The New Economic Policy (NEP) has affected the lives of all Malaysians. It was adopted in 1971 as a result of the dissatisfaction of the bumiputras (indigenous Malaysians) with their status in Malaysia. Since its inception, the NEP has been the over-riding priority of the government. Its ultimate aim is to foster 'national unity' by reducing the economic imbalances in the economy. This is done through two objectives: the eradication of poverty and the restructuring of society so as to "eliminate the identification of race with economic function." The NEP have a sunset clause of twenty years. As the NEP is expected to be terminated by the end of 1990, speculations exist as to the economic policy in the 1990s. Given that the end of the NEP is only a few years away, this is an appropriate time to assess its impact on Malaysia.
This study aims to determine the effectiveness of the NEP in -achieving its objectives. It will also postulate as to the likely net welfare effect of the policy. This is done by tracing the likely efficiency and welfare effects of the NEP regulations on the commercial sector of Malaysia. As the aim of the policy is one of equality, not efficiency, an evaluation is also undertaken to determine its effects on the changes in the level of equality in the economy.
It is found that the NEP has not been effective in achieving its aim of reducing the economic imbalance of the economy. In fact, the inequalities in the distribution of income have became worse due to the policy. Furthermore, the study also concluded that the policy is likely to result in a net welfare loss to the economy.