This is a NAVAL POSTGRADUATE SCHOOL MONTEREY CA DEPT OF NATIONAL SECURITY AFFAIRS report procured by the Pentagon and made available for public release. It has been reproduced in the best form available to the Pentagon. It is not spiral-bound, but rather assembled with Velobinding in a soft, white linen cover. The Storming Media report number is A342024. The abstract provided by the Pentagon follows: The effort to achieve development in Malaysia raises the question of how to develop a country where inequality between racial groups is significant. Of the various efforts made to achieve this goal, the most important is the New Economic Policy (NEP) , a corrective policy to assist the Malays in socio- economic development. In essence, this was an affirmative action policy for a majority of the population that was economically behind the minority Chinese- Malaysians. However, the racial-oriented policy cannot respond effectively to the new problem of intra-racial inequality, which results from the policy itself. Although sustained through the rhetoric of racial equality, the NEP has created other implications, the intra-racial inequality and an uncompetitive community. In order to develop a more competitive economy, a meritocratic system emphasizing personal contributions rather than privileges should he investigated. This paper weighs the merits of affirmative action policies and meritocracy as approaches to national integration in Malaysia, and subsequently towards Malaysia's goal to he a fully industrialized country by 2020. This study finds that, due to the continuance of inter-racial disparity, Malaysian society is not prepared to implement total meritocracy within the next few years. The thesis identifies various steps needed to "level the playing field," that will require firm decisions by the government and sacrifices by the population.