Putting the malaise into Malaysia

Nov 30th 2006 | KUALA LUMPUR
From The Economist print edition

As the country approaches its 50th birthday, racial and religious tensions are jeopardising its economic and social success

UPROAR is still raging in Malaysia over inflammatory speeches at the annual congress of the ruling United Malays National Organisation (UMNO) in mid-November. One delegate talked of being ready to “bathe in blood” to defend the race and religion of the Malay Muslim majority against the ethnic Chinese and Indian minorities. The education minister, no less, brandished a keris (traditional dagger), only to be urged by another delegate to start using it. The affair has brought into focus Malaysians' worries that, as their country nears its 50th birthday next year, its remarkable economic and social success is at risk from the increasingly separate lives its three main races are living.

Last weekend these anxieties were voiced by the crown prince of Perak, one of the country's constituent states. He recalled that in his boyhood the races mixed far more freely; nowadays most children go to single-race schools. The prince regretted that some Malay-majority schools have made girls wear headscarves and even told pupils to avoid non-Malays' homes. Malaysians' spirit of give-and-take, he lamented, had been replaced by the idea that progress was a zero-sum game among the races.

Apart from some deadly riots in 1969, the country has so far done remarkably well in handling the awkward racial mix it inherited when the Malaysian peninsula gained independence from Britain in 1957 (Britain's colonies on Borneo joined the union later). The Chinese, now around a quarter of the population, arrived in colonial times to work the country's tin mines. The Indians, now around one-tenth, mainly came to work on plantations. Neither group intended to stay forever but many did. The Malays' fears of being marginalised in their own land grew as the Chinese came to dominate business and the Indians the professions.

At independence, a “social contract” was struck in which the Indians and Chinese got citizenship while the indigenous peoples received privileged access to state jobs and education. After the 1969 riots, a far-reaching positive-discrimination policy was introduced, with the aim of increasing the indigenous groups' share of business ownership from just 4% to 30%.

Supporters of this policy say it has kept the peace, enabling Malaysia to achieve impressive economic growth. Opponents say it has widened the divide between rich UMNO wheeler-dealers and their less fortunate Malay brethren. UMNO itself, having led the country's development for decades, has become perhaps its greatest handicap. The Malay chauvinism and economic nationalism in its ranks are hobbling progress towards reforming and privatising the big government-linked companies, thereby discouraging both domestic and foreign private investment. The fate of Proton, a carmaker (see article) is emblematic: the government has dithered for months over whether to risk UMNO's ire by selling it to a foreign buyer.

Once an emerging Asian champion, Malaysia is slipping down the league. Its stockmarket is falling behind its rivals (see chart). Last year, foreign direct investment was worth only $4 billion, down from $4.6 billion in 2004. Despite having a big base in Malaysia, Intel is putting its new chipmaking plant in Vietnam. A key test of whether the government can boost investment, says Vince Leusner of the American Malaysian Chamber of Commerce, will be agreement on a free-trade pact it is negotiating with America. Concessions will be needed on such tricky issues as letting foreign firms bid for government contracts. To win greater access to the American market—Malaysia's largest—the prime minister, Abdullah Badawi, must brave the wrath of his UMNO backbenchers.

Nor Mohamed Yakcop, the deputy finance minister, points out that the government has a good record on delivering economic reforms—such as last year's loosening of the ringgit's peg to the dollar—despite political noise. But with Vietnam, China and India competing harder for investment, Malaysia has to build on its strengths as a relatively advanced, liberal country and seek more high-technology and creative businesses. Such businesses need talented people—and the widening ethnic and religious gap is encouraging a brain drain, says Azmi Sharom, a law lecturer at the University of Malaya.

Although a national discussion is plainly needed on how to renew Malaysia's social contract and stop its races growing further apart, Mr Badawi has so far tried to close down this debate. He rejected proposals to create an “inter-faith council” and has told Article 11, a group named after the constitutional clause guaranteeing religious freedom, to stop organising public discussions. Malik Imtiaz Sarwar, a Muslim lawyer and leader of Article 11, says that UMNO leaders feel compelled to emit fiery religious rhetoric to outflank PAS, an Islamist opposition party.

Mohamed Jawhar Hassan, the head of ISIS, a think-tank, says that Malays' desire for more overt expression of their Islamic faith, and Chinese and Indian parents' desire to educate their children separately, are “social forces, much more powerful than any government”. Passing laws may not be enough to stem the drifting apart of the races. But there are few other ideas on how to preserve social harmony and prosperity, two huge achievements of which any country turning 50 could be proud.