The State and Economic Distribution in Malaysia 9789814376181

Table of contents :
CONTENTS
LIST OF TABLES
PREFACE
I. CONTEXT OF THE PROBLEM
II. REVIEW OF THE LITERATURE
III. TOWARDS AN ALTERNATIVE APPROACH: THE STATE AND ECONOMIC DISTRIBUTION
Conclusion
Notes
APPENDIXES
THE AUTHOR

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I5EA5 Institute of Southeast Asian Studies The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia. The Institute's research interest is focused on the many-faceted problems of development and modernization, and political and social change in Southeast Asia. The Institute is governed by a twenty-two-member Board of Trustees on which are representatives from the National University of Singapore, appointees from the government, as well as representatives from a broad range of professional and civic organizations and groups. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer. The responsibility for facts and opinions expressed in this publication rests exclusively with the author and his interpretations do not necessarily reflect the views or the policy of the Institute or its supporters.

THE STATE AND ECONOMIC DISTRIBUTION IN PENINSULAR MALAYSIA Toward an Alternative Theoretical Approach

by

Tan Loong·Hoe

Research Notes and Discussions Paper No. 31 INSTITUTE OF SOUTHEAST ASIAN STUDIES 1982

Published by the Institute of Southeast Asian Studies, Singapore All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 1982 Institute of Southeast Asian Studies

ISSN 0129-8828 ISBN 9971-902-44-3

CONTENTS

Page PREFACE I

II

viii

CONTEXT OF THE PROBLEM

1

Efficacy of Education in the Reduction of Economic Inequality in General, and Specific to Peninsular Malaysia

1

Purpose of the Study

7

Notes

9

REVIEW OF THE LITERATURE

12

Human Capital and Material Capital Theories of Distribution

12

Studies Concerning Economic Distribution in Peninsular Malaysia

13

Serious Omission in the Literature: Role of the State and Economic Distribution

17

The

The State as an Important Actor in the Economic Scene

18

The Importance of the Government in the Economic System in Peninsular Malaysia: Preliminary Presentation of Major Evidence

19

Notes

21

Page III

TOWARDS AN ALTERNATIVE APPROACH: THE STATE AND ECONOMIC DISTRIBUTION

24

Introduction

24

Four Research Propositions

25

The State and the Economic System

26

Conceptual Frame

27

The State and the Economic System in Peninsular Malaysia

32

Five distinctive features of Peninsular Malaysia

32

Development experience smce 1957

38

Focus on Three Sectors of the Economic System

47

The state and the education sector

47

The structure and management of education in Peninsular Malaysia

49

The state and the labour market

56

The state and the ownership and control of wealth

61

Page The State and the Specification of Economic Equity Definitions: Justice

66

Equality, Equity, and 66

Equality of opportunity

74

Equality of results

76

Opportunity and results

76

The State and Economic Equity

77

Four criteria for specifying econonuc equity

80

Typology of states and forms of economic equity

83

Malaysia:

85

An "Intermediate Regime"?

Conclusion

86

Notes

87

APPENDIXES

1 2

3 4

Malaysia: Gross Domestic Product by Industry of Origin, 1970-90

93

Peninsular Malaysia: Employment by Race and Sector, 1970-90

94

Peninsular Malaysia: Poor Households by Rural and Urban Strata, 1970-90

96

Peninsular Malaysia: Ownership of Share Capital in Limited Companies, 1970-90

97

LIST OF TABLES Page 1 2 3 4

5 6

7 8

Population by Community Distribution: Peninsular Malaysia, 1911-70

33

Distribution of Population by Specific Community Groups: Peninsular Malaysia, 1957, 1970

34

Distribution of Population by Strata and Race: Peninsular Malaysia, 1957 and 1970

35

Percentage Distribution of Population by Community and State: Peninsular Mal~ysia, 1911-70

37

Estimates of Civilian Employment m Government Sector, 1957-77

41

Government Employment as a Proportion of Total Employment, 1957-75

42

Peninsular Malaysia: Sector, 1955-6 7

44

Growth of the Public

Public Sector's Role m the Economy of Malaysia "over Time

45

Proportion of National Income and Gross National Product Devoted to Recurrent and Capital Expenditure on Education, 1955-71

50

10

Federal Government Current Expenditure, 1967-76

51

11

Post Secondary Enrolments by Public Institutions, 1974

54

9

Page 12

13

Unit Costs, Enrolment Ratios at Different Levels, and Total Current Federal Costs per Household by Income Quintile

55

Styles of Rural Development

84

LIST OF FIGURES Page

1

Dimensions of Economic Systems

28

2

Structure of Education, Peninsular Malaysia, 19 77

53

PREFACE

This study exammes the problems of economic distribution -- the distribution of economic resources focusing on income, wealth, employment and education -- in developing economies in general and in Peninsular Malaysia in particular. Studies on economic distribution typically address the problem without analysing the influence of the State on economic outcomes. In contrast, this study aims to present a broader theoretical approach in the analysis of economic distribution. This alternative theoretical approach argues that the State is the primary determinant of the nature of economic distribution while education, employment, and material wealth are relegated to secondary importance as major constraints. This study is organized into three sections. The intr~duction provides the context of the problem using the Peninsular Malaysian economy as the illustrative case study. The second section selectively review the existing literature on the topic to illuminate the issues posed in the introduction. The review identifies the serious omissions or lacunae in the literature and calls for an alternative theoretical approach. The third section attempts to conceptualize a comprehensive and realistic alternative approach. Readers who are mainly interested in the alternative theoretical frame and its application to the Malaysian economy may skim through or skip the review of literature in Section II without significant sacrifice to the substantive contribution of this study. For those less pressed for time or those who wish to have the full ~asp

of the rationale and significance of the theoretical contribution proposed, Section II can be read with much gain. In the process of producing this study, I have benefited from the valuable comments and suggestions of many individuals and I am grateful to all of them. I would like to thank in particular: Professor Lascelles Anderson, Professor Russell Davis, Professor Judith Strauch, Dr. Donald Snodgrass, Professor Dwight Perkins, Dr. Noel McGinn and Professor Donald Blake. At the Institute of Southeast Asian Studies, I would like to thank Professor K.S. Sandhu, the Director, and Dr. Sharon Siddique, the Co-ordinator of the Publications Committee, for their encouragement and for making it possible for my ideas to be printed for wider circulation. This study would not have been possible without the financial sponsorship of the Harvard-Yenching Institute. I am, however, solely responsible for the content and opinions expressed in this study.

Singapore

Tan Loong-Hoe

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CONTEXT OF THE PROBLEM

Efficacy of Education in the Reduction of Economic Inequality in General, and Specific to Peninsular Malaysia In developed and especially in developing countries, government decision makers, development planners, and others of diverse social classes, ethnic backgrounds, and political persuasions have shared and continue to share the faith in the efficacy of the formal education system 1 to alleviate economic poverty, to provide a meritocratic channel for socio-economic mobility for the lower classes, and to bring about a more equitable distribution of income and wealth in society. In America, for instance, Lester Thurow pithily summarizes the general and persistent advocacy of education in promoting economic equality in the following quotation: However much they may differ on other matters, the left, the center, and the right all affirm the central importance of education as a means of solving our social problems, especially poverty. To be sure, they see the education system in starkly contrasting terms. The left argues that the inferior education of the poor and of the minorities reflects a discriminatory effort to prevent them from competing with better-educated groups, to force them into menial, lowincome jobs. The right argues that the poor are poor because they have failed to work hard and get the education which is

2 open to them. Moderates usually subscribe to some mixture of these arguments: The poor are poor because they have gotten bad educations, partly as a result of inadequately funded and therefore inferior school systems, but partly also as a result of sociological factors (e.g., disrupted families) that prevent poor children from absorbing the education that is available. Yet despite these differences, people at all points of the political spectrum agree that, if they were running the country, education policy would be the cornerstone of their effort to improve the condition of the poor and the minorities. If the poor or the minorities were better educated, they could get better jobs and higher income. This idea has had a profound influence on public policy in the last decade. 2 For developing countries within the orbit of the World Bank, McNamara, despite his assessment of the disappointing performance of education in the developmental "Great Ascent", perceives that education will continue to contribute to development for the 1970s and beyond, thus reflecting continuing enthusiastic advocacy of education from one variant of the moderate view in Thurow's political spectrum. Blaming the persistent and intensifying problems of poverty and inequalities on "basically irrelevant development strategies", and an "ill-conceived education system", McNamara continues to reaffirm his faith, and that of the World Bank, in the development potential of properly conceived education systems. 3 This faith is mirrored in the following three important questions guiding the World Bank in its educational policies and programmes: How can educational systems be reshaped to help the poorest segments of society? How can education contribute to rural development, and

3 thus respond to the needs and aspirations of the vast majority of the poor living in the villages? How can educational opportunities be made more equal in order to promote social mobility in countries where educational systems have hitherto favoured the urban dwellers and the relatively rich? 4 The basic assumptions of the above questions are that education can contribute synergistically to the reduction of inequalities, alleviate poverty, and improve social mobility if properly "reshaped", with fresh and proper development strategies different from those misconceived ones followed in the quarter century before 1970. Directed at the ESCAP countries, of which Malaysia is a member, a United Nations document pointed out that " ... it is hardly surprising that there has always been a strong tendency on the part of many planners concerned with greater socio-economic equality to look upon education as the great equalizer . . . " 5 For Malaysia and its multi-ethnic society, 6 the perceptions and expectations of the role and promises of education in the socioeconomic development of the individual and the nation as a whole is no different; if not more pronounced. 7 The elected Government of the Federation of Malaysia, which has been in power since the country gained political independence on 31 August 1957, has consistently stressed education as the main instrument for solving the problems of "nation-building" and to create national unity out of a divisive society on the basis of a rapidly expanding modem economy providing special attention to the economically laggard regions and social groups. 8 The Malaysian Constitution states that: "Education is the responsibility of the Federal

4 Government and Parliament ... the right to education is one of the fundamental liberties. . . . All pupils receive equal treatment". The Constitution also emphasizes one major function of education: "to unite the various races together so that a united Malaysian nation will evolve".9 This is reflected in the national economic development plans, such as the Second Malaysia Plan, 1971-75, which underlined the role of education in furthering "the realization of the full potential of the vast human resources of the country". It should also "contribute significantly towards promoting national unity .... play a vital role in increasing the productivity and income of all Malaysians". This authoritative document further adds " ... and above all, ensure the creation of a Malay commercial and industrial community in all categories and at all levels of operation, in order that within one generation Malays and other indigenous people can be full partners in the economic life of the nation"JO More recently, the Third Malaysia Plan, 1976-80 gave greater emphasis and enthusiasm to education's potential for economic development and reducing mass poverty: The greater challenge will be that of producing the skilled manpower in the quantum and at the pace necessary for the achievements of Malaysia's targets in regard to agricultural modernization and industrial development. These targets are essential to the eradication of poverty. . . . The relative lack of education among the poor points to the vital role of education in the alleviation of poverty. 11 In sum, from the Malaysian Government's perspective, education will pl51y a "vital" role in promoting the four interlinked national goals: (1} national unity, (2) reduction and eradication of poverty, (3} manpower development for rapid economic growth and socioeconomic equality, which importantly include (4) nurturing a new "community" of Malay entrepreneurs.

5 Since 19 70, these four national goals have been literally enshrined in the National Constitution and the National Ideology. 1 2 This is reflected in the national economic development plans as the New Economic Policy (NEP) and the Outline Perspective Plan (OPP).13 The "two-pronged" NEP sets out the official developmental goals discussed above in a nutshell: National unity is the overriding objective of the country. A stage has been reached in the nation's economy and social development where greater emphasis must be placed on social integration and more equitable distribution of income and opportunities for national unity and progress. This direction towards national unity is fundamental to the New Economic Policy . . . a two-pronged New Economic Policy for development. The first prong is to reduce and eventually eradicate poverty, by raising income levels and increasing employment opportunities for all Malaysians, irrespective of race. The second prong aims at accelerating the progress of restructuring Malaysian society to correct economic imbalance, so as to reduce and eventually eliminate the identification of race with economic function .... The New Economic Policy is based upon a rapidly expanding economy which offers increasing opportunities for all Malaysians as well as additional resources for development. Thus in the implementation of this policy, the Government will ensure that no particular group will experience any loss or feel any sense of deprivation.14 This variant of "growth with redistribution'' development strategy 15 of the NEP is elaborated in the OPP which provides specific quantitative details and targets for these "two prongs" to be achieved within the time frame of about a generation, 1970-90. For instance:

6

1.

The GNP will grow within the twenty-year period at an average rate of 8% per year. The rates of growth have been specified for the various economic sectors and industries. (See Appendix 1.)

2.

Full employment will be attained by 1990. Unemployment rate will be reduced from 8% in 1970 to 4% in 1990 (See Appendix 2); and this will be accomplished along with equalizing changes in the employment structure, occupa· tional distribution, and worker productivity increases amongst different social groups.16

3.

Incidence of rural and urban poverty will be substantially reduced from 58.7% to 23.0% in the case of the former, and from 21% to 9.1% in the latter in 1990. (See Appendix 3.)

4.

Economic inequality, for example, the "imbalance" in the distribution of ownership of share capital in limited companies, will be notably corrected. The 1970 skewed ethnic distribution of interest, with Malays, Chinese, and foreigners owning 2.4%, 34.3%, and 63% respectively of the total share capital, will be evened up to a more equitable distribution ratio of 30:40:30 by 1990. (For more details of the equalizing targets of economic resource distribution by ethnicity, see Appendix 4.)

To reiterate, the main point flowing from the discussion above is that education is generally conceived of as a vital instrument and an independent variable susceptible to government policy manipulation to achieve certain desired redistributive outcomes, such as those normatively defined in the NEP and projected in the OPP for Peninsular Malaysia. They constitute the main objectives of the present government.

7 Is education really such a vital determinant, "the great equalizer", and a powerful governmental policy instrument to promote economic growth and equity? What are the factors that could possibly constrain ·education's acclaimed effects? And to pose a broader and basic question: What major factors -- both educational and non-educational -- are conducive to the reduction of economic inequality?

Purpose of the Study In the light of the questions raised above, this study seeks to examine two broad issues' specific to Peninsular Malaysia:

1.

the limits of education as an important determinant and policy variable for the reduction of economic inequality in society;

2.

the identification of the main factors for change in order to maximize the possibility of attaining a more equitable distribution of economic resources, defined as income and wealth, amongst individuals and socio-economic groups in society.

More specifically, this study highlights the importance of the State in this scenario. The State, briefly defined, includes the structures and functions of mainly the executive, the legislature, and the judiciary; but also the police and the military. The economic activities of the State of relevance to this study are elaborated in full in Section III. This study is primarily concerned with the economic activities of the State. We argue firstly that the State -- through the "state output" of policies and programmes --

8

constitutes the primary determinant of the patterns and trends of distribution of economic resources. These state outputs (for example, actions affecting wage and salary structure in the public and private sectors; public expenditure policies; public enterprises, etc.) have substantial effects on the functioning of such major distributive processes as the education system, the labour market system, and the wealth distribution mechanisms. Secondly, we argue that education's much lauded role and potential as the "great equalizer" is very much constrained by these diverse state economic activities. To substantiate these two central arguments, this study will formulate:

1.

a theoretical approach which highlights the role of the State as the key determinant of the distribution of economic resources. This approach will be in marked contrast to the mainstream economic theories of distribution, in particular, the human capital theory and the material capital theory. While the former stresses education as the primary determinant of economic inequality, the latter emphasizes material wealth instead. four specific propositions drawn from the theoretical framework outlined above. This set of propositions will serve as guidelines to examine the major aspects of the State's economic activities in relation to economic distribution.

Section II attempts to review the general theoretical knowledge selectively to illuminate the issues bearing on the complex relationships of education and the processes of economic distribution.

9 Notes 1

"Education" is an ambiguous term, and therefore a limiting or more precise definition has been found necessary in this study. The term is generally used by people, including many discriminating academics, to refer to the experience of regular attendance of a structured or systematic learning process which takes place in a village school, a home-town secondary school, or the national university. "Education", however, can be defined as consisting of three main components: "First, formal education at primary, secondary, and higher levels consisting for the most part of age-specific, pre-employment schooling; second, non-formal education, consisting mainly of organized out-of-school education and training programmes; and third, workrelated skill and knowledge generation, consisting mainly of on-the-job training, which is an integral component of all working environments" (Emphasis in the original). See F.H. Harbison, "The Education-Income Connection", in Income Distribution and Growth in the Less-Developed Countries, ed. Charles R. Frank Jr. and Richard C. Webb (Washington, D.C.: The Brookings Institution, 1977), p. 127. There are others who would add informal education to the above three components of education. It is learning outside the formal institutional settings (for example, workshop or factory), such as lessons from one's life experiences - the acquisition of practical horticultural skills and botanical knowledge by spending time with the soil and the flora; or developing better decision skills through trial and error or regrets and rewards. Taking cognizance of this broad conception, the definition adoptee\. in this study, unless otherwise stated, is the pre-employment formal education which takes place in the schooling system, the definition it is popularly associated with. Schooling as distinct from the other forms of education is still the most important channel of learning (for whatever it it is worth) in most societies, whatever ideological or economic philosophies prevail. Despite the "deschooling challenge" of Ivan Illich in Deschoo/ing Society (Horrow Books, 1970) and others, the influence of education and the demand for it everywhere, especially in the developing countries, is rising with increasing momentum. In Malaysia, those of primary school age are almost totally enrolled in the education system (93. 7% in 1974). At higher levels, the demand has consistently outstripped supply, despite the relatively substantial public investments in education in the last two decades.

2

Lester Thurow, "Education and Economic Equity", The Public Interest 28 (Summer, 1972): 66-81, especially p. 66. In his more recent writing, Thurow adds that "this idea" continues to prevail in America. See his Generating Inequality (New York: Basic Books Inc., 1975), p. 188.

10 What has been true for America, as judiciously observed by Thurow, can also be seen in the other 23 members of the OECD (Organization for Economic Co-operation and Development) countries. See OECD, Education, Inequality and Life Chances, vol. 1 (Paris, 197 5), p. 439. 3

See Foreword in Education Sector Workl'ng Paper (Washington: Bank, December 1974).

4

Ibid., p. 1.

5

United Nations Economic and Social Commission for Asia and the Pacific, Biennial Review and Appraisal of the International Development Strategy at the Regional Level for the Second United Nations Development Decade in the ESCAP Region, 1976 (Bangkok, April 1977), p. 72.

6

M. Freedm~, "The Growth of a Plural Society in Malaya", Pacific Affairs 33, 2 Qune 1960): 158-68; J.P. Aries, "Ethnic and SocioEconomic Patterns in Malaysia", International Labour Review 104 (December 1971): 527-53.

7

As generally observed, Snodgrass's most recent judgement is representative and apt: "By far the most important type of general policy -- certainly in terms of the emphasis which Malaysians place on it, and probably in terms of its intrinsic potential as well -- is education". See his Economic Inequality and Development in Malaysia (Kuala Lumpur: Oxford University Press, 1980), p. 236.

8

For a com:ise discussion of the political history of Malaysia, see Stanley S. Bedlington, Malaysia and Singapore: The Building of New States (Ithaca: Cornell University Press, 1978), especially Parts I and II. An earlier classic, the many insights of which are still very relevant today, examines the unique ethnic balance or imbalance which basically conditions political process as it had conditioned the earlier emergence of political parties. See KJ. Ratnam, Communalism and Political Process in Malaya (Kuala Lumpur: University of Malaya Press, 1965). See also Section III, note 8.

9

Ministry of Education, Education in Malaysia, 1970 (1971), p. 5. The present education system is largely the result of the comprehensive Education Act of 1961. See Education in Malaysia, 1974 (1975), pp. 2-3.

10

Second Malaysia Plan, 1971-75 (Kuala Lumpur: 1971), p. 22.

11

Third Malaysia Plan, 1976-80 (Kuala Lumpur: Government Press, 1976), p. 90.

World

Government Press,

11 12

G.P. Means, "'Special Rights' as a Strategy for Development", Comparative Politics 5 no. 1 (October 1972): 29-61; Mohamed Suffian bin HaShim, An Introduction to the Constitution of Malaysia (Kuala Lumpur: Government Press, 1971), Chapter 17; R.S. Milne, "'National Ideology' and Nation-Building in Malaysia", Asian Survey 10 no. 7 Uuly 1970): pp. 563-73.

13

The New Economic Policy was first enunciated in "The New Development Strategy", Second Malaysia Plan, 1971-75, Chapter 1, pp. 1-10; The "Outline Perspective Plan, 1970-90" appeared later in the Mid-Term Review, Second Malaysia Plan, 1971-75, Chapter IV, pp. 61-95.

14

Second Malaysia Plan, 1971-75, op.cit., p. 1.

15

Chenery et al., Redistribution With Growth (London: Oxford University Press, 1974); UN-ESCAP, "Growth With Social justice", Biennial Review . . . Chapter III.

16

See Third Malaysia Plan, 1976-80, Tables 4-10 (p. 68); 4-11 (p. 69); 4-15 (pp. 80-3).

II

REVIEW OF THE LITERATURE

Human Capital and Material Capital Theories of Distribution The literature on the distribution of economic resources or economic inequality is voluminous.! The modest attempt at rev1ewmg the literatu.re will be selectively confined to illuminate the two central themes of this study. It includes both the literature on the distribution of personal income and the concentration of wealth. The theories of distribution can be classified into two main groups:

1.

Theories that argue a strong case for the determining role of education in enhancing a more equitable distribution of income; in particular those advanced by the "human capital" theorists such as Mincer, Chiswick, and Becker (Tinbergen can also be included). 2

2.

Theories which stress the importance of material capital inheritance and distribution in understanding existing economic inequality, and which call for economic equality through ownership and control of wealth as the primary determinant, while education is relegated to a secondary role or constraint. The theories of "material capitalists" such as J.E. Meade and Lester Thurow will be relevant.3

13 These two theoretical perspectives are supposedly in compe· tition with each other. In fact, they seem to be partial theoretical approaches to the distribution of economic resources and appear to complement one another. The "human capital" theory which has been the prevailing influence in both economic thinking and practice as reflected in the general faith and efficacy of education, is narrowly confined to one component of the personal distribution of income, that is, labour income. In contrast, the "material capital" theory is much less concerned with the importance of human capital factors, particularly education, in the determination and distribution of income. Instead, its primary preoccupation is with the distribution of the ownership of wealth, and relatedly, the distribution of property income flowing from the wealth.

Studies Concerning Economic Distribution in Peninsular Malaysia Studies of income distribution or, more broadly, economic resource distribution, in Peninsular Malaysia have applied or reflected explicitly or implicitly these two theoretical views. The "human capital" approach seems to attract just about as much attention as the "material capital" approach amongst the growing number of studies on the distribution of oconomic resources in the development process in Peninsular Malaysia. As integral parts of larger research projects, three very recent studies 4 attempted to conduct empirical tests on the human capital theory based on different sets of Peninsular Malaysian data. These studies use variants of the earnings function approach. Employing different statistical techniques ·· regression analysis and multiple-classificatory analysis ·· these studies arrived at a firm validation of the human capital hypothesis.

14 In contrast to these human-capital oriented studies, there are a number of studies which mainly or solely examine the patterns and/or the trends of ownership and control of wealth over different levels of aggregation or disaggregation. Lim Mah-Hui's thesis,5 one of the more theoretically sophisticated and coherent studies, analyses the different dimensions of economic concentration of ownership and control of wealth in the corporate economy by a selective examination of one hundred of the largest corporations in 1971-72. Another Ph.D. thesis undertook a study of the pioneer industries, a subset of the most dynamic foreign-dominated industries in the manufacturing sector. 6 Hirschman's article analyses the ownership and control pattern of the manufacturing sector as a whole. 7 All the above studies on ownership and control in the Malaysian economy are essentially refinements and/or elaborations of the pioneering venture attempted by Puthucheary. 8 Puthucheary's study, based on data around 1953, is still one of the most comprehensive though lacking in statistical sophistication compared to such recent studies as Lim Mah Hui's. Its data weakness in certain areas also stands out in contrast to Tan Tat-Wai's. Obviously dated, its many important insights were derived from the analyses of major sectors of the economy, including rubber, tin, mining, commerce, and manufacturing. Unlike these material-capital-oriented studies, a third group of recent studies on Peninsular Malaysia attempts to bring together both the human capital and material capital considerations within a single framework. These studies are concerned with the distribution of both income and productive assets. Recognizing the role or influence of the human capital rationale on official development policy and practice, these studies show skepticism or cynicisms of the human capital hypothesis in the light of a broader, more exhaustive examination of evidence (in contrast with the explicit

15 human-capital-oriented studies above). Studies by Snodgrass and Tan Tat-Wai offer counter hypotheses stressing that economic and other structural factors are more critical in affecting the distribution of income and other economic resources than the personal characteristics (educational attainments) of individuals and their families. Snodgrass's book is particularly notable and has been hailed by Hirschman as one "sure to become the leading work on ethnic inequality in Malaysia". 9 His thorough survey and rigorous analysis encompasses four major dimensions of economic inequality: income, wealth, employment, and education. His major concern, however, is to evaluate the main policies and practices of the Malaysian Government in its efforts at economic redistribution. With a similar focus on the effects of government policies and programmes, Thillainathan's thesis, 10 however, lays greater emphasis on the inter-racial aspects of allocative and distributive impacts of official interventions. Unlike Snodgrass and Thillainathan, Tan Tat-Wai's thesisll 1s not concerned directly with the appraisal of public policies and programmes to redistribute economic resources inter-racially, intraRather, he is racially across social class, or inter-regionally. interested in forging a theoretical integration of the study of income distribution and income determination; and also the integration of the study of income and wealth distribution in order to reveal the structure of economic-power concentrations. This integrative theoretical frame provides the basis for his comprehensive documentation and empirical analysis of inequality covering households stratified in a hierarchy of five income bands. While his efforts to formulate an integrative theoretical frame is commendable, his painstaking documentation and analysis undoubtedly is a major contribution.

16 In sum, these diverse studies range from the main concern with income inequality and the particular contribution of education, to the narrow in-depth analysis of a subsector of the manufacturing industry as well as to the overall coverage of all the major sectors in the economy in order to facilitate understanding of the causes and consequences of the distribution of income and the broader distribution of economic resources. The human-capital-oriented studies are primarily concerned with the explanatory power of education in the determination and distribution of labour earnings. In Peninsular Malaysia, labour incomes contribute only about half of the total personal income. This proportion has shown little change over the 1957-70 period.l2 However, the analysis of earnings only concerns the employees in the modem economic sector, which account for about half of the total working population. In contrast, the material-capital-oriented studies are mainly focused on the concentration of wealth and incomes flowing from wealth for the top 1%, 5% or 10% of individuals or households in the population who constitute the biggest "employers". The third group of studies is more exhaustive in coverage. They include not only "employees", and "employers", but also the remaining categories of the labour force, that is, "self-employed", "unpaid family workers", the unemployed and the under-employed.l3 This present study essentially falls within this third group of integrative and more comprehensive studies of economic distribution in Peninsular Malaysia.

17 Serious Omission in the Literature: The Role of the State and Economic Distribution In the theoretical and empirical literature discussed above, there is no analysis of the role of the State and economic distribution. Certain assumptions are made, however, and they hint that a "theory" of the State underlies the mainstream of human-capital and material•capital theories of distribution. Essentially, the role of the State is assumed either as an "exogenous parameter" outside the model of analysis or as the neutral arbiter in the economic system. Studies in the empirical literature which include a strong emphasis on the concentration of wealth are, however, more explicit in recognizing the importance, and hardly neutral role of the State in the economic scene. But they offer no analyses of the nature of the particular systematic biases in the State's economic activities; hence, there is no explanation of what forms these biases take, how the underlying causal mechanisms operate, and why the particular outcomes of the distributional processes are predictable. The omission of the State in the theoretical frame of the above literature would be less questionable if in reality the participation of the State in the economy is negligible compared to the private sector, or its regulatory activity is kept to the minimum. Even then, in such a political economy, competing and conflicting economic groups exist and as one respected development economist puts it " . . . governments are beset by conflicting forces, some ~litist, some egalitarian, and their economic policies will be largely a reflection of the relative power of these competing interests••. 14 The exclusion of the State as an important variable in the analytic frame could possibly weaken or undermine severely the explanatory power of the mainstream economic approaches to

18

understand the problems of economic distribution. What theoretical and empirical arguments can be advanced to substantiate this contention generally and particularly in the case of Peninsular Malaysia?

The State as an Important Actor in the Economic Scene Criticisms of mainstream economic doctrine for its deliberate exclusion of power relations, specifically the State, in economic relations come from diverse quarters. 15 One of the most notable dissenting views is contained in Galbraith's presidential address to the American Economic Association in 1972. In his own words: The most commonplace features of neoclassical and neoKeynesian economics are the assumptions by which power, and therewith political content, is removed from the subject. The decisive weakness in neoclassical and neo-Keynesian economics is not the error in assumptions by which it elides the problem of power. . . . Rather in eliding power -- in making economics a non-political subject -- neoclassical theory, by the same process, destroys its relations with the real world. . . . For when we make power and therewith politics a part of our system, we can no longer escape the contradictory character of the modem state. The state is the prime object of economic power.l6 In support of Galbraith's plea for the incorporation of political content and the role of the state in economic analysis, the following discussion elicits facts showing the considerable size of the State sector and its substantial influence over the economy as a whole in Peninsular Malaysia.

19 The Importance of the Government in the Economic System in Peninsular Malaysia: Preliminary Presentation of Major Evidence In a recent study, Meerman 1 7 states that Malaysia can be ranked among the welfare states of America and Western Europe on the basis of its governmental expenditures amounting to about 40% of the GNP (gross national product) in 1973. This figure includes state and municipal expenditures and more than 31% of federal expenditure. In absolute terms, the Federal Government's operating expenditure was about M$18 billion over the 1971-75 period, which was nearly double that of the 1966-70 period. Two reasons underlie this striking increase. Firstly, the Federal Government drastically expanded its scope of economic activities. In addition to its traditional provision of basic infrastructure, it moved massively into direct participation in the productive sectors of the economy. Secondly, this change in the government's economic behaviour marked a turning point in the switch from the colonial laissez-faire tradition towards an interventionist philosophy which rationalized the State's active role in the promotion of economic (re)distribution.18 Various indicators can be chosen to demonstrate the rather phenomenal growth of State participation in the Peninsular Malaysian economy. For instance, public-sector ownership of share capital in limited companies jumped from 0.8% in 1970 to 6. 7% in 1978; public-sector employment increased from an estimate of 9.7% in 1957 to about 15% of total employment in 1978; during 1960-75, public investment as a proportion of total gross capital formation increased from about 17% to almost 50%. Over the decade of 1965-75, tax revenue increased from 14% to 24%; while external debt as a percentage of GNP grew from 0.8% to 15.3% between 196 7-77.19

20 In sum, the discussions above clearly call for the inclusion of the State not only as an important explanatory variable in the determination of economic distribution but also as the key determinant within the frame of analysis. The following section will attempt to formulate such an alternative approach.

21 Notes 1

G.S. Sahota surveys the theoretical writings on the personal or size distribution with a classification of almost a dozen schools of thought in "Theories of Personal Income Distribution", journal of Economic Literature· 16, no. 1 {March 1978): 1-55. J. Mincer, "The A Survey", journal of Economic Distribution of Labor Incomes: Literature (March 1970) concentrates on the Human Capital perspective in his narrow survey. A comprehensive compass including theories of income from labour and income from property as well as the concentration of wealth is ably accomplished in A.B. Atkinson's Economics of Oxford University Press, 197 5). W.R. Cline, Inequality (London: "Distribution and Development: A Survey of Literature", journal of Development Studies 1 (1975): 359-400; and Frank & Webb, op.cit., 1977 focus their attention on both theoretical and empirical issues of relevance to less developed countries.

2

J. Mincer, "Investments in Human Capital and Personal Distribution of Income", journal of Political Economy (August 1956); Schooling, Experience, and Earnings (New York: National Bureau of Economic Research [NBER], 1974); and "Progress in Human Capital Analysis of the Distribution of Earnings: An Expository Paper", in The Personal Distribution of Income, edited by Atkinson (London: George Allen & Unwin, 1976). See also B. Chiswick, Income Inequality: Regional Analyses Within a Human Capital Framework (NBER, 1974); G. Becker, Human Capital, second edition (NBER 1964, 1975), which includes "Human Capital and the Personal Distribution of Income: An Analytical Approach" (Woytinsky Lecture, 1967), Chapter 3, Addendum, pp. 94-146; Becker and Chiswick, "Education and the Distribution of Earnings", American Economic Review 56, no. 2 (May 1966): 358-69; Jan Tinbergen, Income Distribution: Analysis and Policies (Amsterdam: North Holland, 1975).

3

J.E. Meade, Efficiency, Equality, and the Ownership of Property (London: Allen & Unwin, 1964); The just Economy {Albany: State University of New York Press, 1976) vol. 4, Principles of Political Economy; Lester Thurow, Generating Inequality (1975), op.cit.

4

S. Anand, Inequality and Poverty in Malaysia: Measurement and Decomposition (World Bank Draft, April, 1978), Chapter 7; D. Mazumdar, "Labor Market Segmentation and the Determination of Earnings", WP-278 (World Bank, May 1978); L.L. Lim, "Income Distribution, Employment, and Poverty in the Process of Economic Growth in West Malaysia, 1957-70" (Ph.D. thesis, University of Malaya, June, 1978), Chapter 4, pp. 207-71. See also D. Mazumdar, The Urban Labor Market and Income Distribution: A Study of Malaysia (New York: Oxford University Press, 1981), Part II. An earlier important study is "Education, Income, and Equity in Malaysia", Economic Development and Cultural Change 21, no. 2 Oanuary, 1973).

22 5

Lim Mah Hui, Ownership and Control of the One Hundred Largest Corporations in Malaysia (Kuala Lumpur: Oxford University Press, 1981).

6

M. Lindenberg, "Foreign and Domestic Investment in the Pioneer Industry Program, Malaysia, 1965-70, Political, Economic, and Social Impacts" (Ph.D. thesis, University of Southern California, 1973).

7

Charles Hirschman, "Ownership and Control in the Manufacturing Sector of West Malaysia", UMBC Economic Review VII, no. 1 (1971): 21-30.

8

JJ. Puthucheary, Ownership and Control in the Malayan (Singapore: Eastern University Press, 1960).

9

Charles Hirschman, "Malay,sia Studies - The State of the Field" (Paper presented at the Annual M~::eting of the Association for Asian Studies, Chicago, 31 March-2 April, 1978), p. 27. Published in J.A. Lent, ed., Malaysian Studies: Present Knowledge and Research Trends, Occasional Paper No. 7 (Center for Southeast Asian Studies, Northern lllinois University, 1979), Chapter 1, p. 16. The book evaluated is Donald Snodgrass' Economic Inequality and Development in Malaysia, op.dt.

10

R. Thillainathan, "An Analysis of Policies for the Redistribution of Income and Wealth in West Malaysia, 1957-75", (Ph.D. thesis, University of London, 1976). See also Anand (1978), op.cit., Chapter 8, footnote 21; Lim L.L. (1978), op.cit., Chapter 4.

11

Tan Tat-Wai, "Income Distribution and Determination in West Malaysia Kuala Lumpur: Oxford (Ph.D. thesis, Harvard University, 1977. University Press, forthcoming).

12

Mid-Term Review, Second Malaysia Plan, 1971-75, p. 10; and National Accounts of West Malaysia, 1955-64, 1960-66, 1960-71.

13

Economy

Employment Status of the Experienced Labour Force in Peninsular Malaysia, 195 7-70

Self-Employed Unpaid Family Workers Employee Employer*

1957

1970

34.7 8.3 51.8

32.6 16.9 50.5 3.6*

Source:

1970 General Report, Population Census of Malaysia, Vol. 1, Department of Statistics (Kuala Lumpur: Government Press, 1977), Table 7.8, p. 426.

*

Table 7. 7, p. 424 for Malaysia; not Peninsular Malaysia

23 14

Michael Todaro, Economic Development in the Third World (New York: Longman, 1977), p. 395.

15

E.K. Hunt and J.G. Schwartz, A Critique of Economic Theory (London: Penguin, 1972). See especially Part 5 which includes contributions from M. Kalecki, James O'Connor and D.M. Nuti. See also D.M. Gordon, Theories of Poverty and Underemployment {Lexington, Mass.: D.C. Heath, 1972), Chapter 6; Robert Solo, "The Need for a Theory of a State", journal of Economic Issues 11, no. 2 Uune 1977): 379-85; and S. Hymer and S. Resnick, "Interaction Between the Government and the Private Sector", in I.G. Stewart, ed., Economic Development and Structural Change (Edinburgh: Edinburgh U.P., 1969), pp. 155-80.

16

"Power and the Useful Economist", American Economic Association 63, no. 1 (March 1973), pp. 2, 10. See also Galbraith's larger work, Economics and the Public Purpose (Boston: Houghton Mifflin, 1973).

17

J. Meerman, "Meeting Basic Needs in Malaysia: A Summary of Findings", mimeographed {Washington, D.C.: World Bank, 197'7), p. 5.

18

Vreeland et al, Area Handbook for Malaysia (Washington, D.C.: Government Printing Office, 1977), p. 289.

19

Figures are obtained from various development plans.

U.S.

III

TOWARDS AN ALTERNATIVE APPROACH: THE STATE AND ECONOMIC DISTRIBUTION

Introduction The preceding section has argued for the need to include the State as the key explanatory variable in the distribution process in the economic system. Thus, in contrast to the mainstream human capital and material capital theories of distribution, our broader theoretical approach postulates that the State is the primary determinant of economic distribution while education and material wealth are just major constraints. Basically, there are two types of theories relating to the State and economic distribution: 1.

A positive theory generates propositions which attempt to explain what particular State economic activity produces a particular pattern and trend of economic distribution, and why. It attempts to illuminate what has happened, is happening, and will probably happen to the nature of economic distribution, and the behaviour of the variables involved.

2.

A normative theory generates propositions concerning how the state ought to behave, for instance, to enhance egalitarian distribution of income and/or wealth if that is decided by some kind of consensus to be the desired social goal. Thus, it implies a theory of reform of the State.!

25 This study is more concerned with the positivist formulation.

Four Research Propositions The following propositions constitute an attempt towards formulating a positive theory of the behaviour of the State and its relation to education and economic distribution, taking Peninsular Malaysia as a specific example. Proposition 1: As the State is almost the complete monopolist in the provision and regulation of education, it is pre-emptive in the determination of the distribution of educational opportunity and educational attainment. Its educational budget and educational programmes will be such that it tends to systematically distribute costs and benefits differentially to different income classes, not conditioned by the identified goal of reducing inequality. Proposition 2: In the determination of labour income distribution through the operation of the labour market system, the State plays the predominant role in affecting wage and salary structure and movement. Market forces, union pressures, and other variables are mere constraints with varying power at different times. Proposition 3: In the determination of the distribution or concentration of productive wealth (as distinct from wealth in the form of consumer durables), the State economic activities tend to have differential effects on different economic groups and interests: for instance, large and small enterprises in the modem industrial sector; peasants and landlords within the Malay society, and both agrarian socio-economic and the emergent Malay "commercial and

26 industrial community"; and foreign economic and local economic interests (particularly Chinese). These differential effects of State policies and practices on the different economic groups would tend in the direction of inequality in wealth distribution rather than otherwise. Proposition 4: With respect to the New Economic Policy which represents the State's economic equity goal, if the above three propositions are valid, the expected outcomes will not lead to an improvement in the distribution of income and wealth. This is due to the problem caused by the statement of an egalitarian goal in the face of instruments and mechanisms known to generate inequality.

The State and the Economic System The following set of general questions serves to provide the boundary within which to lay out the conceptual definitions and devises necessary for the analysis of the problems contained in the above four research propositions. 1.

What is the nature of the relation of the State and the economic system?

2.

Given the specification of our concern for the distribution of economic resources with reference to three dimensions -in particular education, income, and wealth -- how do these three dimensions of the overall economic system articulate with the State and with one another?

3.

Interest in the distribution of economic resources as it is,

27 that is, with the existing patterns and trends of economic inequality, also necessitates concerned citizens and their government to pose the ethical question: what conception of economic equity should be pursued? What are the basic criteria or techniques for specifying it, especially in terms which can be operationalized?

Conceptual Frame The conceptualization of the economic system is facilitated by Assar Lindbeck's2 efforts. The value of his approach lies in his multi-dimensional concept in specifying economic systems rather than the traditional vague concepts of capitalism and socialism. We use his scheme which identifies eight distinct dimensions of an economic system. (see Figure 1). He defines an economic system broadly and simply as: ... a set of mechanisms and institutions for decision-making and implementation of decisions concerning production, income, and consumption within a geographic area. 3 Two comments on the above definition can immediately be made in view of our particular interests. Firstly 1 this definition does not explicitly indicate the (re)distributive aspect of the economic system. It abstracts away the crucial actors and beneficiaries of the economic drama. The whole question of purpose and efficiency of the institutional process in determining the various economic activities -- production, income, and consumption -- which ultimately go to maintain or improve the material well-being of different groups of people through particular distribution decisions and processes is rendered implicit or reduced to mere technical abstractions.

Figure 1 Dimensions of Economic Systems

1.

Decentralization

)

2.

Markets

}---n_

3.

PriVilte ownership

)

4. Economic incentives

rw~~ firms

5. 6.

0

)(

)(

TI

~

Sweden

0---0----o

Yaplavia

0············{]--····-···-a

Soviet

.)(

111

Centr.tlization

Ill

Administration process

Ill

Collective ownership

u:;:

individuals

3lW

}-----0

firms

{ ;nd;Wd.W.

8.

Non-competition firms

Internationalization

Source:

}•~m-""

individuals }

Competition

7.

)(

=v

1

}

D

A. Lindbeck, Political Economy of the New Left: (New York: Harper and Row, 1977), p. 215.

)(

111

firms

Autarchy

An Outsider's View

)(

29 Secondly, in the light of the earlier discussion concerning the role of the State in the economy, we need to add that the State is an integral, albeit very crucial, as in the Peninsular Malaysian case, part of the economic system. This carries over the earlier argument of the importance of the State in economic relations. Besides being an integral part, the State should be conceived of as the "strategic core" in the "set of mechanisms and institutions" of the economic system. Despite these two qualifications, with respect to the concerns of this study, Lindbeck's definition and scheme are analytically useful. The exposition of the eight dimensions of any economtc system are given below, with qualifications relevant to our concern. The degree of decentralization or centralization is the first dimension of an economic system. It reflects the "structure" of decision-making concerning consumption, production and investment. In centralized economic systems, some central authority acts as the decision-making unit; while in decentralized economies, the decision makers are individual households or firms. The second dimension concerns the necessity for a mechanism to transact information, allocate resources and coordinate economic decisions. Basically, markets and administrative processes serve as the two alternative mechanisms for these purposes m any economic system. The third dimension deals with the need to specify "property right", including the ownership of capital and its associative power to control its productive use and accumulation. Private ownership is contrasted with collective ownership, each of which can take various forms.

30 The fourth and fifth dimensions of the economic system concern the mechanism to motivate people to behave in a socially desirable manner. "Individual incentives" and "command (orders) from superiors" are the two distinct motivational mechanisms. They can be applied to both individuals and firms. The sixth and seventh dimensions concern the interactions between different decision makers. These relations are of two contrasting types: competitiOn versus non-competition (cooperation, collusion, or monopoly). Again, they can be used for individuals and firms. The eighth dimension refers to the interactions between the economic system as a whole and the "outside world". The polar opposites are autarky and a completely internationalized economy. It is the degree of "openness" of the economic system which is of interest as it varies with the country according to its size and "other circumstances", for example, the magnitude and variety of resource endowments or the type of political regime in power. With reference to our interest in the State and economic distribution, it would be more appropriate to recast the above eight characteristics or dimensions of the economic system into a narrower set of mechanisms and institutions which have four basic economic purposes:

1. 2. 3. 4.

for the transaction of information, the allocation of resources and the co-ordination of economic decisions; for the motivation and interaction of individuals and firms; for the determination of property rights; for the determination of the "openness" to external influences.

31 In all the above functions, the role of the State in the economic system is pervasive or present unless there is anarchy. If the social choice for the "structure of decision-making" is (a high degree of) centralization, such as that of the Soviet Union, the State's economic role will be overwhelming and pervasive. The use of administrative planning and processes in economic allocation and co-ordination will be closely associated. If the decentralized structure of decision-making is the social choice, the unbridled market system will operate with minimal participatory or regulatory intervention from the State. The rest of the mechanisms and institutions in the economic system will basically be determined by the key social choice of centralization or decentralization, as typified by the Soviet model and the Swedish model shown in Figure 1. The Lindbeck schema of defining or describing an economic system with eight dimensions is more useful than the convenient but often analytically ambiguous label of capitalism and socialism. 4 For instance, analysts of the Malaysian economic system have called it different names such as "State capitalism", "Bureaucratic State Capitalism", "State Socialism", "Dependent Neo-Colonial Economy", "Laissez-faire Capitalist Model", etc.5 The schematic profiles of two distinctly different economic systems, those of Yugoslavia and the Soviet Union are illustrated in Figure 1. In accordance with the eight dimensions explained above, the economic system as existing in Malaysia during the last two decades appears to be more akin to that identified for Sweden than that identified for either the Soviet Union or Yugoslavia.

32 In the next section, the major structural characteristics of the Malaysian economic system and the development experience since 195 7 will be introduced. This descriptive profile of the structural and developmental aspects of the Malaysian economic system will then be analysed with reference to the conceptual frame established by Lindbeck.

The State and the Economic System in Peninsular Malaysia

Five

distinctive features of Peninsular Malaysia:

First, the society is made up of three relatively large ethnic groups: the Malays, the Chinese, and the Indians. 6 In 1978, the total population in Peninsular Malaysia was estimated to be 11,284,000. The population composition in terms of these three major racial groups was as follows: the Malays with 53.4% form the majority, followed by the Chinese with 35.3% and the Indians with 10.5%. Since 1911, six censuses have been conducted 7 (see Table 1 ). The 1970 census indicates that the population composition by race is basically similar to the estimate for 1978. Compared to the figures in the earlier censuses, the pattern of racial distribution has changed only slightly (Table 2). These three major racial groups and the "Others" group are not homogeneous. Each is further differentiated into numerous "specific community groups". For instance, within the larger Malay group, there are nine of these "specific community groups" (Table 2). This group, which includes the Malays and other indigenous people, is officially known as the bumiputra, which literally means "sons of the soil" or "princes of the earth". Table 3 shows the racial distribution of the population by strata over the inter-censual 1957-70 period. During this period,

Table 1 Population by Community Distribution: Peninsular Malaysia, 1911-70

Malays

Chinese

Indians

Others

Total

Period

Number

%

1911

1,!169,844

58.6

1921

1,568,588

1931

%

Number

%

69!1,228

29.6

2!19,169

10.2

54.0

855,863

29.4

439,172

1,863,872

49.2

1,284,888

33.9

1947

2,427,834

49.5

1,884,534

1957

3,125,474

49.8

1970+

4,663,284

5!1.1

%

Number

!16,810

1.6

2,339,051

100.0

15.1

43,068

1.5

2,906,691

100.0

570,987

15.1

68,011

1.8

3,787,758

100.0

38.4

530,638

10.8

65,080

1.3

4,908,086

100.0

2,333,756

37.2

735,038

11.7

84,490

1.3

6,278,758

100.0

3,117,896

35.5

933,250

10.6

66,298

0.8

8,780,728

100.0

Number

Number

%

Census

+

Source:

Excludes 9,580 persons enumerated on Self-Enumeration Forms.

Department of Statistics, 1970 General Report, Population Census of Malaysia. (Kuala Lumpur: Government Press, 1977), Vol. I, Table 3.2, p. 271.

Table 2 Distribution of PoJ:!ulation b! SJ:!ecific Communi~ Grou2!: Peninsular Maiaxsia: 19571 1970

1970

1957

Cbau&e

Community

Malay Malay Indonesian Negri to Jakun Semat Semelai Temiar Other Orang Alii Other Malay Community Total Malay

Number

"'

2,802,869 281,2!1!1 841 4,215 12,451 2,821 9,408 11,626

89.7 9.0 0.0 0.1 0.4 0.1

12 5,125,474

CbiDae H'okkien Cantonese Khek (Hakka) Teochew Hainanese Kwongsai Hakchiu Hengliua Hokchia Other Chinese

740,614 505,224 508,770 285,076 122,959 69,122 46,094 11,905 9,782 56;210

Total Chinese

2,555,756

Number

"'

Number

"'

95.4 5.1 0.0 0.2 0.!1 0.1 0.2

0.4

4,355,542 2!16,657 1,685 7,661 15,448 2,906 11,017 14,662

0.0

19,706

0.4

19,694

0.4

100.0 4,665,284 100.0

1,5!17,810

0.0

54.1 19.8 22.1 12.5 4.7 2.5 1.9 0.5 0.5 1.6

!122,255 111,556 181,600 105,544 25,179 9,590 12,194 5,l!H 664 15,757

2.4 -1.8 0.5 0.4 -0.6 -o.s -0.1 0.0 -Q.1 0.0

100.0 5,117,896 100.0

784,140

o.o

80.0 5.4 4.7 7.7 1.1 2.7 0.4

190,105 4,243 -6,989 10,682 -757 672 256

4.5 -0.5 -2.!1 -Q;7 -0.4 -0.6 0.0

9!!1,250 100.0

198,212

o.o

o.s

51.7 21.6 21.8 12.1 5.5 !1.0 2.0 0.5 0.4 1.6

1,062,867 616,780 690,570 !188,620 146,158 78,712 58,288 17,056 9,118 49,947

o.s

1,550,67!1 !1.7 -44,576 -u 844 o.o 5,448 0.1 2,997 -o.1 85 o.o 1,609 -0.1 5,056 -0.1

lncllan Indian Tamil Telegu Malay ali Other Indian Pakistani Ceylon Tamil Other Ceylone~e

556,455 27,089 51,188 61,456 10,922 24,616 !1,514

75.7 5.7 7.0 8.4 1.5

Total Indian

755,0!18

100.0

Other Thai Other Asian European Euruian Other

21,180 17,576 51,058 11,512 5,564

25.1 20.8 56.7 15.4 4.0

Total Other

84,490

100.0

Source:

Ibid., Table 5.2, p. 292.

u

0.4

746,558 51,552 44,199 72,U8 10,185 25,288 3,550

26,821 5,76!1 14,811 14,195 4,710

40.5 8.7 22.5 21.4 7.1

66,298 100.0

5,641 15.4 -11,81!1 -12.1 -16,247 -14.4 2,881 8.0 1,!46 5.1 -18,192

0.0

Tab~

5

Disuibution of Population by Strata and Race, Pcnimular Malaysia, 1957 and 19701

Malay•

Urbaa 2 ('JI. of

Total

au-

549,605 1,042,668

urbaal

Rural

('JI. of

1970

1957

Sbata

rurail

....... 215,865

28.0

5,125,474 2,335,756

60,833 1,666,969

Malaya

694,955

ladlau

1,491,871

524,225 28,858

27.4

58.7

3,976,959

1,659,449

100.0

63.4

26.1

696,186 123,542 6,278,758

4,671,874

3,U1,520

5.7

10.5

1.3

Av...,. Annual Growth

au-

100.0

12.8 428,325

60.2

Total

62,509 4,611,789

62,5

2,775,869 1,291,088

21.0

Otll PerS(M)

centaae of National locom.e

(3) (5) (5) (5) (4) (3) (4) (5) (4) (8) (4) (8) (4) (5) (4) (3)

(4) (5) (4) (3) (4) (3) (4) (3) (4) (3) (4)

0.9 12.7 14.8 9.5 15.5 20.9 27.5 55.0 43.2 48.0 46.4 58.4 51.1 74.1 66.6 82.8 62.8 95.8 51.7 85.0 52.8 90.0 42.7 90.5 37.2 70.5 40.8

.02 0.3 0.4 0.2 0.3 0.5 0.6 1.1 0.9 1.0 0.9 1.1 0.9 1.3 1.1

1.5 1.0 1.5 0.8

1.3 0.8 1.3 0.6 1.2 0.5 0.9

,. ....

emof GNP

.02 0.3 0.3 0.2 0.2 0.4 0.5 0.9 0.7 0.8 0.7 0.9 0.7 1.1 0.9 1.1 0.8 1.2 0.6 1.0 0.6 1.0 0.4 0.9 0.4 0.7

Table 10 Federal Government Current Expenditure, 1967-76 (In MS millions)

1973

1974

1975

1976

273

410

434

479

508

592

774

904

1,103

1,314

1,292

672

.ill._

1,080

1,109

1,413

1,64!1

1,802

439

477

536

798

805

1,051

1,158

1,256

144

139

155

209

234

257

313

361

395

15

16

25

40

33

48

47

49

126

1151

50

48

54

52

61

74

56

161

112

191

Commen:e and Communications

139

136

147

165

135

149

150

261

246

340

Transfer Payments

237

210

214

196

195

269

181

273

316

521

Debt Servicing

152

173

193

237

278

324

413

493

619

778

74

78

110

101

97

125

118

177

169

168

Total

1,801

1,796

1,930

2,161

2,398

3,068

3,341

4,315

4,900

5,600

Education as Per Cent of Total

22-4

22-5

22-7

22-l

22.4

26.0

24.1

24.4

23.6

22.4

Category

1967

1968

1969

1970

General Administration

208

203

191

242

262

Security

388

384

418

496

Social Services

553

564

603

Education

403

404

Health

135

Other Agriculture and Rural Development

Pensions and Gratuities

Source:

Economic Report, 1976/77, Treasury, Kuala Lumpur, 1976.

1971

1972

52 There are three categories of schools: government schools, government-aided schools of non-profit organizations, and unaided private schools. The first two categories are either at the primary or the secondary level. There are relatively few unaided private schools and in terms of enrolment at all levels they are negligible. Their independence in finance and administration does not imply, however, that their activities are not closely controlled by the government. The government and government-aided schools are organized m a 6-3-2-2 year structure, encompassing primary, lower and upper secondary, and sixth form (pre-university) levels. Promotion is automatic through the primary and lower secondary levels. There are major national examination bars between lower and upper secondary levels, and between upper secondary and pre-university levels, as well as the university entrance examination taken in Upper Form. Six. (See Figure 2.) At the apex of the educational pyramid is the post-secondary public education system comprising teachers' training institutions, colleges and universities listed in Table 11. Attendance at school is not compulsory but universal. In 1974, over 90% of the total school-age population was enrolled at the primary level; about 57% at the lower secondary level. As Table 12 indicates, enrolment declines very quickly in the upper secondary levels (Forms IV, V, VI). Thus, it is not surprising that a tiny minority survive to reach the apex of the pyramid. Less than 1.5% of the age-cohort (ages 19 through 24+) was enrolled in university level education in 19 74.

Figure 2

Structure of Education, Peninsular Malapia. 1977

~ ] 21.22

20.21

19.20

18.11J

17.1K

16.17

!!Uti

] ~ ~

14.Jr.

I :i.l4

12.1J

12

11.11

10.10

9.9

8.8

7.7

""'

t

7 technical achools hue sixth forms {April 1977). The technical subject at this ltvt1 is exdUllivdy "ttchnical drawinR"· For tht purpose of thi1 study, .. post· secondary education", ''higher education", and "tertiary education" will be \Ued synonymowly (unless stated otherwise) to refer to institutions listed in Table 11.

Source:

0

0 l;. R VI L.U

m

Lower Certificate of Education Malaysia Cenificate of Education Higher Ctttificate of Education Remove class Lower and upper form six Malaysia Certificate of Vocational Education

UNESCO, The Reinforcement of Education and Manpower Development (Paris: UNESCO, November 1977), Annex 42.

54 Table 11 Post-Secondary Enrolments by Public Institutions, 1974

(1)

Total University Enrolment (degree and diploma)

15,899

University of Malaya

( 8,330)

University of Agriculture

{1,776)

University of Science

( 2,009)

National University

( 2,157)

National Institute of Technology

(1,63 7)

{2)

MARA Institute of Technology

5,894

(3)

Other Agricultural Institutions, plus University of Agriculture and MARA Institute of Technology not included above

3,634

{4)

Ungku Omar Polytechnic College

1,201

{5)

Tunku Abdul Rahman College

2,690

(6)

14 teacher training schools

5,000

Total

34,318

Data are for the 1973-74 school year. Source:

Meerman, J., The Redistribution of Public Expenditure in Peninsular Malaysia {Washington, D.C.: World Bank Draft, 1977), p. 4-51.

Table 12 Unit Costs, Enrolment Ratios at Different Levels, and Total Current Federal Costs per Household by Income Quintile (Public Schools)

Enrolment Ratios

Mean Quintile of HPCI 1 2

s 4 5

Federal current subsidy per student -·year

Post Secondary

Total Costs per HIP

Primary

Secondary

0.90

0.40

0.031

$411

0.85 0.86 0.93 0.99 0.90

0.33 0.33 0.40 0.44 0.48

0.007 0.012 0.023 0.026 0.055

$450 $396 $454 $S84 $370

$238

$299

$3,197

a

Excludes scholarships and other assistance against HH out-of-pocket costs.

Source:

Meerman, "The Household Distribution of Government Services for Agriculture and Education in Peninsular Malaysia in 1974", Review of Income and Wealth 24, no. 2 Qune 1978): 161-76.

01 01

56 The State and the Labour Market. J.B. Knight notes: The picture which emerges is one of considerable market imperfection, producing disequilibrium m the labour market. This imperfection reflects the market dominance of the public sector, and the balance of power among the salariat, the wage-earners, and the peasantry. 22 The above conclusion reached by Knight in the context of his analysis of the problem of income determination in the wageemployment sector of the Ugandan economy, indeed, has significance to other developing countries as well, 23 including Malaysia. His conclusion is valuable for raising issues concerning the behaviour of the labour market and the resulting pattern and trend of labour income distribution in Peninsular Malaysia. The immediate relevance of Knight's all-embracing conclusion is the implied political dimension in the labour market operation, with specific reference to economic groups. The role of the State, however, is not brought out to centre stage although it is given substantive recognition in "the market dominance of the public sector". Even more implicit is the recognition that the State looms behind or is "reflected~' in the "balance of power" amongst the three economic actors identified. It is necessary and important to point out that at least one major economic group, the (private sector) employers or capitalists, is not identified. In most developing nations with "~ixed" economies (varying according to the eight dimensions in Lindbeck's schema, see Figure 1), the considerable importance and even dominance of the employers in the private sector are not infrequent. It cannot be denied that in these "mixed economies" it is often the case that the State is the single largest employer, and the scope of State economic activities extends pervasively throughout the economy. I

57 In the case of Malaysia, what is the nature of the role of the State in the labour market? What are the implications or consequences of the distribution of income stemming from the interactions of the State and the labour market? Official sources of information do provide one important aspect in the answers to the above questions. Various government economic documents eloquently outline the role of the State in the labour market or employment sector. For instance, the Third Malaysia Plan, 1976-80 declares: The development of human resources in accordance with the objectives of the New Economic Policy (NEP) is accorded high priority in the Third Malaysia Plan (TMP). The creation of employment opportunities as well as the productive use of labour are important elements of the manpower development strategy. Job expansion at a rapid rate is necessary if significant progress is to be made in reducing unemployment, redressing poverty, raising rural incomes and promoting the rapid absorption of the Malays and other indigenous people in the modern sector. 24 From the above official statement, the implied redistributive economic actions of the State in the employment sector are instrumental in effecting the alleviation of regional and racial disparities in income and employment as well as in raising the economic well-being of those in the lowest income group. Thus, the State manpower development policy has great redistributive potential if the State can induce a rapid growth both in employment and labour productivity. The objective of attaining full employment by 1990 has already been specified. 25 Manpower and full-employment policies as indicated above

58 are major facets of the State's economic interventions m the labour market. Other important interventions can arise from the State's regulation of industrial relations through labour laws and other labour-related institutions. Industrial harmony is basic to the maintenance of a favourable climate for accelerated socio-economic development. The labour laws of the country, although already comprehensive, will be kept under review so as to ensure that they facilitate employment promotion and . provide the legal framework for productive industrial relations ... for the mutual benefit of employers and employees . . . for closer cooperation between employers, employees and the G overnment . . . 26 An additional aspect of the Malaysian State's "dynamic labour market policies and programmes" bears on the articulation between the education and employment sectors, and thus provides the realistic and crucial link. between these two analytically separate sectors of the economic system. The vast expansion in education and training programmes and the rapid changes taking place in the labour market as a result of the growth and modernization of the economy call for dynamic labour market policies and programmes designed for optimum utilization of manpower resources. Market signals with respect to the demand for specific types of labour need to be closely monitored to minimize the misallocation of manpower resources. Information on shortages and surpluses of trained manpower, patterns and allocation of labour demand in relation to supply, changes in wages, recruitment policies and practices are essential elements in this regard.27

59 In the light of the earlier discussion of the trend of rapid and consistent increases in public expenditure on education for all levels since 1957, State intervention and monitoring of the supply of educated labour through the education system would have tremendous implications in the employment sector. This is even more so with the additional problem arising from the supply of educated manpower: A principal constraint in accelerating socio-economic growth is the shortage of trained manpower at all levels in the science and technical fields. 28 A further complication to this education-employment link to overall economic growth is the redistributive equity on a racial basis in the education-employment issue: The education and training of the Malays and other indigenous people in science, technical and management disciplines will continue to be stepped up in line with the long-term objective of increasing their effective participation at all levels in the modern sectors of the economy. 29 Thus, for all these diverse, possibly competing (due to trade-off between economic growth and racial redistributive equity),30 objectives in public labour policies and programmes, it is understandable that the State must ensure "proper matching of demand and supply" of manpower to produce a situation where there is growth and distribution at the same time. The crux of the matter is the possible deviation of official hope and expectation from actual performance and outcomes. The State's wage or income policy is intimately related to

60 its employment policy; and the dilemma which results from the overall impact on income distribution in the society when a particular State action is made in conjunction with the wage policy 1s indicated m another official document: The provisiOn of higher wages in the Public Se.ctor which employs about 500,000 persons, would aggravate the income disparities between Government employees and the lower income groups, particularly the non-wage earners and especially, the unemployed and the underemployed. Income disparities could also be aggravated between some employees in the Public Sector and those in the Private Sector particularly in the lower levels of employment such as the IMG and some clerical grades. 31 (Emphasis in the original. "IMG" means "Industrial Manual Grade,-'.) The possibility of these rippling effects across the whole income distribution pattern, affecting different sections of the Malaysian population, comes about mainly because of the importance of the Malaysian Government as a single major user of labour in the economy. In sum, the important and diverse facets of the role of the State in the employment sector and the consequences of these State economic activities on the distribution of labour income and other incomes have been outlined above. The nature of the effects of these various State interventions, for instance, the revisions in public-sector salary scales, the State industrial relations with labour, or even the magnitude of its leverage as the single largest employer m the economy, on income determination and distribution need to be analysed in detail.

61

The State and the Ownership and Control of Wealth: The actual pattern of the distribution or concentration of productive wealth in an economic system, just as in the education sector, can be traced to certain economic activities of the State impinging upon the wealth sector. For instance, the basic definition and enforcement of property rights is eminently within the realm of the State's authority. Secondly, the direct involvement of the State in productive activity through State-owned and State-managed enterprises can modify the pattern and trend of corporate wealth distribution in the economy. Thirdly, the State's policy directed to the participation, ownership, and control of corporate assets of foreign economic interests can substantially affect the distributive outcome amongst social groups within the Malaysian population. It is typical for economic analyses of development problems in Peninsular Malaysia not to identify, let alone include an in-depth analysis of, the system of property relations and property rights as an important aspect of an economic system as specified in Lindbeck's schema. For instance, Silcock does not even mention this basic dimension of the Malaysian economic system when he exammes "the four basic characteristics and their associative problems as: racial imbalance, increasing demographic pressures, economic instability, and difficulties stemming from external economic relations". 32 One notable exception is found in a recent dissertation by Sundaram who applies the politico-economic approach to analyse contemporary development problems focusing on property relations, with a comprehensive historical perspective. 3 3

In the pioneering work on the structure of ownership and control of wealth in the Malaysian economy, Puthucheary has illuminated facets of property relations in the economic system associated with problems of (industrial) development and "capital supply". 34 Specific to Peninsular Malaysia, he made the following conclusion:

62 There seems every reason to believe that the supply of capital and its direction into economically strategic investments is the primary task of economic development. There is no reason to believe that economic development by foreign or local private capital, will overflow into the countryside and improve the conditions of the peasants and particularly the Malay peasants. And the growth in economic strength may only sharpen communal antagonism. It is true that rural development through government agencies is possible side by side with industrial development by private capital. This might even be possible where the government was wedded to the virtues of economic development through the market mechanism. But this would allow a strong capitalist class to grow up. 35 In the case of the Malaysian economic system, the State has gone beyond the "virtues of the market mechanism" to ensure the rapid emergence of "a strong capitalist class". This goal is enshrined in the New Economic Policy and is currently being implemented in the Outline Perspective Plan, 1970-90. Nowhere is the intimate relation between private property rights and the economic system based on the market system as explicitly specified as in the Federal Constitution. This point is contained in the following commentary on Article 13 by Justice Mohamed Suffian: Article 13 provides that no person may be deprived of property save in accordance with law. No law may provide for the compulsory acquisition or use of property without adequate compensation.

63 Note that what is payable is adequate compensation, which is not the same thing as the fair market price. . . . The law dealing with compulsory acquisition of land enacted before independence expressly requires Government to pay the fair market price. 36 (Emphasis added) In his "Foreword" to the Third Malaysia Plan, 1976-80, the Prime Minister specifies the role of private property and private enterprise in the overall "economic order" of the country as reflected in· the quotation below: The private sector has a crucial role to play in the attainment of the nation's socio-economic goals. The active participation of the Malaysian business community, in combination with foreign enterprise, in the history of Malaysia's economic development is indicative of the invaluable contributions that the private sector, in partnership with the Government, can make to the nation's progress. . . . The Government will ensure that the design and implementation of its policies and programmes conduce towards the fuller utilization of the great potential that exists in private initiative and enterprise. . . . Above all we seek an economic order within the democratic system. 3 7 With the inauguration of the New Economic Policy, various analysts have observed that, since 1970, the State has increasingly intervened in the functioning of the economic system by direct participation in the ownership and control of productive assets. The Thz'rd Malaysia Plan provides the details concerning the rationale, magnitude, and the procedure of attaining the Malaysian Government's goal of "re-structuring wealth" or property relations in the economy in the following:

64 Progressive reduction of ex1stmg imbalances in the owner· ship of assets and wealth in the country will require that Government policies focus on all financial as well as physical assets, including land, in all sectors of the economy ... the key to the control of assets will, however, continue to be through ownership of share capital in the country.38 The institutional measures to be used by the government to effect this ownership and control particularly of the productive wealth in the modern sector will be through various "public sector agencies". These public sector institutions will accumulate corporate stock through ( 1) the creation and expansion of subsidiary enterprises either wholly-owned or in joint-venture with other private interests; (2) existing enterprises in the private sector on commercial terms.39 Eventually, at least theoretically expressed in the following official statement, the State-owned and State-controlled wealth will be transferred to individuals as private property: The aim is that as incomes and savings among the Malays and other indigenous people increase and as the enterprises set up by these agencies show sustained profitability, it will be possible for the share capital so accumulated to be sold to individuals among the Malays and other indigenous people. 4 0 Thus, with respect to the changes in property relations in the Malaysian economic system, particularly since the introduction of

65 the New Economic Policy, the most striking feature has been the government's policy affecting ownership and control of corporate wealth. 41 Government policy towards corporate ownership and control is also directed at the share of equity ownership of foreign economic interests. Though concerned by the dominance of foreign ownership and control in the Malaysian economy, the Malaysian Government views the effectiveness of its policy to restructure wealth ownership amongst racial groups to be very much dependent on foreign "capital supply". It is expected that foreign capital can be harnessed to provide the essential rapid economic growth out of which redistribution will be made. The overall significance of the role of the foreign corporate sector to the government's wealth restructuring programme is officially viewed as below: The tasks of restructuring the ownership of corporate stock and promoting foreign investment at the same time are not conflicting objectives. . . . With rapid economic growth as envisaged in the NEP, it will be feasible . . . to substantially increase in absolute terms the inflow of foreign private capital. Simultaneously, this would enable the resources generated by rapid economic growth to enlarge the absolute as well as the relative share of nationals in the economy.42 Thus, in contradistinction to Puthucheary's conclusion above, the Malaysian Government appears to have every reason to believe that foreign private capital would be instrumental in furthering the economic development, and more equitable redistribution of wealth, in the Malaysian economy. Also in contrast to

66

Puthucheary, the Malaysian Government has clearly expressed its intention to create "a Malay commercial and industrial community", thereby reinforcing the existing "capitalist class", which is largely non-Malay. What are the implications of these State policies and policy changes on the pattern and trend of ownership and control in the Malaysian economic system? To answer this, an analysis needs to be made on the nature of the distributive mechanisms involved in the performance of the State's policies affecting the distribution and concentration of wealth. The discussion of broad issues concerning the role of the State in the three sectors of the economic system, namely the education sector, the employment or labour market sector and the wealth sector, has broached various problems which are intimately related to the normative concern of economic equity. In the following sub-section, we proceed to introduce the subject of the conception of economic equity and the related role of the State.

The State and the Specification of Economic Equity Definitions:

Equality, Equity, and Justice

Examine the following three quotations:43 A.

Racial equality is a prerequisite of racial harmony, of national unity. No one really disputes this. The harmony between master and servant, between rich and poor, between rulers and ruled is not true harmony.

67 It is merely acceptance of the unalterable. Sooner or later changing values and ideas result in the rejection of the status quo and a move is made towards a more equitable position. 44 B.

Racial equality implies certain values, and values differ according to the standards which a given community accepts. To understand the meaning of racial equality it is important to know what the values being compared are. It is also illuminating to compare these values with the values of other countries.45

C.

The Government aims to create in time the kind of economic balance most conducive to the d~velopment of a just and harmonious Malaysian nation. 46

The concepts of "equality," "equity," and "social justice" do not emerge clearly or precisely from these statements which are essentially concerned with the problems of distribution and redistribution of resources, mainly economic, such as income, wealth, employment and education. For instance, in quote A, leaving aside the issue of the relationship between the distribution of resources and racial harmony or national unity (interesting and important in itself), the immediate concern is what is meant by "racial equality" with respect to the pattern of distribution of resources. Is the author thinking of the objective fact of the pattern of distribution, statistically measured to give a low degree of deviation from a hypothetically specified position of equality, for example, by using the Lorenz curve and the Gini coefficient? 4 7 Or, is the author saying that the distribution which is objectively determined as equal is at the same time ethically and subjectively valued by the community concerned?48 This subjective perception or choice, alternatively, could lead to more rather than less inequality. The

68 author recognizes that "changing values" can alter one's perception of what kind of statistical distribution is desirable or not desirable. Then, the author is dealing with the specification of equity, "ratial equity", which concerns "a move towards a more equitable position". Thus, confusion arises because the ideas are loosely stated. Hence, the lack of a distinction between what is value judgement and what is fact, or what are both at the same time. While quotation A is highly ambiguous in its meaning and is confused in its terminology, quotation B is unambiguous. But the confusion of terms here is even more obvious. What the author is explicating is not "racial equality", but "racial equity". The term "racial equality" is an objective statement of the pattern of distribution of something which is amenable to exact statistical measurement by using, for example, the Gini coefficient. "Racial equity" implies value judgements which are impossible to be measured statisticatly; and values, as the author noted, are not only subjective, they are also different over time and from place to place. Thus, there is no single objective measure to which various value judgements can refer for comparison -- as in the case of the thermometer for determining temperatures anywhere and at any time. In short, if concern is for "equality", attention is directed towards the patterns of distribution of income, wealth,, employment, etc. These patterns are objective, descriptive, and measurable statistically. The degree of equality (or inequality) can be evaluated in terms of the deviation measured from a hypothetical state of perfect equality (or perfect inequality), applying such statistical techniques as the Gini coefficient and the Lorenz curve. In contrast, "equity" can only be assessed, not by such statistical methods, but by appealing to subjective values or ethical judgements.

69 In quotation C, the concept of justice or fairness is introduced to refer to "economic balance", or balanced redistribution of economic resources. Whether a particular distribution of income and wealth is "balanced" or not is a matter of value judgement. Hence economic justice can be "economic equity". But economic equity or economic justice does not necessarily imply justice because it is logically possible and consistent to pursue economic justice and perpetrate political and social injustice. 49 Justice is therefore a broader concept than economic equity although both appeal to common value judgements, and are m contrast to "economic equality", not to objective facts. Justice, or social justice, as a broader concept therefore includes a society's desired norm of a fair distribution of economic and non-economic resources. Non-economic resources include values such as social status and prestige, and political power, which are less amenable to precise statistical measurement than economic resources; and may be more important. It is unclear whether an equitable distribution of economic values may or may not lead to equitable distribution of political power and/or social status and prestige. It can, in fact, work in reverse. A good example of a concept of justice which lucidly distinguishes between economic and non-economic facets is John Rawls' Theory of Justice: First, each person is to have an equal right to the most extensive basic liberty compatible with a similar liberty for others. Second, social and economic inequalities are to be arranged so that they are both: (a) reasonably expected to be to everyone's advantage; and (b) attached to positions and offices open to all. 50

70 The above condensed statement requires elaboration. Thus, Rawls explains: ... these principles presuppose that the social structure can be divided into two more or less distinct parts, the first principle applying to the one, the second to the other. They distinguish between those aspects of the social system that define and secure the equal liberties of citizenship and those that specify and establish social and economic inequalities. The basic liberties of citizens are, roughly speaking, political liberty (the right to vote and to be eligible for public office) together with freedom of speech and assembly; liberty of conscience and freedom of thought; freedom of the person along with the right to hold (personal) property; ancl freedom from arbitrary arrest and seizure as defined by the concept of the rule of law. These liberties are all required to be equal by the first principle since citizens of a just society are to have the same basic rights. The second principle applies, in the first approximation, to the distribution of income and wealth and to the design of organizations that make use of differences in authority and responsibility, or chains of command. While the distribution of wealth and income need not be equal, it must be to everyone's advantage, and at the same time, positions of authority and offices of command must be accessible to all. One applies the second principle by holding positions open, and then, subject to this constraint, arranges social and economic inequalities so that everyone benefits. These principles are to be arranged in a serial order with the first principle prior to the second. This ordering means that a departure from the institutions of equal

71 liberty required by the first principle cannot be justified, or compensated for, by greater social and economic advantages. The distribution of wealth and income, and the hierarchies of authority, must be consistent with both the liberties of equal citizenship and equality of opportunity. 51 These two principles reflect a more general concept of justice. He adds: All social values ·· liberty and opportunity, mcome and wealth, and the bases of self-respect -- are to be distributed equally unless an unequal distribution of any, or all, of these values is to everyone's advantage. 52 Injustice, then, is inequality which is not to the benefit of all. B~sed on Rawls' two principles of justice, it is important to reiterate that any consideration of what constitutes a "just society" must take into account both economic and non-economic facets of distributive justice. Although the main focus of this study is on economic distributional problems, it is necessary to examine to some extent the non-economic, particularly the political, facets of distribution, and its connection with economic distribution in Peninsular Malaysia. In the official planning and other documents of the Malaysian Government, concern for justice is primarily focused on the distribution of income, wealth, and other economic resources. Non-economic, particularly political, distribution is hardly mentioned. Quotation C earlier is representative of the sphere of concern pertaining to justice that the Malaysian Government has defined for itself. Even in it, the concern for economic equity is directed mainly towards racial groups rather than towards economic justice for individuals irrespective of racial origin. The two principles formulated by Rawls should provide valuable guide-

72 lines for the broader conceptual background to comment on the State's pursuit of distributive justice in Peninsular Malaysia. Thus, the issue of political equality and equity can be quickly spotlighted. Justice or economic equity requires some degree of equality. Gans has remarked that "equality" is " . . . so general that it is virtually meaningless without further qualification". 53 The discussion earlier has made the distinction between the concepts "equity" and "equality". By specifying that "equality" refers to a measure of a particular distribution of something, for example, economic values such as income or wealth, one level of meaning IS given. Gans takes a step further to propose the specification of equality in terms of three properties: (1) its outcome; (2) the resources or right that is to be distributed to reach sameness or uniformity; and (3) its subjects, that is, the persons or roles so affected. Gans identifies the first property of the outcomes of equality into three alternative types: equality of opportunity, equality of treatment, and equality of results. S.M. Miller considers the above three properties of equality as "goals which are embodied in the objective of equality". He proceeds to set up four types of equality. 54 Type 1 is the "well-known standard" equality of opportunity similar to Gans. Unlike Gans, however, he does not include equality of treatment as a category. He considers equality of results or conditions with a finer analytic distinction by splitting them into three types. Thus, Miller's three other types of equality are: Type 2 -- representative equality, which concerns who gets the preferred positions or employment in society; Type 3 -"resource equality" which focuses on income inequality; and Type 4 -- task equality, which links the resources or rewards attached to positions to the redistribution of tasks or performance.

73

The efforts of both Gans and Miller at conceptualizing the problems of equality and inequality are directed to focus attention on the irony and contradiction of poverty "rediscovered" amidst American affluence, and measures to deal with these two "blemishes" of opulent American society. Specifically, their efforts attempt to clarify the confusion arising from the diverse attacks on inequality and the goal of equality of opportunity and, what sort of equality, or equality of results, to pursue. At the centre of the controversy is the book Inequality, written by Jencks and associates.55 James Coleman pointed out that the "fundamental difficulties" in Inequality emerged because of the confusion between different meanings of inequality (or equality).56 The two meanings of inequality in question are: inequality of opportunity and inequality of results. In Peninsular Malaysia, a similar set of economic redistributive problems and controversies has been raging for quite some time. Poverty and inequality have dominated national life, and have occasionally set of{ racial riots and student protest marches. As in America, the principle of equality of opportunity, which has always been influential, came under severe attack. Since 1970, concern for equality of opportunity, though still important, has significantly given way to a concern for equality of results or conditions. The major distinction in the case of Peninsular Malaysia, with a multi-ethnic society as in America, is that the economic redistributive policies and programmes intended to alleviate poverty and reduce existing sharp inequalities have been mainly ethnic-oriented, with minimal attention to socio-economic inequity, that is, poverty irrespective of race. In addition, since 1970, the redistributive policy has been explicit in specifying detailed quantitative targets for achieving equality of economic outcomes on the basis of racial groups. Both principles of equality of opportunity and equality of results or conditions should be examined in terms of the racial conception of economic equity. Thus, what Miller conceived to be "goals

74

embodied m the objective of equality" is treated as the means conducive to attaining the desired normative goal of racial economic equity. To provide the necessary conceptual frame for further discussion, these two principles of equality need to be clearly defined. Also, they have some bearing on the positivist analyses of the empirical distribution of education, employment, income and wealth. The following discussion will draw considerably from Gans and Miller.

Equality of Opportunity: The French Declaration of the Rights of Man proclaims that all citizens are "equally eligible to all honours, places and employment, according to their different abilities, without any other distinction than that of their virtues and talents". This principle, thus, is concerned with the distribution of access to positions in a society and not with the allocation of the positions themselves. The access or opportunity to acquire all positions, from the most to the least attractive, is based on free competition without being discriminated because of abilities, economic resources, family background, or race. In short, equal opportunity allows everyone to start from the same or equal position at the beginning of the race for social rewards, be it educational attainment, a high-paying job, or political power. Thus, those who reach the finishing line are those who are most capable of expending effort and who show most resourcefulness. It is social Darwinism: it rewards the fittest. Gans pointed out that this is a libertarian principle which, m fact, has little to do with equality. In addition, equality of opportunity tends to discount the various invisible and cumulative difficulties of those from disadvantaged backgrounds.

75 But why IS the principle of equality of opportunity generally attractive? Superficially, at least, it is attractive because it rewards according to merit and performance, not privilege and discrimination. Those who produce most deserve fair compensation for their effort and effectiveness. Society gains by having more people induced to greater motivation and efficiency. It is also attractive because it does not imply serious changes in social distributive arrangements, except removal of unproductive impediments of one kind or another. Schooling is such an important and all-pervasive hindrance or opportunity for social mobility. Education is widely perceived and believed to be the most fair means of achieving career success. It is considered fair and equitable because as a selection mechanism, it treats individuals on the basis of their achievements and not their ascriptive characteristics. In addition, it is assumed that the education system provides equal opportunity for all to prove themselves, and they are eventually rewarded according to their ability and merit in the labour market. Thus, the inequalities which result from differential achievement in the educational process are legitimized as fair. It must be pointed out that there are many who are skeptical or cynical of this majority view. 57 Economically, the equality of educational opportunities is not only fair but also efficient and rational. This stems from the function of the educational system in imparting productive skills and appropriate attitudes and behaviour which are conducive to good performance in the workplace, for example, ir-dustry, stability, punctuality and the like. The provision of equality of opportunity in education, therefore, is an efficient process of classifying all those who pass through it such that they will be selected into the occupational structure in which their particular educational background will be most productively employed.

76 Whether and to what extent this assumed contribution of education to job performance and overall economic growth is in fact productive is less important than the widespread assumption that it is. As we have noted in the introduction, education has an important hold on the public imagination concerning its equity, productivity, and -above all, its intrinsic value.

Equalt'ty of Results: Equality of results is measured in terms of income, wealth, and other social rewards. The extent of equality (or inequality) of results can be determined statistically by the degree of non-skewness (or skewness) in the distribution of income and/or wealth.

Opportunt'ty and Results: What is the relationship between equality of opportunity and equality of results? Earlier, the distinction between these two meanings of equality was explained. Despite this distinction, in order to assess equality of opportunity it is necessary to examine results. When results are analysed with statistical and other methods, the extent of equality or inequality of opportunity in the distribution of any resource either in the education sector, labour market sector or wealth ownership sector can be estimated. To determine equality of opportunity as precisely as techniques permit, it is necessary to consider and control all other differences between groups. Only when equality of opportunity is approximated, can equality of results be approximated. Thus, if inequality of results is found, inequality of opportunity is implied. For instance, in employment, when two groups are equal or controlled statistically, a finding of inequality of results would reflect some degree of inequality of opportunity, or discrimination

77 m the labour market. This is defining equality of opportunity in a narrow sense. A broader definition which considers the total structure of opportunities, however, would necessitate the examination of the influences of "other" variables which have been assumed as equal. For instance, if access to education or employment is influenced by race or social background, then education or employment should not be held constant in assessing results. "Other" things may be unequal because of ( 1) discrimination in early life; (2) the way in which the system works to deprive some groups of opportunities to develop job-related qualifications. Thus, nothing should be held constant if equal opportunity is broadly defined. The reason is best stated by Mary J o Bane: "because if the system itself is being evaluated, unequal results are themselves evidence of a failure somewhere".58 In sum, in the quest for economic equity or justice, it is crucial that such concepts as equality of opportunity, which are inherently ambiguous, be defined clearly and precisely. In the next sub-section, the role of the State and the problems of defining economic equity will be examined. Theoretical issues will be raised with reference to the Malaysian situation.

The State and Economic Equity The preoccupation with the distribution of economic resources as it is, that is, the existing pattern of economic inequality, compels concerned citizens and their representative governments to pose the ethical question of which concept of economic equity should be pursued. Why is this question important? The pursuit of economic equity in a society requires constant vigilance not only to ensure that this valued aspiration of the populace is not eroded by subtle arguments and persuasions of

78

privileged groups with the enticement of vague, tempting Freedom, but also to review and evaluate the outcome of economic distribution and the associated means by which economic resources (particularly income and wealth) are distributed. The former type of vigilance has been discussed earlier while the latter evaluative vigilance is the concern now. Alice Rivlin in her Richard T. Ely Lecture to the American Economic Association in 1975 bemoaned the lack of serious interest in the problems of economic equity on the part of economists of past generations. She chided them for devoting "some of their most ingenious intellectual efforts to explaining to each other why they had so little to say . . . about the optimum distribution of income". 5 9 The evasion of most economists on this score can be attributed in part to their risk-aversed perception that it is impossible to demonstrate that any particular conception is equitable. Thus, they reason, it is best to let the political leadership and politicians hammer out the messy value-laden specification of economic justice. Once determined by the political process, they can then provide the technical design and implementation of programmes to pursue the given specification of economic equity. In the Malaysian scene, the best illustration of a specification of economic equity comes from a politician who was once driven out of the sphere of the ruling elite, only to return to power later as a senior official within the ruling National Front coalition government. And this, amongst other things, has much to do with his conception of the economic equity which he desired and desires to see come to fruition rapidly and comprehensively. The following quotation is representative: So what is racial equality? To be equal is to be accepted into every stratum of society

79 socially, economically and politically to a degree which more or less reflects the proportion of the population made up by the various groups. 60 Laws do not make people equal. They can only make equality possible. In the final analysis it is the people, and the people alone who make themselves equal. Racial equality can only be said to exist when each race not only stands equal before the law, but also when each race is represented in every stratum of society, in every field of work in proportion more or less to their percentage of the population. 6l The justification of the above specification of racial economic justice, in which only a small minority of Malays will benefit, perhaps at substantial cost to the majority of Malays and non-Malays in the Malaysian nation, is made as follows:

But if these few Malays are not enriched, the poor Malays will not gain either. It is the Chinese who will continue to live in huge houses and regard the Malays as only fit to drive their cars. With the existence of the few rich Malays at least the poor Malays can say that their fate is not entirely to serve the rich non-Malays. From the point of view of racial ego, and this ego is still strong, the unseemly existence of Malay tycoons is essential.62 Should such a conception of economic equity based on ethnic -- more precisely, racial demographic -- proportions be implemented as effective government policy? If so, this private view of desirable racial economic justice has become official ideology with

80 sufficient popular acceptance and legitimacy, giVen a democratic form of government. In Peninsular Malaysia at different periods, the official normative goal of economic redistribution has probably reflected variants of racial economic justice as conceived by Dr. Mahathir Mohamad. The complexity of the relation of the Malaysian State and its conception of economic equity based on racial proportions, currently being implemented as the New Economic Policy, needs to be examined. But first, it is necessary to be equipped with the proper conceptual techniques for systematically thinking about economic equity in general. What would constitute the basic criteria or dimensions from which any effort to formulate economic equity would have to draw or through which any existing specification of economic equity would have to be implemented?

Four Criteria for Specifying Economic Equity: Thurow offers precisely such a framework containing four basic criteria for conceptualizing economic equity.63 Firstly, equity needs to correspond to the distribution of scarce economic resources that maximizes the common good. The crux of the problem is shifted to the definition of what constitutes 4 ' the common good". Secondly, equity is attained when the distribution of economic resources reaches a point where the majority of the citizenry manifests consensus. Individual preferences become the key criterion for deciding whether the outcome of the economic

81 gain is equitable or not. Thirdly, primacy can be placed on the rules (the process and procedures) of the economic game; the outcome of this game is just or equitable when individuals play by these Fourthly, in addition to the common good, individual rules. preferences and rules, merit can be included to define equity. In a situation where economic resources are distributed in accordance with merit, equity is realized. Thus, the person who is most productive in a laissez-faire economic system is justifiably rewarded most. Given that the central concern in this study is the relation of the State to economic equality and equity, the following qualifications are in order: Firstly, each of these four criteria will have different weights in a particular normative goal of economic (re)distribution at a particular time period in a particular country, depending upon the government which ascends to power and the nature of the political process, for instance, a particular form of parliamentary elections within a democratic political system. For instance, if Country X introduces basic reforms calling for the restoration and development of the free market system, then liberty and individual preferences would reign supreme, and presumably would lead to progressive equalization of economic resource distribution. Meritocratic ethics would prevail. The common good would be enshrined in the master slogan "Free To Choose". Can we envision Peninsular Malaysia taking the scenario of Country X? Secondly, as indicated in the example of Country X, each of these four criteria would be included in any specification of economic justice. Each criterion offers a range of choices, for example, the degree of emphasis on market mechanism rather than the administrative (non-market) processes. The four criteria are not exclusive in that there are overlaps: for example, the "process

82 and procedures" of the third criterion can take the form of merit criterion which accords with individual preferences and contributes to the common good. There are instances when contradictory criteria seem to operate at the same time: for example, when progressive and regressive taxes occur simultaneously; when merit is observed in the admission of some and not of others in the name of equity rules; when the preferences of individuals are respected but only in the name of common good, that is, for national unity and racial harmony; or when the merit system cannot operate freely to select individuals for scarce educational and job opportunities. Distinction should be made between particular norms of economic equity and actual or obseroed outcomes of economic equity, or inequity. In Country X, the State can adopt various distinct "styles of economic development" which reflect implicitly or explicitly certain forms of economic equity. Various translations of the professed ideology of equality by the political elites of different governments into implementation programmes, however, yield results contrary to the development planning and practices which are supposedly being shaped by the egalitarian ideology. Myrdal made the following general judgement of South Asian countries (which include Peninsular Malaysia) in the 1960s: . . . why so little real progress is being made despite the radical pronouncements of government officials? Under the spell of the Western practice of treating development as a function of savings, physical investment, and output, planners are prone to give most of their attention to raising production even while affirming their devotion to the objective of greater equality. A conflict between two goals is assumed; a choice is made by condoning policies that do not

83 lead toward greater equality but, perhaps, in the opposite direction. This is muddled, opportunistic thinking.64

Typology of States and Forms of Economic Equity: The states towards which Myrdal's observations are directed basically fall within the category of "Technocratic", or very mildly reformist states, as in Griffin's typology65 (see Table 13). Although the typology of development strategy by the three categories of states is conceived to analyse styles of rural development, it might be just as useful for classifying states in terms of their observed (re)distributive results and tendencies rather than their professed egalitarian ideals and rhetoric. The following points s-hould be made to clarify the above typology. Its usefulness and limitations must also be examined. Firstly, states differ both in degree and in kind. If a multiple dimensional spac·e is used, something like Lindbeck's schema (Figure 1), for identifying an economic system, the policies, objectives and the redistributive ideology (actual and rhetorical) would be scattered along a continuum. Thus, simple and sharp distinctions of just three types of states and their developmentredistributive strategies belie the complexities of particular cases. Secondly, the typology pays particular consideration to social and political factors, especially to the intended beneficiaries of government policy, in this case the agrarian sector. This dimension is lacking in Lindbeck's schema. Thirdly, the three types of states and the strategies used differ in four ways: in the priorities attached to various objectives, in the ideology they use to mobilize support and action, in the dominant form of land tenure institutions (and in their pattern of property rights}, and finally in the way the

00

*"'

Table 13 Styles of Rural Development (or Typology of States)

Development Strategy

Objectives

Major Beneficiaries

Dominant Form of Tenure

Technocratic

increase output

landowning elite

large private and corporate farms, plantations, latifundia, various tenancy systems

capitalist

Philippines, Brazil, Ivory Coast

Reformist

redistribute income (and wealth); increase output

middle peasants, 'progressive' farmers

family farms, cooperatives

nationalist

Mexico, Egypt

Radical

social change; redistribute political power, wealth and output

small peasants and landless laborers

collectives communes, state farms

socialist

China, Algeria, Cuba

Source:

Ideology

K. Griffin, "Rural Development: The Policy Options", in E.O. Edwards, Employment in Developing Countries (New York: Columbia University Press, 1974), p. 184.

Representative Countries

85 benefits of the economic system and growth process are distributed. Thus, the critical distinctions of these types of states and their characteristic development-distributive styles are: ( 1) objectives, (2) ideologies, (3) institutions and (4) distribution. These three types of states are related to the classes or "coalition of classes" which provide them support. Political support is not exactly the same as the broader canvas of political legitima:y. The specific value of this typology for the case study of Peninsular Malaysia can serve to highlight the character of the Malaysian State.

Malaysia: An "Intermediate Regime"? Analysis of the political economy of the State in relation to economic distribution is useful (over and above its intrinsic interest). Firstly, any study of the State beyond the merely descriptive demands an understanding of (a) its purpose; and (b) the constraints upon it; so that (distributive) policy decisions can be judged in relation to realistic objectives and alternatives. Secondly, an understanding of the State's interventions in the economy for (re)distributive purposes should illuminate the social system as a whole -- especially the relationship between economic distribution and class-structure. Kalecki had some pioneering thoughts on this relationship between the State and class-structure, and class relations in the development process. In what he conceived of as an "intermediate regime" he argued its applicability to many developing economies which have emerged from colonial rule peacefully through some form of constitutional transfer of political power. An absence of armed struggle is a critical condition for applying his conception of an "intermediate regime" which is dominated by the lower

86 middle classes in coalition with the small bureaucratic elite. 66 Is Peninsular Malaysia an "intermediate regime"? If so, what are the implications for its redistributive strategy {ideology) and practices? These are additionaLquestions that need to be answered, or at least clarified, by evidence from empirical research efforts.

Conclusion The vanous questions raised in the above sub-sections have been derived from the attempt to formulate a more realistic and comprehensive alternative theoretical approach to the extant mainstream This alternative theoretical theories of economic distribution. approach generates different (and arguably more cogent) sets of questions which put into centre stage the State as the crucial explanatory variable in the determination of the distribution of economic resources. The task now is to apply the research propositions advanced together with the conceptual formulations of the positive and normative aspects of this theoretical frame to shed light on the empirical reality of Peninsular Malaysia m particular, or any other developing economies in general.

87 Notes 1

An excellent example of "A General Theory of Reform" both of the state, and consequently, of a package of policies can be found in Galbraith's Economics and the Public Purpose (Boston: Houghton Mifflin, 1973), Part 5.

2

Assar Lindbeck, The Political Economy of the New Left: An Outsider's View (New York: Harper and Row, 1977), pp. 214ff.

3

Ibid., p. 214.

4

Ibid., p. 214ff.

5

See, for instance, A. Senkuttuvan, "Malaysia Opts for State Capitalism", Far Eastern Economic Review, 28 November 1975. W. Kasper uses the term "laissez-faire Capitalist Model" to identify the Malaysian economic system. See his Malaysia: A Study in Successful Economic Development (Washington: American Enterprise Institute for Public Policy Research, 1974), p. 47. U.A. Aziz coins the label "Synthetic Capitalism" in his article, "Facts and Fallacies About the Malay Economy", Kajian Ekonomi, Journal of the Economic Society, University of Malaya, III, no. 1 (December 1962): 23.

6

G. Means, Malaysian Politics (London: Chapters 1-4.

7

Mid-Term Review, Third Malaysia Plan (1979), Table 3-2, p. 45. 1980 Population and Housing Census is in process.

8

R. Milne and Mauzy, Politics and Government in Malaysia (Vancouver: University of British Columbia Press, 1978), Chapters 7, 10, 11; G. Means (1976) op.cit., Chapters 10-13, 21-22; and M. Esman, Administration and Development in Malaysia (Ithaca: Cornell University Press, 1972), Chapter 2.

9

Lim Mah Hui (1978) op.cit.; Tan Tat-Wai (1977) op.cit.; and ] . Sundaram, "Class Formation in Malaya: Capital, the State and Uneven Development" (Ph.D. thesis, Harvard University, December 19 77).

10

P. Courtenay, A Geography of Trade and Development in Malaya (London: Bell & Sons, 1972), Chapters 2-4; 0. Mehmet, "Colonialism, Dualistic Growth and the Distribution of Economic Benefits in Malaysia", Southeast Asia Journal of Social Science 5 (1978): 1-2; and]. Sundaram, op.cit.

Hodder & Stoughton, 1976),

The

88 11

G. Means, op.cit., Chapter 22; M. Esman, op.cit., pp. 36-45; Milne and Mauzy, op.cit., Chapters 10-11; C. Muzaffar, "The New Economic Policy and the Quest of National Unity" (Paper presented at the Fifth Malaysian Economic Convention, Agenda for the Nation, V: Growth and Redistribution, 25-27 May 1978); K.S.Jomo, "Restructuring Society: The New Economic Policy Revisited" (Paper presented at the above convention).

12

W. Kasper, Malaysia: A Study in Successful Economic Development (Washington D.C.: American Enterprise Institute for Public Policy Research, 1974), p. v., fn. 5; Kevin Young et al., Malaysia: Growth and Equity in a Multiracial Society (Baltimore and London: John Hopkins University Press for the World Bank, 1980). Given the rapid economic growth in the last decade, the following observation by Silcock and Fisk of the relative affluence of the Malaysian economic system probably has greater validity presently: . . . it is an economy that has been relatively richer than most others in South and East Asia for a considerable period, has a relatively high standard of communications, public service, . . . It is a study in hope rather than in desperation, largely because its circumstances of population growth in relation to resources seem less intractable both in magnitude and in sheer difficulty than those of some of its larger neighbours." See Political Economy of Independent Malaya (Canberra: Australian National University Press, 1963 ), p. vii.

13

M. Esman, Administration and Development in Malaysia (Ithaca: Cornell University· Press, 1972), p. 96ff.

14

Mid-Term Review,

15

M. Bronfenbrenner, "Comparative Development Planning and Strategy", United Malayan Banking Corporation (UMBC} Economic Review IX, No. 1, pp. 8-15. Most probably referring to the Second Malaysia Plan, 1971-75, Bronfenbrenner comments: "The Malaysia Plan appears to be partially of this exhortative and futurological sort, and only partially of the indicative variety" (p. 15).

16

Second Malaysia Plan, 1971-76 (1971), p. 162.

17

For details of the Industrial Coordination Act, 197 5, see Ministry of Finance, Economic Report, 1978/9, p. 197.

Third Malaysia Plan (1979), Table 4-6, p. 66.

89 18

Other than school fees and the foregone earnings of students, the costs of education are mainly the responsibility of the government. Private schools are numerous only at the secondary level. But their total enrolments are a mere 9% of the total receiving secondary education. For primary education, the proportion is much lower, less than 1%. Expenditure data for private schools are not available. UNESCO, Malaysia, Proposal of Educational Developr;nent (1975), p. 114.

19

Revised Report of the Royal Commission on the Teaching Services, West Malaysia. Chairman, Tan Sri Abdul Aziz bin Mohd. Zain Qune 1971), p. 200.

20

M. Rudner, "Education, Development and Change in Malaysia", Southeast Asian Studies 15 (Kyo~o, 1977): 39.

21

UNESCO, The Reinforcement of Education and Manpower Development (1977), p. 107.

22

J .B.

23

J.

24

Malaysia, Third Malaysia Plan {1976), p. 138.

25

Ibid., p. 150.

26

Ibid., p. 158.

27

Ibid., pp. 157-8.

28

Ibid., p. 138.

29

Loc.cit.

30

Willingness to sacrifice growth for equity if such a trade-off should arise has been indicated in the planning documents. See Second Malaysia Plan.

31

Report of .the Cabinet Committee Appointed by the Cabinet, Chairman, Dr. Mahathir Mohamad, 1977, p. 25.

Knight, "The Determination of Wages and Salaries in Uganda", Bulletin, Oxford Institute of Economics and Statistics 19 {August, 1967); 264. Weeks, "The Impact of Economic Conditions and Institutional Forces on Urban Wages in Nigeria", Nigerian journal of Economic and Social Studies 13 no. 3 {November 1971): 313-39; J. Weeks, "Wage Policy and the Colonial Legacy -- A Comparative Study", The journal of Modern African Studies 9, no. 3 (1971): 361-87; A. Mitra, "Wage Policy in Developing Countries", in Wage Policy Issues in Economic Development, edited by A.D. Smith (New York: St. Martin's Press, 1969), Chapter 8, pp. 371-82.

90 32

T.H. Silcock, "General Review of Economic Policy", in Silcock and Fisk, Political Economy of Independent Malaya, op.cit., p. 242.

33

J.K. Sundaram, "Class Formation in Malaya: Capital, the State and Uneven Development" (Ph.D. thesis, Harvard University, 1977).

34

JJ. Puthucheary, Ownership and Control in the Malayan Economy (Singapore: Eastern Universities Press, 1960).

35

Ibid., pp. 163, 180.

36

Mohamed Suffian bin Hashim, An Introduction to the Constitution of Malaysia {Kuala Lumpur: Government Press, 1972), pp. 184-5.

37

Third Malaysia Plan, 1976-80 {1976), p. vi.

38

Ibid., p. 85. It has been the official target that by 1990 at least 30% of the productive wealth in the modern sector will be owned by Malays (see Appendix 4).

39

Ibid., p. 88. These public sector agencies include Majlis Amanah Rakyat {MARA), Perbadanan Nasional (PERNAS) and its subsidiaries, Bank Bumiputra, Bank Pembangunan, the Urban Development Authority {UDA), and the State Economic Development Corporations {SEDCs) and their subsidiaries.

40

Loc.cit.

41

J.J. Puthucheary, "Changes in Ownership and Control in Malaysia" (Paper presented at the Fourth Malaysian Economic Convention: Agenda for the Nation: Public Policies for Restructuring Society, 19-21, May 19 7 7, Kuala Lumpur,).

42

Third Malaysio. Plan, 1976-80 {1976), p. 89.

43

As these quotations are made by an influential Malaysian politician and the Malaysian Government, their usefulness as illustration is more than just academic.

44

Mahathir Mohamad, The Malay Dilemma {Singapore: Donald Moore for Asia Pacific Press, 19 70), p. 62. See also Chapter 8.

45

Ibid., p. 63.

46

Second Malaysia Plan, 1971-75 (1971), p. 41, paragraph 133.

47

Or the use of "disparity ratios". For example, in 1970, the racial Disparity Ratio on the basis of per household mean monthly income

91 were: Non-Malay: Malay, 2.18; Chinese: Malay, 2.25. See David Lim, ed., Readings on Malaysian Economic Development (Kuala Lumpur: Oxford University Press, 1975), p. 263. 48

The following discussion on these two questions is based on the distinction of the 'two concepts of "equality" and "equity" put forward by Bronfenbrenner in his "Equality and Equity", The Annals, 408 Quly 1973): 9-23. The confusion over these two concepts of equality and equity is certainly not a rare phenomenon as the following quotation from Bronfenbrenner shows: In twenty-five years of teaching income distribution to budding economists, I have been struck both by the prevalence of confusion between the terms of "equality" and "equity" among students and my own inability to remedy this confusion. (Ibid., p. 10)

49

For instance, John Rawls' Theory of Justice provides criteria for evaluating the extent to which different kinds of inequality are consistent with social justice. See Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, 1971), Chapter II, sections 10, 11, 12.

50

Ibid., p. 60.

51

Ibid., pp. 60-1.

52

Ibid., p. 62.

53

HJ. Gans, More Equality (New York:

54

Ibid., pp. 63-5; S.M. Miller, "Types of Equality: Sorting, Rewarding, Performing", in N.F. Ashline et al., eds., Education, Inequality, and National Policy (Lexington, Mass.: D.C. Heath, 1976), Chapter 2.

55

C. Jencks et al. (New York:

56

James Coleman, "Equality of Opportunity and Equality of Results", in Perspectives on Inequality, Harvard Educational Review, Reprint Series No. 8 (1973), pp. 93-101.

57

For instance, see Samuel Bowles and Herbert Gintis, Schooling in Capitalist America, Educational Reform and the Contradictions of Economic Life (New York: Basic Books, 1976); Jencks et al. (1973) op.cit.; S. Michelson, "Perspectives on Inequality", Harvard Educational Review, Reprint Series No. 8 (1973), pp. 56-69; and L. Thurow, "Education and Economic Equality", The Public Interest 28 (Summer 1972): pp. 61-81.

Vintage Books, 1973), p. 63.

Basic Books, 1972).

92 58

Mary Jo Bane, "Economic Justice: Controversies and Policies", in The "Inequality" Controversy: Schooling and Distributive justice, edited by D.M. Levine and MJ. Bane (New York: Basic Books, 1975), Chapter 13, p. 282.

59

Alice Rivlin, "Income Distribution -- Can Economists Help?" American Economic Review (May 1975), pp. 5-6.

60

Mahathir Mohamad, The Malay Dilemma, pp. 68-9.

61

Ibid., p. 79.

62

Ibid., p. 44.

63

Lester Thurow, Generating Inequality (New York: Basic Books, 1975), Chapter 2. The ordering of these four criteria does not necessarily indicate a hierarchy of significance in any way. The order of discussion of these criteria is different from that of Thurow's as it is more appropriate to the analysis here.

64

G. Myrdal, Asia Drama (New York:

65

K. Griffin, "Rural Development: The Policy Options", in E.O. Edwards, Employment in Developing Cou.ntries (New York: Columbia University Press, 1974), pp. 181-200.

66

M. Kalecki, "Observations on Social and Economic Aspects of 'Intermediate Regimes' ",Coexistence IV, no. 1 (1967): 1-5. Reprinted in M. Kalecki, Essays on Developing Economies (London: Harvester Press, 1976).

Pantheon, 1968), pp. 748-9.

Appendix I

Malaysia:

Gross Domestic Product b~ lndua!!!_ of OriJtin. 1970..90

(I million in 1970 prices)

S