DESCRIBE THE STRUCTURE OF MALAYSIAN ECONOMY BEFORE1970s AND 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 other developing 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 Policy Directions. ISIS Kuala Lumpur. 1994.p.4.

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 socioeconomic 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.

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

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
Agriculture,
40.7

1965
31.5

1970 1975 1980 1985 1989 1990

30.6 28.4 23.4 20.8 20.5 19.1

livestock, Forestry fishery Minning and and 6.1

9.0 10.4 4.1 2.3 4.3 6.5 13.1 3.9 2.7 4.1 4.7 16.8 3.9 2.2 6.3 10.3 20.5 4.7 1.5 5.8 10.5 19.8 4.8 1.7 6.4 10.3 24.8 3.1 1.8 6.5 9.7 26.2 3.4 1.9 6.7

quarrying 8.5 Manufacturing 3.0 Construction Electricity, gas & 1.5 water Transport, storage & communications Wholesale and 15.3 retail hotels restaurants Finance, insurance, services Government service Other services TOTAL real estate& business
5.3 9.4 100.0 4.3

15.3

14.5

13.1

12.4

12.2

10.6

10.9

trade, and
5.9 6.1 6.2 8.7 8.5 9.0 8.7 9.5

6.2 10.8 100.0

6.9 11.5 100.0

13.1 2.8 100.0

10.5 2.3 100.0

12.3 2.3 100.0

11.6 2.1 100.0

10.6 2.1 100.0

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 of assets. With the increased role of the state under NEP, public development 5

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.

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