ECONOMIC GROWTH OF MALAYSIA.

INTRODUCTION
The early settlements of the Malays in the Malay peninsular were found mainly along the rivers and coastline where the soil was especially fertile. These areas became a natural source of income through agriculture and fishing activities. In addition, the rivers and seas provided a means of communication and enabled transportation from one settlement to another. History reveals that the Malay peninsula, especially the state of Malacca, was a strategic vicinity for trade where people ventured to from the East and West. Beginning from Malacca, the economy of the peninsula developed rapidly and became an attraction to a host of foreign powers who sought to conquer each state one by one until eventually, the entire peninsular fell into the hands of foreigners.

5.1

THE STATE OF MALAYAS ECONOMY BEFORE INDEPENDENCE

The Development of The Tin Industry

5.1.1

During the reign of foreign powers in Malaya, many Malay states saw an increase in new economic activities, particularly during the British occupation. One activity, which was especially buoyant in the late 19th century and grew to become a significant contributor to the economy of Malaya was the tin industry. Many factors caused of tin industry to expand. Among them were the massive increase in the demand for tin in the canning industry and other industries, especially in Britain. When new discoveries on tin deposits were made in the Larut region and Kinta Valley in 1848, the mass production of tin grew even more rapid. Another factor was the political stability, law and order brought about by British intervention in Malaya from 1874. To ensure that the demand for raw materials was met, the British paved the way for the Chinese to enter Malaya and boost the development of the tin industry. They also improved the transportation system in Malaya by clearing rivers, building roads and railways. Apart from that, the British introduced a new technology - the tin dredge, which consequently increased the output of tin. All these factors boosted the development of the tin industry and by 1883, Malaya became known as the largest producer of tin in the world.

5.1.2

The Rubber Industry

Rubber was never a native plant of Malaya but imported from Brazil in the early 19th century, as an alternative to the failing crop conditions in the peninsular at the time. During that period, the coffee farmers in Malaya found their plants destroyed overnight by Bee Hawk moths and therefore, had to seek another alternative to their dwindling income. Rubber was first planted in the Botanical Gardens of Singapore and Hugh Lows residence in Kuala Kangsar in 1887. Its rapid development and contribution to Malayas economy was fueled, not only by the failure of coffee plantations, but also the efforts on one man H.N Ridley, among other factors. Ridley did much to encourage Malay farmers to grow rubber and taught them a new method of tapping rubber to produce latex, so the tree would be unharmed in the process and continue to yield the precious product for the next 30 years or so. He pioneered the techniques of planting rubber trees, spaced out at certain intervals on sloping grounds in chemically-fertilized soils and was responsible for discovering the method of wrapping delicate seedlings in moist charcoal to keep them from decaying during transportation in the humid and moist temperatures of the peninsular. The administrative government of the Federated Malay States also had a part to play in the rapid rise of the rubber industry in Malaya by giving out land with attractive rental fees and low duties on rubber. Apart from these, another factor that contributed to the development of the rubber industry was the increasing demand for rubber as a vital component in the manufacture of pneumatic tyres for vehicles in the booming motorcar and bicycle industry. With all this, Malaya became the worlds largest producer by 1919. 5.1.3 The Unbalanced Distribution of Economy

During British colonization of Malaya, which lasted some 130 years, the British concentrated on expanding their economic activities in the western states of the peninsula, such as Perak, Selangor, Penang, Negeri Sembilan, Melaka, Johor and Singapore. These states became known as the "New Malaya" and the economic activities there comprised mainly tin mining, rubber tapping and trading. "Old Malaya", on the other hand, comprised Kelantan, Terengganu, Pahang, Perlis and Kedah, which depended more on subsistence agriculture and fisheries. The wide gap in the economic functions in these different locations caused an unbalanced distribution of economy among the people of Malaya. Those who dwelt in the west, which was more urbanized, were of a higher income group and received more facilities than those who lived in the East, which was more rural. Unfortunately, those whom the British had neglected, were the Malay farmers and fishermen, which caused them to become the ethnic group with a relatively low income.

In Sabah and Sarawak, the situation was similar to that of Peninsular Malaya, since the British were equally keen to develop only those areas which were able to render higher economic yields. Among these places were West Sabah, and the First division and Second Division of Sarawak, which were rich with pepper, timber as well as mining activities. 5.1.4 Infrastructure Facilities

When the British ruled Malaya, there was significant improvement in infrastructure facilities. Rivers were cleared and roads and railways constructed. In 1885, the first railway linked Taiping to Port Weld and one year later, Kuala Lumpur, Klang and Port Sweettenham were accessible by rail. These facilities, however, were concentrated in the west where the economy was buoyant, while in the east, the conventional means of transportation over rivers and seas continued to thrive.

5.2 MALAYSIAS ECONOMY AFTER INDEPENDENCE

Prior to independence Malaysia relied heavily on agriculture as a means of income for the country. By the time the nation received independence from the British in 1957, its economic activities had varied to a certain extent and in that year itself, 40% of the Gross Domestic Product (GDP) was attributed to the fishery and forestry sector, apart from agriculture. Malaya had also made a mark for herself as the worlds largest exporter of rubber and tin at the time and could boast one-third of the worlds rubber output production and 33% of tin. Sad to say though, Malaya was still very backward in the manufacturing industry and had to rely heavily on imports to fulfill the needs of the country. It was only after independence that changes began to take place in the economy. 5.2.1 Diversification Of The Nations Production Base Although the rubber and tin industry had certainly brought in whopping returns and boosted the countrys economy, it was evident that this situation could not hold on for long. After a while, both rubber and tin began to face instability in prices due to the fluctuating demand for both commodities. It seemed the nation could no longer hold on solely to these two commodities for export purposes and had to diversify production. The government realized that other alternatives were necessary to ensure that the nations growing population had sufficient job opportunities. Hence, three years after independence, the government launched a programme aimed at introducing industrial

development and making agriculture more modern to ensure adequate returns and at the same time, achieve an economy which can be sustained. In 1970, after a ten-year period, the government had succeeded in completing the first phase of agriculture diversification. To add to its exports were timber and palm oil. Meanwhile, petroleum too became one of the important exports since then. Industries began sprouting, mainly producing tin, rubber, textile and wood products. To add to this, there were also the export of tobacco products and rubber plastic goods. Through the governments efforts in diversifying the nations production base, many more job opportunities were provided for the people of Malaysia. 5.2.2 The Establishment of Government Agencies

To improve conditions of the rural folk, the Government attempted to arrest several issues pertaining to land tenure, credit and marketing which were considered factors contributing to rural poverty. Hence, in 1955 and 1967, the Paddy Cultivators (Control of Rents and Security of Tenure) Ordinance was passed with the purpose of protecting the tenant farmer. The ordinance stipulates that the maximum rental for crop sharing should be one-third the value of the harvested crop, while fixed rental should vary according to the quality of the land. The enforcement proved unsuccessful when a dispute ensued between the Federal and State Government concerning authority over land issues, which generally fall under the responsibility of the state. As such, the land tenure problem remained. In 1956, the government set up the Federal Land Development Authority (FELDA), to ensure that farmers had access to more land. The programme was a huge success and was responsible for the opening of large tracts of land, up to 2,000 hectares in some areas, for the setting up of rubber and oil palm plantations. FELDA settlers benefited much from this scheme as they were provided with housing, infrastructure and other facilities. At the same time, the poverty rate among the rural folk declined to a certain extent. FELDA successfully upgraded the lifestyle of the rural people and boosted the countrys output from the agriculture sector. In 1966-1970 several more agencies such as the Federal Land Consolidation Authority (FELCRA), Malaysian Industrial Development Authority (MIDA), Malaysian Agricultural Research and Development Institute (MARDI), and Majlis Amanah Rakyat (MARA) were formed to help the poor in rural areas, which comprised mainly Malays. One problem still remained though, and that was the credit problem faced by most of the rural farmers. To alleviate this problem, the government established the Agricultural Bank of Malaysia. Through it, the government hoped that more credit programmes would be organized and coordinated for the agriculture sector.

In addition to this, the Farmers Association was set up sometime during the First Malaysian Plan (1966-1970) to extend credit to farmers. This however, did not garner much response from farmers, since the entire process of obtaining government loans was lengthy and involved much red tape. As such, despite all these efforts, many farmers still preferred to borrow money from non-Malay moneylenders despite the exorbitant interest rates incurred. One programme that was entirely successful though, was the Federal Agricultural Marketing Authority (FAMA), set up in 1966, to help farmers market their produce and reap the rightful returns due to them. Previously, middlemen bought the products from the farmers at relatively low prices, and then sold them, instead at exorbitant prices. This situation caused farmers in rural areas to continue receiving meager income.

5.3

THE FIRST OUTLINE PERSPECTIVE PLAN (NEW ECONOMIC POLICY)

The First Outline Perspective Plan, (OPP1: 1970-1990) began with the Second Malaysia Plan (1971-1975) and ended with the Fifth Malaysia Plan (1986-1990). Each Plan spans a period of five years and in the OPP1, the master plan was the New Economic Policy (NEP: 1971-1990). The ultimate goal of the NEP was to foster racial unity in Malaysia and prevent an occurrence similar to the one which took place during the racial crisis on 13 th May, 1969. Therefore, the NEP formulated two strategies to achieve this. The first was to eradicate poverty and the second, to restructure the Malaysian community and extinguish once and for all, the association of the various ethnic groups with a certain economic activity. To attain all this and more, the programme focused on agricultural development and stepped up efforts to modernize this sector. Some measures taken include introducing new techniques in planting, double-cropping, modern machinery and diversifying agricultural products for commercial purposes by encouraging farmers to plant tapioca, maize and sugar cane, among other things. The NEP also focused on developing the industrial sector particularly during the 1970s. The government encouraged a diversification of the manufacturing sector and the nation saw the growth of textile, electronic and wood-based industries. With the provision of facilities such as free trade zones and industrial estates, the people of the country were better able to find job opportunities, upgrade themselves and improve the quality of life. Other sectors in the Malaysian economy which saw an improvement were the government, construction and service sectors, which saw rapid expansion in the 1970s under the NEP.

To execute the NEP programmes with the aim of eradicating poverty, there was a need to increase public sector assistance for agricultural and rural development. Government intervention was also necessary in encouraging rural folk to play a more active part in higher-valued employment in modern urban centres. At the same time, the commercial and industrial community also called for greater government participation in the economy. During the expansion of the manufacturing, construction and service sectors in the Malaysian economy, mass movement of rural Malays to the city took place. New problems then arose. One of them was the increasing number of squatter settlements that seemed to mushroom overnight. In 1976 alone, there were 153,000 squatters in Kuala Lumpur. Of this, 45% were Chinese, 41% Malay, 4% Indian and 10% mixed. To add to the deploring social conditions at the time, the number of squatter settlements increased every year. Although the government made many efforts in wiping out such settlements and offering instead, low-cost houses and flats, many of the squatter settlers could not effort to accept the offer since their income ranged between RM150 and RM300 a year. The second strategy of the NEP was to restructure the economy to eradicate the distinction of ethnic groups based on the various economic activities, and enhance the economic standing of the ethnic Malays and indigenous people, known as the Bumiputera. Average Monthly Household Income According to Ethnic Groups

Another goal of the NEP was to ensure that by 1990, at least 30% of corporate equity would be held by Bumiputera, 40% by other Malaysians (primarily Malaysian Chinese and Indians, while the remaining 30% was held by non-Malaysians. In addition to this, funds were set up to purchase foreign-owned shares on behalf of the Bumiputera population. Foreign firms were urged to restructure their equity (often 100% foreign-owned) in line with the NEP guidelines. By the time the NEP came to an end in 1990, the Bumiputera equity share had risen to 20%. To ensure greater Malay participation in commerce and industry, the government created the following public enterprises: Majlis Amanah Rakyat (Mara-Council of Trust for Indigenous People), which comprises the Rural and Industrial Development Authority (RISDA), Perbadanan Nasional Berhad (PERNAS), and the Urban Development Authority (UDA).

All these public enterprises aimed at assisting Malay entrepreneurs enter a mainly foreign and Chinese-dominated business world. One of the important functions of these bodies was the purchasing of shares on behalf of the Bumiputera in order to hasten the process of Bumiputera ownership of 30 percent in the corporate sector by 1990. Although the NEP was not 100% successful, its objectives of eradicating poverty and restructuring society were almost met. Rural poverty was reduced from 50.9% (1976) to 21.8% (1990) while urban poverty reduced from 18.7% (1976) to 7.5% (1990). The average income for a Bumiputera also increased from RM172 per month (1970) to RM614 per month. However, this increased income still lagged far behind the Chinese and Indians which were $1012 and $771 respectively. Equity for Bumiputera was 20%, non-Bumiputera, 56% and foreigners, 24% by 1990. In June 1991, the government introduced the National Development Policy (NDP) which is effective from 1991 to 2000. The NDP is the master plan of the Second Outline Perspective Plan (OPP2) and upholds the NEPs objectives, apart from aiming to be a progressive country by the year 2020. There are 2 phases in the NDP. The Sixth Malaysia Plan (SMP) will give the Malaysian Economy a new basis and direction for stronger and more sustained socio-economic growth, better income and a more balanced ethnic distribution of income in the 1990s and beyond. The Seventh Malaysia Plan was presented to the Parliament on 6 May 1996 with a new aim of achieving Vision 2020.

5.4 THE NATIONAL DEVELOPMENT POLICY (NDP)

The National Development Policy (NDP) is part of the Second Outline Perspective Plan (OPP2) and covers a 10-year framework, from 1991 to 2000. Like the NEP, the NDP will follow through with aim of eradicating poverty and achieving an economically, socially, spiritually, culturally and psychologically well-balanced society. At the end of it all, the government hopes that Malaysia would have truly achieved national unity through socio-economic development. Among other things, the NDP will focus on: i) Eliminating hard-core poverty while reducing relative poverty at the same time. ii) Developing the area of human resources in the country. iii) Allowing the private sector to be more involved in the restructuring of society. iv) Increasing the participation of Bumiputera in the economy by focusing on the development of the Bumiputera Commercial and Industrial Community (BCIC).

5.4.1

Efforts towards Eradicating Poverty

To work aggressively towards eradicating poverty, the NDP will focus on the hard-core poor and has targeted that the poverty rate will reduce to a mere 7.2% in 2000, compared to a high of 17.1% in 1990. Statistics have indicated that 8 years ago in 1990, there were over 143,000 households in very backward, rural areas which fell into the hard-core poor category. Through the NDP, the government aims to improve the income of people in deprived areas and less developed states and provide them with better social services and opportunities to earn higher wages. Only then, can the wide gap in the distribution of income be reduced and the standards of living raised. The NDP has commissioned the public sector to focus on education and training, health, transportation, housing and electricity and water supply. Attention will also be given to less developed states, mainly Sabah and Sarawak. The NDP, which aims to eradicate poverty will take into account all communities in both the rural and urban areas, and groups encompassed in the Bumiputera community, like the Orang Asli, indigenous groups in Sabah and Sarawak, and also the Indian community which has lagged behind. 5.4.2 Restructuring The Malaysian Community

Under the NDP, attention will be given to restructuring employment and equity. In light of this, the limelight will be on the development of a Bumiputera Commercial and Industrial Community, to increase the participation of Bumiputera in corporate and noncorporate sectors. Realizing the importance of increasing opportunities for Bumiputeras to own and operate their business, the government has strongly emphasized training in the area of management of wealth and business ethics. One such organization, which seeks to provide effective support for the development of Bumiputera-owned businesses, is Permodalan National Berhad (PNB). Another area of concern is that the numerous failures among Bumiputera businessmen. To overcome this, the NDP has been encouraging Bumiputera businessmen to start their businesses from the bottom. Through contracts and franchise programmes, the Bumiputera are encouraged to participate in small and medium industries (SMIs). These businessmen are also encouraged to actively participate in joint-venture operations with non-Bumiputera businessmen. Apart from this, the Government is also strengthening its human resource development to ensure that Bumiputeras are better equipped for higher level occupations in modern sectors, since the lack of skills will result in them being pushed into lower level jobs. Without these vital skills, the objective of restructuring the employment pattern with not be successful.

5.4.3 Potential For Growth One of the challenges that Malaysia has to face in its effort to become a fully developed country by the year 2020 is the creation of a competitive, dynamic, robust and resilient economy. In the two decades between 1971 and 2000, Malaysia witnessed an average growth rate of 6.7%. The next decade following this is expected to achieve an average growth rate of 7%, while the contribution of the manufacturing sector to the GDP is expected to rise. In view of this, Malaysia is expected to depend more on the industrial sector to create employment and increase income, and at the same time, increase its exports of manufactured goods. 5.4.4 The Development of Human Resources

The NDP focuses on human resource development to upgrade the capabilities of the labour force of the nation and allow progression into more difficult and more skillintensive occupations. To do this as well as upgrade efficiency of the workforce, there must be an adequate supply of professional, technical, skilled, managerial and research manpower via an effective HRD programme. These require the development of an advanced R&D capability and highlight the need for a critical mass of inventors, designers and innovators who are able to produce new ideas products and processes. This is to keep up with foreign technologies and advancement and reduce dependence on imported technology. In restructuring society, education and training are prerequisites to ensure that income levels are raised and employment targets achieved. With Government intervention, especially in the area of equity restructuring for the Bumiputeras, these people have the opportunities to be trained and educated. To ensure that Malaysia attains an efficient and effective workforce, much emphasis will be placed on providing funds for the public sector to develop human resources, improving the standard of education in schools and ensure that students from rural areas are given the opportunities to further their studies. 6.0 NATIONAL VISION POLICY ( THIRD OUT LINE PERSPECTIVE PLAN) Efforts to develop the nation and to provide prosperity to the people is a continuos process made possible by a government. After OPP2 ended in 2000, the government presented another long term plan known as Third Outline Perspective Plan (OPP3). This long-term plan for another 10 years starting 2001 to 2010 covers the Eight and Ninth Malaysia Plan. OPP3 as a continuation of OPP2 is also the second phase in the nations framework to achieve Vision 2020 which began in 1991. If OPP2 was known as the National Development Policy, the new long-term plan is known as National Vision Policy. The essence of these two long term plans is still to bring about a balance development. A balance in development put forward this time, touches specifically on

industries based on high technology and information technology. The use of information technology can generate economic growth based on knowledge or what is currently more popularly know as k-economy. The focus is development on various levels and sectors, means at the same time that the government is continuing its endeavour to bring prosperity to all strata of society or entrepreneurs involved directly or indirectly in these sectors. It is in this context that the government is emphasizing the need for balanced development between sectors and groups that are involved. Indeed, the thrust of OPP3 and NVP is the creation of an enduring and competitive Malaysian society. To carry on and popularize the spirit and popularize the spirit to compete and to endure as well as sustaining the spirit of the NEP and NDP, the NVP presented a number of basic principles namely: a- To build an enduring nation by fostering unity and patriotism, enhancing political maturity, building a caring and tolerant society, as well as inculcating positive values and upgrading the quality of life and the strength of the economy. b- To create an equitable society through eradication poverty and reducing imbalances between ethnic groups and territories. c- To sustain high economic growth by strengthening growth in financial and corporate sectors and macro economic management. d- To improve competitiveness to face the challenges of globalization and liberalization. e- To develop knowledge based economy as a strategic step to increase value added to all economic sectors and also to optimize national thinking capacity. f- To stabilize the development of human resources to produce a productive and knowledgeable work force with potentials and capabilities and g- To continue sustained development of the environment for the purpose of long term development

CONCLUSION
Beginning from independence till today, the Government has tried to distribute the wealth of the country to all people irrespective of race or religion. All plans pertaining to achieving this are to ensure political and social stability of the country. The government has also tried to reduce poverty among the people, particularly those who dwell in rural areas. To improve the income of farmers, the Government has formed many agencies, with the aim of assisting the poor and upgrading the standard of living in the country. At the moment, we are in the midst of the Eighth Malaysia Plan, which implements the National Vision Policy as a master plan which aims to restructure society and eradicate poverty. Through this policy, Malaysia hopes that she can meet her target of becoming an industrial country by the year 2020. Malaysia also believes that poverty will be reduced by the time the plan is over.