A weak social impact - Lessons for BEE from Malaysia

Posted by Dr Robin Woolley
Wednesday, 9 September 2015  |  Comments
Dr Robin Woolley is a consultant at Transcend Corporate Advisors.
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Lessons from Malaysia’s New economic Policy (NEP) for (B-BBEE)

by Dr Robin Woolley

Introduction and approach

Twenty years into its democracy and South Africa is still struggling to deliver to its people. Historically the economy is rooted in ethnic inequality with one of the worst GINI coefficients in the world at 0.63 in 2013 (Black Management Forum, 2015); (Wilkinson & Pickett, 2009). Unemployment is rampant, while the structure of the economy still excludes the vast majority of its people from ownership of productive assets and the possession of advanced skills.

B-BBEE was developed and put forward “to increase broad based participation of black people in the economy, promote a higher growth rate, increase employment and create a more equitable income distribution”(Department of Trade and Industry (DTI) 2011). B-BBEE was developed out of a review of local and global best practice, however, eight years into its implementation, has had slow progress.

The question this article seeks to explore is, “while understanding some of the context and timing is different, has South Africa learnt all the lessons we can from Malaysia’s NEP?”

A historical thematic analysis, using grounded theory building was conducted based on available literature of the NEP and B-BBEE, to establish in each model their key themes and their inter-relationships. A comparison can then be made to see what lessons could be inferred.

The goal of teasing out, identifying, and naming a few core themes that capture some of the underlying dynamics and patterns in the two economic models, was well suited to grounded theory. Grounded theory building reaches into the “infinite profusion of social action in organizations to sift out the gist of a particular phenomenon” Azevedo (2000).

The context to the analysis of the two models of economic empowerment is the problem of ethnic inequalities in nation states. Many developing countries exhibit large differences in income, power, education and economic participation. These sometimes are based on ethnicity – Black and White relations in South Africa, Hutu and Tutsi relations in Rwanda and Burundi, and Muslim and Hindu relations in India (Caselli & Cloeman, 2011). These ethnic inequalities can lead to inter-racial tensions and socio-political instability.

Background to the Malaysian model

Mlaysia became independent from Britain in 1957, and the backdrop of the colonial presence and the influx of a Chinese migrant population provided the stimulus for a conversation of what constitutes “Malay-ness” and the development of a Malay nationalist ideal (Shamsul 1997).

Three main ethnic groupings formed the population of Malaysia in 1970, namely the Malays, Chinese and Indians. The Malays had notional political power and the Chinese had most of the wealth and education. Rural Malays were uneducated and in deep poverty. These large ethnic-based inequalities resulted in a strong risk to the countries long-term stability and growth. This unstable socio-political context manifested itself in ethnic based violence in 1969. This stimulated a response from the government to implement what was to be called the New Economic Program (NEP).

The specific underlying themes that supported the ethnic inequality identified by the thematic analysis were as follows:

Ethnic stereotypes (Malayness): The context also gave rise to stereotypes. Malays being lazy and having an attitude of “tidak apa” which can be translated as “it cant be helped”. The Chinese were seen as motivated toward education and business (Klitgaard & Katz 1983). These stereotypes served to re-enforce the ethnic exclusion of the Malays to the economic mainstream.

Education: In 1970 43% of university students were Malays and 50% were Chinese, which is totally out of proportion to the population (Hirschman C. 1979).

Company participation: The corporate sector of the economy has a low participation of Malays, due to a Malay skills pool more associated with unskilled labour.

Industry growth: Malay In 1969 interests owned only 1.5% of the share capital of limited companies, and as a result Malays did not have an asset base for wealth creation. Low entrepreneurial activity was associated with Malays.

The interventions of the NEP (Jomo (1990))

The NEP’s aim was a restructuring society toward “correcting economic imbalance so as to “eliminate the identification of race with economic function”

The program consisted of structural and psychological interventions as described below (Klitgaard & Katz 1983).

A psychological theme of “national togetherness” was enabled through:

  • Promotion of the Malay national ideal (Wang 1978): It was recognized that a multi-ethnic nation is effectively integrated only when its all its citizens have a sense of national belonging and identity. This national unity would transcend ethnic competition and act as a cohesive force to mitigate some of the consequences of the above structural interventions in exacerbating ethnic tensions. Programs were developed in schools to strengthen the sense of Malaysian national identity especially among non-Malays. The word Bumiputra (which was adopted to encapsulate the beneficiaries of the NEP program), means “sons of the soil” and is at the heart of this issue of nationhood (Abdullah, 1997).
  • An ideology called Rukunegara was developed and launched by Yang di Pertuan Agong on Independence Day celebrations 31 August 1970. It is worded in the form of a pledge:

…“OUR NATION, MALAYSIA, being dedicated to achieving a greater unity of all her peoples; to maintaining a democratic

way of life; to creating a just society in which the wealth of the nation shall be equitably shared; to ensuring a liberal

approach to her rich and diverse cultural traditions; to building a progressive society which shall be oriented to

modern science and technology. We, her peoples, pledge our united efforts to attain these ends guided by these principles…”

This was not left as mere rhetoric but socialized into the fabric of the nation as part of the NEP process, which was focus through a national vision that directed this energy. Deviations from this vision was met with a strong arm by government, and while critics contend the NEP served to create a rentier class and entrench these stereotypes, the grounded theory analysis lent toward the view that the NEP’s strong vision acted as a unifying force to mitigate these effects and support increased social cohesion. Puthucheary (1993) notes that while some resentment did exist among non-Malays with regard to the NEP, the agreement within the governing alliance of the country was that the Chinese could still retain the ability to create wealth, while the administration that pursued economic growth policies would be run by the Malays. However, affirmative action in Malaysia has not been implemented without attendant problems. Quotas have resulted in non-Malay students leaving the country to study abroad. The continued ownership of wealth by the Chinese and Indians who operate businesses run by Malay ``front men''. This has resulted in an elite Malay group benefiting from affirmative action, with less benefit occurring to the poorest sectors of disadvantaged groups thereby weakening the social compact.

It was inferred from the overall patterns surfaced by the grounded theory analysis that the principle of unity, under a clear vision, served to reduce social distance and acted as a physiological enabler to the structural interventions of the NEP.

Government, business, labour & leadership: The alignment between state, labour and the free market is an important aspect of transformation. In the Malaysian context the government with business and labour leaders played a very active leadership role in identifying and implementing industry blockages, mobilizing national resources and investing in industries where there was thought to be an national advantage. It is inferred from the grounded theory analysis, that strong, visible, and committed leadership across government business and labour was an important enabler of the NEP, (Abdullah, 1997).

The structural interventions of the NEP.

The NEP developed fast tracking training programs, which were fully funded by government and aimed at rapidly increasing the pool of qualified Malays in the fields of science and technology. There were also clear admissions quotas in operation in the countries universities and technicons.

In order to support the development of the productive capacity of the nation both credit and technical aid was provided to small and medium enterprises through a host of government bodies . Thirty percent of government contracts were set-aside for Malay contractors to assist in access to the economy, Jomo (1991).

Employment equitylegislation was used to change company’s behavior patterns and to support the employment of this positive pool of newly developed Malay talent a quota system of affirmative action was implemented with a target of 40% Malay employment quota. Malay ownership was increased as legally businesses could only be started if they had at least 30% Malay shareholding, but by 1976 on the adoption of the third wave of the Malaysian plan this was softened to be a global target and not a requirement of individual enterprises.The role between state and the free market is an important aspect of transformation. In the second Malaysian plan, focus then shifted to government involvement in the economy with the main goal of increasing Malay economic interests, especially in the areas of manufacturing and mining. In order to avoid directly hurting Chinese economic interests, the plan focused on huge economic growth, with the goal of expanding both the Malay and non-Malay shares of the economy in absolute terms, while increasing the Malay share in relative terms as well.

Results

The research identified themes in each of the two models (NEP and B-BBEE).

The two diagrams below express a summary of these themes, the relationships between them, and the barriers these themes are addressing.

 

The diagram above shows how the country has effectively utilized a “Maslow’s hierarchy of needs”, Maslow (1943) type of approach, by first focusing on the key foundational barriers that influence ethnic inequality at that time (Malayness, Economic access), and provide enablement to the next level of barriers (company participation, industry growth). This chronological characteristic in the focus of the barriers is clearly evident from a mapping of the 5-year NEP reviews over the duration of the NEP.

The barriers were reduced through the themes described in the literature review, and each theme can be mapped to a specific barrier it is addressing. For example with the supply of talent addressed (a theme of education addressing a barrier of economic access), the model then focused on the participation of this talent pool within companies (through a theme of affirmative action), and then how to encourage the growth of Malaysian dominated enterprises within their industries.

 

The themes above also reflect a Maslow’ian view, with key barriers these themes seek to address and grow the representation of black South Africans being a poverty barrier, a skills barrier, a business barrier and an opportunity barrier.

B-BBEE as a model provides no shift in weighing for the first five years, and the focus on grass roots education and physiological barriers through socio-economic development appears to be weighted remarkably low.

It must be recognized that B-BBEE has only been formally in operation for eight years and as a result it is difficult to judge its effectiveness at this early stage.

However from even at a superficial analysis of NEP and B-BBEE, it is clear that the focus in B-BBEE has been placed on the structural themes without a specific focus on the psychological themes of “national togetherness” and visible leadership by all stakeholders coalescing around a national vision, which was so evident in Malaysia’s NEP. Hence this discussion revolves around reviewing the relationships between the structural and psychological themes

Psychological themes: Leadership driving a strong social compact

The rational of the focus on the psychological aspects of empowerment in the NEP, was to ensure both the disenfranchised and enfranchised are not “carrying the baggage of the past” and to create the correct psychological compact between ethnic groups. The glue between the ethnic groups in the case of the NEP, being the national vision. There is no clear evidence of this consideration or theme in B-BBEE. Rather with its choice of name, and through the lack of attention to the psychological compact, has too often created a sense of social distance among South Africans, and a sense of marginalization and resistance amongst white South Africans. This needs to be addressed if the structural themes of B-BBEE are to yield results.

A comparison between the social compact in Malaysia’s NEP and B-BBEE, clearly shows that insufficient attention has been given in B-BBEE to the psychological aspects of empowerment. Decades of “petty apartheid” have left their scars on the how South Africa’s ethnic groups see themselves and how these groups see each other with a corresponding high social distance. This effect will undoubtedly lessen over generations, but if the nation wishes to accelerate the pace of healing, conscious change processes are required to create the binder between the ethnic groups.

Relationships between Stakeholders: creating alignment

The practical implication of these findings is that transformation managers need to think about process to map out stakeholders, and develop change process to drive social convergence. The practicalities of how to do this are described in Transcends Creating stakeholder alignment course (click here for more info),

but a high level sense of the process of stakeholder mapping is detailed below:

 Figure 3 : Stakeholder alignment mapping

In conclusion Malaysia’s NEP highlights the need for B-BBEE to refocus on some of the foundational themes such as leadership around a national vision and stronger social compact, and the strengthening the education base of the country. These form the base off which the other structural themes can emerge.

The research seems to suggest that until the psychological theme is meaningfully addressed, and supported by building the skills base in the nation, it is difficult to achieve sustainable transformation in the other structural themes. The measures to address the psychological theme that the NEP effectively utilized were: building of national symbols, strengthen citizen activism starting at school level, build a national vision to act as a cohesive force, and communication of that vision at all levels of society.

For further input on global lessons in transformation and creating social alignment feel free to request information on our Stakeholder alignment course from brian@transcend.co.za

References

Abdullah, F.H., 1997. Affirmative Action Policy in Malaysia : To Restructure Society , to Eradicate Poverty. Ethnic Studies Report, XV(2).

Adrian, H., Manqcu, X., Shubane, K., Marcus, G. 2008, Visions of Empowerment, Jacana Media

Azevedo, J. 2000. Updating Organizational Epistemology.

Black Management Forum, 2015. BMF Transformation Barometer, p 156

Caselli, F. & Cloeman, W.J., 2011. On the Theory of Ethnic Confl‡ict. , pp.1–21. Available at: personal.lse.ac.uk/casellif/papers/ethnic.pdf .

Department of Trade and Industry, 2011. Revised codes of good practice 2013, 36928

Department of Trade and Industry, 2003. South Africa’s Economic Transformation: A strategy for Broad-Based Black Economic Empowerment. , pp.1–36.

Department of Trade and Industry (DTI), 2011. BROAD-BASED BLACK ECONOMIC EMPOWERMENT AMENDMENT BILL. Government Gazette, 558(34845), pp.1–32.

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[1]Jomo, K. S.,1991. Whither Malaysia's New Economic Policy?, Pacific Affairs, Vol. 63, No., pp. 469-499

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