Categories
Economics Politics & government

[1134] Of Malaysian political parties on the economic spectrum

Within Malaysian politics, I do think economic philosophies have taken a back seat to the point that typical left-right classification of political parties is meaningless. Nevertheless, I would like to classify Barisan Nasional, DAP, Keadilan and PAS accordingly. I will leave the others alone since I do not think the rest are worth talking about at this point.

First stop is the Barisan Nasional, the coalition that has ruled this part of the world for more than 50 years; BN itself is older than Malaysia. Labeling BN is no easy task because, in my opinion, the parties of the coalition band together for power more than anything else. Classification is not made any easier when, the most important party, UMNO for instance, has pursued liberal economic policies as much as it has advocated some left leaning ones. More often than not, UMNO economic policies are ethnocentric which perhaps could fit into typical protectionist policies. UMNO and in my opinion, even MCA and MIC for that matter, are too pragmatic to simply fit into a class. Another component party, Gerakan, on the other hand is pretty liberal. Regardless of Gerakan, given how much central planning is observable in this country and the fact that Malaysia is a mixed economy, I would say BN sits somewhere in the center with slight variation from time to time.

If the act of classifying BN is tough, trying to do the same thing with Keadilan is harder. While BN is a coalition of parties with diverging economic ideals where pragmatism has taken over, at least, if one goes through of the component parties, one might be able to recognize each party’s leaning. The same method unfortunately will not work with Keadilan because Keadilan is a party by itself. Instead of a coalition of parties with different backgrounds, Keadilan is a party of individuals with different backgrounds. They have liberals in classical sense, they have communists, socialists, Islamists; you name it, they have got it. I do not know how Keadilan manages to get liberal and socialists along with Islamist under one roof. A greater mystery is how Keadilan manages to keep them from ripping each other apart. Therefore, I am unsure which direction Keadilan would be taking and I bet Keadilan as a party itself is unsure which path it would want to embark on. The best word I could uses to describe Keadilan is populist. Some people that I know in Keadilan themselves are contented to be mere populists.

Contrary to the two, DAP is easy to label. Without doubt, it is a socialist party. Or, if you like it, a social democrat party.

Finally, PAS. I am happy to say it out loud that PAS has no economic policy; they are too busy policing morality that they have no time for the economy. Nevertheless, Islamic economics does support welfare state arrangement to some extent. Yet, I am hesitant to take that into account as far as PAS is concerned because PAS is pretty clueless about the economy.

Categories
Economics Science & technology

[1132] Of for WiMAX, the winners are…

A big event is expected to occur tomorrow, possibly testing the efficient market hypothesis along the way:

PUTRAJAYA, March 15 (Bernama) — The government will announce the WiMax (Worldwide Interoperability for Microwave Access) licence recipients Friday. [Govt To Announce WiMax Licence Recipients Tomorrow, Bernama, March 15 2007]

Four WiMAX licenses are to be awarded with 17 entities bidding for it in this natural experiment:

The applicants for the Wimax tender include three of the country’s four 3G (third generation) spectrum holders, namely Telekom Malaysia Bhd, Maxis Communications Bhd and MiTV Corp Bhd.

The other bidders are DiGi.Com Bhd, NasionCom Sdn Bhd, MIB Comm Sdn (controlled by Green Packet Bhd), Jaring Communications Sdn Bhd, Asiaspace Bhd, Go Lightspeed Broadband Sdn Bhd, Bizsuft (M) Sdn Bhd, IP Mobility Sdn Bhd, Optical Communications Engineering Sdn Bhd, Celcom Timur (Sabah Sdn Bhd), Fibrecomm Network (M) Sdn Bhd, SGR Capital Bhd, REDTone-CNX Broadband Sdn Bhd, YTL e-Solutions and Electcoms Wireless Sdn Bhd. [Govt To Announce WiMax Licence Recipients Tomorrow, Bernama, March 15 2007]

By looking at the share prices, a lot of people are betting their money on YTL E-Solutions:

Copyrighted by The Star. Fair use.

According to various sources, another two other leading candidates are Greenpacket…:

Copyrighted by The Star. Fair use.

…and Redtone:

Copyrighted by The Star. Fair use.

In economics, efficient market hypothesis states that all information relevant to security pricing is reflected in prices. Let us see whether those prices, as far as the WiMAX bids are concerned, fall under weak, semi-strong or strong efficiency. Or none at all for that matter. If those prices fall under strong efficiency categorization, one has every reason to believe that YTL e-Solutions is going to win one of the licenses.

Let us see if those science fictions I learned at Michigan would bring some quick buck.

Categories
Conflict & disaster Economics Environment

[1131] Of internalizing externality at the Malacca Strait

The Pigou Club would love this:

KUALA LUMPUR: Every ship transiting the Strait of Malacca should pay 1 U.S. cent per dead weight tonnage into a fund to help maintain the world’s most important maritime trade route, regional maritime experts proposed Wednesday. [Experts propose upkeep for Malacca Straits, The Star, March 14 2007]

While I think it is marvelous, we should carefully differentiate the act of internalizing externality and the act of taxing for the sake of generating income. On top of that, the possibility shippers using the Sunda Strait instead of Malacca needs to be considered; a sufficiently high charge would increase that possibility. Further, an improperly implemented Pigovian tax would simply transfer the problems the Malacca Strait is facing to other areas with no Pigovian tax, instead of eliminating it.

Categories
Economics Liberty

[1129] Of spontaneous order at the Malaysian Nature Society

While helping to clear out the ground where Raptor Watch was held last Sunday, I was impressed at how liberalism, classical liberalism, came to life at the Malaysian Nature Society-organized event. It started out when we had lots of stuff that needed to be moved from one spot into a storage room. Not only there were too many things to be moved, they were heavy too. Since there was a Miss Malaysia helping out too, I doubly sure everybody wanted to help out too!

That definitely eliminated the problem of non-participation.

At first, people, including me, picked the things up and carried it all the way from that one spot into the store. The presence of the beautiful Miss Malaysia somehow made the route between the spot and the store crowded. Ah, boys will be boys. The fact that the things were heavy did not make the congestion any easier to shallow, especially for a frail guy like me. We actually had to line up to get to the room.

Suddenly, after awhile, no longer we found ourselves moving to and fro, doing no work as sadistically described by Newtonian physics. Upon discovering that lining up slowed down the process, the line became a human conveyor belt instead; only the things moved as a person passed it to the next and the next to the others up front, right up to the store. The system, from chaos to order, sped things up though it did not become perfect immediately. Each of us was standing too close to each other. So, it took up too many resources; too many persons working in the system. Soon, we spread out, made the processes more efficient and inevitably, forced several individuals into redundancy.

Instead of doing nothing, probably encouraged by the presence of Miss Malaysia, they went to do something else useful by picking up some trash or stamping on the aluminum cans and plastic bottles for recycling purpose. Better yet, some started to feed the human conveyor belt with weird stuff to the point I could only mutter, “what the hell?”

The belt became so efficient that practically anything reasonable that could be carried by a reasonable person could be fed into the reasonable system reasonably. Totally reasonable!

After it all was done, I sat down, smiling. Partly because I was munching some kind of nuts with Miss Malaysia, partly because I understood exactly what had happened; it was spontaneous order; to an extent, an analogy to free market. There were no central command; only free agents doing what they thought would be best at the moment. The system sought efficient equilibrium without a dictator. I was so impressed of the incident that on the way back to Kuala Lumpur, that was all I could think of.

Hayek would have smiled too. Probably, both Salma and Friedrich, too.

Categories
Economics

[1124] Of moderating the FTA-related drug prices increase

It is March and the deadline to forge a free trade agreement between Malaysia and the United States is looming closer. Here, I want to share a solution that could lay a middle ground between the supporters and the opponents of the FTA as far as drug prices are concerned.

Firstly, it is good to recognize why the prices of drugs could go up if the free trade agreement is signed. The increase is exclusively due to stronger intellectual copyrights law and not due to the principles of free trade. Though a majority of us, including me, does not know the exact detail of the FTA, there is enough information flying out in the public to be sure of that. With stronger copyrights law, cheap generic drugs would not be allowed to be sold as widely as it is available at the moment, in favor of patented drugs. Makers of patented drugs would be able to enjoy higher sales for longer period without the risk of competing with cheaper generic drugs.

While I generally support freer trade, I do sympathize for individuals that would be adversely affected by higher drug prices. Nevertheless, it is imperative for us to respect private property and directly, incentive for innovation. Between the two factors, a dilemma. The dilemma must be solved if the Malaysia-US FTA is to become acceptable to as many Malaysian as possible.

Here is what I propose to solve the dilemma: there is a role for the government. The Malaysian government could buy drugs from pharmaceutical companies and then resell it to the public through public health infrastructure at cost.

I know, I know. Anybody that is familiar with this blog would not expect me to propose a statist solution. Before you bang in the head however, please read on.

The program that I am thinking of might be distantly similar to what is practiced in Australia while stopping short at down right subsidy. The Malaysian government could buy drugs through auction and I am thinking reversed modified Dutch auction.

I am unsure if reversed Dutch auction is a common economic term for the kind of auction I have in mind but a Dutch auction works like this: there are a seller and many buyers. For simplicity and clarity reason, I shall call the seller as the auctioneer while the buyers as bidders. The auctioneer begins the auction by placing a high ask price. The price will be lowered by the auctioneer if there is no buyer. The auctioneer will continue to lower the price until there is a willing buyer. A variation of this auction was practiced during the initial public offering of Google back in 2004.

A reversed modified Dutch auction, as I call it, is a scenario which there are a buyer and many sellers. The buyer is the auctioneer while the sellers are the bidders. In a sense, reversed Dutch auction is the opposite of Dutch auction in the way monopoly is the opposite of monopsony.

Within Malaysian context, the Malaysian government is the auctioneer while various pharmaceutical companies of patented drugs are the bidders. The government starts by placing a low ask price in the free market. If there is no willing seller at such a low price, the government will increase its offer price and will continue to do so until there is a willing seller. The government could continue to do so until all of its demands are met. An example might help illustrate what I am trying to get at. Say the Malaysia government is demanding 1000 tons of drugs. At the same time, there are five sellers which I shall call A, B, C, D E and F.

Company A is able to supply 300 tons at RM1.00 per kg.

Company B is able to supply 300 tons at RM1.50 per kg.

Company C is able to supply 200 tons at RM2.00 per kg.

Company D is able to supply 100 tons at RM2.50 per kg.

Company E is able to supply 100 tons at RM3.00 per kg.

Company F is able to supply 100 tons at RM3.50 per kg.

The first 300 tons will be fulfilled by Company A and the government will pay RM1.00 per kg for drugs. This leaves 700 tons of unfulfilled demand. Realizing that nobody is willing to see any drug at RM1.00 anymore, the government raises it ask price and eventually will hit RM1.50 per kg. At that moment, Company B will step in and supply the government will 300 tons of drugs at such price. This leaves 400 tons of unfulfilled demand. The process will continue until the demand is exhausted. In this particular scenario, the government will pay at RM3.00 per kg at most; the government will not buy from Company F.

While prices could still increase vis-à-vis prices without the FTA, the increase would not be as much as that without this model with the FTA. If the drug prices are not low enough, perhaps the government could add in some sort of subsidy into the equation by selling the drugs bought at a loss. I however would only agree to such arrangement if other subsidies see some sort of quid pro quo reduction. Yes, I am looking at the Malaysian fuel subsidy. Essentially, the fuel subsidy reduction would finance the new drug subsidy, making this system neutral.

Whether or not we subsidize the drugs in the end, I do think this arrangement could solve the dilemma.

One major problem with this model is the possibility of the sellers colluding with each other to jack the price up. Nevertheless, such problem is not unique to or the exclusive weakness of this system. Therefore, I do not think it deserves to be addressed here. A discussion on collusion would take away the focus of this entry.

Another way to approach the problem is by having the government purchases the drugs in huge quantity, get bulk discount and resell the drugs at cost, possibly, exactly like the Australian model. Or, on top of that, with subsidy, with method explained earlier.

I am unsure which method would provide cheaper drugs but the latter certainly have less red tape to worry about.