AFFIRMATIVE ACTION
What South Africa can learn from Malaysia’s experiment with affirmative action, Hwok-Aun Lee writes
This year, Malaysia and SA reach milestones unique to each — 2021 marks a half century of Malaysia’s New Economic Policy (NEP), and a quarter century since the enactment of SA’s constitution, both of which are cornerstones of affirmative action. Debates surrounding affirmative action — how equitably it distributes benefits, whether it is effective, what lies on its far horizons — also permeate both societies.
“Affirmative action” can be defined as: policies that facilitate the upward mobility of a disadvantaged group and increase their participation in higher education, professional and managerial positions, enterprise and wealth ownership.
Malaysia’s 1957 independence constitution, like SA’s, also authorises affirmative action, but the transformative impact began in 1971, under the NEP. Bumiputeras, an official category that includes the Malays and other indigenous peoples, are the policy beneficiaries. Bumiputeras comprise 68% of Malaysians today; Malays, accounting for 55%, wield political clout. Ethnic Chinese (24%) and Indians (7%) round out the population.
The NEP envisaged the Bumiputeras would be “full partners in the economic life of the nation”. This aspiration invoked the principle that racial preferences should be transitory and intimated that Bumiputeras would ultimately participate independently. The NEP was most invested in restructuring equity. The Bumiputera share of corporate equity, a derisory 2% in 1970, was targeted to reach 30%, with nonBumiputeras holding 40% and foreigners 30%.
By the early 1990s, Malaysia had been implementing affirmative action for over two decades and was riding high globally, recording stellar growth and robustly expanding Bumiputera middle classes. SA studied Malaysia during the democratic transition, seeking insights for its post-apartheid future.
The magnitude of racial inequality differed. The non-Malay minorities, especially Chinese, had established economic footholds, but were not dominant across all sectors. Malay political power fostered the community’s substantial presence in the public sector, while Chinese business substantially occupied some but not all industries; colonial-era companies stayed in control of the commanding heights. Amid all this, the Malay political establishment held leverage to pursue markedly preferential programmes.
Democratic SA was dealt apartheid’s legacy. White dominance was comprehensive and wealth and power were concentrated in domestic corporate behemoths. To a much greater extent than in Malaysia, change was compelled by law.
These differences precluded SA adopting Malaysiastyle affirmative action. Malaysia created highly centralised pro-Bumiputera programmes by discretionary executive order, which focus on the public sector and government-linked institutions. SA adopted a more statutory and codified approach — the Employment Equity Act and Broad-Based Black Economic Empowerment Act — within a decentralised system that applies targets and codes of conduct, and spans both public and private sector employment.
In the spheres of enterprise development and equity ownership, Malaysia’s storied passage commenced with emphasis on state-owned enterprises in the 1970s, then state-owned heavy industries and takeovers of high-profile foreign companies in the early 1980s, followed by one of the world’s grandest privatisation exercises in the 1990s, utilising former state-owned enterprises as vehicles for transferring equity and managerial roles to Bumiputera “captains of industry”. Most of these privatised entities collapsed during the Asian financial crisis and were renationalised as government-linked companies (GLCs) — corporatised but governmentcontrolled. The past two decades have seen a focus on SMEs, considerably induced by the dearth of dynamic and resilient Bumiputera enterprise.
SA followed a meandering path of marketmediated BEE, while continuously hanging on to state-owned companies. The limitations of statemandated equity transfers, and attendant passive ownership, have prompted more direct measures to groom black-owned enterprise.
Malaysia tracked ownership by race, in line with the consuming goal of raising Bumiputera equity ownership. The official account shows Bumiputera equity ownership steadily rising in the 1970s and 1980s, then hovering at around 20% for almost three decades, and declining to 16% in 2015.
Malaysia has gone back to basics in developing Bumiputera enterprise, acknowledging that mass privatisation foundered and mandated equity transfers produced passive or fleeting ownership.
Malaysia’s policy rhetoric is acknowledging these shortcomings, and reformulations place more emphasis on direct and active ownership, and the creation of dynamic, competitive and innovative
SMEs. SA’s black industrialist programme echoes similar aspirations. This realisation, having arrived earlier in SA’s journey and averted Malaysia’s detours, hopefully gains momentum.
How should Malaysia and SA chart affirmative action for the next 25 years? Two principles might serve well. First, think clearly and systematically about the policy’s purpose, instrument and outcome. This point must be stressed, because the discourses lose clarity and relevance when affirmative action is conflated with poverty alleviation or mass employment. Affirmative action is not centred on basic needs; other policies attend to that. The focus must remain on its mission of promoting access and participation, specifically in higher education, highlevel occupations, enterprise development and wealth ownership. Affirmative action programmes can offer access to the poor and disadvantaged primarily in higher education, but much less so in the other policy spheres. South African universities, in their efforts to reach out to disadvantaged students, are ahead of Malaysia’s centralised admissions system.
Second, focus on both access and capability — with increased emphasis on the latter over time. Malaysia’s main deficiency offers stark lessons to be heeded. Failures of privatisation are clear, but Malaysia’s chequered record in Bumiputera equity ownership and enterprise development must be referenced with due caution. A major portion of Bumiputera ownership derives from Bumiputera-exclusive unit trust schemes, which have very broad participation but also skewed distribution at the top end. Such racially constituted financial institutions hold out examples for SA to consider, with the caveat that class-based targeting may be a more constructive option. Some of Malaysia’s large GLCs have carried the torch of Bumiputera economic transformation, with notable successes that have become Southeast-Asian regional players. SA’s state-owned companies might explore potential lessons from these experiences.