Targeting Horizontal Inequalities Targeting Horizontal Inequalities Targeting Horizontal Inequalities: Ethnicity, Equity, and Entrepreneurship in Malaysia Edmund Terence Gomez Faculty of Economics & Administration University of Malaya 50603 Kuala Lumpur etgomez@um.edu.my Asian Economic Papers 11:2 © 2012 The Earth Institute at Columbia University and the Massachusetts Institute of Technology Abstract This study examines whether the horizontal inequality policies in Malaysia that preferentially target the indigenous ethnic groups (Bumiputera) are the ideal tool to reduce racial conflict. It also re- views whether the employment of race-based (Bumiputera- biased) policies is an effective method to help nurture highly en- trepreneurial small- and medium-sized enterprises (SMEs). The case of large Bumiputera enterprises indicates that horizontal inequality-based policies has unproductive outcomes. Although well-connected Malay “corporate captains” did emerge by the mid 1990s, many of them lost control of their businesses during the 1997–98 Asian financial crisis, and these conglomerates did not actively foster Bumiputera SMEs. Malaysia has well-formulated programs that support SMEs, but their procedures, specifically in- volving creating Bumiputera capital as well as redistributing equity, do not promote an environment for productive entrepreneurship. The new economic policy regime, recently unveiled, continues emphasizing the distribution of wealth along ethnic lines at its es- sence, although now the emphasis will be on “picking winners” from among entrepreneurial Bumiputeras in a transparent manner. These assertions will not result in a fairer system of picking and supporting Bumiputera SMEs as these documents do not discuss devolution of power to key oversight institutions to ensure checks and balances in the award of state-generated rents. 1. Introduction The literature on policy mechanisms to resolve structural inequalities in societies can broadly be divided into two schools of thought. The ªrst calls for a universal approach when implementing social policies and the second con- tends that it is more viable to develop policies that target disadvantaged groups to help overcome social inequalities Downloaded from http://mitpressjournals.org/doi/pdf/10.1162/asep_a_00140 by guest on 30 September 2021