Learning Objectives The range of conceptions of affirmative action, and specific considerations in conceptualizing affirmative action in Malaysia The inadequacies of theories of competitive markets in framing problems of persistent inequality between population groups The main instruments of affirmative action in Malaysia The attainments and shortfalls of affirmative action in Malaysia The implications of affirmative action outcome on policies in the present and future Malaysian Economy All Rights Reserved
Ethnic Inequality: Under-representation of an ethnic
group in positions that confer social prestige or economic influence. Specific measures, conventionally termed affirmative action, have been implemented to redress these disproportionalities, which tend to perpetuate in the absence of state intervention.
10.1 Conceptual and Theoretical Considerations 10.1.1 Defining Affirmative Action Core element: Application of preference to members of a beneficiary group Different approaches tend to emphasize one or more aspects of AA, related to the rationale, scope and duration of group preference, e.g.: • “[the] practice of preferential selection of members of under-represented groups to widely esteemed positions” (Weisskopf, 2004).
10.1 Conceptual and Theoretical Considerations (cont.) 10.1.1 Defining Affirmative Action (cont.) • “special temporary measures… to accelerate the pace of improvement of the situation of groups that are at a serious disadvantage because of past or present discrimination” (ILO, 2007) • “measures to raise the participation of members of an economically disadvantaged group in the areas of education, employment and business, where they ha[ve] been historically excluded or under-represented” (Lee, 2005)
10.1 Conceptual and Theoretical Considerations (cont.) 10.1.1 Defining Affirmative Action (cont.) Three problems stand out as rationales for affirmative action: Discrimination, disadvantage and under-representation With reference to international literature and the Malaysian context, AA may be defined as: • Preferential measures to redress systemic disadvantages faced by a population group in socially esteemed and economically influential positions where they are substantially under- represented Malaysian Economy All Rights Reserved
10.1 Conceptual and Theoretical Considerations (cont.) 10.1.2 Theories and Debates Affirmative action recognizes structural inequalities and group exclusion, and the tendency of capitalist market systems to perpetuate them. It thus constitutes a departure from notions of free markets, competition and merit found in conventional economic theory. The neoclassical formulation of earnings determination as an optimization process of acquiring human capital is inadequate.
10.1 Conceptual and Theoretical Considerations (cont.) 10.1.2 Theories and Debates (cont.) Becker’s theory of discrimination defines the problem as a departure from objective behaviour, related to 'non-pecuniary, psychic costs of interaction'. This argument rests on an assumption that workers across race groups are equally productive, and that competitive markets equalize returns to human capital in the absence of discrimination. Thus, the explanation for wage disparity reduces to a 'taste for discrimination'.
10.1 Conceptual and Theoretical Consideration (cont.) 10.1.2 Theories and Debates (cont.) Loury (2002) draws a distinction between 'reward bias' (post-labour market entry) and 'development bias' (pre- labour market entry), and asserts, rightly, that neoclassical economics pays inadequate attention to latter. The confinement of discrimination to a post-labour market entry phenomenon is inadequate for any consideration of the problems affirmative action aims to address. Systemic exclusion and disadvantage ; Loury’s development bias- are, indeed the very focus of affirmative action. Malaysian Economy All Rights Reserved
10.1 Conceptual and Theoretical Consideration (cont.) Costs of Affirmative Action Wider negative ramifications of affirmative action are complex, but arguably pertain more to the implementation than the institution of policies, and are ultimately empirical matters. Disadvantaged groups may be stigmatized if their presence in esteemed and empowered positions is continually low—a probable outcome if affirmative action were not instituted. It is more pertinent and constructive to ask whether affirmative action is effective than whether it should exist, and more productive, in Malaysia’s case, to consider modification instead of elimination of policies. Malaysian Economy All Rights Reserved
10.2 Affirmative Action Programmes since The New Economic Policy
10.2.1 Tertiary and Secondary Education
1970s, quota & scholarship system for university
enrolment (locally and overseas) Bumiputera Residential Science colleges etc..; MARA : (MRSM) cultivation of science & engineering ; catering for pupils in rural and underprivileged. (exclusively Bumiputera, non-Bumiputera quota introduced in 2000) 1980s, private tertiary expanded Ethnic quotas in public university admissions Bumiputera preference and ethnic quotas in scholarships Malaysian Economy All Rights Reserved
10.2 Affirmative Action Programmes since The New Economic Policy (cont.) 10.2.2 Representation in Managerial, Professional and Technical Positions Restructuring of employment in Malaysia abided by a mandate that 'employment patterns at all levels and in all sectors… must reflect the racial composition of the population' Predominant instrument: Ethnic preferential policies in public sector employment
10.2 Affirmative Action Programmes since The New Economic Policy (cont.) 10.2.2 Representation in Managerial, Professional and Technical Positions (cont.) Limited regulations on private sector Implicitly, AA in tertiary education is expected to translate into Bumiputera upward occupational mobility and broad labour market participation
10.2 Affirmative Action Programmes since The New Economic Policy (cont.) 10.2.3 Equity Ownership Industrial Coordination Act 1975 mandated at least 30% of equity of large-scale manufacturing firms be transferred into Bumiputera hands (export-oriented firms exempted) State-operated trust funds representing Bumiputera interest, e.g. Permodalan Nasional Bhd. Momentous shift in late-1980s: Massive privatization and concentration of ownership among selected Bumiputera individuals After 1997–1998 financial crisis: Renationalization of privatized entities, resurgent role of government-linked companies and institutional investment
10.2 Affirmative Action Programmes since The New Economic Policy (cont.) 10.2.4 Enterprise Development Distinct from public administration, focused on commercially oriented production of goods and services Public enterprises in the 1970s and mid-1980s Privatization from late 1980s to the 1997–1998 financial crisis Post-financial crisis, renationalized government-linked companies (GLCs) and renewed emphasis on the role of GLCs and government-linked investment companies (GLICs) Licensing and public procurement Malaysian Economy All Rights Reserved
Overall: Gains in quantity of education provision, access and attainment, questions over quality of graduates Expansion of residential colleges and matriculation programmes Ethnic composition of university enrolment: • 1970: 40.2% Bumiputera, 48.9% Chinese, 7.3% Indian • 2003: 62.6% Bumiputera, 32.2% Chinese, 5.2% Indian
10.3 Evaluation of Progress (cont.) Educational attainment of labour force: • Proportion labour force with tertiary education in 2007: 22% for Bumiputera, 22.6% for Chinese, 18.8% for Indian.
10.3 Evaluation of Progress (cont.) 10.3.1 Tertiary Education (cont.) • These problems are more pronounced among graduates of local public institutions • Bumiputera graduates may face more difficulty securing employment in skilled jobs, especially in the private sector – ** Unemployment rate among Bumiputera : refer table ; 10.3, 10.4 & 10.5, page 264
10.3 Evaluation of Progress (cont.) 10.3.2 Representation in Managerial, Professional and Technical Occupations * Refer table 10.6 & 10.7, page 265 & 266 Bumiputera representation at managerial level: • Increased steadily over 1970–1990 • Increased more rapidly over 1990–1995 • Remained static from 1995 to 2005 Bumiputera representation at professional and technical levels: • Increased substantially over 1970–1990 • Increased slightly since 1990s Malaysian Economy All Rights Reserved
10.3 Evaluation of Progress (cont.) 10.3.2 Representation in Managerial, Professional and Technical Positions (cont.) Bumiputera participation as professionals and technicians depends on public sector employment, particularly as teachers and nurses (table 10.8, page 267) Within the public sector, Malay representation is higher at the upper ranks • Malays comprise 83.9% in top management, 81.6% at management and professional level, and 75.8% of support staff Malaysian Economy All Rights Reserved
10.3 Evaluation of Progress (cont.) 10.3.2 Representation in Managerial, Professional and Technical Positions (cont.) • Non-Malay Bumiputera occupy only 1.4% of top management positions and 3.2% of managers and professionals Growth and self-sufficiency of Bumiputera-owned and operated small- and medium-scale enterprises remain an area of pronounced shortcoming, particularly in manufacturing activities, where reliance on foreign investment persists
10.3 Evaluation of Progress (cont.) 10.3.2 Representation in Managerial, Professional and Technical Positions (cont.) Licensing and procurement have suffered from poor execution and ineffectiveness in spurring efficiency and technical advancement
10.3 Evaluation of Progress (cont.) 10.3.3 Equity Ownership Official data on the Bumiputera share of equity (measured at par value) show considerable increase from 2.4% in 1970 to 12.5% in 1980, with trust agencies playing a prominent role. Far behind Non- Bumi. Refer table 10.10, page 268. The share increased in the 1980s, with much more individual ownership, to 19.3% in 1990 1997–1998 financial crisis caused a relative decline in Bumiputera equity ownership, but over the long term official statistics show a fairly constant share of about Malaysian 20% Economy since 1990 All Rights Reserved
10.3 Evaluation of Progress (cont.) 10.3.3 Equity Ownership (cont.) Official measurement of equity ownership has been debated and argued to understate Bumiputera holdings: • Usage of par value, instead of market value, omits changes in asset price that contribute to wealth, and would underestimate holdings in large corporations, where Bumiputera ownership is known to be concentrated • The presence of holdings not assigned to an ethnic group, through nominees or others, is considerable and also likely undercounts Bumiputera ownership Malaysian Economy All Rights Reserved
10.3 Evaluation of Progress (cont.) 10.3.3 Equity Ownership (cont.) • Omission of government ownership and GLCs, even though policy clearly prioritizes BCIC development, and executive positions in the relevant corporations are predominantly Bumiputera Alternative estimates of Bumiputera equity ownership have found figures above 30% Bumiputera wealth accumulation—in terms of equity ownership—and empowerment in the corporate sector, reflected in substantial stakes through government- linked corporations or private holdings in major industries, have advanced substantially Malaysian Economy All Rights Reserved
10.4 Conclusions and Implications Malaysia’s affirmative action made considerable advancements for the Bumiputera population, in facilitating access to education, especially at the tertiary level, in increasing representation in highly skilled occupations, and in expanding ownership of and control over capital. However, the momentum of progress has decline in recent years, and the benefits have been inequitably distributed among the Bumiputera, with non-Malay Bumiputera and Indian socioeconomic achievement falling short. Malaysian Economy All Rights Reserved
Affirmative action facilitated quantitative change, but
perhaps at the expense of losses in the quality of institutions and in the capacity of beneficiaries. The causes of declining quality of tertiary education at the national level, and possible compounding effects of ethnic quotas and ethnically exclusive institutions, warrant critical and honest examination.
10.4 Conclusions and Implications (cont.) Continual dependence on public-sector employment to raise Bumiputera representation in targeted occupations: • Highlights the need for education reforms to cultivate self- reliant, capable and confident graduates • Raises the onus on efforts to steer employment in the public sector, especially in senior and prominent positions, towards a more proportionate ethnic composition
10.4 Conclusions and Implications (cont.) Official data suggest that Bumiputera equity ownership has stagnated since 1990, other sources, employing more transparent and credible methodologies, demonstrate that the share may be substantially higher Shortcomings of various regulations and programmes, notably state-sponsored unit trust funds, Industrial Coordination Act equity rules, privatization of state assets and ethnic quotas in public share offerings: • Pose questions on the efficacy and relevance of preferential policies in wealth distribution • Suggest that priority should return to developing human capacities and skills, and raising earnings and income Malaysian Economy All Rights Reserved
10.4 Conclusions and Implications (cont.) Alternatives to Malaysia’s current affirmative action Needs-based or class-based redistribution: • Address different problems • Applicable to an extent in tertiary education, but not feasible in the spheres on employment, enterprise development and ownership • Complements, not substitutes, to affirmative action Immediate abolition of affirmative action: • Overly ideological and based on theoretical abstraction • Abruptly overturning embedded institutions and entrenched expectations of state support is potentially destabilizing Malaysian Economy All Rights Reserved
10.4 Conclusions and Implications (cont.) While Malaysia remains ethnically fragmented, it is arguably more judicious and viable to: • Negotiate a systematic transition away from the status quo by precisely defining the rationale and scope of affirmative action • Critically reviewing and modifying programmes to make them more effective • Progress toward the ultimate goal of dismantling ethnicity-based preferential policies