Malaysia is widely seen and often cited as a successful case of a multicultural society that has equalized socio-economic opportunities for diverse ethnic groups. The rapid economic growth, structural change and industrialization in Malaysia have caused the country to be cited as a leading exemplar of ‘growth with equity’. While acknowledging the achievements of Malaysia, this study suggests that closer attention to Malaysian experience reveals many subtleties, which greatly qualify this picture and nuance the policy lessons to be drawn from it. Malaysia has not been among the East Asian economies with low inequality, while regional differences have grown, leading to political tensions in the country.

The study provides a brief introduction to the historical origins of socio-economic inequalities in Malaysia. The record of the New Economic Policy and its consequences for inequality, as well as its implications for reducing inter-ethnic tensions and conflict, are critically evaluated. Subsequently, regional economic inequalities, both in terms of contributions to overall growth as well as on the fiscal front, are reviewed. It is suggested that the almost singular official focus on inter-ethnic inequality at the expense of other sources of economic inequality has constrained the effectiveness of public policy in ensuring greater inclusion. Thus, the challenge of addressing social exclusion remains, and the continued cultural, social and political mobilization along ethnic lines are likely to forestall significant class mobilization.