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Economic Success, An NEP Product?

We must demand proof that the New Economic Policy has enlarged the middle class and strengthened our economic fundamentals.

Written by johnleemk on 6:12:18 pm Sep 5, 2007.

One common assertion about the Malaysian New Economic Policy, or NEP, is that it is responsible for the growth in the Malaysian middle class. Less commonly, it may be argued that the NEP has been a major player in Malaysia's economic development.

Like the claim that Mahathir Mohamad's policies engineered Malaysia's economic growth, I find these assertions woefully lacking in a reasoned basis.

Their fault is the assumption that correlation is equivalent to causation — that because the tenure of the NEP coincided with a burgeoning middle class and economic growth, the NEP was responsible for the enlarged middle class and stronger economy.

That isn't to say a reasonable argument could be built for the NEP having positive effects in these areas. But that argument does not seem to have been really made.

People like to defend the NEP on the basis that, at the very least, it does not seem to have been antithetical to economic growth and a larger middle class.

But the economic concept of opportunity cost applies here — the true cost of something is what we would have gained by adopting a different alternative.

We may have a large middle class today — whether that is because or in spite of the NEP, I cannot say — but would we not have a larger middle class had we adopted a race-blind policy which targeted the poorer classes of society?

Would we not have more substantial economic growth if we adopted a policy not as susceptible to abuse by rent-seekers, people who collect fat cheques just by virtue of their skin colour while their fellow Malaysians and fellow bumiputra are denied the opportunities they need?

I am always a little puzzled when people name the NEP as responsible for great things about the Malaysian economy. It very well may be, but in a system as complex as the economy, more evidence is needed than a simple coincidence.

Any number of policies, after all, could have been responsible for what occurred. It may have been simple serendipity; after all, economic progress occurred even in some of the worst basket cases in the region at roughly the same time as us.

And in light of how much of the NEP's policies have been continued, only under different labels, surely the NEP ought to be taken to task for sluggish growth in recent years relative to our counterparts in the region? Surely it ought to be taken to task for the widening income disparities being observed?

We cannot simply praise the New Economic Policy to high heavens for something it may or may not have been responsible for. We owe it to ourselves to demand proof of the policy's contributions, and to compare the policy to what it might have plausibly achieved had it taken on a different form. That is the only way we can move forward.