Chapter 2 explores Malaysia’s development strategy during the low-income period from the 1960s to the 1980s, analyzing how the New Economic Policy (NEP), launched in 1971, successfully promoted both industrialization and urbanization while avoiding the urban bias common in many developing countries. Economically, the chapter traces Malaysia’s transition from import-substitution industrialization to export-oriented growth, the shift from rubber and tin to palm oil and crude oil as leading exports, the expansion of labor-intensive manufacturing industries, and the development of rural financial systems that achieved high savings rates through institutions such as the Employees Provident Fund and Tabung Haji. Politically, the NEP emerged as a response to the May 1969 ethnic riots, aiming to correct the colonial-era ethnic division of labor by promoting Malay participation in commerce and industry while implementing direct income support for rice farmers through rice price subsidies and dismantling Chinese-controlled exploitative distribution systems—policies driven by electoral competition between UMNO and PAS for rural Malay votes in an overrepresented rural constituency system.