THE COLOUR OF INEQUALITY

The Colour of Inequality: Ethnicity, Class, Income and Wealth in Malaysia

Buku ini telah diperkenalkan oleh seorang tokoh bukan Melayu dan bukan Islam yang turut memainkan peranan yang terpenting dalam penggubalan DASAR EKONOMI BARU. Sedikit maklumat mengenai beliau adalah seperti berikut:

*Tan Sri Professor Emeritus Dr Just Faaland, the then Director of Harvard University Advisory Services Malaysia Project, is one of the key architects responsible for the formulation of New Economic Policy in 1971. He has held various leadership positions in international organisations including President of the OECD Development Centre in Paris, Director General of the International Food Policy Research Institute (IFRI) Washington, World Bank’s Representative in Bangladesh and Economic Consultant to the United Nations and its agencies. Currently, he is a Senior Consultant with the Chr. Michelson Institute (CMI) Norway, an independent centre for research on international development and policy. He is the winner of the Tokoh Merdeka 2010 Award for Outstanding Contribution to the People of Malaysia.


Foreword

Inequality is the worldwide phenomenon of the 21^st century. The Clinton Initiatives, the Obama Administration, the World Bank, the International Monetary Fund (IMF), the United Nations Development Program (UNDP), and other United Nations (UN) agencies are all prescribing one form of policy or other to reduce inequality. The Scandinavian countries are ahead of the rest in this effort to achieve maximum growth with maximum reduction in inequality simultaneously. It is indeed possible to have growth and at the same time reduce inequality. Malaysia, much to its credit and despite vehement objections internally and externally, is ahead of the curve by at least forty years in its implementation of the New Economic Policy (NEP). As evidence shows, the policy worked for Malaysia. All Malaysians gained from this policy. This inclusive growth policy has since been replaced by a national policy that is more oriented towards growth, rather than with the dual objective of reducing inequality. The fact that unacceptable inequality is rearing its ugly head again is a warning that the distributive dimensions of the policy must be attended to urgently.

The British Imperial colonial masters left the country divided politically and economically. Politically, they left the country with race politics. Economically, they left the economic activities divided along racial lines, with the Malays, who form the majority of the country, left far behind and marginalized in the low productivity sector. Successive Malaysian government since Merdeka have struggled to removed these embedded and deep-seated divisive structures created by the British to serve their own ends, and replace them with non-racial politics and ethnically balanced economy as the foundation for a new united Malaysian nation. The nation, ruled by an alliance of several racially based political parties, formulated the inclusive growth policy to address the economic imbalances.

The results have been mixed. Although economic growth and standard of living have increased impressively, the struggle with race diversity is still ongoing while new challenges are emerging. Inequality in Malaysia is one of the highest in the region, and to compound the challenge to policymakers, intra-ethnic disparity is also raising, despite dropping dramatically from 2002-2009. All concerned Malaysians must face and address this challenge in the foreseeable future.

Dr Muhammaed’s book is a landmark contribution in the history of the economic and social development of the country. It specifically and systematically addresses one aspect of the overall serious socio-economic inequality problem in the country: wealth inequality, although the analyses also include inequality in income, employment, and education. It is a well-researched book, emanating partly from Dr Muhammed’s doctoral dissertation from the elite grand école Sciences Po Paris. His attempts on policy prescriptions on how to go forward towards solving the problems, without impinging on minority rights and retard the momentum of sustained economic growth, is worth exploring. It points out some of the alternative ways on how to contain the wealth inequality gap for national interest, over sectarian consequences.

What is more interesting are the myriad of new data presented in the book, which are not found in other publications on the subject matter in Malaysia. Indeed, most Malaysian economists or analysts tend to skirt the issue, for fear of being branded politically incorrect. There are guesses, assertions, and anecdotal evidence, but not solid statistics as found in this book. The references at the end of the book are up-to-date and comprehensive, which should be useful as starting point for future researchers, either locally or internationally, on the topic of wealth inequality in general, and in the Malaysian context specifically.

I would like to congratulate Dr Muhammed for attempting to demystify and untangle this difficult and sensitive subject with facts and figures to substantiate his arguments. The French worship of logic, mathematics, and facts for rational and scientific argument influences the methodology and analysis of this book. The value of this book is that it highlights in a professional way the serious wealth gaps that exist in the country. It is an eye-opener for all: politicians and policymakers, and all who care for this country. It opens a window for future refined studies of wealth inequality in Malaysia for policy inputs towards containing the problem. This book is definitely a must-read for every concerned Malaysian.

Just Faaland*

Bergen, Norway

December 1, 2013

Preface

On a quiet, ordinary day on December 17, 2010, a young man – driven to defeat and hopelessness – set himself of fire in the middle of a busy intersection in a small rural town in Tunisia. Little did the man – by the name of Mohamed Bouazizi – realise that his self-immolation would spark one of the most unexpected revolutions in modern history. His harrowing act, and similar self-sacrificing acts carried out by many others before him and many more after him – are characterised by one common theme. It was the same theme that gave birth to the French revolution in the late 18^th century, the Russian revolution in early 2oth century, and the Arab Spring that Bouazizi unleashed: that the huge economic disparity between citizens had created a powderkeg which, once ignited, would create an enormously costly, and invariably bloody, social and political instability.

This is the theme that I have chosen for this book. Malaysia has a similar scar on its historical face – the bloody racial riots in 1969 exploded due to the same underlying circumstances as those that brought forth the revolutions mentioned earlier. The country managed to pull itself together and put in place policies to ensure that dark episode would never happen again. And until recently, Malaysia has been lucky. The economic boom in the 1980s and ‘90s had increased wealth for many Malaysians. Through higher income, homeownership, savings, and stock market investments, a considerable number of Malaysians have now acquired sizeable holdings of assets, although some gained more than others.

However, lately, we see that the overall economic growth that would gradually pull everyone up to a higher level of wellbeing – what economists call the trickle-down effect – does not necessarily include everyone. Some end up progressing faster and further than others, while a sizeable section lags behind, seeing little to no progression, hence creating a dangerous phenomenon: widening inequality.

Although Malaysia has made great strides in reducing poverty and inequality (especially between ethnic groups) from 1970 to 1990, the wealth gap remains high post-1990. And it has remained almost at the same level for the past twenty years. The relative income gap between urban and rural also has stagnated during the same period. In fact, the relative income gap between urban and rural in 2012 is the same as the year Malaysia obtained its independence from British – in 1957! No doubt the socio economic conditions of the rural population have improved substantially since 1957, but despite the huge resources allocated to the rural areas, the gap between the rural population and its urban counterparts has not changed much. The gap between the rich and the poor also didn’t seem to improve. Despite the fact that household income for all groups has been increasing since 1970, the income disparity has remained unchanged from 1990. For instance, the income gap between the rich [top 20 per cent] and the poor [bottom 40 per cent] has not changed in more than two decades; the gap in 2012 is almost the same level as in 1989. The gap between the rich and the poor remains wide and equally high across all ethnic groups. Latest available figures show that income inequality is the highest among the Indians community, followed by the Chinese, and then by the Bumiputera.

Among the Bumiputera, the inequality – although it has been on a general downward trend – remains stubbornly high. Based on Amanah Saham Bumiputera (ASB) 2013 annual report, about 72 per cent of its investors has an average investment of RM554, while the top 0.2 per cent having 1,308 times mote at RM725,122. The relative income gap between the Chinese and the Bumiputera has also increased since 2009, where it increased by 10 per cent – unprecedented since 1970. In contrast, the relative income gap reduced by 50 per cent during the year 2004-2009 under the administration of the previous Prime Minister, Tun Abdullah Ahmad Badawi.

In addition, there are several challenges in poverty reduction. Although the national poverty rate is less than 2 per cent, the poverty level still remains high for certain groups; for instance, the poverty rate in Sabah is 8 per cent in 2012, which is nearly five times higher than the national average. In addition, if poverty is measured using the relative poverty rate* (defined as less than half of the median income), as suggested in the New Economic Model, about 20 per cent of Malaysian households is considered poor. Incidentally, the relative poverty rate in 2012 is not significantly different from the rate four decades ago. This does not come as a surprise, considering that about 62 per cent of employees in Malaysia earn less than RM2,000 a month.

This gap, if left unchecked, could be harmful. Not only would it create social instability, it could stifle long-term growth, breed social resentment and generate political instability, which would also in turn fuel populist sentiment. This we have also witnessed in the Occupy Wall Street Movement that burst into the scene precisely because of the growing gap between the rich and the poor, between the haves and the have-nots.

Malaysia should be on guard against increasingly widening inequality; as it stands, the current income gap in Malaysia is one of the highest in Asia. Unfortunately, the debate on this topic has been disappointingly muted despite the clearly evident severe cost of not addressing inequality, as the sad chapter in our country’s history testifies.

This book hopes to promote debates on inequalities in Malaysia, focusing on the existing unequal distribution of assets among Malaysians, with special focus on the gap between the Bumiputera majority and the non-Bumiputera minorities. The concept of the peer group is crucial here, as the income or wealth of others always enters into our own cognitive reality. Human beings naturally compare themselves with their peers, and the expression of the differences of wealth or income among peoples can stem from fate to injustice, giving rise to anger and to simple and pure human disgust. In a democratic society, a problem of the majority (Bumiputera) is not an ethnic problem per se; a problem facing a majority community is also a problem at a national level. Debates on economic distribution and its inequality in a multiracial society that is divided along racial lines in politics and economics would be beneficial for formulating a correct policy response to not only reduce the inequality among its citizens but, more importantly, to foster enduring unity in the long run.

As with any contemporary issue, it is important to look back at the history. This book will go back in time to look at the inequalities during the colonial and post-colonial periods. It will study government intervention in addressing the gap after the racial riots and why, despite more than three decades of efforts, the gaps still exists. More importantly, are there any policy instruments that can be deployed before the gap becomes unbridgeable?

Some readers might get the impression that this book puts a particular community – especially the Chinese – unfavourably, and that book is biased towards them. Let me reassure the readers that this is not so, as this book also criticises the Bumiputera community, especially the key stakeholders that are entrusted to uplift the socio-economic status of the group, as well as addressing issues facing the non-Bumiputera community. Importantly, the argument in this book relies heavily on facts and figures, and however unfortunate it may be, we have no choice but to tackle the issue head on. The fact of the matter is that inequality in Malaysia remains as much about race as it is about class, and the gaps are not narrowing.

Perhaps the readers will view the findings in a positive light and calmly respect the evidence presented. It does not help the policy debates if we refuse to acknowledge inconvenient facts, as the policy discussions will then not be based on realities, but rather on fantasies that are divided along the racial or partisan lines. Policymaking must rest on the foundation of facts, data, and scientific analysis, and, most importantly, be free from one-sided prejudice. The inconvenience truth must be confronted directly. The sooner we face the truth, the sooner the solutions can be found.

What is urgently needed from us all – regardless of ethnicity, creed, gender, religion, social status, and political affiliation – is empathy, which is the ability to put oneself in the shoes of another person. Only then, perhaps, this issue of sharing the nation’s wealth, as well as other sensitive national issues, will not be prejudiced by racial biases.

Ultimately, what we want is that the nation be unified, and the gains from economic growth are savoured by all. It bears repetition that the failure to correct economic inequality could shake and jeopardise the stability of a country, the consequences of which could be severe indeed. History is the best teacher: the costly and painful experience of the May 13 riots of 1969, which exploded due unequal distribution of economic growth, should not happen again. It would be far better if these old lessons could be remembered, rather than re-leaned.

Muhammed Abdul Khalid

Penang, Malaysia

August 1, 2014

*Relative income poverty is measured here using the OECD definition, where the poverty rate is the ratio of the number of people who fall below poverty line and the total population; the poverty line is here taken as half the median household income.