September 9th, 2009 by Hafiz Noor Shams
Opponents of economic liberalization fear, among many other things, the possibility of giant foreign companies dominating the local market at the expense of local businesses. For those who are simply interested in better quality goods and services, market liberalization introduces competition in the market to improve quality, much to the benefits of consumers. While the war between the two camps is much relished, there is a middle ground for both to tread on and it involves anti-trust laws.
Increasingly in Malaysia, protectionist argument is becoming less and less relevant each time the sun rises and sets to rise again. Intellectually, it is bankrupt. Empirically, it has resulted in missed opportunities and needless sufferings. Examples of protectionist failures and its subsequent ejection are aplenty for all to observe.
Proton, for instance, is still unable to compete fairly despite years of protection granted by the government to the national enterprise. It has also cost Malaysia an opportunity to become a regional center of vehicle manufacturing that Thailand has become. Thankfully, such government protection that once resulted in effective Proton’s monopoly of the local car market will end by 2010, in line with the ASEAN Free Trade Area Agreement.
Another example relates to the imposition of cabotage between Peninsular Malaysia and East Malaysia. With intention of nurturing local shipping companies, it has caused unnecessary increase in cost of living of Malaysians in Sabah and Sarawak by hiking up transportation cost. Tradable goods became more expensive than it would have been under free trade environment. Again, thankfully, despite protest from local ship owners, the removal of the protectionist policy has been successful. Malaysians in Sabah and Sarawak can expect their real wages, ceteris paribus, to go up, thanks to liberalization.
Even as the roles of government see expansion all over the world in the aftermath of the global recession through massive fiscal policy and more, the rationale of liberalization in Malaysia continues to take root. While guarded optimism is called for, recent liberalization of multiple service subsectors as announced by the Najib administration is a proof that – to paraphrase slightly the Iron Lady Margaret Thatcher – liberalization is on the move.
The liberals are winning the intellectual jousting. Yet, this is no time for liberals to rest. This excellent opportunity to push for greater freedom – either economic or individual freedom, although the two should be inseparable – does not come as frequently as it should. With a government seemingly friendly to liberalization policy, there is no better time to push for greater liberalization.
Greater liberalization is required because illiberal market structure like price and supply control mechanism on essential goods such as sugar and flour are still imposed by the government. Just weeks ago, shortage occurred to rudely disrupt routine to remind all of inefficient market.
With momentum on the side of the liberals, they can afford to push liberalization forward. Shoving the agenda is especially easy when discredited protectionist ideas are demonstrable as actual and not merely as theoretical failures.
In spite of cache available for liberals to rely on, continuous shoving of liberal economic agenda does not create ally and it only alienates losers of liberalization.
As a sidetrack, liberalization does create losers but the rationale of liberalization, or actually, free trade, is not that it does not create losers, but rather, on average, it lifts all boats up. This should be juxtaposed harshly with the effects of protectionist policy, which may or may not create winners but guarantees everybody, on average, worse off.
Liberalization exercises are definitely colliding with the New Economic Policy, or whatever is left of it. While it is unclear if there is a majority who supports the policy any longer, there is no doubt that there exists a large segment within Malaysian society who do support it and see liberalization exercises as threats.
On top of that, local business owners, Malay or non-Malay alike, are likely to be hugely unexcited with liberalization effort that inevitably invites large multinational corporations with enjoy economies of scale that these locals could only imagine.
Together, these groups have the political power to derail liberalization exercise in the future.
In order to reduce that possibility, it is imperative for liberals to reach out to the potential losers and their sympathizers to partly, wherever reasonable, alleviate their fear. And their fear of monopoly is reasonable.
Perhaps, the act of reaching out should be an afterthought. The fear of monopoly, after all, should not exclusively belong to only protectionists and their cohorts.
Economic liberals celebrate competitive market. Purely competitive market is of course unachievable due to a myriad of factors but that does not prevent liberals for achieving second best solutions that approximate idealized environment.
The practice of anti-competitive behavior especially by colluding companies with excessive market power hurts the prospect of superior competitive outcomes associated with the ideas of free market.
Anti-trust laws may be able to curb anti-competitive practice. It has the ability to reduce the entry cost for newcomers, which can realize the spirit of creative destruction that every incumbent and even more so, monopolies, fear, despite its positive effect on society at large. Through this, protectionists’ fear should be somewhat addressed. And when it is addressed, liberalization can continue with its forward march to actualize the idea of liberty.
For liberals, the law has to be applied in equal weight. All monopolies, either local or foreign, should be subjected to the same law. If it is unclear, this means it must include government-linked companies as well as local cartels formed by private firms.
This cannot be stressed enough. Anti-trust laws directed at only foreign companies is only a protectionist’s tool and not an enabler of competitive market. Worse, without covering government linked-companies, such imperfect anti-trust laws would only open the path towards greater government intervention in the market.
First published in The Malaysian Insider on September 7 2009.