CHAPTER 1

NATURE, EXTENT AND CAUSES OF RURAL POVERTY

IN MALAYSIA : THE HISTORICAL PERSPECTIVE

The eradication of poverty and the ending of hunger have long been

considered the most important challenges before development planners

and practitioners alike. Today, there are more people suffering from

chronic deprivation than ever before in the history. During the twentieth

century, the focus of world poverty eradication efforts were concentrated

in the developing countries, mainly in their rural areas. It was natural

therefore that, after these countries got independence in the decades

following World War II, interests sharpened regarding ways to tackle the

problem of poverty. One strand of thinking goes that rural poor are in

actuality an untapped potential and not an obstacle in development

process and their talents could further add to all round prosperity 1• The

eradication of poverty should be seen as a new opportunity· for the

development of social capital.

Developing countries followed various rural development models

after their independence such as community development, Gandhian

model of decentralised villages, Integrated Rural Development (IRD),

1 Idriss Jazairy, Mohiuddin Alamgir and Theresa Panuccio, The State of World Rural Poverty: An Inquiry into its Causes and Consequences, (New York, 1992), International Fund for Agricultural Development (IFAD}, p.xx.

1

economic growth model and micro-finance model but all these belied

their expectations as poverty levels continued to rise. Nevertheless,

among all these models, economic growth continued to generate intense

debate and discussion as the trickle-down process did not help to

percolate down-to-bottom to lessen poverty. Interestingly, economic

growth model has been touted as a significant factor in reducing poverty

in some of the Asian countries. Notable examples of success in this respect

have been Republic of Korea and Taiwan and more recently Malaysia and

Thailand. Between 1975 and 1995, the incidence of poverty fell by 95 per

cent in Malaysia, by 90 per cent in Thailand and by 82 per cent in Indonesia.

But elsewhere in Asia, as also in other parts of the developing world, the

record has not been very encouraging. The incidence of poverty, for instance,

in Laos PDR and Vietnam in 1995 was around 41 and 42 per cent ·

respectively and Vietnam had the largest number (31.3 million) of poor

people of any ASEAN (Association of South-East Asian Nations) country2 .

This is partly because in many countries the pace of growth, especially in

per capita income terms, has been very modest. It is also partly because·

the nature of growth in many countries has been such as to limit the

percolation of benefits to the poor. And yet, expectations and political

consciousness with regard to poverty alleviation have been consistently

increasing in all developing countries requiring immediate and visible

remedial measures.

In fact, poverty alleviation is no longer regarded as something that

should be safely left to the process of growth and the operation of automatic

2 The World Bank, World Development Report 1997, (NewYork, 1997), p.23.

2

"trickle down" processes alone. It is now widely accepted that poverty

alleviation must be treated as an explicit objective and development

strategies consciously structured to achieve this objective. Many national

plans have explicit quantitative targets for reduction in poverty level and

related issues such as creation of employment and provision of basic needs.

There is also much greater interest in establishing an explicit linkage

between policy formulation and the achievement of poverty-related objectives.

It is against this broader perspective of poverty profile that the Malaysia's

policies and programmes to tackle this menace should be understood.

This chapter will make a modest attempt to describe the definition,

causes, geographic location and occupational structure of rural poor in

Malaysia. Reasons for focussing on "rural" aspect of poverty will be explained

in the chapter. Besides, ethnic dimension of poverty and impact of Asian

Financial Crisis on poverty alleviation programmes would be explained in

the chapter as these two issues have deeply influenced policies and

programmes of Malaysia.

Post-Independence Malaysia : Early Years

Malaysia, like any other developing country, was surfeited with poverty

after it got independence with overall incidence of poverty being 51.2 per

cent during 1957-58 in Peninsular Malaysia3• Socio-economic conditions

3 Ragayah Haji Mat Zin, "Policies and Strategies of Poverty Alleviation in Malaysia'', in V S Vyas and Pradeep Bhargava, eds., Poverty Reduction in Developing Countries (Jaipur, 1999), p.195.

3

at that time were quite dismal. In 1960, life expectancy at birth was 54

years and infant mortality 72 per 1000. Similarly, public expenditure on

health as per cent of GNP was merely 1.1 per cent4• In fact, around two-

thirds of the Malaysian population was living in rural areas mainly

consisting of peasant farmers who were poor and underemployed.

Rural poverty scenario was further compounded with the flaring up

of ethnic clashes in May 19695 when Chinese dominated-opposition parties

secured a larger number of the parliamentary seats vis-a-vis the Malays

dominated ruling coalition. Malays, majority of whom were poor, reacted

violently, with fear of losing political influence. Thus, ethnic clashes

influenced the economic and social development of the country in terms

of resource allocation and utilisation, sectoral balances and consistency,

pattern of income distribution and social upliftment of the majority of

Malaysians. A real test for the government after the ethnic clashes was to

take various ethnic groups into confidence and to make them understand

and realise the importance of nation-building at such a crucial time. In

this respect, of much significance was the issue of removal of abysmal

poverty particularly from rural areas. It was thought that the removal of

poverty would be possible through two ways : i) to accelerate economic

growth; and ii) government's commitment to adopt and implement a pattern

of income distribution to minimise income disparities and uplift the poor

4 Rajeshwar Dyal, "Poverty Alleviation in a Multi-Ethnic Society : Experiences of Malaysia and its Lessons for India", India Quarterly (New Delhi), vol. LIX, nos. 3&4, July­December 2003, p.98.

5 For details on violent ethnic clashes, see chapter 3, Goh Cheng Teik, The May Thirteen Incident and Democracy in Malaysia (Kuala Lumpur, 1971).

4

strata of society in various regions of the country6• The poverty situation in

Malaysia should, thus, be understood and analysed in the context of weak

social fabric. Before any rural poverty scenario is discussed, it would be

appropriate first of all to understand why this study has focussed specifically

on "rural" aspect of poverty?

Why Rural Poverty?

• A closer examination of poverty scenario in Malaysia indicates that

majority of the poor has been living in rural areas (58.7 per cent in

1970) {Table 1) and their conditions have been far from satisfactory

vis-a-vis the urban poor. In other words, magnitude and severity of

poverty have been deeply rooted in rural Malaysia and spread across

the vast hinterland of Sabah and Sarawak states, which at times,

maldng it difficult for the government officials to locate the poor,

specifically the aborigin poor.

• It is true that rural population has been consistently declining in

Malaysia since independence. Despite this, rural poverty could not

be eradicated. For example, during 1975-2000, rural population

decreased from 57 per cent to 37 per cent; still nearly 72 per cent of

the total poor households remained in rural areas in 1999 (Table 1).

• Another important reason for addressing rural poverty has been that

it helps in raising food production. As is known, Malaysia is not self-

6 A.kira Ishida and Azizan Asmuni, "Poverty Eradication and Income Distribution in Malaysia'', Journal of Contemporary Asia (Manila), vol.28, no.3, 1998, p.341.

5

Table 1

'Incidence of Poverty and Number of Poor Households, 1970-2002

Year 1970 1976 1980 1984 1987 1990 1993 1995 1997 1999 2000 2002

----------------------------------------------------------------------------

Incidence of Poverty (Per cent)

Overall 52.4 42.4 29.0 20.7 17.3 16.5 1 3.5 8.7 6.8 8.1 5.5 5.1 (791.8) (764.5) (649.4) (619.4) (517.2) (418.3) (332.4) (360.1) (276.0) (269.7)

Rural 58.7 50.9 37.4 27.3 22.4 21.8 18.6 15.3 11.8 12.4 10.0 11.4 (705.9) (669.6) (556.4) (530.3) (319.0) (267.5) (257.4) (198.3)

Urban 21.3 18.7 12.6 8.5 8.1 7.5 5.3 3.7 2.4 3.4 1.9 2.0 (85.9) (94.9) (93.0) (89.1)

Malays 65.9 56.4 NA 25.8 23.8 20.8 NA NA NA 10.2 NA 7.3 Chinese 27.5 19.2 NA 7.8 7.1 5.7 NA NA NA 2.6 NA 1.5 Indians 40.2 28.5 NA 10.1 9.7 8.0 NA NA NA 1.9 NA 1.9

Incidence of Hard Core Poverty (Per cent)

Overall NA NA NA NA NA 4.0 NA 2.1 1.4 1.4 0.5 1.0 (143.1) (88.8) (67.5) (66.0) (52.9)

Rural NA NA NA NA NA 5.2 NA 3.6 2.5 2.4 1.0 2.3 (126.8) (76.5) (55.3) (52.1) (40.3)

Urban NA NA NA NA NA 1.4 NA 0.9 0.4 0.5 0.1 0.4 (16.3) (12.3) ( 12.2) ( 13.9) (12.6)

Notes : Number of poor households ('000) is given in parenthesis. NA = Not Available.

Source: Household Income Surveys, Malaysia Plans, Economic Reports, Ministry of Finance, various issues as quoted in, Anoma Abhayaratne, "Econhmic Growth and Poverty Reduction: Lessons from the Malaysian Experience" (Department of Economics and Statistics, University of Peradeniya), Sri Lanka, p.11.

sufficient in rice production7; by helping rural poor- most of those are

engaged in paddy cultivation- the country can strive to attain higher

level of self-sufficiency in food production.

• Many studies have revealed that rural poor migrate to urban areas

in search of gainful employment which they are unable to find in

their villages8 . By effectively tackling rural poverty, the Malaysian

government can control migration to urban areas, thereby lessening

burden on civic infrastructure like drinking water supply, electricity,

housing, health and sanitation and educational facilities.

o With regard to sectoral distribution of poverty, the agriculture sector

recorded the highest incidence with 32.5 per cent whereas in the

manufacturing sector it was at 10.6 per cent in 1990 (Table 2).

Subsequently in 1997, although the sectoral data showed decelerating

trend, agriculture sector still suffered from the high incidence of

poverty. Various studies that have been carried out indicated that

the higher incidence of poverty in the agriculture sector has been

mainly due to low value added activities and highly exploitative·

environment. This sector thus needed more serious efforts on the

part of development planners.

7 World Trade Organization, Malaysia Trade Policy Review 1997, Geneva, March 1998, p.98.

8 International Fund for Agricultural Development (!FAD), The Challenge of Ending Rural Poverty: Rural Poverty Report 2001, (New York, 2001), p.l6.

7

Table 2

Incidence of Poverty by Sector, 1990 and 1997 .

(Per cent)

No. Sector 1990 1997

1 Agriculture 32.5 16.4 2 Mining 4.5 2.9 3 Manufacturing 10.6 3.3 4 Utilities 0.2 0.8 5 Construction 8.9 2.2 6 Commerce, Restaurant and Hotels 7.7 2.4 7 Transport and Communication 5.2 1.0 8 Financial Services and Insurance 2.3 0.4 9 Community Services 3.3 1.8 10 Miscellaneous 29.1 15.4

Source: Economic Planning Unit, Prime Minister's Department, Government of Malaysia, KualaLumpur, 1998.

• The gap between rural and urban areas in terms of income, nutrition, .

health and education has not decreased as was originally envisaged

by the policy makers. By addressing rural poverty on a priority basis,

this gap can be abridged.

Rationale for Poverty Alleviation

Although alleviation of poverty has been part of the Malaysian

government's agenda ever since the country became independent in 1957,

the rationale for poverty alleviation was further justified after violent ethnic

clashes of May 1969. One of the main reasons for violent clashes was the

relatively weak economic position of the Malays and rampant poverty in

rural areas of the country.

What followed, therefore, after the violent ethnic clashes was the

8

enunciation of New Economic Policy (NEP) in 1971 to create conducive socio-

economic environment as was envisaged by the Rukunegara (national

ideology) 9 • The NEP was based on the fundamental premise that

(i) unemployment and poverty, especially in a relatively affluent society like

that of Malaysia, are affront to human dignity, and (ii) that ethnic imbalance

in the opportunities to participate in the economic life of the country has

seeds for social and political tension. These two factors are inimical to the

development of an integrative value system and socio-economic environment

so vital for nation building and solidarity. The NEP was, thus, designed to:

i) eradicate poverty among all Malaysians, irrespective of race; and

ii) restructure Malaysian society so that the present identification of

race with economic function and geographic location is reduced and

eventually eliminated 10.

In addition, there is a human consideration to eliminate poverty arising

from the recognition that human beings are the most important economic

resource; therefore the social returns to poverty reduction are high. Relative

deprivation in the face of growing affluence and the unfulfilled desire to

attain good life with all its material inputs can act as destabilising forces to

further weaken the moral and ethical fabric of the Malaysian society. There

9 Fadil Azim Abbas, "Rural Development and Poverty Eradication in Malaysia, 1970-1995", Paper presented at the First ASEAN Senior Officials' Meeting on Rural Development andPovertyEradication, heldatKualaLumpur, Malaysiaon20-21 October 1997, p.2.

10 Ibid.

9

are indications that already the moral and ethical fabric of the Malaysian

society is gradually getting eroded11•

Causes of Rural Poverty

In Malaysia, major causes of poverty differ from state to state; and

within the state, from district to district, depending upon the nature of

poverty and types of poor. In fact, there is a wide variety of causes afflicting

rural poor. However, certain characteristics of economic and social nature

which are prevalent throughout the country bind the rural poor to make

them look homogeneous mass. At macro level, these, inter alia, include

uneconomic size of land holdings, use of traditional technologies, lack of

credit and marketing facilities, inefficient transport system, low productivity,

middlemen exploitation, lack of access to schooling and lack of

opportunities for work in the informal sector that can supplement the

family income12 .

While tracing genesis of rural poverty in Malaysia, it can be argued

that as in many other developing countries, rural poverty in Malaysia too

has its seeds in the ruthless exploitation of its natural resources by the

British colonial administration. Rural poverty under British rule was

stratified along ethnic lines. Malays, who were dependent upon agriculture

for their livelihood, were the worst sufferers as size of their holdings were

11 See, http:/ jwww.devnet.org.nz/conf/Papers/nair.pdf.

12 Zin, n.3, p.206.

10

very small; consequently productivity of Malay peasants on the average

was lower as compared with Chinese who were engaged in mix farming

(farming of vegetables and livestock production) 13 • In addition, Malay

peasants were considered 'lazy' and this was also attributed as reason for

their poor conditions.

The conservative economic policies followed by the government of

Malaysia before enunciation of the NEP abetted rural poverty. For example,

due to the government policy of maintaining fixed price for paddy, the

prices remain unchanged in spite of moderate increases in the prices of

purchased inputs and consumption goods. The net effect of this disparate

development was a serious deterioration in the economic position of rural

poor and this resulted into increased underemployment and

unemployment in rural areas. For instance, among paddy farmers in some

areas, there was over 50 per cent underemployment for four months of

the year when there was little off-farm work available14 • It may be mentioned

here that paddy farmers are one of the worst affected rural poverty groups

in Malaysia.

Prior to independence and the years preceding thereafter, the

Malaysian economy, by and large, followed laissez-faire system of

development. This system had caused the poor, especially the peasants in

13 J T Purcal, "Rural Economic Development and its Impact on Economic and Social Integration in West Malaysia", in Judith A. Nagata, ed., Pluralism in Malaysia: Myth and Reality- A Symposium on Singapore and Malaysia (Toronto, 1975), p.66.

14 Ibid., p.70.

1 1

the rural areas, to fall victim to various types of exploiters at three levels :

namely, the landlords, middlemen and money-lenders at the village level;

the big capitalists and feudal groups at the state level; and the foreign

monopoly at the international level. Under such type of multi-level

exploitation, rural poor were the worst sufferers.

In the rural peasant economy consisting of paddy farmers, fishermen,

rubber plantation smallholders 15 and mixed farming of various agricultural

crops, linkages of individual farmer vis-a-vis the modern sector were

historically established through middlemen and traders who were mostly

Chinese. And as is common in most peasant economies, the middlemen

provided various types of important economic services to farmers such as

complementary factor inputs, credit, transportation and processing

facilities. In lieu of these facilities, they manipulated the system in their

favour and perpetually exploited the peasants and hence, poverty

continued.

To protect Malays from the economic encroachment of other ethnic

groups, the Malay Reservation Act was promulgated in 1913. According to

this Act, lands designated for Malays can neither be sold nor leased or

mortgaged to a person of another ethnic group under any circumstances16 .

While the Act ensured land rights reserved for Malays in certain areas of

West Malaysia, it also, in a sense, confined Malays into their villages and,

15 The term 'smallholder' is commonly linked to th size of a landhlding a person possesses. A smallholder normally derives his/her livelihood from a holding ranging between 1.5 to 2.5 hectares.

16 Purcal, n.l3, p.71.

12

thus, isolating them from availing of the nev.r economic opportunities

becoming available in other parts of the country. In other words, the Malays

did not utilise new opportunities to come out of the poverty trap.

In the international perspective, however, external factors have been

as much responsible for poverty as internal ones. Tracing the genesis of

underdevelopment and poverty in Malaysia, some analysts have argued

and blamed ruthless colonial exploitation of the country's economy. As

exporter of commodities based on its natural resource endowments such

as rubber, palm oil and cocoa, terms of trade showed secular deterioration

in the second half of the 19th century and early part of the 20th century.

Even in the post-independence period, lack of diversification of the

economic activities and heavy dependence on primary commodities for

survival and strong linkages with the erstwhile colonial rulers led to the

divergence of Malaysia's development levels and perpetuated poverty,

unemployment and backwardness, especially in the rural areas.

However, agriculture sector, in which majority of rural population of

Malaysia has been engaged for a long period, is subject to law of diminishing

return. It suffers from technological backwardness and is vulnerable to

the vagaries of nature. The domestic terms of trade turned favourable to

manufacturing and services sectors with the process of accelerated

development, thus leaving the agriculture sector to a low level of

development.

Further, many of the writings on 'internal colonialism' explain vividly

poverty divergence levels within the state and its various sub-state strata,

13

thanks to socio-political structure and production relations. Malaysia has

been no exception in this context.

Definitions of Poverty

Available literature on definition of poverty has remained inconclusive

so far. There has been various methods in vogue to define poverty. In fact,

the way poverty is conceptualised, defined and measured has a significant

bearing upon the impact of poverty eradication efforts. Defining poverty is,

therefore, very important. Generally, poverty is described as a condition of·

insufficiency to acquire basic needs. It is well known that the basic needs

are food, shelter and clothing. Are these the only ones? or a person is said

to be not suffering from poverty if he I she acquires these basic needs. Two

things arise from this question. First, what about the existence of such

utilities and social infrastructure like supply of electricity and potable

water, availability of doctors and hospitals and opportunities for continuing

education. In developed countries, these are considered as part of basic

needs. Secondly, even if basic needs are met, what quar1tity of them constitute

the level of sufficiency? So, by defining poverty as the insufficiency of basic

needs, we still do not have clear picture of its meaning. What is regarded as

'basic needs' or 'insufficiency' vary according to the level of development

achieved by a particular country. In fact, insufficiency of basic needs arises

because people are unable or cannot aiiord to get them. Whether an individual

can afford to have the basic needs and social facilities sufficient for himself

and his family depends on his income. In other words, poverty can be

measured according to income earned by an individual or his family. When

14

an individual does not have enough money to enable him to acquire the

basic needs and social facilities, at the very minimum, then he is in a state

of poverty.

According to the commonly perceived definition of the World Bank,

an individual's expenditure falling below one ( 1) US Dollar a day is

categorised as poor17 • However, given GDP calculation in purchasing power,

the criteria of defining poor may be quite different. Further, different

organisations, notably NGOs, have used different criteria to define poverty

by taking into account the local socio-economic conditions.

In fact, an important component or pre-requisite of the fight against

poverty is an agreement on the definition and measurement of poverty. In

Malaysia, the government has taken the lead in this task, after consultation

with various experts and groups. The government has adopted income

method as the criteria to define and measure poverty. Table 3 provides the

weightage given to different components in poverty line income with food

having the highest weightage (63.3) followed by rent and fuel ( 13) in

Peninsular Malaysia in 1997. The income data used for estimating poverty

incidence have been derived from several official surveys, namely, the Post

Enumeration Survey of the Population Census 1970 (PES 1970),

Agriculture Census 1976 (AgCensus 1976), Household Income Surveys

(HIS) of 1979, 1984, 1987, 1989, 1993 and 1995. These census/surveys

have been conducted by the Department of Statistics, Government of

17 World Bank, World Development Report 2000/2001, on "Attacking Poverty" (Washington, 2001), p.27.

15

Source: Economic Planning Unit, Prime Minister's Department, Government of Malaysia, Kuala Lumpur, 1998.

Malaysia. The detailed reports. of these surveys are not available to the

public except for summary data published in official documents18•

The income method of poverty, however, is subject to certain

limitations. Firstly, it is generally agreed that the census/ surveys have

not employed a consistent and comparable income concept and approach

in conducting various surveys. Secondly, the income concept used in various

estimates is the household income, not an individual income. Anand (1983)

explained that household income dc:)es not provide a good indication of

inequality in the levels of living as it does not take into account of. the

differences in household size and composition, and economies of scale in

consumption 19• Thirdly, a separate PLI (Poverty Line Income) for urban

18 Zin, n.3, p.201.

19 Sudhir Anand, Inequality and Poverty in Malaysia: Measurement and Decomposition (NewYork, 1983) asquotedinibid.,pp.201-2.

16

and rural areas has not been constructed which is required because the

relationship between food intake and consumption expenditure varies by

region, activity levels, relative prices and taste. This would result in an.

underestimate of the incidence of urban poverty since the income level

required to sustain a subsistence level household in the rural areas would

not be adequate for a similar household in the urban areas. Fourthly, the

Malaysian PLI does not take into account the differences in household

size between rural and urban households. And lastly, the PLI also neglects

the differences in consumption pattern between urban and rural households

as well as the changes in consumption patterns as income grows.

Nevertheless, the definition of poverty as adopted by the Malaysian

government is, by and large, accepted as this has become the basis to

plan, implement and evaluate the impact of anti-poverty programmes. This

has been done by adopting three concepts of poverty, viz., absolute poverty,

absolute hardcore poverty and relative poverty.

Absolute poverty has been defined as a condition in which the gross

monthly income of a household is insufficient to purchase certain

minimum necessities of life. These necessities include a minimum food

basket to maintain household members in good nutritional health and

other basic needs viz., clothing and footwear, rent, fuel and power,

transportation and communication, health care, education and recreation20 .

20 For more details on absolute poverty, see Steward mac Pherson and Richard Silbum, "The Meaning and Measurement of Poverty" in John Dixon and David Macarov, eds., Poverty: A Global Reality (London, 1998), pp.1-18.

17

To facilitate the measurement of this condition, a poverty line income

has been constructed and used based on the basic costs of the items namely,

food items, clothing and footwear, rent, fuel and power, transportation and·

communication, health care, education and recreation. Further, since the

PLI is linked to the consumer price index or CPI, it has been periodically

revised in line with movements in the CPl. Since the cost of living and

household size over different parts of Malaysia are not the same and hence,

separate PLis and household sizes have been constructed for Peninsular

Malaysia, Sabah and Sarawak as is evident from Table 4. However, no

differentiation has been done with regard to urban and rural PLI and

household size.

In Malaysia, a poor is one whose income falls below Ringgit Malaysian

(RM) 529 per month in peninsular Malaysia, RM 690 in Sabah and RM 600

in Sarawak region as per 2002 data (Table 4). The corresponding household

size for the said three regions is 4.6, 4.9 and 4.8 respectively. But at the

national level, poverty line income has been adopted as the main criteria

which was developed by the Economic Planning Unit of the Prime Minister's

Department. According to this criteria, a poor is one who does not have ((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

communication, health, education and recreation"21 • The criteria to define

21 Ministry of Rural Development, "Malaysia- Route to Poverty Alleviation- Programmes and Projects", Paper presented at the International Training Course on Localising the Anti-Poverty Agenda : The Malaysian Experience, held at Kuala Lumpur, Malaysia on 22 September- 12 October, 2002, p.l.

18

poverty as described by the government has been more widely accepted in

the country mainly because resources for poverty alleviation are allocated

on the basis of this criteria.

Absolute hardcore poverty has been defined as a condition in which

the gross man thly income of a household is less than half of the PLI. This

definition was introduced in 1988 to enable more accurate targeting of

poverty redressal projects to the hardcore poor. Important among hardcore

poverty sub-groups in Malaysia are widows, old people, handicapped and

Table 4

Poverty Line Income : Regional Estimates

Year

1970

1976

. 1979

1984

1987

1989

1992

1995

1997

1999

2002

Peninsular Malaysia

RM

163

243

274

349

350

370

405

425

460

510

529

Household Size

NA

NA

5.4

5.1

5.1

5.1

4.8

4.6

4.6

4.6

4.6

RM

NA

377

410

540

533

544

582

601

633

685

690

(Ringgit per month per household)

Sa bah

Household Size

NA

NA 5.4

5.4

5.4

5.4

5.1

4.9

4.9

4.9

4.9

RM

NA

307

347

428

429

452

495

516

543

584

600

Sarawak

Household Size

NA

NA 5.6

5.2

5.2

5.2

5.1

4.8

4.8

4.8

4.8

Note : Ringgit is Malaysian currency. i.e., RM. Presently 1 US$= 3. 75 RM Approx.

Source: Ministry of Rural and Regional Development, "Poverty Reduction in Malaysia: Towards Achieving Millennium Goals", Paper presented at the Intemational Training Course on Localising the Anti-Poverty Agenda: The Malaysian Experience, held at Kuala Lumpur, Malaysia on 11-30 September 2005, p.14.

19

indigenous communities. Each of these sub-group typically has

unique problems and, therefore, has to be dealt with differently if the

poverty has to be wiped out from the country. "Hardcore" poor is roughly

equivalent to "extreme" poor and this refers to extent of poverty in the

country. In terms of age group, incidence of poverty as per 1999 data, was

highest (21. 7 per cent) among 65 years and above i.e., old people and lowest

among those in age group of 40-44 years (3.1 per cent) i.e., high productive

age.

Relative poverty : The definition of absolute poverty has become

increasingly unacceptable in those parts of the world where higher general

levels of living have been achieved. In a country like Malaysia which is

experiencing rapid growth and apparent reductions in the incidence of

absolute deprivation, poverty is increasingly defined in relative terms. As

the threat of starvation recedes, questions concerning the appropriate

distribution of income and opportunity assume greater importance. In this

situation, the definition of poverty moves away from minimal, physical

survival notion to the direction of a relative, varying definition which puts

increasing emphasis on social survival and attaches value to "quality of life"

that even the poorest in a community should be able to enjoy. A different

vocabulary is developed to introduce notions of social participation, of social

20

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inclusion and exclusion, 'of citizenship and of erripowerment22 .

The concept that has been used in Malaysia is linked to the notion of

income disparity between groups. Thus, a group whose mean income is less

than those of another group has been defined as being in relative poverty.

Under this definition, it is possible to define a group, for example, rural

dwellers, as being in relative poverty to another group, namely, urban

dwellers, even though their mean income exceeds the PLI. Relative poverty

is a dynamic concept, meaning that the line "shifts" with changes in the

overall condition of the economy. In fact, measurement of relative poverty is

0 much more complex as it requires data updating from time to time concerning C) ('\) income distribution, norms, values and attitudes of the groups in the society. -I

F In Malaysia, relative poverty has been measured by using income

disparity ratios oftop 20 per cent and bottom 40 per cent income groups. It

has also been used to measure relative income of different ethnic groups. In

fact, Malaysia has had the highest disparity in the Asia-Pacific region with

an income disparity ratio of 11.7 per cent between the richest 20 per cent

and poorest 20 per cent of the population-in 1999. While income distribution

patterns during the period 1970-1990 showed improvements with declining

income inequalities, the period of the 1990s and beyond showed a reversal

22 For more details on relative poverty, see Steward macPherson and Richard Silbum, "The Meaning and Measurement of Poverty" in John ~d David Macarov, eds., Poverty: A GlobalReality(London, 1998), pp.1-18. p~() ..

(i/ ' .. '( \ ~ \

. 21 {·~(library .. ;~\ ~~\ -/0/J ~~~/ .

·· ... :~

of these trends. The Gini coefficient23 decreased to 0.446 in 1990 from 0.513

in 1970 but again increased to 0.459 in 2002 as per data in Table 6. Like

wise income disparity ratio between rural and urban households first

decreased from 1:2. 1 in 1970 to 1: 1. 7 in 1990 but again increased to 1:2.1 in

2002 (Table 6). Income disparities in Malaysia have significant ethnic

overtones and income disparities between Bumiputra and non-Bumiputra

households first showed progressive decline during 1970-1990 but started

widening during 1990s and beyond despite affirmative policy measures to

narrow the gap between these households. For example, the income gap

between Bumiputra and Chinese decreased from 1:2.3 in 1970 to 1:1.7 in

1990 but slightly increased again to 1: 1.8 in 2002 (Table 6). Relative poverty

in the context of growing affluence has the potential to be politically volatile

as some groups or factions within the country are deprived from enjoying

the benefits of development. Such groups, despite an improvement in their

socio-economic status in absolute terms, continue to feel a sense of

Table 6

Malaysian Development Performance and Relative Income Disparity

1970 1990 1999 2002

Bumiputra: Chinese 1:2.3 1: 1.7 1: 1.7 1:1.8 Bumlputra: Indians 1: 1.8 1: 1.3 1: 1.3 1:1.3 Rural : Urban 1: 2.1 1: 1.7 1: 1.8 1:2.1

Gini coefficient 0.513 0.446 0.443 0.459

Source : Ali Hamsa, "Enabling Policy Framework for Poverty Alleviation", Paper presented at the Intemational Training Course on Localising the Anti-Poverty Agenda: The Malays!·an Experience, Kuala Lumpur, 28 September- 17 October, 2003, p.39.

23 Gini Coefficient is half the expected absolute difference in the incomes of any two individuals, chosen at random, as a proportion of the mean income.

22

deprivation and frustration. Most of them belong to poorest groups in villages,

settlement plantations and in the urban shanty towns/ slums.

Category and Occupational Structure of Rural Poor

Before devising any strategy to alleviate poverty from rural Malaysia,

it will be more appropriate to find out as to who rural poor are and what are

their occupations. Rural poor are heterogeneous mass. They comprise mainly

rubber smallholders, coconut smallholders, paddy farmers, estate workers

and fishermen. Among these groups, jncidence of poverty has been highest

among paddy farmers (58 per cent) followed by fishermen (43 per cent),

estate workers (39 per cent), rubber smallholders (39 per cent) and coconut

smallholders (31 per cent) in agriculture sector in West Malaysia in 199524•

A closer examination of occupational structure of poor has revealed

that majority of paddy farmers and fishermen are Malays. Removal of poverty

of the Malays was one of the major objectives of the New Economic Policy

(NEP) when it was introduced in 1971. Thus, while it was felt that the poverty

alleviation target of the NEP has been, by and large, achieved, yet there

remains pockets of poverty especially in areas which were by-passed by the

development process and where the benefits of development have not 'tricked

24 Abdul Aziz Abdal Rahman and Chamhuri Siwar, "Poverty Alleviation through Micro­finance : Potentials and Constraints", Paper presented at the AARDO-CIRDAP International Seminar on Poverty Alleviation through Micro-finance : Potentials and Constraints, held at Kuala Lumpur, Malaysia on 30 October- 2 November 2002, p.3.

23

down' to reach all sectors and regions of the country25• In addition, there

were considerable number of Chinese and Indians who were below poverty

line income.

Geographic Distribution of Poor

Colonial exploitation of resources has had a detrimental impact on

the process of economic development of Malaysia. Ever since the country

attained independence from the British rule, poverty has had been rampant

both in Western as well as Eastern Malaysia. Thanks to developmental

efforts over a period of time, Western (or Peninsular) Malaysia progressed

faster vis-a-vis Eastern Malaysia and poverty fell more rapidly in that part

of the country. For example, incidence of poverty fell to 6. 7 per cent in

1997 from 15.7 per cent in 1990 in Peninsular Malaysia while in Sabah

region of Eastern Malaysia it fell to 16.5 per cent from 29.7 per cent during

the sar.ne period (Table 7). Factors responsible for this included population

concentration in Peninsular Malaysia (around four-fifth of total Malaysian

population), and therefore launching most of the development projects in

that region. In addition, seat of Federal Government is in Peninsular

Malaysia and this might have had persuasive appeal to policy-makers to

alleviate their poverty since they were more directly visible to them. A further

examination of incidence of poverty of different states of Peninsular Malaysia

suggests that the less industrialised states such as Kelantan, Trengganu

and Perlis have a higher incidence of poverty as compared to the more

25 Zin, n.3, p.206.

24

Table 7

State-wise Incidence of Poverty, 1990 and 1997 (Per cent of Household)

S. No. State 1990 1997

1 Johor 9.8 1.6 2 Kedah 29.9 ll.5 3 Kelantan 29.6 19.2 4 Melaka 12.4 3.5 5 Negeri Sembilan 9.1 4.7 6 Pahang 10.0 4.4 7 Pulau Pinang 8.7 1.7 8 Perak 19.2 4.5 9 Perlis 17.4 10.7 10 Selangor 7.6 1.3 11 Trengganu 31.3 17.3 12 Wilayah Persekutuan 3.7 0.1 13 Sabah 29.7 16.5 14 Sarawak 21.0 7.3

Source: Economic Planning Unit, Prime Minister's Department, Government of Malaysia, KualaLumpur, 1998.

industrialised states such as Selangor, Pulau Pinang and Negeri Sembilan.

Again, the more industrialised states are in the more advanced stage of

transformation and therefore command higher returns and income.

Nevertheless, there has been significant reduction in the incidence of poverty

in all states (Table 7) .

. While delving deeper into the causes of poverty of Kelantan and

Trengganu, one finds that these states are located on the East Coast and

therefore, were less affected by the colonial experience. The heaviest

concentration of European economic activities was on the West Coast,

especially in tin mining and rubber estates. The East Coast, isolated by a

spine of mountains running down the middle of the peninsular and by a

lack of adequate port facilities compounded by high seasonal seas did not

receive due attention of the colonial regime. Roads, railways and other

25

infrastructure facilities were concentrated on the West Coast and were

designed to facilitate the exploitation of extractive economy of the colonial

regime. Non-Malay migrants, primarily Chinese who worked in the tin mines

and developed a dominant position in the wholesale and retail trade, and

Indians who worked on British plantations and for the British administl~ation,

were also concentrated on the West Coast. Consequently, the East Coast

states remained more prone to poverty due to lack of 'developmentalist'

efforts. This historic legacy continued ever after independence as is evident

from the highest concentration of poverty incidence in the states ofKelantan

(19.2 per cent) and Trengganu (17.3 per cent) as per 1997 data in spite of the

fact that poverty from Peninsular Malaysia has been considerably removed.

In Eastern Malaysia, rural poverty has remained dominant in both·

the states viz., Sabah and Sarawalc These two states are suffering more

from poverty conditions compared with the Peninsular Malaysia despite

the fact that a variety of natural resources are found in this part of the

country. Rural poverty alleviation efforts received serious attention after

the living conditions improved in Peninsular Malaysia. In addition, most of

the hardcore poor are found in this part of the country. That is why,

poverty line income is higher in Sa bah (RM690), followed by Sarawak

(RM600) and Peninsular Malaysia (RM529).

Ethnic Dimension of Rural Poverty

'Ethnic' identification of rural poverty and its alleviation has been the

core issue in the overall poverty alleviation programmes of Malaysia

particularly after the violent ethnic clashes of May 1969. Available literature

26

on rural poverty in Malaysia is replete with ethnic dimension of poverty. Of

the three main rural ethnic groups, namely, Malays, Chinese and Indians,

Malays are poorer vis-a-vis Chinese and Indians despite being numerically

higher26 •

Since ethnic identity has had a consideration in the allocation of

resources for poverty alleviation programmes particularly after 1971, it

would be appropriate to understand first of all the poorest ethnic group

namely, the Malays as to who they are and what is their constituent of the

total rural poverty. The Malay community comprises a mixture of indigenous

Malays and various migrant groups from Indonesia, including Minangkabau,

Javanese, Acehnese and Bugis, as well as migrants from Pattani on

southern Thailand's East Coast. The Mal~ys as defined in Article 160 (2) of

the Malaysian Constitution are persons who profess the Muslim religion,

habitually speal{ Malay language and conform to Malay customs. The term

'Bumiputra' which translates literally 'Sons of the Soil', has assumed a

special legal meaning after the formation of Malaysia and

currently includes the Malay as defined by the Constitution, and the

indigenous peoples of Sabah and Sarawa}{ as well as the aboriginal groups

or Orang Asli27• The inclusion of aboriginal people as part and parcel of the

Malay community further strengthen their position both in terms of resource

26 Bumiputras accounts for 61 per cent ofthe population, the Chinese 30 per cent, the Indians 8 per cent and other minority groups made up the remaining 1 per cent.

27 Orang Asli (a Malay term which means 'original people') is the official and more acceptable term to describe the 'Aboriginal People' of Peninsular Malaysia. The Orang Asli are by no means a homogeneous ethnic entity. They are divided into three different ethnic groups- the Negritos, the Senoi and the Proto-Malays. These in tum can be sub­divided into different 'tribal' groups of which the major ones are the Senoi, Temiar, Jakun, Semelai and Negritos.

27

allocation for poverty alleviation projects and socio-political development.

In fact, aboriginal people are one of the poverty target groups and their

inclusion as part of the Malay community entitles them with special privileges

and concessions in order to bring them above poverty line.

The ethnic dimension to rural poverty should also be understood in

the context of political and economic friction between Malays and non-

Malays. While non-Malays namely, Chinese, Indians and Europeans have

considerable control over the country's economy and dominate urban life,

the Malays are predominantly rural producers of primary products, the

marketing of which essentially is not totally under their control. The major

towns of Malaysia are foreign ground to most rural Malays, and conversely

rural Malay villages are foreign to most urban Malaysians28• Interaction

between urban and rural Malaysians essentially is lill!ited to marketing

and other economic relationships which are fraught with tension since rural

Malays feel indignant over unequal distribution of resources and blame

urban dwellers for their poverty conditions. In fact, in electoral politics,

ethnic economic inequality has been a major campaign point of both the

political parties viz., UMNO (United Malays National Organisation) and PAS

(Partai Islam Sa-Malaysia). This is also reflected in the government's policies

to restructure economy by uplifting Malay community including removal of

their poverty.

To further reinforce the arguments that the conditions of Malays are

28 Conner Bailey, The Sociology of Production in Rural Malay Society (Kuala Lumpur, · 1983), p.ll.

28

definitely not better than those of non-Malays, a number of studies have

been carried out mainly by the Malay scholars, NGOs activists and academic

institutions. A study on income distribution confirmed that the economic

position of Malays at the end of the 1960s was significantly inferior to that

of non-Malays29 . In Peninsular Malaysia, the average per capita income of

Malays was half that of the Chinese. Although Malays accounted for more

than half of the total peninsular population, almost 80 per cent of them

worked in rural areas in traditional agriculture - the breeding ground of

poverty. As against this, only half of the non-Malays worked in rural areas.

Malay agriculturalists typically owned small plots of land and the vast

majority earned incomes which kept them at or near subsistence levels.

Malay fishermen also are typically poor, and their small boats and simple

equipment have increasingly been competing disadvantageously with larger

and more efficient boats controlled by urban, usually non-Malay,

merchants.

No doubt, there is little hunger and probably no starvation among

rural Malays, but their relative poverty in comparison to urban non-Malays

points to considerable inequality in income distribution. Income disparities

between Malays and non-Malays households, despite having declined during

197( -1990 started widening during 1990s despite affirmative policy measure

to narrow the gap between these households as explained earlier (Table 6).

Thus, relative poverty has the potential to threaten national unity as deprived

29 During 1957-1970, the average income ofthe bottom 10 per cent of all households (majority of them were Malays) decreased by 31 per cent, from $49 to $33 per month.

29

groups may harbour hatred or ill-will particularly towards affluent urban

class.

Despite efforts by the government, the majority of rural dwellers will

continue to be Malays in the foreseeable future. As agriculturalists and

fishermen, their primary day-to-day concern has been earning a living for

themselves and attempting to ensure a decent standard of living for their

children. Such concerns are perhaps much more immediate than questions

of ethnic solidarity, which typically arises to the forefront of consciousness

only during political campaigns. Daily life at the village level revolves around

production processes and the social relationships which are directly

influenced by these processes.

One of the objectives of NEP namely, restructuring ethnic share of

incomes and employment, has been fundamentally tied to rural poverty.

Because a large portion of rural, low-income households are Malays, a

reduction in rural poverty would evidently narrow ethnic income imbalances.

The government's spending on Malays is particularly evident in rice farming

and land development programmes. For example, the 4.4 per cent average

annual rate of real growth of agriculture, forestry and fishing in Peninsular

Malaysia between 1970 and 1975 was accompanied by significant gains in

the eradication of rural poverty. This strong performance ofthe agricultural

sect~r during the Second Malaysia Plan (1971-75) generally led to higher

incomes, moving a large number of Malay households, as well as non-Malay

30

households, above the poverty line30• Poverty among agricultural households

fell from 68 per cent to 63 percent during the period. More details about the

link between rural poverty and agricultural development are given in

chapter 4.

Trends in Poverty Alleviation during 1990s

The 1990s was a turning point in the rural poverty alleviation

programmes of Malaysia as, it was presumed by development planners,

this ·is the last decade before poverty is completely wiped out from the

country. This decade had posed a challenge before the government as it

witnessed fall, rise and again fall of rural poverty in Malaysia during the

Asian Financial Crisis of 1997-98.

During the 1990s, the focus of rural poverty alleviation programmes

was shifted to hardcore poor as incidence of absolute poverty has been

consistently declining since mid-1970s. For the first time, the Malaysian

government distinguished between hardcore poor and absolute poor in

1988; hence launched a number of programmes to alleviate poverty of the

hardcore poor during 1990s. For example, a novel scheme for hardcore poor,

namely, Bumiputra Unit Trust- Development Programme for Hardcore Poor

(BUT-DPHP) was introduced in 1992. The scheme provided each hardcore

poor household a one-time interest-free loan up to a maximum of RMS,OOO

to purchase shares in the BUT31 . Repayment amount of the loan was

30 Kevin Young, Willem C.F. Bussink and Parvez Hasan, Malaysia: Growth and Equity in a Multiracial Society (Baltimore, 1980), A World Bank Country Economic Report, p.224.

31 Abbas, n.9, pp.ll-12.

31

deducted from the annual dividends and bonuses. The remaining amount

became an additional source of income for the unit holders and went in

some way towards alleviating their poverty. More importantly, participat'ion

in the scheme gave hardcore poor a sense of being a partner in the growth

of the corporate sector in Malaysia. Thus, in its own small way, the scheme

helped to prevent the hardcore poor from feeling marginalised or neglected

from their more fortunate fellows.

Social sector, a basic parameter to judge poverty, received priority in

the development expenditure of federal government during 1990s. The

share of social expenditure (education, health and housing) increased

from 24.8 per cent during Sixth Malaysia Plan (1991-1995) to 31.6 per

cent during Seventh plan ( 1996-2000) and yet further went up to 41.4 per

cent during the Eighth Malaysia Plan (200 1-05) (Table 8). The increase in

social expenditure reconfirmed government's commitment to wipe out

poverty from the country.

In 1991, phase II of the Operation Perspective Plan (OPP2) was launched

with focus on 'balanced development' in terms of growth and equity,

balanced development of major sectors, namely, agriculture, manufacturing

and services. This strategy has had a bearing on the rural poverty alleviation

programmes too as new initiatives were tal{en to boost agriculture growth

which was otherwise weak compared to manufacturing and services sectors.

Under OPP2, poverty eradication strategies, among others, included

concerted efforts by the government and plantation sector to improve

standard of living of poor estate workers.

32

Table 8

Development Expenditure under various Malaysia Plans

(Per cent of Total)

Sector 4MP SMP 6MP 7MP 8MP

1 Economic Sector 60.5 64.8 50.6 47.6 41.7 ofwhich: Agriculture 16.3 20.8 11.6 8.2 4.8 Industry 13.6 11.3 7.4 11.4 7.1 Infrastructure 20.2 21.5 22.5 21.0 22.2

Utilities 9.9 10.2 T8 5.5 6.1 2 Social Sector 21.5 24.8 24.8 31.6 41.4

ofwhich:

Education 10.1 16.1 13.4 19.9 25.0

Health 1.6 2.6 4.4 3.8 5.9 Housing 8.5 4.1 3.3 3.4 3.9

3 Security 16.2 7.2 20.1 11.8 10.1 4 Administration 1.8 3.2 4.5 9.0 6.8

Total 100.0 100.0 100.0 100.0 100.0 (RM billion) 46.3 35.3 54.7 99.0 170.0

Note: 4 MP =Fourth Malaysia Plan (1981-1985); 5 MP =Fifth Malaysia Plan (1986-1990); 6 MP = Sixth Malaysia Plan (1991-1995); 7 MP = Seventh Malaysia Plan (1996-2000); 8 MP = Eighth Malaysia Plan (200 1-2005).

Source : Allauddin bin Anuar, "Making Sense of History and Its Implication on Public Policy Formulations in Malaysia", Paper presented at the Intemational Training Course on Localising the Anti-Poverty Agenda: The Malaysian Experience, Kuala Lumpur, 11-30 September, 2005, p.75.

·Another important factor during the 1990s was Malaysia's joining of

World Trade Organisation (WTO) in January 1995. Under the WTO

agreement, the country has to phase out the subsidies in a given time frame

as the subsidies will not remain perpetually available to implementing

poverty alleviation projects, and hence the country requires a foolproof

strategy to wipe out poverty from the country. In addition, the forces of

privatisation, liberalisation and globalisation were unleased during the

1990s which made many developing countries including Malaysia to be

33

more vigilant as far as their poverty alleviation programmes were concerned.

To insulate the country from the adverse effects ofprivatisation, liberalisation

and globalisation on poverty, Malaysia· allocated special funds for social

development progrmnmes.

The 1990s also witnessed one of the worst crises in the economic history

of South-east and East Asian countries as social development programmes

including poverty alleviation were adversely affected due to negative growth

experienced by Malaysia and other Asian countries during 1997-98. During

the crisis period, the incidence of overall poverty increased to 8.5 per cent in

1998 from 6.8 per cent in 1997 mainly due to meagre growth rate.

Fortunately, with the economic recovery in 1999, the incidence of poverty

again declined to 8.1 per cent (Table 1). It is, thus, important to learn how

. Malaysia tackled its crisis without much of the social upheaval. The economic

crisis also questioned the conventional wisdom of relying upon economic

growth as a sole factor for alleviation of rural poverty.

In 1998, Malaysia took major initiative to change the criteria of living

standard from poverty line income to quality life index as the latter is more

comprehensive and surpasses from the basic needs of individuals and their·

psychological needs to achieve a level of social well-being compatible with

the nation's aspirations. The Malaysian Quality of Life Index (QLI) is computed

by using 38 indicators derived from ten key areas which are income and

distribution, working life, transport and communication, health, education,

housing, environment, family life, social participation, public safety and

34

culture and leisure32 • QLI has been designed to tackle relative poverty as

Malaysia has achieved advancement in the standard of living over a period

of time.

This chapter has attempted to evaluate basic poverty issues such as

definition, causes, geographic location and occupational structure of rural

poor. By doing so, it has attempted to help in understanding the ensuing

chapters in their proper perspective.

32 For more details on quality of life index, see Economic Planning Unit, Malaysian Quality of Life 2004, Prime Minister's Department, 2005.

35