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interests (represented by the MCA) on the other, had a stake in preserving the 'capitalist status quo' (Jomo, 1986:247).

Another significant feature of the 1957-70 period was that not only did income inequality increase for the population as a whole and especially among the Malays (Jomo, 1986:249), but ethnic disparities in inter-ethnic income distribution also remained largely unchanged.

Table 2.2: Mean Income and Shares in Income Growth, by Ethnic Group, 1957/8-1970 (Malays, Chinese, and Indians Only)

Income

Mean income growth, Total personal income

per household 1957/8-70 ($ million/year Percent Ethnic group ($/month) 1957/8 1970 In $/month In per cent In 1957/8 In 1970 Increase share of increase Malays 139 177 39 28 1,008 1,954 946 41 Chinese 300 399 100 33 1,299 2,426 1,127 49 Indians 237 310 74 31 358 673 315 14 Total 203 262 59 29 2, 665 5,053 2, 388 100 Source: Snodgrass: 1980:83.

The study by Snodgrass of household income as an indicator of income inequality showed that in 1957 the Malays had the lowest mean income $139, compared to Chinese $300 and Indians $237. By 1970 Malay households still had the lowest mean income ($177) while Chinese mean income ($399) was almost twice that of the Malays (Snodgrass, 1980:83). Yet despite these continuing disparities, the role of the state in expanding Malay ownership in the first decade of independence has been generally characterised as restrained or laissez-faire in its approach. Why was this the case? As suggested earlier it was in large part due to the social bases of the Alliance elites and their modus operandi in government.

The nature of inter-elite co-operation that characterized the operation of the Alliance was dependent on continuing respect by Alliance leaders for the terms of the Independence 'bargain' thrashed out between them. The quid pro quo of the bargain often represented by the formula: 'Malay political hegemony in return for unhindered Chinese (and Indian) economic activity' also established the political rules of the game. The bargain therefore constrained the UMNO leadership from even contemplating radical state action to expand Malay ownership as any such action that upset the economic status quo would undermine the very basis of Alliance co-operation and rule.

While the multi-ethnic compromises made between the Alliance elites shaped the

laissez-faire policies of the government and posed structural constraints to Malay ethnic particularism, such outcomes were also sustained by the power and personality of the Prime Minister, Tunku Abdul Rahman and the nature and style of Alliance rule. An aristocrat from the royal house of Kedah, the Tunku had little empathy with the aspirations of urban Malays increasingly conscious of their ethnicity and position as an economic outgroup vis-a-vis the Chinese. Nevertheless criticism of his leadership from Malay nationalists was muted for much of the 1960's as the Tunku continued to enjoy the considerable prestige attached to his persona as the father of Independence (Bapak Merdeka). The Tunku's dominance both of UMNO and the Alliance, and his preference for a style of government which emphasized compromise, ambiguity and gradualism at the elite level, also facilitated a degree of MCA influence that was not matched by the number of seats it held in government compared to that held by UMNO.

The MCA's influence in the Alliance was also due to its widely recognized role as the party that provided most of the funds for the Alliance party's organization (Milne and Ratnam, 1965:196). In addition, the limited extent of MCA participation in the cabinet was largely compensated for by the fact that it held the key economic portfolios, that is the ministries of Finance and of Commerce and Industry. A fiscal conservative, MCA leader Tan Siew Sin's tenure as Finance Minister during the 1960's was characterized by a concern to limit domestic borrowing levels and contain the foreign debt, an approach that while maintaining the Malaysia's reputation for responsible economic management, also necessarily limited the amount of funds that could go to special Malay programs (Jesudason, 1990:54). In that regard Heng (1988:258) has observed that 'Tan Siew Sin probably understood better than any other non-Malay politician of the period, the full economic implications a wide-ranging implementation of Malay special rights could have upon Chinese business interests (and) appears to have successfully influenced the Tunku to pursue a low-key policy in regards to Malay special rights throughout the 1960's.'

While structural constraints (the bargain), and the modus operandi of Alliance rule were important factors shaping the benevolent attitude of the government to foreign and Chinese commercial interests, it is pertinent nevertheless to recall that most Alliance leaders, Malay and non-Malay, shared the Tunku's pro-British attitudes and were generally sympathetic towards those supporting the virtues of a free enterprise economy. As (Funston, 1980:13) has pointed out, this was no coincidence, but a reflection of the similar background of this group which was largely drawn from the privileged classes (aristocratic-bureaucratic for Malays, commercial and English-

educated for non-Malays). Finally, the laissez-faire policies of the Alliance leadership were also reinforced by the advice Malay political leaders received from the bureaucracy, the senior echelons of which were occupied by people who shared the same privileged background and outlook as themselves, that is the so-called 'administocrats'.

In summary therefore, a key feature of the pre-1969 period was a state that did not explicitly or aggressively promote Malay advances into the capitalist sector (Jomo, 1986:254). This is not to deny that the Malay leadership wished to see greater progress in Malay entrepreneurship and ownership of the economy but its approach to securing those goals was long term and ad hoc. We next examine the development of Malay and Chinese business during the 1960's, both as a backdrop to the breakdown of the laissez- faire framework of Alliance rule and to the development of those groups after 1970.

Capital and Ethnicity before 1969

From 1956 to 1970 there were three five-year economic development plans that broadly signalled the government's attempt to "Malayanise" the economy. However those plans did little to alter the pattern of ownership and control inherited at the time of independence and Malay ownership, particularly in the corporate sector of the economy, remained negligible. By the mid-1960's the number of urban Malays had begun to swell as a result of special economic and educational privileges (notably preference in public sector employment, the allocation of scholarships and licences for businesses). Frustrated in their attempts to make significant headway in the corporate sector, aspiring Malay businessmen began to lobby the government for assistance. In spite of the weakness of its organization, Malay business opinion was able to exercise substantial influence with government officials because many of them were, or had been, high UMNO officials or top civil servants (Popenoe, 1970:221).

The response by the government to this pressure marked 1965 as a turning point in the development of Malay capitalism. In that year the first Bumiputra Economic Congress was held. A second followed in 1968. The main thrust of the resolutions that emerged from both congresses was to urge a more active role by the state in support of Malay commerce. In response the government formed the first Malay commercial bank, Bank Bumiputra, in 1965 to provide Malay individuals and companies with easier

access to credit facilities (ST, 8:6:1965). Twelve months later the government set up Majlis Amanah Rakyat, or MARA (Council of Trust for the People) to replace RIDA.13

Despite these measures, and a special allocation of $124 million for the promotion of Malay economic development in the First Malaysia Plan (1966-70), which amounted after all to a mere 3.8 per cent of the Plan's expenditure (Jesudason, 1990:52), progress in the promotion of a Malay capitalist class remained slight.14 The compromise or 'bargain' under the Alliance arrangement continued to restrain the state from making significant inroads against foreign and Chinese capital. As to the latter, Chinese business generally prospered in the 1960's. It benefitted from sustained growth in the economy (GNP growth averaged about 6 per cent for the decade), the loss of the foreigner's favoured position in some sectors, and increased government expenditure on infrastructure. Furthermore, the considerable influence wielded by the MCA in the Alliance government enabled Chinese businesses, big or small, to carry on their activities with a minimum of bureaucratic interference.

A number of Chinese businesses which emerged in the 1960's grew into large and diversified conglomerates.15 Tan (1982:294) constructed a hypothetical scenario for the development of Chinese big business in the following manner:'... the initial activity was usually retailing evolving into wholesaling, importing or exporting. With larger surpluses accumulated and the development of broader experience and outlook, the traders could then move into resource-based activities related to their trading and/or manufacturing.' Tan's hypothesis, as Jesudason (1990:61) has pointed out, encapsulates Chinese business expansion from the colonial era to independence, but in the 1960's

13 RIDA or the Rural Industrial D evelopm ent Authority had been established in 1953 with