ALAYSIAN ECONOMY Before 1970s-1990s

7/29/2019 ALAYSIAN ECONOMY Before 1970s-1990s

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DESCRIBE THE STRUCTURE OF MALAYSIAN ECONOMY BEFORE1970sAND THE SECTORIAL TRANSFOMATION OF ECONOMY AFTER 1970s

INTRODUCTION

During the colonial era, that is, from the day the Japanese surrendered

in August 1945 up to the day Malaya became bits and remain dormant of their

rights. After independent in August 1957, the country was ruled by British

militia. Economic prosperity was in the hands of a few capitalists leaving the

ordinary people to enjoy the rights. The Malaysian economy has undergone

rapid structural transformation with accelerated rates of economic growth.

Malaysia has experienced rapid development process. Among the otherdeveloping countries such as countries from Africa which gained independence

almost the same time. Malaysia has accelerated well ahead in term of

development. The success is achieved through several challenges from its

plural society, religions, diverse culture and others.

In term of socio-economic impact the British policy has devided the three

main ethnic groups such as Malays are rice growers in rural areas, Chinese as

traders in urban areas and Indian Tamil who largely worked in the rubber

estates which made many socio political consequences and generated a host

of activities that eventually allowed the ethnic bargain to conducted in a

peaceful manner.

Economic Structure and past economic performance

After independence in 1957, the new government selected by people

made an adjustment in the economic system for a more balanced system. This

development led to further transformation of the Malaysian environment. In

1960s the rural infrastructure development continued and land was provided to

the poor. Malaysia development performance since independence has been

impressive. Real growth rates averaged 6 per cent in the 1960s, surging to 8

per cent in the 1970s and decelerating to around 5.5 per cent in 1980s (up to

1989).1 The 1980s left the perceptible scar with the negative growth rate

1 Kanapathy Vijayakumari and Ismail Muhd Salleh .Malaysian Economy: Selected Issue and PolicyDirections. ISIS Kuala Lumpur. 1994.p.4.

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recorded for the first time in nations history in 1985. Though recovery has been

vigorous in last four years (1987-1989), the experience of the 1980s does

highlight some deep-rooted problem in economy, some of which were

generated by the prevailing policy regime of the 1970s.

AIM

The aim of this paper is to describe the structure of Malaysian economy

before 1970s and the sectorial transformation of economy after 1970.

POLICY EVOLUTION

The economic policy that has been laid down by the government,even

before independence, emphasis the need to reduce imbalance of ethnic socio-

economic and foster national unity. Broadly, Malaysia economic policy has

evolved as follows:2

a. In the 1960s, the policy focus was one of diversifying the

economic base through diversifying the crop mix and undertaking

industrialisation, the period of so-called balanced growth strategy. In

the agriculture sector, it saw the emergence of commodity programmes

and efforts to modernise the small farm sector. In the industrial sector,

manufacturing was fostering behind tariff walls with incentives accorded

to pioneer industries. It was only in 1968 that a switch was made to

focus on export-led growth with the introduction of Investment Incentive

Act.

b. The 1970s were characterised by a very interventionist approach

with the promulgation of the New Economic Policy (NEP) in 1971.

Poverty eradication and social restructuring, the twin objective of the

NEP formed the basic tenets for the future development path of the

economy. The interventionist approach was necessitated by perceived

2 Ibid.p.6.

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market failure to fulfil redistributive objectives. This period is thus

characterised by direct public sector participation in commercial activities

with the rapid emergence of the Non-Financial Enterprises (NFPEs) and

the regulation of commercial and industrial activities.

c. The early part of the 1980s saw the realisation of plans to invest

in heavy industries undertaken by state. These industries were to play a

pivotal role in the industrialisation effort by creating the linkages, which

appeared thus far to have eluded Malaysian efforts. This marked the

start of the second phase of import-substituting industrialisation. At the

same time, the government announced the 1980s to be the decade of

the resource-based industries. Further down stream processes and

activities were to be encouraged to generate greater value added.

d. The mid-1980s saw the conscious attempt at economic reforms

as the debt burden escalated and productivity levels languished.

Increasingly, policy makers became aware of the unintended effects of

policies on non-targeted sectors. The overall incidence or impact of

microeconomic and sectoral policies on the structure of incentives

assume increasing consideration in shaping government policy. Thus

began a phase from 1984 onwards to deregulate the economy with

conscious attempts to reduce the role of the public sector, including the

privatisation of state-owned enterprises and even holding in abeyance

some of the NEP objectives, especially with regard to equity participation

in the case of foreign investment. The growth strategy was refocused to

one of manufacturing base export-led growth, driven by private sector,

e. In mid-1991, the Malaysian government announced it National

Development Policy (NDP), with a ten year Second Outline Perspective

Plan (OPP2) for 1991-2000 which provides a medium-termeconomic

policy perspective, VISION 2020 provides the long-term objectives.

In the pursuit for development, the National Development Policy (NDP)

offers specific guidelines to ensure that the development efforts are

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planned and implemented according to the identified needs and priorities

of the country.

Macroeconomic effects

Both cyclical and policy influences are manifested in the trend of key

macroeconomic indicators and in the structure of production and aggregate

demand. Over the past three decades, the Malaysian economy has been

dramatically transformed from an agriculture-based economy to a more

diversified economic structure. Agricultures contribution to GDP was halved

from 41 percent in 1960 to only 19 percent by 1990 (Table 1). The share of

manufacturing surged to almost 26 percent in 1990, a three-fold increase over

the same period. Other sectors remained rather stable in their contribution. But

the output of government services doubled during the same period.

Table 1: Sectoral share of gross domestic product(GDP), Malaysia

1960 1990 (in percentage)

1960 1965 1970 1975 1980 1985 1989 1990Agriculture, 40.7 31.5 30.6 28.4 23.4 20.8 20.5 19.1

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livestock,

Forestry and

fishery

Minning and

quarrying

6.1 9.0 6.5 4.7 10.3 10.5 10.3 9.7

Manufacturing 8.5 10.4 13.1 16.8 20.5 19.8 24.8 26.2

Construction 3.0 4.1 3.9 3.9 4.7 4.8 3.1 3.4

Electricity, gas &

water

1.5 2.3 2.7 2.2 1.5 1.7 1.8 1.9

Transport,

storage &

communications

4.3 4.3 4.1 6.3 5.8 6.4 6.5 6.7

Wholesale and

retail trade,

hotels and

restaurants

15.3 15.3 14.5 13.1 12.4 12.2 10.6 10.9

Finance,

insurance, real

estate& business

services

5.9 6.1 6.2 8.7 8.5 9.0 8.7 9.5

Governmentservice

5.3 6.2 6.9 13.1 10.5 12.3 11.6 10.6

Other services 9.4 10.8 11.5 2.8 2.3 2.3 2.1 2.1

TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

ECONOMIC PLANNING

After ethnic riot in 1969, the New Economic Policy (NEP) was launched

to be implemented for over 20 years period, which involving for five year plan

ending in 1990. Through the NEP there was a conscious effort to ensure that

all the communities in Malaysia had a share of the economic pie.

The NEP was launched in 1970 with the aim to eradicate poverty and

reduce the racial imbalances in income, employment and the ownership ofassets. With the increased role of the state under NEP, public development

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expenditure was allocated.3 under the First Malaysian Plan (1MP,1966-70) was

RM4.6 billion,and under the Second Malaysia Plan (2MP,1971-75) was

allocated RM7.3 billion. This was susequently revised upwards to RM10.3

billion. Under the Third Malaysia Plan (3MP,1976-80), the public development

allocation of RM31.1 billion was more then three times the revised 2MP

allocation, and this was increased again to RM39.3 billion the under Fourth

Malaysia Plan (4MP, 1981-1985), later revised upwards to RM48.9 billion.

Under the Fifth Malaysia Plan (5MP, 1986-90), public development allocation

was RM74.0 billion. The Sixth Malaysia Plan (6MP, 1986-95) allocation was

RM104 billion.

3 Gosh B.N and Muhammad Syukri Salleh. Political Economy of Development in Malaysia.UtusanPublication.Kuala Lumpur.1999.p.93.

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ALAYSIAN ECONOMY Before 1970s-1990s