This paper examines some of the political problems surrounding the implementation of policies to rectify horizontal inequalities through an examination of probably the most successful such programme followed in a developing country, the New Economic Policy (NEP) in Malaysia. Policymakers attempting to redress such inequalities are faced with a dilemma, as such policies themselves run the risk of alienating the economically dominant group, which may undermine any positive effects of redistribution. The chapter argued that whilst redistributive policies of the NEP were generally tolerated by the Chinese 'losers' during a period of high economic growth, the mid-1980s recession drove home Chinese grievances at their loss of economic dominance. The particularly patronistic structure of the Malaysian state, itself largely a product of the NEP, compounded this as the recession intensified factionalism within the regime, contributing to a spiral of ethnic mobilization that brought the country to the brink of ethnic conflict in late 1987, averted only through a Draconian crackdown. The paper concludes that the Malaysian experience gives strong weight to the intuitive claim that the rectification of horizontal inequalities is best conducted under conditions of relatively high growth, such that even the economics 'losers' still make absolute, if not relative, gains.
CRISE Working Paper 20, 20 pp.