Diesel Subsidy Uproar
Written by johnleemk on 10:12:19 am May 12, 2005.
Categories: Malaysian Economy, Malaysian Government
What's the fuss? The government upped the price of diesel by 10 sen, and the price of petrol by 8 sen. So? Our prices are still the lowest in the region. We need to tough it out. Not all of us need the subsidies in the first place, and prices will eventually return to more normal levels.
As a matter of fact, I think it would be better if all fuel subsidies were completely eliminated. Destroyed. Pound into the ground. Annihiliated. Obliterated. You get my drift. There's simply no point in them. The idea of just because we have money, we should spend it, does not make sense to me.
These subsidies allow Thais to smuggle cheap fuel into their country and sell it for a huge profit. It might be acceptable if this subsidy benefited Malaysians, but here it's clear that this subsidy doesn't even do that; the group that benefits the most is the Thais.
Some argue we need to subsidise the price of fuel so as not to drive the poor into even tougher financial straits. Well, I ask, what's wrong with giving them money or vouchers exchangeable for fuel? We don't need to subsidise the middle or upper classes. And remember, how are the rest of the world's industries and farms doing without these fuel subsidies? If we need subsidies to compete on a global level, what does that tell us?
We need to stop trying to fix a symptom and get down and dirty with a cure for this disease of subsidy-reliance. The sooner these fuel subsidies are phased out, the better for everyone. Remember, every ringgit that isn't spent fueling a BMW is a ringgit spent on scholarships or rural aid. Or, if you're cynical like me, spent on lining politicians' pockets.
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| Related comments from forum thread "Medicinal Monopolies": | |
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johnleemk
Infernally Rambling Thoughtless Mind Head Administrator Posts: 949 IP Logged | Posted at 6:37:34 am Nov 2, 2005
One of the major problems I see facing modern medicine is the appropriate pricing of medicines. You see, it costs a lot to develop modern drugs - you not only have to pay for researching and marketing it, but also for test trials, etc. Furthermore, it also involves a lot of investment in time on the part of medical companies - a lot of time, on the scale of decades, even. If a drug doesn't pan out by say, not getting approval from the US Food and Drugs Administration, they may have wasted millions of dollars on nothing. As a result, medicinal companies need to charge higher and higher prices to recoup their costs. However, to be able to charge such high prices, the demand for the drug must not be very elastic (the customers must not be turned off by a huge rise in the price of the drug). And in a market where other drug companies can be selling similar medicines, demand tends to be rather, well, elastic. This makes it financially unfeasible to develop drugs, especially complicated ones like those for AIDS or cancer. After all, what's the point when your competitor will be selling the same drug as yours under a different name within a few months? You might call this market failure, but the market has done nothing wrong; it's just impossible to profit from developing complex drugs. Therefore, the governments of the world have stepped in to encourage drug development by awarding 20-year patents to drug discoverers. For 20 years, the company that discovered the drug will be the only one in control of who gets the drug - it's a monopoly. Now, this might be a good thing, except for the fact that once again, you've got the nasty market to contend with - the prices are high, remember? With diseases that affect mainly the poor, such as AIDS, this can cost millions of lives for the sake of a few dollars. Sure, you could argue that the government could step in, but how? If it forces companies to lower their prices, there will no longer exist any incentive to develop new drugs. If the government itself subsidises drugs, there will be an incredible cost to taxpayers that many would find unconscionable. (Hey, remember the prices were artificially jacked up by the gifting of a monopoly to the drug manufacturers?) Arguably, socialism has come full circle - the interference in the market has come back to bite socialists in the ass. (Even though the measure is pro-business, remember it interferes with the workings of a free market.) Some would argue that the monopoly is a natural monopoly, and that we should step aside and allow the free market to work. Such is the economic orthodoxy, but it's easy to say this to an audience of educated (and probably not dieing or starving) professionals. It's another thing to say this to the face of those who will face a struggle with cancer or AIDS for every day of the rest of their lives. A humane but practical solution has to be found. Of course, there are also the even more extremist who would question that statement. After all, worshipping the omnipotent, omniscient free market is the "in" thing of economics nowadays. However, anyone who has ever bothered to read and comprehend an undergraduate economics textbook knows such a "free market is always right" stance to not only be wrong but downright dangerous. The free market is a means to an end, not an end in itself. Economics teaches that the market exists only to produce and allocate goods and services. Once you have understood this, all the romance and mysticism of the free market are gone. But if you don't stop there and dig further into your undergraduate textbook, you'll find that the market isn't even always right when it comes to the distribution of goods and services - indeed, it can be horribly, horribly wrong. That's why the term "market failure" has been coined. The market fails when it allows a monopoly or oligopoly to erect barriers to entry, when it allows imperfect information, or when it allows externalisation of costs. The market is an imperfect tool - a good one, mind you, but nevertheless, rough around the edges. Thus, we return to the original question - how do we provide drugs at an affordable cost without stifling the incentive to research and manufacture such drugs? We've struck subsidies and the outright removal of the patent system without replacing it off our list, so what's next? One common solution is to lower the length of the patents so that the drug recipe will be released into the hands of other companies sooner. This is just tinkering with the system, and offers no real solution. Furthermore, by lowering the length of the patent, the incentive to research costly drugs will also dissipate somewhat. So we have to cross that one off our list. What's next? Well, here's a thought - an impractical one, but still a thought - drug bounties. Simply, governments would award the first one to come up with a drug that cures AIDS/cancer/whatever a certain amount of money, commensurate with the importance of the drug. This of course has its drawbacks - to be effective, the taxpayers will again have to open their wallets, and the price may be difficult to optimise (how do you know whether you're paying too much or too little for the cure for cancer?). So, as you can probably tell by now, there is no real answer. There's no solution - at least, one isn't anywhere in sight in the near future. Still, it's quite the challenge, and you mark my words - the man who discovers how to optimise the production and distribution of drugs will win the Nobel Prize in economics. It's quite simple - in this case, there has been no market failure. So now we just have to figure out how to stimulate costly drug production without the help of the market. Well, it's not that simple. But you get my point. |
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jasoneight
Member Posts: 3 IP Logged | Posted at 12:43:23 pm Apr 10, 2007
The article in the Sun mentioned that farmers in Malaysia will suffer if the MUFTA is signed but there are no details provided. I remember some NGOs and other individual parties claimed in the press that our local farmers would be affected by the FTA, in that there will be an influx of rice from the US in the local market after the FTA and consequently affect local farmers. But in fact, this is not the case. In reality, rice production in Malaysia is not enough and we have to import 30 percent of our rice. This comes mainly from Vietnam which accounts for 420,000 tonnes or RM415 million worth of our rice import and from Thailand which accounts for some 300,00 tonnes of rice imports. This compares with only an import of 385 tonnes of rice from the US worth RM1.36 million. If at all, then Malaysian rice is in fact competing with the rice from Vietnam and Thailand as the grade is the same, and not with that from the US, which is of a different grade and caters mainly to the Japanese and Koreans in the country. Malaysian local white rice costs about RM2.20 per kilo while the rice from the US costs about RM10.25 per kilo. It is therefore clear that the rice from the US cannot compete with the local rice based on simple pricing and economics. |
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johnleemk
Infernally Rambling Thoughtless Mind Head Administrator Posts: 949 IP Logged | Posted at 1:23:48 pm Apr 10, 2007
Hm...nice research there, but your comments suspiciously resemble those of some government officials who have commented about the FTA, right down to the wording.  |
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jasoneight
Member Posts: 3 IP Logged | Posted at 1:34:34 pm Apr 11, 2007
The facts speak for themselves - plain and simple - not like those who mouth other sweeping, general and emotional statements. These facts don't get reported in full often enough as they are not sensational and do not help sell papers.It is more dramatic to say that FTA destroy lives and take away our sovereignty. Too often we forget how the Hong Kong economy was built. |
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zedtransf0rm
Member Posts: 2 IP Logged | Posted at 10:21:04 pm Oct 26, 2008
The principle of comparative advantage has been seriously challenged recently. David Ricardo's original assumption was that international capital movement was unlikely, and was restrained in the same way that land and labour, the other factors of production, were. See sections 7.18 and 7.19 of his book. However, this is no longer the case, and it is questionable whether comparative advantage exists in today's climate of unrestrained movement of capital |
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zedtransf0rm
Member Posts: 2 IP Logged | Posted at 10:26:42 pm Oct 26, 2008
Free Trade Agreements are not the same thing as the International Trade envisaged by Ricardo. For example, it can be argued that the maintenance of tariffs against the import of grain into the USA affects the price of exported commodities. The FTA is really a doctrine, not an economic actuallity. There were massive arguments raised against Intellectual Property Rights in the development of Free Trade Theory during the 1800's, and the assertions were supported by theory. However, the emerging monopolists soon removed such discussion from the theory. We don't see much theory, unless supported by a regime of political ideology. Ecelecticism is not logical |
