In the wake of the 1969 ethnic riots, Malaysia had to embark upon a socioeconomic
restructuring program dubbed the New Economic Policy (NEP). This marked the start of
Malaysia’s pursuit of growth with equity and the policy is to be implemented in the context of
an expanding economy so that no quarters would feel any sense of deprivation. The NEP has
a two-pronged objective, i.e., to eradicate poverty irrespective of race and to eliminate the
identification of race with economic function. It thus generally involves efforts to raise
income levels and expand job opportunities for all Malaysians especially the Malays and
other indigenous communities and to redress imbalances between Malays and non-Malays in
terms of income distribution, employment, and ownership and control of wealth (Leete,
2007). The government was willing to sacrifice some economic growth in favor of equity.
The NEP has indeed delivered growth for Malaysia as it has promoted political stability. This
is somewhat consistent with the theory that inequality is growth-retarding (see Helpman,
2004). Alesina and Rodrik (1994) and Persson and Tabellini (1994) found a negative correlation
between the degree of income inequality and the subsequent growth of per capita
income based upon a cross section of countries. The NEP has succeeded in enhancing
Bumiputera participation in the corporate sector and in raising the number of Bumiputeras
employed in managerial positions. Generally it has contributed to the upward mobility of a
large number of Bumiputeras to middle- and high-income classes. Tangible improvements in
inter-ethnic income distribution have been recorded. The Bumiputera–Chinese income ratio
has improved from1:1.74 in 1990 to 1:1.38 by 2009 while, the Bumiputera–Indian ratio from
1:1.29 to 1:1.10 (Table 3).