icapitaleducation.biz Malaysia's First Integrated Investment Education Provider
Independence. Intelligence. Integrity. SITE MAP •  
About Us Seminars Brief Guides Articles Link To Career Contact Us Home
Our Viewpoints
Do You Know?

Capital Dynamics Sdn Bhd is the first independent investment adviser in Malaysia. It has been described as "one of the country's most iconoclastic and critical research outfits".

In February 2004, Capital Dynamics Sdn Bhd launched icapital education.

Since our inception in 1988, we have remained totally independent and have been providing objective advice on Stockmarkets and Economies through iCapital.

The iCapital newsletter is its flagship product. It has been around since 1989.

In 2002, icapital.biz, the online version of iCapital was launched.


Home > Articles > Malaysia's Economic History

Malaysia's Economic History : 1957 - 1970 (Part 2)


[E]. PERIOD: 1957 - 1970 /cont'd

Government Agencies to Improve Quality of Life of Bumiputras
The economic and the social history of Malaysia, particularly at the popular level, have been greatly distorted. Plenty of half-truths float around with many Malaysians treating them as gospel truth. For example, many Malaysians think of Tunku Abdul Rahman only as the father of independence. What is worse and very harming to Malaysia's future is that many accuse him (present tense as many ignorant and indifferent Malaysians still do this) and his socio-economic policies of being responsible for the May 1969 racial riots. i Capital has in the past written about his many achievements and has actually named Tunku Abdul Rahman as the most visionary Prime Minister Malaysia would ever have. If we had wisely kept to his socio-economic policies, Malaysia would have achieved developed status by now AND without any racial riots. Sad, really, really sad.

The income disparity between the Malays and non-Malays was recognised very early on and there were worries that this could induce political instability. Hence, there was desire to narrow this income gap even as Tunku became the first Prime Minister. To do so, government agencies such as FELDA, MARA, FELCRA, NAPRA (National Padi and Rice Authority), MARDI, FAMA, Bank Pertanian, PERNAS (National Corporation), and MRD (Malaysia Rubber Development Corporation) and a whole list of government agencies aimed specifically at helping the Malays were established. Under the First Malaysia Plan, these institutions were allocated approximately $167.3 mln. As FELDA's operations have already been discussed earlier, this section focuses on efforts of the other agencies.

Besides setting up MARA to provide assistance to the Bumiputras, the majority of schemes implemented under the other agencies served the Bumiputra community more than others. This phenomenon was induced by the fact that these policies were aimed at assisting the rural population, who were predominantly Bumiputras.

Under the First Malaysia Plan, MARA was allocated $70 mln solely for Bumiputras to play a role in industrial development. This allocation accounted for more than 60% of total public expenditure for mining and industrial development.

Principal activities of MARA include education & training, provision of technical & financial assistance, establishment of new industrial enterprises and management of these enterprises in the initial stages, with a view to ultimately transferring their ownership to Bumiputra individuals. Nevertheless, it was acknowledged that the degree of success achieved in this case would depend greatly on the amount of initiative taken by the Bumiputras themselves in putting incentives to proper use.

Other Agencies
Briefly, objectives of the other agencies include:

  • Encouraging the expansion of agricultural research
    o MARDI provides funding for research programmes.
    o FAMA is responsible for increasing the number of agricultural schools.
  • Providing much needed credit to farmers, enabling them to undertake expansion activities
    o Bank Pertanian was established.
  • Promotion of paddy planting and improving of yields
    o NAPRA formulates policies and coordinates activities relating to processing and marketing of rice.
Infrastructure development received considerable attention as the government recognised the importance of a well-developed infrastructure in ensuring that economic activities can be performed efficiently. For the purpose of this discussion, infrastructure includes utilities, transportation and communication. Table 17 below shows the growth in development expenditure allocated for infrastructure development over time, illustrating the government's increasing commitment to providing a conducive environment for investment.

Table 17: Development Expenditure on Infrastructure ($ mln)

Economic Performance 1957-1970
Because the cause and effect relationship between development efforts and actual progress is complex, it is almost impossible to single out a specific policy that definitely led to a specific outcome. Conversely, more often than not, it is a combination of policies that leads to a set of outcomes. Consequently, this section assumes that it is the combination of the various policies adopted between 1957 and 1970 that led to such outcomes.

Average GDP growth over this period was a very respectable 6% per annum. Moreover, GDP per capita almost rose by approximately 40% since the economy grew faster than the population - while the size of the economy almost doubled during this period, population only grew by more than 30%. Naturally, per capita income rose. Figure 7 above demonstrates the extent of this rise.

Figure 7: GDP per Capita 1960-1970

Quality of Life
Other than economic growth, there were substantial improvements in the quality of life for Malaysians. Table 18 illustrates the extent of progress made through indicators in the Human Development Index (HDI).

Table 18: HDI

Socio-economic Problems
Despite the extent of economic progress achieved, problems of economic imbalances between races grew increasingly rife. A high degree of inequality existed in income distribution. For example, in Peninsular Malaysia, households that were considered to be impoverished constituted 49% of the population and only 15 - 18% of total income. In absolute terms, 792,000 out of 1.6 million households realised incomes either at or below the poverty level in 1970. Alternatively, the top 5% of earners accounted for almost 30% of income.

When the degree of income inequality was measured using the Gini coefficient, where 0 was a situation whereby perfect equality existed and 1 where there was complete inequality, the degree of inequality rose during this period. In 1957, the Gini coefficient was 0.412. By 1970, this value had risen to 0.513.

Income inequality was especially significant between the Chinese and the Malays. Over this period, the share of income growth of the Chinese, Malays and Indians were 52.5%, 37.8% and 9.4% respectively. Moreover, according to Hirchman (1975), the mean incomes of the top 20% rose by 39%, while that of the bottom 20% fell by 14%.

Furthermore, the average incomes varied widely between the various racial groups in 1970, as illustrated in Table 19 below.

Table 19: Income Disparity between Races 1970

Given that the income inequality was significant, therefore, were Tunku's socio-economic policies a failure? Were the 1969 riots therefore inevitable?


<<MEH: 1957-1970 (Pt1)

MEH: 1957-1970 (Pt3)>>