Growth is a complicated matter

Malaysian straitjacket for India Pratap Bhanu Mehta Indian Express Saturday, June 17, 2006

Ashutosh Varshney is right to suggest (‘Be affirmative,’ IE, June 16) that we look at comparative experiences to enrich our own debate on affirmative action programmes, and the Malaysian example certainly provides some food for thought. But Varshney’s account of its success is, at best, too partial and does not fully acknowledge the limitations of the programme. These limitations would be more consequential in the Indian context.

The entire Malaysian programme, like so many affirmative action programmes, is not about targeting really impoverished people, or about social justice. It is about displacing (the hold of) a tiny ethnic minority — the Chinese — and replacing them with Malays. The evidence for this can be seen in a number of facts. For instance intra-Malay inequality during the 30-year period since affirmative action programmes were introduced greatly increased. Second, the system of racial preferences left out key impoverished communities, which on a social justice measure should have been included.

The policy was immensely racially discriminatory, where first generation immigrants could qualify for ‘bhumiputra’ quotas, but fifth generation Indians could not. Most notably, the overall share of the wealth of Indians in Malaysia has remained under two per cent though their population is close to 10 per cent, and these groups have few forms of redress. Third, the zero sum aspects of the policy, whereby the Chinese were not excluded as much as was feared, were made possible by two special conditions. Some Chinese did migrate and invest overseas, taking the edge off local conflict.

To a certain extent this is parallel with the South Indian story, and we underestimate the degree to which emigration has helped mitigate some of the hard edges of the conflict. But under conditions of globalisation, would it be desirable to create further incentives for some of your best talent to migrate? It is also probably not an accident that the Malaysia is not nearly a powerhouse in education as it should be, given its level of economic development. Second, the Chinese were helped by the fact they remained the conduit through which foreign investment or transfer of the erstwhile assets of colonial masters; these conditions cannot be easily replicated.

But there were also serious costs to the Malaysian programme that a democratic society like India cannot easily contemplate. First, criticism of the affirmative action programme was punishable by law, and the evidence can be used just as easily to argue that this policy works with large doses of authoritarianism. Second, although there is no doubt that Malaysia has social peace, there is considerable doubt whether it has a modern concept of citizenship. Its political parties are largely based on ethnic lines and it is still more like a federation of ethnic enclaves than a group of citizens. Almost all authoritarian regimes with a dominant majority manage to keep the peace, how enduring it will be, once there is economic trouble on the horizon, remains to be seen.

The Malaysian programme was also aimed more at the distribution of assets: giving Malays more ownership over companies and assets. Our difficulty is that we have not tried this route at all. The key to Malaysia’s success seems to be not in the reservation programme but in the wide diffusion of property assets. Although there was lot of cronyism in the creation of these assets, they at least acknowledged that access to wealth was the core issue. But perhaps the best lesson to learn from the Malaysians is this: they had built-in provisions for a twenty-year review, and seem to have taken it more seriously than we assess our policies.

In 2004, the Prime Minister, Abdullah Badawi, told the United Malays National Organisation that “a continuing reliance on crutches will further enfeeble Malays, signalling a radical shift in the government’s thinking on the desirability of ethnically based affirmative action. In many spheres of the economy, most notably high growth areas, Malaysians are actually withdrawing affirmative action programmes.

Growth is a complicated matter and no single factor can promote or hinder it. Labour markets are one aspect of it. Ironically, as in the United States, it will be easier for companies to implement affirmative action programmes if there were more flexibility in labour laws: companies would be incurring less risks by betting on new entrants to the workforce, and would have more freedom to sift through candidates amongst marginal groups to find the ones that suited their requirements.

Comparisons are useful as a heuristic, but they will underdetermine exactly which lessons should be followed. About Sri Lanka’s experience with ethnicity, the less said the better. Social justice and economic growth are not incompatible, but we have to chalk our own path. The tragedy is that we will brook only one definition of social justice, and resist all the other measures that will make growth sustainable. The writer is president, Centre for Policy Research, New Delhi pratapbmehta@gmail.com