Note 10 Affirmative Action and Ethnic Inequality

Topic 10
Affirmative Action and

Ethnic Inequality
Hwok-Aun Lee
Malaysian Economy All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Learning Objectives
 The range of conceptions of affirmative action, and
specific considerations in conceptualizing affirmative
action in Malaysia
 The inadequacies of theories of competitive markets in
framing problems of persistent inequality between
population groups
 The main instruments of affirmative action in Malaysia
 The attainments and shortfalls of affirmative action in
Malaysia
 The implications of affirmative action outcome on
policies in the present and future

10.0 Introduction
 Ethnic Inequality: Under-representation of an ethnic

group in positions that confer social prestige or
economic influence.
 Specific measures, conventionally termed affirmative
action, have been implemented to redress these
disproportionalities, which tend to perpetuate in the
absence of state intervention.

10.1 Conceptual and
Theoretical Considerations
10.1.1 Defining Affirmative Action
 Core element: Application of preference to members of
a beneficiary group
 Different approaches tend to emphasize one or more
aspects of AA, related to the rationale, scope and
duration of group preference, e.g.:
• “[the] practice of preferential selection of members of
under-represented groups to widely esteemed positions”
(Weisskopf, 2004).

10.1 Conceptual and Theoretical
Considerations (cont.)
10.1.1 Defining Affirmative Action (cont.)
• “special temporary measures… to accelerate the pace
of improvement of the situation of groups that are at a
serious disadvantage because of past or present
discrimination” (ILO, 2007)
• “measures to raise the participation of members of an
economically disadvantaged group in the areas of
education, employment and business, where they
ha[ve] been historically excluded or under-represented”
(Lee, 2005)

10.1.1 Defining Affirmative Action (cont.)
 Three problems stand out as rationales for
affirmative action: Discrimination, disadvantage and
under-representation
 With reference to international literature and the
Malaysian context, AA may be defined as:
• Preferential measures to redress systemic
disadvantages faced by a population group in
socially esteemed and economically influential
positions where they are substantially under-
represented

10.1.2 Theories and Debates
 Affirmative action recognizes structural inequalities
and group exclusion, and the tendency of capitalist
market systems to perpetuate them.
 It thus constitutes a departure from notions of free
markets, competition and merit found in
conventional economic theory.
 The neoclassical formulation of earnings
determination as an optimization process of
acquiring human capital is inadequate.

10.1.2 Theories and Debates (cont.)
 Becker’s theory of discrimination defines the problem
as a departure from objective behaviour, related to
'non-pecuniary, psychic costs of interaction'.
 This argument rests on an assumption that workers
across race groups are equally productive, and that
competitive markets equalize returns to human
capital in the absence of discrimination.
 Thus, the explanation for wage disparity reduces to a
'taste for discrimination'.

Consideration (cont.)
10.1.2 Theories and Debates (cont.)
 Loury (2002) draws a distinction between 'reward bias'
(post-labour market entry) and 'development bias' (pre-
labour market entry), and asserts, rightly, that neoclassical
economics pays inadequate attention to latter.
 The confinement of discrimination to a post-labour market
entry phenomenon is inadequate for any consideration of
the problems affirmative action aims to address.
 Systemic exclusion and disadvantage ; Loury’s
development bias- are, indeed the very focus of affirmative
action.

Consideration (cont.)
Costs of Affirmative Action
 Wider negative ramifications of affirmative action are
complex, but arguably pertain more to the
implementation than the institution of policies, and are
ultimately empirical matters.
 Disadvantaged groups may be stigmatized if their
presence in esteemed and empowered positions is
continually low—a probable outcome if affirmative
action were not instituted.
 It is more pertinent and constructive to ask whether
affirmative action is effective than whether it should
exist, and more productive, in Malaysia’s case, to
consider modification instead of elimination of policies.

10.2 Affirmative Action Programmes
since The New Economic Policy
10.2.1 Tertiary and Secondary Education
 1970s, quota & scholarship system for university

enrolment (locally and overseas)
 Bumiputera Residential Science colleges etc..; MARA :
(MRSM) cultivation of science & engineering ; catering for
pupils in rural and underprivileged. (exclusively
Bumiputera, non-Bumiputera quota introduced in 2000)
 1980s, private tertiary expanded
 Ethnic quotas in public university admissions
 Bumiputera preference and ethnic quotas in scholarships

since The New Economic
Policy (cont.)
10.2.2 Representation in Managerial, Professional
and Technical Positions
 Restructuring of employment in Malaysia abided by a
mandate that 'employment patterns at all levels and in
all sectors… must reflect the racial composition of the
population'
 Predominant instrument: Ethnic preferential policies in
public sector employment

Policy (cont.)
and Technical Positions (cont.)
 Limited regulations on private sector
 Implicitly, AA in tertiary education is expected to
translate into Bumiputera upward occupational
mobility and broad labour market participation

Policy (cont.)
10.2.3 Equity Ownership
 Industrial Coordination Act 1975 mandated at least 30% of
equity of large-scale manufacturing firms be transferred into
Bumiputera hands (export-oriented firms exempted)
 State-operated trust funds representing Bumiputera
interest, e.g. Permodalan Nasional Bhd.
 Momentous shift in late-1980s: Massive privatization and
concentration of ownership among selected Bumiputera
individuals
 After 1997–1998 financial crisis: Renationalization of
privatized entities, resurgent role of government-linked
companies and institutional investment

Policy (cont.)
10.2.4 Enterprise Development
 Distinct from public administration, focused on
commercially oriented production of goods and services
 Public enterprises in the 1970s and mid-1980s
 Privatization from late 1980s to the 1997–1998 financial
crisis
 Post-financial crisis, renationalized government-linked
companies (GLCs) and renewed emphasis on the role
of GLCs and government-linked investment companies
(GLICs)
 Licensing and public procurement

Summary of AA
 Summary of affirmative action programmes and

notable features : Refer table 10.1, page 262

10.3 Evaluation of Progress
10.3.1 Tertiary Education

 Overall: Gains in quantity of education provision,
access and attainment, questions over quality of
graduates
 Expansion of residential colleges and matriculation
programmes
 Ethnic composition of university enrolment:
• 1970: 40.2% Bumiputera, 48.9% Chinese, 7.3% Indian
• 2003: 62.6% Bumiputera, 32.2% Chinese, 5.2% Indian

(cont.)
 Educational attainment of labour force:
• Proportion labour force with tertiary education in 2007:
22% for Bumiputera, 22.6% for Chinese, 18.8% for
Indian.

(cont.)
10.3.1 Tertiary Education (cont.)
• These problems are more pronounced among
graduates of local public institutions
• Bumiputera graduates may face more difficulty
securing employment in skilled jobs, especially in the
private sector
– ** Unemployment rate among Bumiputera : refer table
; 10.3, 10.4 & 10.5, page 264

(cont.)
10.3.2 Representation in Managerial, Professional and
Technical Occupations
* Refer table 10.6 & 10.7, page 265 & 266
 Bumiputera representation at managerial level:
• Increased steadily over 1970–1990
• Increased more rapidly over 1990–1995
• Remained static from 1995 to 2005
 Bumiputera representation at professional and
technical levels:
• Increased substantially over 1970–1990
• Increased slightly since 1990s

(cont.)
 Bumiputera participation as professionals and
technicians depends on public sector employment,
particularly as teachers and nurses (table 10.8, page
267)
 Within the public sector, Malay representation is higher
at the upper ranks
• Malays comprise 83.9% in top management, 81.6% at
management and professional level, and 75.8% of
support staff

(cont.)
10.3.2 Representation in Managerial, Professional and
Technical Positions (cont.)
• Non-Malay Bumiputera occupy only 1.4% of top
management positions and 3.2% of managers and
professionals
 Growth and self-sufficiency of Bumiputera-owned and
operated small- and medium-scale enterprises remain
an area of pronounced shortcoming, particularly in
manufacturing activities, where reliance on foreign
investment persists

(cont.)
 Licensing and procurement have suffered from poor
execution and ineffectiveness in spurring efficiency
and technical advancement

(cont.)
10.3.3 Equity Ownership
 Official data on the Bumiputera share of equity
(measured at par value) show considerable increase
from 2.4% in 1970 to 12.5% in 1980, with trust
agencies playing a prominent role. Far behind Non-
Bumi. Refer table 10.10, page 268.
 The share increased in the 1980s, with much more
individual ownership, to 19.3% in 1990
 1997–1998 financial crisis caused a relative decline in
Bumiputera equity ownership, but over the long term
official statistics show a fairly constant share of about
Malaysian
20% Economy
since 1990 All Rights Reserved

(cont.)
10.3.3 Equity Ownership (cont.)
 Official measurement of equity ownership has been
debated and argued to understate Bumiputera
holdings:
• Usage of par value, instead of market value, omits
changes in asset price that contribute to wealth, and
would underestimate holdings in large corporations,
where Bumiputera ownership is known to be
concentrated
• The presence of holdings not assigned to an ethnic
group, through nominees or others, is considerable and
also likely undercounts Bumiputera ownership

(cont.)
• Omission of government ownership and GLCs, even
though policy clearly prioritizes BCIC development, and
executive positions in the relevant corporations are
predominantly Bumiputera
 Alternative estimates of Bumiputera equity ownership
have found figures above 30%
 Bumiputera wealth accumulation—in terms of equity
ownership—and empowerment in the corporate sector,
reflected in substantial stakes through government-
linked corporations or private holdings in major
industries, have advanced substantially

(cont.)
 However, efforts to expand private individual equity

ownership, such as Bumiputera quotas in the ICA
and public listings, and to broaden participation in
trust funds, have fallen short.

10.4 Conclusions and
Implications
 Malaysia’s affirmative action made considerable
advancements for the Bumiputera population, in
facilitating access to education, especially at the tertiary
level, in increasing representation in highly skilled
occupations, and in expanding ownership of and control
over capital.
 However, the momentum of progress has decline in
recent years, and the benefits have been inequitably
distributed among the Bumiputera, with non-Malay
Bumiputera and Indian socioeconomic achievement
falling short.

Implications (cont.)
 Affirmative action facilitated quantitative change, but

perhaps at the expense of losses in the quality of
institutions and in the capacity of beneficiaries.
 The causes of declining quality of tertiary education at
the national level, and possible compounding effects of
ethnic quotas and ethnically exclusive institutions,
warrant critical and honest examination.

 Continual dependence on public-sector employment to
raise Bumiputera representation in targeted
occupations:
• Highlights the need for education reforms to cultivate self-
reliant, capable and confident graduates
• Raises the onus on efforts to steer employment in the
public sector, especially in senior and prominent
positions, towards a more proportionate ethnic
composition

 Official data suggest that Bumiputera equity ownership
has stagnated since 1990, other sources, employing more
transparent and credible methodologies, demonstrate that
the share may be substantially higher
 Shortcomings of various regulations and programmes,
notably state-sponsored unit trust funds, Industrial
Coordination Act equity rules, privatization of state assets
and ethnic quotas in public share offerings:
• Pose questions on the efficacy and relevance of preferential
policies in wealth distribution
• Suggest that priority should return to developing human
capacities and skills, and raising earnings and income

Alternatives to Malaysia’s current affirmative action
 Needs-based or class-based redistribution:
• Address different problems
• Applicable to an extent in tertiary education, but not feasible
in the spheres on employment, enterprise development and
ownership
• Complements, not substitutes, to affirmative action
 Immediate abolition of affirmative action:
• Overly ideological and based on theoretical abstraction
• Abruptly overturning embedded institutions and entrenched
expectations of state support is potentially destabilizing

 While Malaysia remains ethnically fragmented, it is
arguably more judicious and viable to:
• Negotiate a systematic transition away from the
status quo by precisely defining the rationale and
scope of affirmative action
• Critically reviewing and modifying programmes to
make them more effective
• Progress toward the ultimate goal of dismantling
ethnicity-based preferential policies

Note 10 Affirmative Action and Ethnic Inequality

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Topic 10

Affirmative Action and

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

 Ethnic Inequality: Under-representation of an ethnic

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

10.2.1 Tertiary and Secondary Education

 1970s, quota & scholarship system for university

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

 Summary of affirmative action programmes and

Malaysian Economy All Rights Reserved

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10.3.1 Tertiary Education

Malaysian Economy All Rights Reserved

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Malaysian Economy All Rights Reserved

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Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

 However, efforts to expand private individual equity

Malaysian Economy All Rights Reserved

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© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

 Affirmative action facilitated quantitative change, but

Malaysian Economy All Rights Reserved

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Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 10: ‹#›

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