Ethnic Structure, Inequality and Governance in the Public Sector: Malaysian Experiences

This paper analyses Malaysian experiences in managing ethnic “imbalances”—between the “indigenous community” and “immigrant communities”—that created formidable barriers to non-divisive interethnic relations. Part I gives an overview of the formation of a plural society and an ethnic division of labour. Part II focuses on the public sector’s use of the New Economic Policy (NEP) to overturn the ethnic division of labour and its impact on public sector governance. Part III examines how a matrix of ethnic representation, power sharing and domination imposed some measure of stability upon the political system.

A basic post-1970 official classification divides the population between the “bumiputera” or indigenous people and non-bumiputera people. In Peninsular Malaysia, the bumiputera predominantly consist of the Malays. The bumiputera of Sabah and Sarawak refer to the indigenous people of many communities. For Malaysia, the non-bumiputera chiefly refer to the Chinese and Indians, by now mostly descendants of colonial-era immigrants.

An “ethnic division of labour” had emerged when colonial capitalism created patterns of uneven development and socioeconomic disparities. At their starkest, patterns of ethnic inequalities were traceable to the organization of labour of different ethnic origins by separate sectors and pursuits, crudely captured by stereotypes of the “Malay farmer”, the “Chinese trader” and the “Indian estate labourer”.

The ethnic diversity and the ethnic division of labour has led to Malaysian society being characterized as a “plural society” whose “ethnic cleavages” prompt politicians to “communalize” issues and policy makers to discriminate on the basis of ethnic differentiation. Ethnic disagreements were often regarded as pitting “Malay political power” against “Chinese economic domination”, especially when postindependence laissez-faire capitalism failed to redress inequalities in income distribution, incidence of poverty, employment and social mobility. The biggest failure in the state’s management of ethnic relations came on 13 May 1969 when the capital city, Kuala Lumpur, was engulfed by ethnic violence.

After May 1969, the state had two basic solutions to the ethnic tensions. The first solution was to form the Barisan Nasional (BN, or National Front) by enlarging the pre-1970 ruling coalition, the Alliance. Ruling since 1974, the BN’s strengths are drawn from a framework for managing interethnic politics. The BN implements relatively stable allocations of opportunities for electoral representation, and functioning arrangements for power sharing. But there is no ethnically proportionate influence over policy formulation. The domination of the United Malays National Organization (UMNO) is a “fact” of BN collaboration since Malays form the largest proportion of the electorate, and UMNO has always won the largest share of the BN’s seats in Parliament. A crucial feature of this “majoritarian” power-sharing arrangement is that the prime minister and his deputies are Malays, and Malays head key ministries. For UMNO’s partners, BN membership allows a party to trade its opposition for some influence in government insofar as the party delivers the votes of “its” community.

The second solution came in the form of the NEP, which relied on massive state intervention “to eradicate poverty irrespective of race” and “to restructure society to abolish the identification of race with economic function” by raising the bumiputera, mostly Malay, share of corporate equity and to create new Malay capitalist, professional and middle classes. Accordingly, the public sector provided economic, investment and educational opportunities for Malays; regulated businesses, both local and foreign, by using legislative means, bureaucratic procedures and ethnic quotas for equity participation and employment; invested so as to raise Malay corporate ownership rates; and served as the trustee of Malay economic interests.

Given new roles, greater resources and political support, the state’s public enterprises, statutory authorities and state economic development corporations proliferated, creating notable impacts on public sector governance. First, the civil service became increasingly Malay-dominated in terms of staff recruitment, training, deployment and promotion at higher administrative and professional levels. Second, administration and regulation were increasingly ethnicized. An ethnic public sector–private sector divide emerged when the public sector applied ethnic quotas and targets to many socioeconomic sectors and used price subsidies and discounts to offset “bumiputera lack of competitiveness”. Consequently, “public sector ineptitude” was commonly contrasted with “private sector efficiency”. A public sector–private sector overlap developed within the Malay community. Intersecting Malay Party, bureaucratic and class interests blurred the borders between “Malay social enterprise” and “Malay private business”. After 1981, policies of “Malaysia Incorporated” and “privatization” subordinated the public sector to the private sector, raising new problems of governance, as Malay conglomerates—sometimes in joint ventures with non-Malay capital—became “politicized oligopolies” that escaped stringent scrutiny and regulation. Hence, while the NEP overturned an earlier ethnic division of labour, its ethnicized governance reaffirmed an “identification of ethnicity with politico-economic sectors”.