Thursday, June 12, 2008
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We Must Face Economic Reality
Since I believe in hearing all sides of an argument, here's a repost of an article by a friend of mine published in The Malaysian Insider. I invite anyone feeling affected by the recent fuel price hike in Malaysia to read this, if you haven't.
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We Must Face Economic Reality -- by Hafiz Noor Shams
After years of plugging a pinky into a hole of an imperfect dike, the rising tide behind it has grown sufficiently large that the dike can no longer withstand the pressure on the other side. The dike was not supposed to be there in the first place and now reality looms. In reaction to the recent removal of fuel subsidy, already there are voices on the street blaming the Abdullah administration of mismanaging the economy. This is a most unfair assessment. On the contrary, the subsidy reduction will benefit our society in the long run.
This accusation has history that goes well past June 5. Higher cost of living was one of the reasons cited why the Barisan Nasional lost significant votes to the Pakatan Rakyat candidates on March 8. In convincing voters to vote for the Pakatan candidates, Anwar Ibrahim had proposed to reduce retail prices of fuel to a level seen in 1990s.
Despite rhetoric, I absolutely doubt a Pakatan government could increase the size of fuel subsidy without hurting the economy in times when real crude oil prices are at record levels. In short, Pakatan’s argument against any kind of subsidy reduction is grounded on populism and not economic reality.
Malaysians so far have been lucky, from a certain point of view, that we are shielded from the harsh reality outside. That shield of subsidy, however, is costly and is definitely an inferior way of spending precious resources.
Instead of artificially fuelling consumption, these resources could be better spent to build capabilities, especially in education and research. More efforts need to be channeled to areas which could structurally improve the economy. A subsidy does nothing of this and it in fact only delays the inevitable march to move beyond petroleum at a very costly manner.
While lucky, I do not think we are learning from the past. We have been at this juncture before and there are lessons to be learned. In the 1970s and the early 1980s, high crude oil prices encouraged greater fuel efficiency. As demand fell with respect to supply due to increased awareness and requirement for conservation, prices dropped significantly and continued to stay low until around 2003.
I am confident that with the right policies in place, the structural changes that brought upon low energy prices in the past can happen again. The key phrase here is the right policies and one of such policies is elimination of the fuel subsidy.
The subsidy we have been enjoying masks the actual cost of consumption and the associated problems like pollution and over-consumption.
With everything masked, it is really hard to rectify any problem in the economy. It is like a noisy generator placed behind a blast door, operating at its breaking point where we do not have to hear the insufferable noise it produced. Despite the state of the generator, it continues to deliver power to us and it gives the perception that everything is fine and dandy when in fact, it is not.
We get the benefit but we are not paying for the cost. Thus, there is a grave disconnect in our cost and benefit model. By the time we find out that something is wrong, it would already be too late to do anything. A subsidy is that blast door and it prevents a signal of impending disaster from reaching us.
Truth be told, Malaysia is not the only country phasing out its fuel subsidy policy. Indonesia is on the same path as Malaysia’s while India and Taiwan are another two. It cannot be that all four different countries conspire to make the life of its own citizens harder. It cannot be that all four different countries are mismanaging their economy. The truth is that a lot of governments in the world are realizing the cost of fuel subsidy regime.
One argument puts forth that since Malaysia is an oil producer country, we should not be paying astronomical retail fuel prices. A tempting point but it fails to grasp the idea of trade-off. Pray tell, with fuel prices much higher, should we consume the fuel as if it is dirt cheap, or sell it to the world market and buy more education, more infrastructure that offer some guarantees of actual economic growth and if we could, buy a more sustainable economy?
The rise of fuel prices is a global phenomenon and the Abdullah administration has no power to dictate world prices. Whether we believe it or not, governments around the world are at the mercy of the invisible hand.
Blaming the Abdullah administration as the cause of higher fuel prices ignores the reality out there. An honest person is not interested in finding scapegoat but rather, is more interested in searching for the best policy fit given the current world scenario.
Higher global fuel prices require the structural transformation of our economy and the first step in transforming the economy is by accepting the fact that crude oil is no longer as cheap as it was in the early 1990s.
A continual upholding of subsidy policy delays the inevitable transformation required and the sooner we realize this, the better will we be prepared for the future. It is time for us to take the bull by its horn rather than sweeping the dust under the carpet by continuing to adopt a policy burdened with a huge deadweight loss, as if the world has not changed.
In Malaysia, there is always a cynical saying about how we have first world infrastructure but third world mentality. Well, this crisis is a great opportunity for us to ditch third world policy for a first world and superior policy.
Besides, the Malaysian government is running on a budget deficit. That means you and I and a lot of Malaysians out there owe somebody money. We should be thinking on how to repay these debts.
By supporting fuel subsidy, however, we are basically swiping our credit cards liberally to finance our expenditure on food, fuel and none on investment for the future. How are we going to pay for these debts if we keep spending our resources so recklessly? Do we pass these debts to our children?
I vehemently say no. We are certainly more responsible than that. We must be more responsible than that.
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The opinions expressed in the above article may or may not represent my own. I invite you to form and express your own opinions based on what you have found out and what you believe is best.
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Comments (2)
I got the gist of his article, and I agree with him. Blaming the government to no end is not going to help us in any way - complain till you go blue in the face, but what can happen? We can riot till the cows come home and we can migrate if we want, but Malaysia is still going to exist and the government will still be there. Not like we're gonna kill them, are we? My dad said something about the elimination of subsidies to me, and though I forgot what he said (yeah, blur-head), I agreed with him. I will tell you later what he said, if I remember to ask him lah
Anyway. My point is that there's no use in complaining. Let's tighten our belts, eat less, spend less, and live frugally. We benefit ourselves, truly.
P.S. Me gusta tu layout ahora!
http://www.malaysia-today.net/2008/content/view/8803/1/
You eliminate the plague by killing the rats
No,
don’t end subsidies. End wastages, high administrative costs and
corruption. Then we will be able to afford subsidies, just like the
other countries that also have subsidies can. And this is what we want
Tengku Razaleigh and Anwar to talk about.
NO HOLDS BARRED
Raja Petra Kamarudin
The country will go bankrupt if the
government continues giving out subsidies, says Tengku Razaleigh
Hamzah. I suppose this is a statement of support for the recent
increase in the price of petrol and a vote of no confidence on Anwar
Ibrahim’s pledge that Pakatan Rakyat will reduce the price of petrol if
or when it comes to power.
I do not quite agree with Tengku
Razaleigh’s statement or with what Anwar Ibrahim has pledged. First of
all, for Anwar to say that the petrol price should not have been
increased is easy. We don’t want to know about what should not have
been. We want to know what should be.
Can Anwar please table his
economic blueprint so that we can see what he has up his sleeve?
Malaysians no longer want to buy this ‘vote me in first and then I will
show you how I can do it’ -- or what the Americans would label as ‘read
my lips’ rhetoric.
Read my lips: there will be no petrol price
increase after the 8 March 2008 general election. Read my lips: I am
not going to call for a general election soon and Parliament is not
going to be dissolved tomorrow. Read my lips: I did not use the
rakyat’s money to buy a RM200 million Airbus. Read my lips: my son’s
company, Scomi, did not get RM1.5 billion worth of contracts from
Petronas. Read my lips: I am not getting married to Jeanne Danker. Read
my lips: I do not have a house in Perth. Read my lips: I am not
involved in the Iraq Oil-for-Food
scandal. Read my lips: Najib Tun Razak is my successor. Read my lips:
Anwar Ibrahim is my successor and I am not going to sack him in three
days’ time and do you need me to kiss him in public to prove it? Read
my lips: only three people are involved in the Altantuya murder. Read
my lips: the Royal Commission of Inquiry will wrap up the Lingam Tape scandal before you can finish screaming mala fide.
Read my lips: I will not be challenging Ghafar Baba for the Umno Deputy
Presidency. Read my lips: I am not rejoining Umno even if I die and am
reborn and I will remain in Semangat 46 until the day I die like Tunku
Abdul Rahman and Tun Hussein Onn. Read my lips: Malaysia did not
physically lose RM30 billion in the currency speculation fiasco and it
is only a paper loss. Read my lips: Raja Petra was not detained under
the Internal Security Act, as I did not sign any detention order. Read
my lips: Raja Petra was detained under the Internal Security Act for
planning to bring in M16s, Molotov Cocktails and grenade launchers to
start an armed revolution.
Nope, no more read my lips rhetoric
please. We have had enough of all this over the last 50 years. What we
want now is for you to put your money where your mouth is. ‘Show me the
money’, the Americans would say. Yes, money talks, bullshit walks --
and bullshit is what has been dished out these last 50 years. It is
time everyone come clean and put their cards on the table, face up. We
want to see what hand they are playing with. Do they have a full hand
or is this mere poker playing?
There is nothing wrong with
subsidies. America subsidises its agriculture until sometimes you make
more money not planting anything, which helps control the price of farm
produce. Japan subsidises exports until it is cheaper to buy a Japanese
camera in Kuala Lumpur than in Tokyo. Britain subsidises education for
its citizens by charging the foreign students high fees.
How do
these countries do it without going bankrupt, if subsidies are supposed
to make a country go bankrupt? Britain, for example, has the best
education system in the world -- and that is why foreign students do
not mind paying high fees to receive a British education, thereby
making it possible to subsidise local students. But then Britain’s
universities are not headed by BTN operatives whose main function is to
brainwash Malay students into believing that Malays own this country
under the Ketuanan Melayu concept
while the ‘immigrant’ Indians and Chinese should be reminded that they
are ‘guests’ of this country and if they don’t like it they can go back
to India or China.
That is why students flock to Britain in
spite of the cost. And that is why Britain can subsidise its citizens.
You can’t get these foreigners to come to Malaysia even if it is free.
Hell, you can’t get them to come here even if you paid them, don’t talk
about free. It is the quality and not the cost or subsidies that count.
If you are able to offer quality education like Britain, the cost does
not matter and locals can be subsidised from the fees the foreign
students pay. So we have to look at the system. We solve the system and
the rest automatically solves itself.
Malaysia’s problem is
corruption. We spend double what we should because of corruption.
Corruption, not subsidies, is what is killing this country’s economy.
Corruption, not subsidies, is what is bankrupting Malaysia. Hundreds of
billions has been wasted over the last 51 years since Merdeka. These
hundreds of billions, if it had been put to good use, could have done a
lot for this country. Today, we talk about ending the subsidies because
we no longer have any money. But we no longer have any money not
because of the subsidies but because of the corruption.
Just add it up. The amount is astronomical.
In
the early days, we used to spend RM1 on administration and RM4 on
development. And this was when we did not have any money. Yet we could
still allocate 80% of the country’s expenditure to development, as
modest as it may have been. Today, after 50 years of ‘progress’, we
spend an estimated RM8 on administration and only RM1 on development.
The Malays call this ‘mahal tali dari lembu’ (the rope is more expensive than the cow).
Out
of a workforce of 10 million or so, 1.1 million-1.2 million work for
the government. This means about 5% of Malaysians work for the
government. And why is that? Just go into any government department and
see for yourself why. No one is working. Everyone is just sitting
around doing nothing. And if you disturb their peace by going to a
government office to ask for something just see the fuck face they give
you. They forget that we are paying their salaries and that they work
for us. We are not disturbing them by going to a government office. It
is their job to serve us.
Indonesia, which has ten times
Malaysia’s population, has only twice the number of civil servants.
Granted things are a bit slow in Indonesia. But considering their very
underpaid civil servants and understaffed civil service that would be
unavoidable. America, which has about the same size population as
Indonesia, has only twice the civil service. Going by Malaysia’s ratio,
America should have a civil service of 15 million instead of just four
million.
We spend RM10 billion to develop Malaysia and another
RM90 billion on administrative costs and ‘leakages’. That is how we
spend our RM100 billion. And that is why we have no money. So herein
lies the problem. Solve this problem and we will have more money for
other things, subsidies included.
No, don’t end subsidies. End
wastages, high administrative costs and corruption. Then we will be
able to afford subsidies, just like the other countries that also have
subsidies can. And this is what we want Tengku Razaleigh and Anwar to
talk about. Don’t say ‘read my lips, no more subsidies’. Instead, say
‘read my lips, no more wastages, high administrative costs and
corruption’. That is what we want to hear Tengku Razaleigh and Anwar
say. And if Tengku Razaleigh and Anwar don’t understand what I am
talking about, then step aside and let me show you what I mean. But be
prepared for a ‘blood bath’ because only a ‘butcher’s knife’ can
achieve the results.
Sigh….I just love the way Iran solved its
serious corruption problem in 1979. They lined up 10,000 corrupted
civil servants and shot them all. No more corrupted government
officers, no more corruption. How I wish I had been born in Iran
instead of England. I would have had a great time in 1979. Sigh…..