KUALA LUMPUR, Nov 5 — Malaysia must gradually dismantle pro-Bumiputera policies and create a free market to escape from the middle-income trap, a libertarian think-tank said today.

A free market would help all, including the Malays, to improve on their lot in life as economic freedom and prosperity come hand in hand, said prominent economist Emeritus Professor Wolfgang Kasper in a briefing paper released here by the Institute for Democracy and Economic Affairs (IDEAS).

“I bet that many young Malays from ‘kampongs’ (villages) will get ahead, even if they come from cultural backgrounds that have been less well-attuned to the modern, dynamic, urban civilisation that we now live in,” Kasper wrote in the paper titled “The hardware and the software to overcome a middle-income trap”.

“The first generation may not match the income standards of affluent urban, cosmopolitan Chinese, but that dilemma will resolve itself over time,” he added.

Kasper also noted that rural, impoverished children are less well-prepared to succeed in business or science than their well-educated, urban counterparts.

“However, if the peasant sons or daughters are exposed to modernity, economic freedom and competition, they have a good chance to learn and do better than their forebears,” he added.

Kasper, who used to serve as Harvard Advisor to Malaysia’s Finance Ministry from 1971 to 1973, noted that according to psychologists, people feel happy after tackling challenges successfully.

“Government subsidies and featherbedding of certain social classes take such challenges away and infantilise people, who then feel that they are unfree wards of the state,” he said.

Kasper said that he had “reluctantly favoured a degree of visible hand intervention” when he first worked for Putrajaya in 1971, the year that the New Economic Policy (NEP) was mooted to address the socio-economic gap between the largely-urban Chinese and the rural Malays, as well as other indigenous Bumiputera, within two decades.

“But I was aware then that there were serious dangers in the ‘visible hand approach’ to tackling poverty,” said the economist.

“Social-welfare policies in the affluent democracies have not worked; indeed, many observers have concluded that open-ended income subsidisation entrenches an underclass of dependents.

“Likewise, income redistribution in developing countries has weakened the incentives to learn and perform and has often contributed to corrupting political practice,” added Kasper.

Prime Minister Datuk Seri Najib Razak has just about a term, or six years, to transform Malaysia into a high-income nation by 2020.

Shortly after Najib first took office in 2009, he attempted to roll back race-based policies, but his ambitions to reform the economy were fiercely opposed by Malay right-wing groups like Perkasa.

Najib then announced the Bumiputera Agenda in September this year, offering the country’s predominantly Malay community access to over RM30 billion in aid and contracts, in an apparent continuation of the race-based affirmative action first introduced in the NEP.

Critics said the move showed the prime minister was pandering to the wishes of Malay right-wingers from within and outside his government, noting the need to shore up support for himself ahead of the Umno elections last month.

The NEP ended officially in 1990, but key aspects of its Malay/Bumiputera-preferred action plan remains in various forms years later.

Kasper stressed today that the key to achieving developed nation status is to promote individual rights to physical or intellectual assets, open competition and equality before the law.

“These are the ‘software of free-market capitalism’ and Malaysia must develop them if we want to move out from the middle-income trap,” he said.

Kasper pointed out that the most economically free countries, in a sample of 152 countries, earn on average a per-capita income that is more than eight times the living standard in the least free nations.

“Operating in low income, steady-state economies is like paddling in a lake; advancing to middle income is like swimming up a slow-moving river; but being part of the affluent world requires the stamina, skills and effort of making it in the turbulent torrents of the headwaters,” he said.