 n.a. n.a. 99.1 n.a. n.a. 27.1 n.a. n.a. 228.4 n.a. n.a. Incidence of Poverty % 7.4 12.9 3.3 22.4 28.8 10.3 10.0 15.7 2.8 8.7 14.9 3.6 2.0 n.a. n.a. 19.2 n.a. n.a. 5.3 n.a. n.a. 3.8 8.4 1.7

Strata

Penin. Msia Rural Urban Sabah Rural Urban Sarawak Rural Urban Msia Rural Urban Penin. Msia Rural Urban Sabah Rural Urban Sarawak Rural Urban Msia Rural Urban

Note: 1This Table employed the 1977 Methodology for calculating poverty incidence for 1970-2002 and 2005 Methodology for 2004-2009. Source: Ragayah (2009a), Malaysia 2010.

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Table 3 Incidence of Poverty & Hardcore Poverty by Ethnic Groups, 1970-2009 Poverty Bumiputera Chinese lndians Others Malaysia Hardcore Poverty Bumiputera Chinese lndians Others 1970a 64.8 26.0 39.2 44.8 49.3 1976 46.4
a

1979 49.2 16.5 19.8 28.9 37.4

1984 28.7 7.4 10.1 18.8 20.7 1984 9.9 2.2 1.9 7.1

1987 26.6 7.0 9.6 22.8 19.4 1987 7.4 1.4 1.8 5.2

1989b 23.0 5.4 7.6 22.8 16.5 1989b 5.8 0.8 1.2 3.4

1992 17.5 5.4 7.6 22.8 12.4 1992 4.4 0.4 0.5 3.2

1995 12.2 2.1 2.6 22.5 8.7 1995 3.2 0.3 0.3 2.8

1997 9.0 1.1 1.3 13.0 6.1 1997 2.2 0.1 0.2 0.9

1999c 12.3 1.2 3.4 25.5 8.5 1999c 2.9 0.2 0.3 5.9

2002 9.0 1.0 2.7 8.5 6.0 2002 1.6 0.1 0.3 0.8

2004 8.3 0.6 2.9 6.9 5.7 2004 1.9 0.0 0.3 1.2

2007 5.1 0.6 2.5 9.8 3.6 2007 1.0 0.1 0.3 1.4

2009 5.3 0.6 2.5 6.7 3.8 2009 1.1 0.1 0.3 1.3

17.4a 27.3a 33.8a 37.7

Notes: a Refers to Peninsular Malaysia only b Starting 1989, data is based on Malaysian citizens c From 1999 onwards, calculation of poverty is based on 2005 Methodology Source: Economic Planning Unit (2011), Socio-Economic Statistics: Household income and poverty, available at www.epu.gov.my/household-income-poverty, downloaded on 1 May 2011.

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Table 8 Distribution of Household Income by Strata: Malaysia 1970-2009

Percentage of Households
Overall Top 20% Mean Household Income (RM) Middle 40% Mean Household Income (RM) Bottom 40% Mean Household Income (RM) Gini Ratio Mean Household Income (RM) Rural Top 20% Mean Household Income (RM) Middle 40% Mean Household Income (RM) Bottom 40% Mean Household Income (RM) Gini Ratio Mean Household Income (RM) Urban Top 20% Mean Household Income (RM) Middle 40% Mean Household Income (RM) Bottom 40% Mean Household Income (RM) Gini Ratio Mean Household Income (RM) Disparity Ratio Urban:Rural Chinese: Bumiputera Indian: Bumiputera

1970a
55.7 735 32.8 216 11.5 76. 0.513 264 51.0 n.a. 35.9 n.a. 13.1 n.a. 0.469 200

1976
57.9 1464 31.3 396 10.8 136 0.557 505 54.6 1051 34.17 328 11.8 109 0.540 385

1979
55.5 1877 32.7 554 11.1 201 0.505 678 52.1 1365 34.9 457 11.8 169 0.471 523

1984
53.5 2938 33.8 929 12.7 347 0.483 1098 50.1 2110 36.0 756 14.1 292 0.450 842

1987
51.5 2228 34.8 897 13.7 380 0.456 1083 49.2 1756 36.1.7 764 11.8 333 0.427 881

Income Share (Percentage) 1989b 1995 1997

50.5 2946 35.5 1025 14.5 420 0.442 1169 47.6 2270 36.8 871 15.8 371 0.416 957 51.3 5202 35.0 1777 13.7 693 0.456 2020 47.4 3153 37.1 1235 11.8 515 0.410 1326 52.4 6854 34.4 2250 13.2 867 0.459 2606 48.2 4130 36.6 1564 15.2 649 0.424 1704

1999c
50.5 6268 35.5 2204 14.0 865 0.443 2472 47.9 4124 36.5 1577 15.6 670 0.421 1718

2002
51.3 7745 35.2 2660 13.5 1019 0.461 3011 46.7 4057 37.2 1612 11.8 699 0.405 1729

2004
51.8 8337 35.0 2875 13.2 1101 0.462 3249 46.0 4330 37.4 1762 16.6 783 0.397 1875

2007
49.8 9173 35.6 3282 14.6 1345 0.441 3686 45.7 5220 36.9 2104 17.3 994 0.388 2283

2009
49.6 9,987 36.1 3,631 14.3 1,440 0.441 4025 n.a. n.a. n.a. n.a. n.a. 1,332 0.407 2545

55.0 n.a. 32.8 n.a. 12.2 n.a. 0.503 428 2.14 2.29 1.77

56.2 2384 31.4 663 11.3 255 0.531 843 2.19 2.28 1.56

54.1 2827 33.3 869 12.9 331 0.491 1045 2.00 2.04 1.54

52.3 4114 34.4 1355 13.9 521 0.468 1573 1.87 1.84 1.31

50.6 2968 35.2 1244 14.7 549 0.449 1488 1.69 1.71 1.27

49.6 4068 35.7 1426 15.6 583 0.444 1606 1.68 1.74 1.29

49.8 6474 35.7 1812 15.5 942 0.431 2589 1.95 1.80 1.33

50.2 8470 35.6 3000 15.2 1193 0.427 3357 1.97 1.83 1.42

48.7 7580 36.5 2844 15.6 1155 0.432 3103 1.81 1.74 1.36

49.6 9085 35.7 3265 16.1 1344 0.439 3652 2.11 1.80 1.28

49.8 9863 35. 6 3524 16.6 1450 0.444 3956 2.11 1.64 1.27

48.6 10576 36.2 3947 17.4 1648 0.427 4356 1.91 1.54 1.20

n.a. n.a. n.a. n.a. n.a. 1,540 0.423 4705 1.85 1.38 1.10

Notes: a Refers to Peninsular Malaysia only b Starting 1989, data is based on Malaysian citizens c From 1999 onwards, calculation of poverty is based on 2005 Methodology Source: Ragayah (2009); Economic Planning Unit (2011), Socio-Economic Statistics: Household income and poverty, available at www.epu.gov.my/household-income-poverty, downloaded on 1 May 2011.

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Table 9 Mean Monthly Gross Households Nominal Income (RM) and Gini Coefficient by State: 1970 2009
State 1970a Mean Gini Income Ratio 237 189 151 265 286 286 254 140 292 421 173 n.a. n.a. n.a. n.a. 0.4308 0.4375 0.4861 0.4667 0.5072 0.4547 0.4729 0.4003 0.4929 0.5153 0.4775 0.5063 n.a. n.a. n.a. 1989b Mean Gini Income Ratio 1,220 860 726 1,190 1,162 1,092 1,067 852 1,375 1,790 905 2,102 1,163 1,358 1,199 1,167 0.386 0.383 0.406 0.400 0.368 0.351 0.421 0.386 0.407 0.448 0.457 0.444 0.445 0.459 0.448 0.446 1997 Mean Gini Income Ratio 2,772 1,590 1,249 2,276 2,378 1,632 1,940 1,507 3,130 4,006 1,497 4,768 2,687 2,057 2,242 2,606 0.397 0.429 0.442 0.371 0.408 0.359 0.398 0.381 0.412 0.409 0.466 0.417 0.469 0.454 0.447 0.470 1999 Mean Gini Income Ratio 2,646 1,612 1,314 2,260 2,335 1,482 1,743 1,431 3,128 3,702 1,600 4,105 2,567 1,905 2,276 2,472 0.386 0.409 0.424 0.399 0.392 0.332 0.399 0.387 0.394 0.394 0.440 0.414 0.444 0.448 0.407 0.443 2004 Mean Gini Income Ratio 3,076 2,126 1,829 2,791 2,886 2,410 2,207 2,046 3,531 5,175 1,984 5,011 3,387 2,487 2,725 3,249 0.397 0.389 0.418 0.355 0.382 0.391 0.395 0.425 0.400 0.447 0.445 0.471 0.459 0.475 0.442 0.462 2007 Mean Gini Income Ratio 3,457 2,408 2,143 3,421 3,336 2,995 2545 2,541 4004 5,580 2,463 5,322 3,804 2,866 3,349 3686 0.368 0.392 0.405 0.380 0.385 0.380 0.399 0.454 0.411 0.418 0.399 0.446 0.439 0.451 0.388 0.441 2009 Mean Gini Income Ratio 3,835 2,667 2,536 4,184 3,540 3,279 2,809 2,617 4,407 5,962 3,017 5,488 4,162 3,144 3581 4,025 0.393 0.408 0.428 0.411 0.372 0.382 0.400 0.434 0.419 0.424 0.418 0.374 n.a, 0.453 0.448 0.441

Johor Kedah Kelantan Melaka Negeri Sembilan Pahang Perak Perlis P. Pinang Selangor Terengganu K. Lumpur Peninsular Malaysia Sabah
c

Sarawak Malaysia

Notes: a Refers to Peninsular Malaysia only b Starting 1989, data is based on Malaysian citizens c Sabah includes Labuan Federal Territory (FT). Source: Ragayah (2009); Economic Planning Unit (2011), Socio-Economic Statistics: Household income and poverty, available at www.epu.gov.my/householdincome-poverty, downloaded on 1 May 2011.

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Table 10 Distribution of Household Income by Ethnic Groups, Malaysia: 1957/58-2009

% of Households
1957/ 8a Top 20% Middle 40% Bottom 40% Mean Income1 (RM per month) Median Income1 (RM per month) Gini Ratio : Overall Rural Urban 42.5 38.0 19.5 139 112 0.342 0.357 0.357 1989b 49.5 35.7 14.8 931 677 0.429 0.410 0.435

Malay/Bumiputera
1970a 52.5 34.8 12.7 177 122 0.466 0.419 0.445 1997 50.8 35.0 14.2 2038 1407 0.448 0.408 0.431 1976 53.9 34.3 11.8 345 233 0.494 0.471 0.478 1999 48.7 36.4 14.9 1984 1423 0.429 0.397 0.411 1979 52.6 35.5 11.9 513 332 0.470 n.a.. n.a.. 2004 51.2 35.3 13.5 2711 1858 0.452 0.391 0.436 1984 51.9 34.8 13.3 852 581 0.469 0.447 0.462 2007 48.7 36.3 15.2 3156 2213 0.430 n.a.. n.a.. 1987 50.2 35.7 14.1 868 612 0.447 0.426 0.437 2009 49.5 36.1 14.4 3624 n.a. 0.440 n.a.. n.a.. 1957/ 8 45.8 36.2 18.0 300 223 0.374 0.337 0.404 1989b 48.9 36.0 14.2 1582 1137 0.419 0.392 0.428

Percentage of Income Share Chinese

1970 52.6 33.5 13.9 399 269 0.455 0.399 0.474 1997 49.3 36.2 14.5 3738 2583 0.416 0.420 0.402 1976 56.1 31.3 12.6 787 480 0.505 0.486 0.507 1999 48.8 36.5 14.7 3456 2486 0.401 0.423 0.401 1979 52.8 35.3 11.9 1094 636 0.473 n.a.. n.a.. 2004 50.6 35.4 14.0 4437 3076 0.446 0.396 0.437 1984 51.1 34.9 14.0 1502 1024 0.452 0.412 0.456 2007 49.0 36.2 14.9 4853 3448 0.432 . n.a.. n.a.. 1987 49.2 35.7 15.1 1430 1021 0.430 0.399 0.440 2009 48.4 36.4 15.2 5011 n.a. 0.425 n.a.. n.a.. 1957/ 8 43.7 36.6 19.7 237 188 0.347 0.283 0.441 1989b 47.7 35.8 16.5 1201 881 0.390 0.341 0.424 1970 54.2 31.3 14.3 310 196 0.463 0.363 0.502 1997 48.4 35.8 15.8 2244 1163 0.409 0.362 0.403

Indians
1976 52.6 32.7 14.7 538 360 0.458 0.388 0.504 1999 47.6 36.3 16.1 2702 1969 0.404 0.377 0.400 1979 50.8 36.3 12.8 776 522 0.452 n.a.. n.a.. 2004 50.1 35.5 14.4 3456 2469 0.425 0.422 0.343 1984 48.4 35.3 16.3 1094 770 0.417 0.347 0.441 2007 48.0 35.7 16.2 3799 2710 0.414 n.a.. n.a... 1987 47.2 35.9 16.9 1089 799 0.402 0.350 0.435 2009 48.8 35.7 15.5 3999 n.a. 0.424 n.a.. n.a..

% of Households
Top 20% Middle 40% Bottom 40% Mean Income1 (RM per month) Median Income1 (RM per month) Gini Ratio : Overal Rural Urban l

Notes: a Refers to Peninsular Malaysia only b Starting 1989, data is based on Malaysian citizens

Source: Ragayah (2009); Economic Planning Unit (2011), Socio-Economic Statistics: Household income and poverty, available at www.epu.gov.my/household-income-poverty, downloaded on 1 May 2011.

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Appendix Table Changes Poverty Eradication Policies/Programs in Malaysia, 1970 - 2020 Period, & General Conditions
NEP 1970-1990 (OPP1) Phase 1: 1971-85 - EOI Strategy 1970-80 - Ave GDP 7.8% p.a. - Unemployment fell slightly from 7.4% to 5.7% - Ave inflation 5.5% p.a. over the 15-year period

Development Objectives/Strategies
State-led devt to attain goal of national unity by eradicating poverty & restructuring society through growth. Growth through Diversification of agri. Export promotion Public & private investment (incl. FDI beginning with L-intensive export industrialization) Expansion of soc. services incl. education & training Creation of BCIC by setting up public enterprises Low taxes on primary sector Employment & educational quotas for Bumiputeras in modern sectors Foreign labour in agriculture sector since 1982 Revitalisation of agri sector under NAP 1984 ISI Strategy 1980-85 Increased govt participation and setting up of NFPEs Structural adjustment

Poverty Reducing Policies/Programs

Rural development area dev. incl. IADPs, FELDA, FELCRA ag. support services & subsidies assisting smallholder & traditional farmers rural industrialization social dev. incl. soc. amenities & community dev. applied food & nutrition program rehabilitation of traditional villages rural urbanization Identification of the target groupspadi cultivators, rubber smallholders, coconut smallholders, fishermen, estate workers, residents of new villages, agricultural labourers, Orang Asli, urban poor, & poor in Sabah & Sarawakto raise productivity & incomes Growth of mfg & construction sectors to absorb urban & internal migrant labour Provision of basic services

Phase 2: 1980-85: twin deficit & resource imbalance recession - Ave GDP 5.1% pa - Unempt rose from 5.7% to 6.9% - Ave inflation 4.6% 1986-1990 EOI Strategy 1980-present recovery & faster Liberalization, deregulation & growth privatization from 1986-present Ave GDP 6.7% per downsizing role of government with annum private sector as engine of growth - Unemployment fell Promotion of Investment Act 1986 from 8.3% to 5.1% Foreign labour in mfg & selected - Ave inflation 2.0% service sectors since late 1980s NDP 1991-2000 National Development Policy 1991(OPP2) 2000 (NDP)aimed at balanced - Ave GDP 8.7% p.a. development to create a more united between 1991-1995, and just society. Continue with basic fell to 4.9% p.a. philosophy of growth with equity. between 1996-2000 1991 declared Vision 2020to be a - Unemployment fell industrialized and developed nation to 4.3% in 1991, by 2020 2.8% in 1995 & 3.1% Improve efficiency & enhancing in 2000 (full competitiveness

Productivity improvements Employment creation, including Operasi Isi Penuh

Introduction of the concept of hardcore poor Group farming Rural urbanization

Introduction of 'Development Programmes for the Poorest' (PPRT) package for hardcore poor Launched ASB-PPRT loan scheme in 1992 Support efforts of NGOs; eg. AIM since 6MP & private sector in poverty alleviation Continue with existing strategies for poverty eradication irrespective of race Reduction in relative poverty (bottom 40% of

34
in 2000 (full employment since 1992 with unemployment rate at 3.9% present) - Ave inflation 3.6% p.a. competitiveness More liberalization to improve further investment climate HRDF estb. In 1992 for private sector involvement in training & retraining Estb. SMIDEC in May 1996 for SMI development Technology development & productivity-driven growth Improvement in the quality of life NNAP 1992-2010. However, reviewed as NAP3 1998-2010 National Vision Policy 2001-2010 to attain a united, progressive and prosperous Malaysian society Continue with ICT & productivitydriven growth, enhancing competitiveness, HRD, quality of life households) - better land utilization on commercial basis - developing & strengthening eco. & commercial linkages - faster growth of value-added activities in agriculture - increase in income & employment opportunities & social amenities & services in urban areas, including low-cost housing

NVP 2001-2010 (OPP3) - Ave GDP 4.4% p.a. between 2001-2005, Unemployment maintained between 3.1% and 3.5% - Ave inflation 1.8% p.a.

Vision 2020: Poverty reducing strategies/programs are those that are laid out in the 10MP 2011-2015

NEW Economic Model 2011-2020-transforming Malaysia from a middle income to an advanced nation by 2020 premised on high income, inclusiveness & sustainability; provide a better foundation for a more united and progressive society Strategic Reform Initiatives: - Re-energizing the private sector - Developing a quality workforce and reducing dependency on foreign labor - Creating a competitive domestic economy - Strengthening the public sector - Transparent and market-friendly affirmative action - Building the knowledge base & infrastructure - Enhancing the sources of growth - Ensuring sustainability of growth

Poverty eradication through opportunities provided by growth More target-specific by addressing pockets of poverty, esp. in remote areas Consolidating PPRT & other anti-poverty programs under SPKR (include economic, social & physical projects) targeted areas/groups with high incidence. For rural areas: - Integrated Development of Remote Villages - Program Pembangunan Insan - provision of balanced food - ASB-Sejahtera For urban areas: - continue existing integrated approach taken by local authorities, private sector & NGOs through programs including Integrated Development for Urban Communities, Pusat RAHMAT, Projek HARAPAN & Skim Khas Ibu Tunggal Revised methodology & definition of hardcore poor Raising the Income Generation Potential of Bottom 40% Households For rural areas: - holistic support programs for micro-enterprises - linking rural talent pool to employers - increasing sustainability of income via contract farming - business ownership for capable rural entrepreneurs - increase land productivity through land amalgamation - improve human capital productivity - expanding application of agropolitan concept For urban areas: - establish industry-specific skills centers - expand micro-enterprise support programs - mentor-mentee programs to create additional business opportunities - extend the incubator concept - expand anchor company programs to enable the formation of partnerships and clusters

35
Assisting Children in Bottom 40% of Households to Boost Their Education and Skills Attainment - rural children with high academic potential to attend better schools in urban areas - expansion of 1Asrama programs - assistance from Kumpulan Wang Amanah Pelajar Miskin - placements & assistance in institutions of learning Strengthening SSN to Reduce Vulnerability of Disadvantaged Groups - housing assistance programs to deserving poor households - income support, subsidies and improved access to healthcare Addressing the Needs of Special Target Groups with Integrated Programs o Strengthening the capabilities of Bumiputeras in Sabah and Sarawak and Orang Asli via land development and ownership program, eatablishing businesses for Bumis in Sabah & Swak, improve access to education, establish cooperatives for marketing their products o financial assistance to Chinese new villages residents to renew leases, upgrade homes & finance business; AIM and TEKUN for small businesses Enhancing Access to Basic Amenities and Infrastructure for Estate Workers - supply treated water, establish JKKK, collaborate with estate owners in providing access roads and basic amenities, training and re-skilling progs for displaced estate workers