JAN 16 — Cut enough subsidies and prices will increase. We have seen the first round of hikes on the prices of basic items and we may soon experience the ripple effect. Many Malaysians are angry and they are blaming the government for it.
The government appears stung. Prime Minister Najib Razak recently expressed his frustration for being blamed for the price of everything. Out of that frustration, he most unwisely went out to take credit for the supposedly price drop in kangkung, as if that would pacify the angry masses. A whole slew of jokes and parodies have erupted over social meda and the prime minister deserves every single bit of it for his silly speech.
More seriously, in trying to reduce the public anger, the government is victimizing others. The government is forcing the private sector to absorb the price hikes resulting from the cuts.
There are allegations that school canteens across the country are hiking food prices up. In response, the education ministry is probing the matter. “Canteen operators should not hike the prices of food and drinks just because the price of sugar has increased, as it would be a burden to students and parents,” minister Idris Jusoh was reported saying in multiple news reports.
School bus operators meanwhile wanted to raise bus fares in December. The Land Public Transport Commission said no, reasoning that it planned to introduce a new school bus fare scheme in March.
I would imagine there will be more instances of this. Even as the government cuts subsidies, it tries to stop others from adjusting to the new economic reality. This is a government that wants to have its cake and eat it too. It is a selective application of free-market principle, as if subsidies are distortionary as the government these days love to point out, but price controls are not.
Please do not get me wrong. I do support the subsidy cuts. One of the reasons I am for the cuts is to have a more efficient market, which among others, made possible from less government intervention. And a cash transfer is a more superior way of improving people’s welfare than a blanket subsidy. I would like to think that I am for better policies.
I am only criticising the way the hikes have been handled because I am worried that the victimization risks creating future interventionist policies, instead of fulfilling the promise of a more hands-off economy.
Those price controls set by the government are forcing businesses to absorb the hikes. These businesses are not your big-time monopolies but small folks driving those buses and operating those canteens. The government’s refusal to adjust the controlled prices is quite unreasonable given the cuts. The worst case scenario of that partial application of free market principles could push these private businesses out of the equation.
Guess who would you call when the profit-motive goes unfulfilled and those businesses go bankrupt?
Somebody has to provide those goods and services. The government, when all else fails, is the provider of last resort. I do not find that an ideal outcome.
Luckily there are other ways the government can deal with the higher living cost and reduce the criticism it faces even with full-steam liberalization on the way. Liberalization here means subsidy cuts and at least the relaxation of those price controls.
I for one would like the government to tackle the problem of monopolies in the country. These monopolies for example control the production, the importation and the distribution of rice, sugar and god knows what else.
They are monopolies not because they are successful or innovative, but because the government gives them too much privilege at the expense of the wider public. They are merely rent-seekers who are backed by the government. That makes me mad and I am sure many feel the same way too.
The prime minister appears desperate to win some brownie points with Malaysians. Unlike the price of kangkung, any price drop arising from actions against the monopolies will be something that the prime minister can rightfully take credit for. I think the typical Malaysian will appreciate that.
