Roads, water, electricity and public transportation are public goods. This means that usage of roads, taxis, trains, LRTs and buses by one individual does not reduce the amount of the good available for consumption by others; and no one can be effectively excluded from using those "goods".
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Privatization is the process of transferring ownership of business from the public sector (government) to the private sector (business). Malaysia's first privatisation was Sports Toto in 1985.
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Have M'sians benefited from privatisation?
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Have Malaysians benefited from privatisation? There's no easy answer for that. But benefit we can see (and experience) is the quantum leap in economic development and business activity over the past 2 decades. The impact of privatising "public goods" can be seen in the increase in the number of kilometres of roads which has opened up many parts of Malaysia. This increased accessibility has engendered more economic activity, particularly property development and domestic tourism.
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But, we have also been sceptical about the necessity of privatising other public goods, in the sense that many Malaysians believe that the government agencies and statutory bodies that were responsible for these public goods could have done just as good a job.
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For example, in the area of electricity, many of us believe that the old Lembaga Letrik Negara or Tenaga Nasional Berhad ("TNB") could (and, still can) do as good and, as efficient, a job as the Independent Power Producers ("IPP"). Many of us are aghast at the lop-sided Power Purchase Agreements ("PPA") that TNB was forced to sign with the IPPs. We tend to feel that the cost of our electricity has become more expensive due to privatisation.
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Or, take the case of the privatisation of water. Many of us feel that the quality of treated water has worsened. Certainly, the privateers have not addressed the urgent matter of leaking water pipes that causes wastages. The cost of that inefficiency is being passed to us consumers.
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We also feel perplexed when the same government that has assiduously promoted car ownership also blames us for selfishly causing traffic jams and, worse still the same government cannot provide an efficient public transportation so that we can leave our cars at home (so as not to cause traffic jams)! How many productive man-hours have been lost in traffic jams? Or, for that matter, how many quality leisure hours have been lost? Those are costs to us as individuals and, for the Malaysian economy and society.
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Analysing "public choice"
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The expression "public choice" is actually a socio-economic tool of analysis. Public choice is often referred to when discussing how individual political decision-making results in policy that conflicts with the overall desires of the general public.
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For example, many special interest and pork barrel (pardon the American lingo) projects are not the desire of the overall community. However, it makes sense for politicians to support these projects. It may benefit them psychologically as they feel powerful and important. It can also benefit them financially.
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The politicians pays little to no cost to gain these benefits, as they are spending public tax money. Big businessmen are also behaving rationally. They can gain government favors worth millions or billions for relatively small investments.
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The taxpayer is also behaving rationally. The cost for an individual taxpayer of defeating any privatisation project is very high, while the benefits to the individual taxpayer are very small. Each citizen pays only a few sen or a few ringgit for using any of these public goods, while the costs of stopping or cancelling such projects would be many times higher.
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So, everyone involved has rational incentives to do exactly what they're doing, even though the desire of the general constituency is opposite!
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That seemed to be the case for Malaysia until the General Elections of March 8, 2008.
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Alternatives to privatisation
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As we know, "privatisation" is a 1980s and 1990s expression. Now they call it "private finance initiatives". It doesn't matter how finance people deny it, as far as I can tell, it means the same thing.
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Malaysians have always been sceptical about the efficiency of the civil service. But, let us not forget that the revamp of the Immigration Department and National Registration Department was successfully done. No more complaints have been heard. The Road Transport Department is still rubbish, though. But change is possible if there is political will.
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Let us also consider the corporatisation of the Securities Commission, the Companies Commission and, even the Inland Revenue Department. We cannot deny that performance has improved.
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So, do we really need privatisation? The answer is a qualified NO! The qualification is that certain things must be put in place in order to get rid of privatisation:-
- Appointment of management and supervisory staff must be strictly on merits, not ethnicity.
- Salaries and wages must be competitively matched against equivalent positions in the private sector.
- Accountability and governance must be strictly monitored. Quarterly audits of finances and management processes by public accounting firms must be made mandatory. Their reports must be made public. No different from companies listed on Bursa Malaysia.
- Regular parliamentary scrutiny must also be made a feature.
That still leaves the matter of how to finance these projects. Let's look at the alternatives to the privatisation financing model:-
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a. Government or Sovereign Borrowing
- Obtain loans from other countries or international funds.
- Borrowing from private financial institutions or issuing debt instruments like bonds - These transactions create sovereign debts. The only issue is the mode of repayment and, interest and currency risk.
- Issue Treasury Bonds aka Malaysian Government Securities.
b. Mandatory Taxation
- Income tax.
- Sales and value-added tax.
c. "Voluntary Taxation"
- Lotteries.
- Public charities and donations.
Let us not forget that the ordinary citizens and taxpayers will still be required to pay to use any of the public goods. This is a source of revenue. It won't be for free, of course.
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"Voluntary taxation" via lotteries as a form of public finance has been abandoned since the 1980s. As mentioned earlier, Sports Toto was a statutory body until it was privatised in 1985. It was intended to be a vehicle to raise funds for the development of sports in Malaysia. Sadly, with privatisation the original objectives have disappeared.
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Before the repeal of its legislation, the social welfare lottery was a key public finance vehicle for the welfare and services ministry. In its earlier guise, it was a lottery managed by the Malaysian Chinese Association.
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What is so fundamentally wrong if this form of voluntary taxation is now deployed as a government policy to fund projects such as:-
- Roads, highways and bridges (yes, even the 2nd Penang Bridge!).
- Subsidise public transportation.
- Education scholarships.
- Sports development.
- Tourism-related projects.
- Micro-financing.
- Welfare schemes.
The beauty of a voluntary tax is that the "taxpayer" who buys the lottery, sweepstake or 4-Digit number is HAPPY to part with his money. We cannot say the same for the taxpayer who pays his tax assessment.
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If we combine the reported annual sales turnover of all the entities involved in lotteries, gaming and wagering in Malaysia, we have about RM12 billion. Assuming RM7 billion is used to pay prize monies and RM2 billion is used for operating expenses (and whatever else), there is still RM3 billion available for public finance. Think about it!
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Just let charitable public foundations have the annual licences issued by the Ministry of Finance. Trustees of these public foundations are allowed a tenure of 2 terms of 2 years each. Their accounts, charitable donations and disbursements must be audited quarterly by reputable firms of public accountants. As public foundations, they must be subjected to parliamentary scrutiny.
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Lottery operations can be outsourced on 5-year contracts. Tenders and proposals must be public. Tender committees must be outsourced to combined committees of public accounting firms and law firms.
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The lurking suspicion one has is that whether it is BN or Pakatan Rakyat that runs the federal government, this form of voluntary taxation will NOT take place. It's a political "hot potato" on irrelevant considerations such as social morality or religious sensitivity. Oh! Let's not forget the powerful lobbying from the businessmen who have a vested interest in these lottery, gaming and wagering ventures. Can Makkal Sakhti happen in the area of public goods management and financing?
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