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Mahathir should seize chance to take on Malay privileges

Reform can enable phase out of ethnic preference system

| Malaysia

Malaysia operates arguably the world's largest affirmative action system.

Many in the country are hoping that the May election that ousted the National Front, the coalition of racially based parties that had led the country since independence in 1957, will herald a shift to nonracial governing. Paradoxically, however, the best way to phase out the system may be to first strengthen it.

Ethnic Malays and small indigenous groups, which together are known as bumiputra and constitute about two-thirds of the population, are favored through a broad system of quotas and preferences that dates back to 1971. These are intended to promote bumiputra prosperity through fostering their greater participation in higher education and business management.

The notion is that this will bolster their competitiveness relative to the ethnic Chinese and Indians who dominate the country's business and professional sectors. Yet the results have been limited.

Among the 645,100 micro, small and medium enterprises counted in the country in 2015, for example, only 38% were bumiputra-owned. Of those, only 12% were bigger than "micro" as compared with 30% of those owned by non-bumiputra.

The bumiputra programs were intended to be temporary, but remain solidly in force after four decades in large part because mollycoddling by the state has encouraged beneficiaries to seek greater assistance, rather than to compete on their own.

During his successful election campaign to return to the office from which he retired in 2003, Prime Minister Mahathir Mohamad gave assurances that bumiputra interests would be safeguarded if the opposition coalition won. Indeed, Parti Pribumi Bersatu Malaysia, Mahathir's new party, is an exclusively Malay group.

Mahathir though has a long record of favoring a more robust approach to Malay preferences, focused on competitiveness rather than benefits. A top priority during his earlier tenure as prime minister was the grooming of independent Malay entrepreneurs.

The Parti Keadilan Rakyat of Anwar Ibrahim, once deputy prime minister under Mahathir and now in alliance with him again, is an explicitly multiethnic party. Ibrahim, who is expected to succeed Mahathir as prime minister in about two years' time, said recently that bumiputra policies "should be dismantled" and refocused on fighting poverty. He added that he is committed to "giving [bumiputra] opportunities, but not enriching them to become billionaires."

Any attempt to reform the system though is sure to face considerable resistance. There is genuine anxiety that bumiputra are still not ready to compete on a level playing field.

Anwar's focus on ordinary folk taps into popular disgruntlement at being left behind by the system and recognizes that reforms cannot be too abrupt. However, reaching out more vigorously to the bumiputra poor can only be part of the solution.

The preferential system is most visible in higher education and public procurement. Universiti Teknologi MARA, which enrolls more than a third of all public university students in the country, is reserved for bumiputra.

Pre-university, young bumiputra overwhelmingly attend what are called matriculation colleges. These offer easier courses than other types of schools and maintain a 90% bumiputra enrollment quota.

These practices ensure bumiputra admissions to public universities, but fail to prepare them for academic challenges. Studies show that students entering university from matriculation colleges fare less well than those who gain entry via more challenging routes.

To reform the system, matriculation programs should be made more rigorous and demanding so that bumiputra applicants are better prepared to compete for university admission. Then bumiputra preferences could be phased out in university enrollment while kept in place for matriculation colleges in the near term.

In public procurement, only bumiputra contractors are now allowed to bid for small contracts. For all but the largest projects, bumiputra contractors enjoy a price advantage. The system incentivizes companies to stay small and only meekly promotes competitiveness.

As a result, bumiputra businesses constitute more than 90% of government-licensed contractors. But three-quarters of them are categorized in the smallest of seven official size tiers and there is little upward movement. Of 28,804 bottom-tier contractors counted at the start of 2010, 47 had graduated to a higher tier by year-end.

The prevalence of undersized contractors derives from a decades-long focus on maximizing the quantity of bumiputra benefits without commensurate attention to quality and efficacy. By reserving small contracts exclusively for bumiputra companies, the government has incentivized contractors to concentrate at that level and discouraged them from expanding.

Reform must focus on spurring growth and competitiveness. The authorities could offer incentives for medium-sized contractors to form partnerships and consortiums to bid for large contracts; give preferential treatment in procurement for businesses that have graduated to a higher size tier; and set limits on the number of times contractors can claim bumiputra preferential treatment within each tier.

These reforms may seem daunting, but circumstances present a window of opportunity. The unprecedented electoral swing against the National Front reflects a growing self-confidence among Malays and repudiation of the former ruling party's claim to be their sole protector and patron. This will make it easier for reformists to persuade Malays that calibrated reform is in their own interests.

In the short term, Mahathir might reflect on the original intention of the preference system: cultivating resilience and fostering competition among bumiputra. This implies the ultimate dismantling of ethnic preferences, in spite of campaign promises that ethnic Malay advantages will be preserved.

In Mahathir and Anwar, Malaysia has towering political figures who have articulated a vision of the bumiputra community standing confidently and independently, weaned from dependence on political patronage. Moving in that direction requires a coherent set of program-specific reforms.

The paramount objective must be cultivating bumiputra capability, competitiveness and self-reliance. Reforms must continue to allocate opportunities to bumiputra, but strive harder to impart skills and abilities, while gradually shifting away from quotas and preferences. With policy clarity and political will, Malaysia has an opportunity to deal finally with this unfinished project.

Hwok-Aun Lee is a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore.

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