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Let’s go all the way with market economy

October 4, 2014

While the government gradually withdraws the fuel subsidy, it is introducing numerous other distortions to the economy.


By T K Chua

kedai 1malaysia300The government has again reduced the subsidy on fuel, saying it is unsustainable, it encourages smuggling and it benefits the rich more than it does the poor.

We can all agree that subsidies, if not properly rationalised and administered, could disrupt the functioning of a market economy, leading to resource misallocation, arbitrage and wastage.

But is Malaysia a market economy today? Do we strictly allow competition, demand and supply to determine prices?

While the government gradually withdraws the fuel subsidy, it is introducing numerous other distortions to the economy at the same time. Has it ever occurred to us that BR1M is another distortion which may spin out of control? The number of people qualifying for BR1M is ever increasing and the amount to be given to each is getting bigger.

If we are not vigilant and prudent, BR1M would soon evolve into another monster that will weigh down government finance. While we have not fully resolved one problem, we are already fervently creating another one.

We can’t have our cake and eat it too. If we want the market economy to work, we must remove distortions, not create new ones. A high income economy can’t afford to have too many subsidies and distortions. Instead of BR1M, we must have appropriate income and productivity policies. Having BR1M is like eating Panadol; it is temporary relief from the symptoms of a disease.

Apart from BR1M, we have numerous other schemes that will eventually encroach on government finance and affect the working of the market economy further. We now have special programmes for government pensioners, fishermen, farmers and hawkers.

And we have Kedai 1Malaysia, which baffles me quite a bit. Can anyone explain how and why Kedai 1Malaysia is able to undercut other grocery outlets for products of similar quality? Let me give you three possible answers: first, Kedai 1Malaysia is more efficient than other established distributors; second, Kedai 1Malaysia is more altruistic; third, Kedai 1Malaysia is being subsidised. I think you and I know which of the three answers is most plausible.

Level playing field

A market economy is supposed to provide a level playing field for competition to work. Instead of imposing price controls and employing an endless number of enforcement officers, we should allow more players to enter the market.

We complained about the price of beef but we set up NFC, which blew a hole in our pocket. We should have come up with a scheme that allows anyone to become a cattle farmer and anyone to import beef. This is Economics 101.

The government has repeatedly said it subsidises many essential products, from sugar, flour, rice to fuel for the benefit of the people. But have we realised that all the petrol stations in the country are selling petrol at the same price? I know it is a subsidised price but did the government pay all these different oil corporations different subsidies? Or are we to assume that all oil companies in Malaysia are equally efficient or inefficient? Maybe this is Economics 501 because I don’t expect some of our leaders to understand it.

Also, have we ever thought about liberalising the rice, sugar, flour and car markets in Malaysia?

Why is it so difficult to understand that if we are allowed to buy our marques at market price, we will be most willing to buy petrol at market price too? The amount in taxes that we pay when we buy a car is more than sufficient for us to buy petrol at market price for the lifespan of that car.

Hence, where is this fuel subsidy for the rich coming from?

Similarly, this argument about developing Malaysia’s competitive edge in the auto industry has really become delusional. Many no longer believe it anymore. The same goes for sugar, rice and flour. Just liberalise the market. Take away the APs and the monopoly status and we shall see what happens.

T K Chua is an FMT reader.


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