Chapter 3 analyzes how Malaysia navigated the transition from quantitative to qualitative labor force expansion during its journey from lower-middle to upper-middle-income status, focusing on the New Economic Policy’s mobilization of rural Malay workers into urban commercial and industrial sectors, the subsequent reliance on foreign workers that both addressed labor shortages and hindered industrial upgrading, and the evolution of income inequality patterns from inter-ethnic to intra-ethnic disparities. Politically, the chapter traces Malaysia’s shift from prioritizing ethnic redistribution policies toward growth-oriented strategies, analyzing the contentious debates of the late 1980s over post-1990 development policy that culminated in Mahathir’s Vision 2020 and enabled crucial reforms, including the liberalization of higher education. The analysis demonstrates that while the New Economic Policy successfully reduced poverty and narrowed ethnic income gaps during the 1970s—1980s, the persistence of foreign worker dependence and delayed expansion of higher education until the mid-1990s reflected the political challenges of balancing ethnic preferences with economic imperatives in a multi-ethnic society.