ECO 261 MALAYSIAN ECONOMICS CHAPTER 3

CHAPTER 3 : SOCIO ECONOMIC ISSUES

POVERTY

What is poverty?

Most often, poverty is a situation where the people lack of income needed to acquire the
minimum necessities of life. There are 3 types of poverty :

i) Absolute poverty
ii) Relative poverty
iii) Absolute hardcore poverty

Absolute poverty

A person is considered poor if his or her consumption or income level falls below some
minimum level necessary to meet basic needs. This minimum level is called the “the poverty
line”. Poverty line varies in time and place, and each country uses line which are appropriate
to its level of development, societal norms and values.

Relative poverty

Relative poverty is a poverty measure based on a poor standard of living or a low income
relative to the rest of society. Unlike absolute poverty, it does not necessarily imply that
physical human necessities of nutrition, health and shelter cannot be met; instead it
suggests that the lack of access to many of the goods and services expected by the rest of
the contemporary society leads to social exclusion and damaging results for the individuals
and families in relative poverty.

Absolute Hardcore poverty

It is a group of people whose mean income is less than half of the poverty line income.

Poverty Line Income (PLI)

PLI is defined as an income sufficient to purchase a minimum food basket to maintain a

household in good nutritional health and the conventional needs in respect of clothing and
footwear, rent, fuel and power, transport and communications, health, education and
recreation.

Professor Dr Sulochana Nair, Head of Department of Development Studies, University of

Malaya in her study showed that the poverty line income in 2002 was RM529 for Peninsular
Malaysia, RM690 for Sabah, and RM600 for Sarawak.

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Income level

Absolute poverty
1050
Absolute hardcore poverty
525
Household

Trends of poverty incidence

Malaysia hoped to eliminate poverty by year 2009. Rural poverty reduced from 59% to a
low of 1.5% during current year 2004.

Table 3.1 Incidence of poverty (%)

Year Urban (%) Rural (%) Total (%)

1999 7.5 3.4 12.4

2000 5.1 2.0 11.4

Table 3.2 Mean monthly gross household income (By ethnic group) in 1999 and 2002. ( in
Ringgit Malaysia)

Ethnic Group 1999 (RM) 2002 (RM)

Bumiputera 1984 2376

Chinese 3456 4279

Indians 2702 3044

Others 1371 2165

Malaysians 2472 3011

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Comparison studies of the ethnic profile of poverty, compiled between 1969 and 1999, show
the Malays continue to remain in the main poverty group. Statistics showed Trengganu,
Kelantan and Sabah have higher incidences of poverty.

Urban poverty has brought a new dimension to the poverty problem and it is worsening with
increasing inter and intra ethnic income distributions post 1990, thus needing a multi-
dimensional approach to eradicating poverty.

Generally, poverty incidence in Malaysia has declined in the past three decades.

The major profiles of the poor in Malaysia are as follows:

1) The poor are concerntrated in Bumiputera (Malays and ethnic minorities).

2) Poverty incidence is higher in certain states (Kelantan, Trengganu, Kedah, Sabah
and Sarawak).

3) The poor are concerntrated in rural areas in these poor states.

The progress in poverty reduction measured in income terms is mirrored by improvements in

social indicators:

 Income and Employment Structure

Refer to table 3.2, it is found that the gap of income growth rates between
the Bumiputera and the Chinese and Indians has increased. It shows that
even though the trend of Bumiputera income has increased, it is not
adequate to catch up with others.

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 Education

In terms of education, Malaysia has achieved high literacy rate of 86 % and

high attendace rates in primary and secondary school.Secondary school
enrollment for both girls and boys increased rapidly from 34 % in 1970 to 58
% in 1996. This table shows the increasing in life expectancy.

 Health

Malaysia’s achievements in increasing life expectancy and diminishing infant

mortality are particularly impressive, especially considering Malaysia’s
relatively low public expenditure on health of 1.4 % of GDP in 1994.
However, the percentage of population with piped water is still lower in
Sabah, Sarawak and Terengganu. The infant mortality rates still high in
Sabah and Sarawak.

 Access to Basic Infrastructures

Major indicators for access to basic infrastructures by state show that

development in Sabah and Sarawak lags behind the peninsula. Western
regions in peninsula are more developed because they played a leading role in
national politics and economy

 Orang Asli

Orang Asli is the largest in indigenous groups in the peninsula. They show
the worst socio-economic indicators among any other social groups in the
country and are found left out completely from the past Malay First policies.
To fill the gap between the other social groups, the government has
implemented Development Programme For the hard core Poor. (Program
Pembangunan Rakyat Termiskin).

POLICIES AND STRATEGIES

Poverty alleviation had been taken since 1971 with the introduction of the New Economic
Policy (NEP). Generally, we can say that poverty reduction has remained as an intergral
component of major policies such as NEP, NDP and Vision 2020.

Major Policy Strategies

1) New Economic Policy (1971-1990)

 Goal : National unity

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 Context : Expanding economy

 Strategies:

 Reducing and ultimately eradicating poverty among all Malaysians

irrespective of race

 Restructuring Malaysian society to correct economic imblances

to eliminate the identification of race with economic functions.

2) The National Development Policies (1991-2000)

 Shift the focus towards the eradication of hardcore poverty and reducing
poverty between and within groups.

 Focus on employment and the rapid development of BCIC.

 Rely on private sector for restructuring objectives

 Focus on human resource development

The programs implemented under NEP, NDP and NVP are:

1) Resettling the landless and those with uneconomic holdings in new land
development schemes. The settlers were provided with single unit houses
complete with piped water and electricity.

2) Undertaking in-situ development of existing agricultural land through

rehabilitation and consolidation of the land, replanting of old commercial crops
with new higher-yielding clones.

3) Integrating agricultural and rural development with downstream processing of

farm products and encouraging village industries.

4) Introducing double cropping or off-season cropping for padi, inter cropping and
mixed farming on the same plot of land to supplement the income derived from
main crops.

5) Establishing farmer’s markets in urban centers so that farm produce can be sold
directly and fetch better prices

6) Providing training and education on topics pertaining to farming as well as work

attitudes and values to motivate participants to become more productive
farmers.

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7) Providing industrial and vocational training for the rural manpower to enable
them to be employed in non-farm occupations or start their own businesses in
rural areas and urban centers.

8) Improving educational access as well as providing text books and financial

assistance to children of poor households

Major Strategies

 Increasing the productivity and income of those in low productivity occupations

through the adoption of modern techniques and better use of facilities.
 Increasing opportunities for inter-sectoral movements from low productivity to
higher productivity activities in new land development schemes, modern fishing and
forestry projects and in commerce, industry and modern services.

 Providing a wide range of free or subsidised social services especially designed to

raise the living standards of low-income groups, such as public housing projects,
subsidised rates for electricity, water and transportation, health and medical
services.

NGO and Private sector contribution

 Projek Ikhtiar
 Based on the microcredit program developed by Grameen Bank

 Loans for small businesses (RM500, RM 1000 or RM 2000)

 No collateral

 Repayment almost 100%

 NGOs

 Small business loans

 Industrial training and job opportunities

 Educational support for children

 Improved housing.

INEQUALITY

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What exactly is Inequality??

Inequality is the dispersion of a distribution, whether that be income, consumption or some

other welfare indicator or attribute of a population.

Inequality in Malaysia can be divided into a few types:

1) Inequality among ethnics

2) Inequality among strata

3) Inequality among regions

The changes of socio-economic structure and disparities started from the colonial period
under British colonial rule (1786-1941 and 1945-1957). After gaining independence from
Britain in 1957, Malaysia inherited a multiracial society with Malays as the majority of the
population, and Chinese and Indians as the minority.

The immigration of labour from China and India to work at the tin mining and rubber estate
change the economic activity from traditional agriculture to the commercial sector (tin and
rubber) and soon Peninsular Malaysia became the main supplier of tin and rubber to the
world.

Chinese owned a much larger share of corporate equity than the Malays, and the poverty
incidence was much higher among Malay households compared to Chinese households. The
development of social and economic imbalances along racial lines, as brought about by
colonialism, became an increasing potential explosive phenomenon (Abdullah, 1997).

However, the Malays were still in the rural areas worked in the traditional farms. This
situation caused the regional and ethinic income disparities.

We can found clearly in the states with less immigration of labour (Kedah, Perlis, Kelantan,
Trengganu) were left behind. The British commercial activity were established and
concerntrated in the western part of West Malaya.

Table 3.3 Degree of Urbanization by Ethnic Group

1957 1970

Urban Area (%) Rural Area (%) Urban Area (%) Rural Area (%)

Total 26.5 73.5 28.7 71.3

Malays 11.2 88.8 14.9 85.1

Chinese 44.7 55.3 47.4 52.6

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Indians 30.6 69.4 34.7 65.3

Others 49.3 50.7 40.8 59.2

From the table above, we can see that almost 90% of the Malays lived in the rural area in
1957 and it declined to 85.1 % in 1970, but still large compared to Chinese and Indians. The
table showed that there was the inequality between ethnics because of the unbalanced
development in regions.

The existing economic imbalances can be identified in terms of the following sectors:

1) The traditional rural sector which comprises uneconomic rubber smallholder, single-
cropped paddy, traditional livestock and other agriculture, inshore fishing.
2) The modern rural sector, which comprises estate agriculture, land development
schemes and double-cropped paddy, commercial forestry, modern fishing.

3) The traditional urban sector, which comprises those part of manufacturing,

construction, commerce, transport and services, in which work is done with little
benefit from modern equipment or techniques.

4) The modern urban sector, which comprises technically advanced manufacturing,

construction, commerce, utilities, transport and modern services.

5) The government sector which comprises federal state and local government
administration.

Income Distribution

From table 1 and 2 above, we found that the incidence of poverty in Malaysia has been
declined as well as the incidence of rural and urban areas.

Table 3.4 Malaysia’s income distribution, selected years 1970-1990

Income group 1970 1976 1979 1990

Lowest 20% 11.2 11.1 11.9 14.5

Middle 40% 32.7 31.2 32.4 35.2

Highest 20% 56.1 57.7 55.7 50.3

Mean income (RM/month) 267 514 693

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Median income (RM/month) 167 313 436

Gini coefficient 0.502 0.529 0.508 0.446

Fron the table above, we found that almost 56 % of the national income went to top 20% of
household. Only 11% of the national income went to the poorest 20% of household. But in
1990, the top 20% of household received only 50% of the national income and the share of
the poorest 20% of household increase to 14.5 %. The Gini coefficient declined from 0.502
(1970) to 0.446 (1990) showed a significant movement toward greater income equality.

Table 2 above (page 3) indicates that the poverty incidence in rural and urban areas had
declined. The income disparities value also declined showing that the distribution income
gap become narrow.

Reasons For Inequality

1) Differences in Education

During the British rule, each ethnic group also generally experienced different
education systems (Mahathir 1998, p.74-75; Shastri 1993, p.3). Most Malays
were educated in the government school system located in the rural areas that used
the Malay language as the medium of instruction. The Chinese on the other hand
sent their children to the Chinese medium schools or English medium schools located
in the urban areas, where the quality of education was far better than the rural
Malay-medium school. Furthermore, most secondary and tertiary education was
available in the urban areas with English as the medium of instruction. Those who
were educated at the English medium schools tended to gain positions in the civil
service, commerce, business, and professions. Since most of the Malays were
educated in the rural Malay medium schools, this indirectly limited their upward
social mobility.

2) Differences in Skills

Since Malays only received the education from government school in rural areas, the
skills were limited. Lack of skills and knowledge were the factors of unemployed.
This will worsened the situation of poverty and income disparities between the
ethnic groups.

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3) Differences in access to capital

Most of the non-Malays lived in the southern and western states, where modern
urban sector or the modern rural sector was the important economic activities. The
Malays lived in northern states with the major portion of working in the traditional
rural sector. The imbalanced development had result the imbalance capital gain
between the ethnic groups.

4) Differences in unemployment pattern

A major problem in employment restructuring was the supply of skilled manpower in

the various fields. Despite sizeable public investments in education, the availability
of qualified and skilled Bumiputera professionals and workers was inadequate,
compared to the non-Bumiputera. This was due to various factors, namely, limited
accessibility to modern educational facilities and quality educational, low family
income, lack of proper nutrition and social environment, which is not conductive to
effective learning.

Measures to narrow the income gap

1) Improving the quality of life of the poor by improving the provision of social
services to the such as housing, health, education and public utilities.
2) Increasing the income and productivity of the poor. Expanding productive
capital and utilizing the capital efficiently by using modern techniques and also
better facilities such as land, replanting and redevelopment of crops.
3) Increasing employment opportunities for inter-sectoral mobility out of low
productivity areas and activities.
4) Restructure the employment pattern ownership of share capital in the corporate
sector and the creation of Bumiputera Commercial and Industrial Community,
which was essential to ensure a meaningful participation of the Bumiputera in
the modern sector of the economy.
5) Land distribution through land development scheme, managed by government
such as FELDA, FELCRA, RISDA.

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6) Create financial institution by government to develop infrastructure in rural

areas, where Bumiputera heavily concentrated such as MARA, Bumiputera
Commerce Bank and PERNAS.

Measures to solve unequal distribution from Islamic Perspective

Positive measure

- help in preventing the concentration of wealth assist in spreading it around the

community. The objective is to fulfill the minimum social right of the society.

i) law of inheritance

- the property of the deceased is divided among his near relatives

- the purpose to widen the distribution of wealth and to check its accumulation of
wealth at any point.

ii) Zakat

- collected from the wealth of the Muslim to be spent on the poor.

- The purpose is to meet the needs of the poor/the needy.

Prohibitive Measure

1) Prohibition of interest
2) Prohibition of hoarding of wealth
3) Wasteful expenditure
4) Unhealthy business

Other topic Issues

1) Pollution

- contamination of any feature of the environment.

- Pollution has the following characteristics:
i) it is the addition of substance at a faster rate than the environment can
accommodate. Certain pollutants like arsenic or mercury have natural
levels in nature, but only if these levels exceed certain critical values can
they consider to be pollutants.
ii) pollutants are not only chemical, but also forms of energy like heat,
sound and radioactive rays.
iii) To be a pollutant, a material has to be potentially harmful to life.
iv) Pollution is the only result of human activities.

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General Effects

1. Affects human health

2. Affects plants
3. Damaging effects on surroundings

Pollution In Malaysia.

1) Air pollution

Malaysia has risen to the industrial age, not wanting to be left behind in the dark
ages anymore, but at the cost of the environment. Many industrial zones have been
approved by the government to be set up in mostly forestland and uninhabited areas.
One very good example of the industrial zone is of Shah Alam in the state of
Selangor. As a result, tree has been cut down to accommodate towards the building
of large industrial factories.

Not only has the oxygen supply been decreased, these factories are spewing out
poisonous gases in the course of its production.

2) Water pollution

As Malaysia is fast becoming an industrial country, many of her rivers have become polluted
due to the many wastes that have been poured out into her rivers. Such as the paper making
industry, it requires chemicals, often poisonous in its production. The rivers are used as an
outlet for the chemicals to drain away, in turn harming the waters and the lives that revolve
around them.

MODEL QUESTIONS

SECTION A

October 2007 (Question 4)

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b) Briefly explain the difference between absolute poverty and relative poverty.

June 2007 (Question 2)

a) Give four (4) reasons why income inequalities still exists in Malaysia.

April 2006 (Question 3)

a) Identify four (4) measures undertaken by the government to eradicate rural

poverty.

b) Briefly discuss three (3) factors that contribute to the difference in the income
level of the rural and urban population in Malaysia.

November 2005 (Question 2)

a) List three (3) programs implemented by the Malaysia government to eradicate

poverty and to restructure society under the New Economic Policy (1970-1990).

November 2005 (Question 3)

a) Explain the difference between absolute poverty and relative poverty.

b) State two (2) reasons why the level of the poverty line income (PLI) had to be
revised periodically.

c) Identify five (5) measures undertaken by the government to improve the

distribution of income among Malaysians.

March 2005 (Question 1)

b) Explain two (2) implications of poverty from the Islamic perspective.

March 2005 (Question 2)

a) List four (4) measures that can be taken to solve the problem of income distribution
from the Islamic point of view.

March 2004 (Question 3)

a) Briefly explain two (2) reasons why rural poverty occurs.

SECTION B

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April 2006 (Question 1)

a) Discuss the measure undertaken by the government to promote more equitable

distribution of income among Malaysians.

March 2004 (Question 1)

Table 1 below shows the mean monthly household income by groups between the year 1995
and 1999. Answer the following questions based on Table 1.

Table 1 : Mean monthly Household Income For the Year 1995 and 1999.

Group 1995 1999

Malay RM 1604 RM 1984
Chinese RM 2890 RM 3456
Indian RM 2140 RM 2702
Urban RM 2589 RM 3103
Rural RM 1326 RM 1718

a) Analyse the data based on Table 1 above.

b) The statistic show that the Malay and rural group have a lower mean income
compared to other groups. Explain four (4) reasons why this happened.

c) Discuss six (6) steps that can be taken by the government to solve the problems in
1(b).

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