Fuel Hikes: Somnambulism and Insolence

Is the fuel hike necessary? Why now? As reported in Malaysiakini on June 7, 2008 "PM: Understand reasons for fuel hike", the PM has asked for us to understand the reasons for the fuel hike. He says it is due to the global price of oil. That may be true. Certainly we are aware from news reports that fuel hikes have been felt all over the world. Even the United States is not spared. There are demonstrations in India. The stock market melt-down in Vietnam is partly due to its being a net oil importer.

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But, wait a minute, isn't Malaysia a NET EXPORTER of oil?

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The CEO of Petronas has made a public statement that Petronas is not Santa Claus. The Malaysian public is warned that our oil reserves will be depleted by 2014. The underlying message is for us to shut up and put up with this fuel hike.

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We are also bombarded with messages that we have to curb our wanton consumption. Belt-tightening is necessary. But, wait a minute (again!), isn't the PM reported as saying in the Malaysiakini report that the Malaysian economy grew at 6.3% last year. Furthermore, Malaysia is supposed to be at full employment (which probably explains why there are so many foreign workers in our midst). So, things should be looking up. But, while large corporations are announcing bumper profit growth, the small and medium enterprises (SME) are facing challenges. Salaried workers are experiencing the effects of inflation on their disposable income even before the fuel hike.

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Some quarters estimate that since the formation of Petronas some RM3 TRILLION has been received by the Malaysian government. Now there is a major outcry for a full disclosure of where the wealth has gone to.

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There is one aspect of the Malaysian economic policy that may partly explain where the wealth has been frittered away.

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The populist policy of price control and subsidies

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Prior to the 1980s the government applied subsidies for improvement of padi farming, rural land development and resettlement schemes, education and certain manufacturing activities. These were target-specific subsidy policies designed to encourage and enhance PRODUCTION in key areas of the Malaysian economy.

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During the Mahathir era, a more populist approach was used in the realm of economic policy. Subsidies were introduced in the area of CONSUMPTION. For instance, the Approved Price Mechanism (APM) was introduced in 1982 to regulate pricing of petroleum products. This is a price control mechanism for the government to step into the free market pricing mechanism for petroleum products. We now know this as the petrol price subsidy.

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Subsidies and price controls are a distortion of the price-fixing mechanism which is based on the laws of supply and demand. It is not an unusual policy especially in the agricultural sector. Even the United States and Japan has agricultural subsidies.

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But the APM was a GENERAL POLICY that benefitted any consumers of petroleum products. In other words, any motor vehicle owner would benefit from the subsidy. That is why it was a populist measure. Why was it necessary? This is something Che Det may wish to answer in his blog. The APM benefited only owners of motor vehicles. Why couldn't the funds be used for more productive purposes?

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Faustian pact

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The point here is that by introducing populist measures like the APM, Malaysians are offered an addictive drug. This has made the entire country uncompetitive. It is a crutch that was foisted upon us to ensure the popularity of the political party in power. This type of molly-coddling policy affects the cost of goods and, affects the efficiency of the process of producing goods and services. It makes us think that we are productive and efficient when, in fact, we are not.

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To digress a little, this is the self-same approach that has made Proton so price-competitive. Import duties are imposed on imported cars to make imported cars more expensive. Proton's inefficiencies are all absorbed by a slew of special fiscal policies designed to protect a weak car manufacturer.

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But, like all such populist measures, price controls and subsidies are a Faustian pact. It is a deal with the Devil. It will and, it has come back to haunt us. The party is over and we are all suffering a major hangover. Overnight, our cost of living has increased tremendously.

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The cost of the subsidies and price control mechanism is likely to been drawn from and, paid from the Petronas revenues. That is likely to be where the billions of Ringgit of Petronas money has been used. Of course, there are many other "leakages" that we can be sure Pakatan Rakyat will get around to audit at some point in time. But that is another story.

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Understand reasons for fuel hike?

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In the context offered above, we have to wonder if Abdullah Badawi really and holistically understand the reasons for the fuel hike.

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We are now asked to go "cold turkey" as the opiate of price control and subsidies are violently weaned from us. Many Malaysians can adapt. But many more Malaysians in clerical and labouring jobs may not be able to make ends meet.

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This is the type of government policy that we fear the most. A little bit of do-gooding followed by a double- or triple-whammy. It's like being invited to a karaoke party and to be left holding the bill. That is okay between friends (sometimes). But that is not okay between the rakyat and kerajaan.

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There is little point in the current government leaders blaming the previous leaders. BN (and its former guise, the Alliance) has ruled Malaysia for the past 50 years. We have accepted the paternalistic policies for all this time. We implicitly TRUSTED in the political and economic wisdom of the BN leaders. The economic policies have seamlessly morphed from the 1950s to the current millemium. But as time elapsed the fiduciary feelings of the Merdeka leaders have deteriorated into the bunch of leaders that exhibits what Hamlet described as "the insolence of office". For the record that "bunch" includes those from 2 decades or so ago.

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Worse still, certain leaders suffer from a condition that Franklin Roosevelt called "somnambulists walking backwards".