Category: Politics & government

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Economics Liberty Politics & government

[2235] Of hitting the brakes of subsidy liberalization

I am generally in favor of subsidy cuts in Malaysia. Yet, I hesitate to support the recent liberalization.

The economic rationale for liberalization is clear. Public discourse on this front has seen enough progress that liberalization is a popular position to take in Malaysia.

Let us recap the most commonly cited arguments.

Firstly, the subsidy program has an opportunity cost, as with all policies. If a government spends on one particular program, it necessarily means not spending money on others. Moreover, blanket consumption subsidy is probably the worst of all policies in terms of opportunity cost.

Secondly, there are better policies — cash transfer or tradable quotas for the needy are two examples — compared to outright subsidy. These alternative policies can address welfare concerns more efficiently.

Thirdly, the subsidy program has to be financed. That means taxation. While taxation is required to maintain a government, the level of taxation can be controlled to accommodate other concerns. There are various reasons why a low-tax environment is favorable. A bloated subsidy program does not help in this aspect.

Finally, together with a subsidy program, multiple suffocating supply and demand control regimes typically exist to support the program. As a result, the market becomes inflexible as more and more controls are set in place. The inflexibility causes hardship to more individuals than necessary.

The subsidy cut appeals to these arguments. If these were the only concerns, I would wholly support the liberalization exercise.

But it is not.

Two pillars form the basis for my support for liberalization. One is economic concerns. The other involves concern for freedom. Specifically, it is the idea of small government.

The weight I put on these two factors changes from time to time according to situation and the situation has changed since the last time subsidy liberalization took place. The size of subsidies and the drag these place on government finance are less of an issue today compared to a year or two ago. That convinces me to place more weight for freedom vis-à-vis economic concern, although the two concerns are not mutually exclusive most of the time.

While liberalization satisfies the economic side of the balance, the desire to see a reduction in government size is unmet.

Take the Prime Minister’s Department, for instance. Member of Parliament for Bukit Bendera Liew Chin Tong shared recently that the size of the department has more than doubled in less than a decade. The statistics regarding the size of the civil service and the government as a whole are more harrowing. All this contributes to the structural fiscal deficit that Malaysia suffers from.

The deficit caused by rocketing expenditure is an indictment of a fat old man called the government. The current government has announced its intention to reduce it, presumably by reducing government expenditure. Whether the plan will be successful is another matter altogether.

Amid the liberalization and other government initiatives that include the formation of new government-linked companies, I have a disturbing narrative at the back of my mind: Effort to free up resources is aimed at merely funding government expansion in other areas.

It is hard to predict the net effect but experience does not encourage much hope. One possible outcome is a scenario where the areas of expansion require a more active government hand compared to the one where the government retreats.

Already, government supporters are using the opportunity cost argument eagerly to justify the recent cuts. They say the government will put the money in good use. Good use or not, they are setting the ground to use the retreat as a justification to expand the other sides of government.

The opportunity cost argument is not exclusively used by government supporters. Opposition sympathizers and others do have ideas on how to spend the money. Politics may create a trade-off between economic concern and freedom in the end.

I fear that, and that fear is holding me back from supporting the recent liberalization.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

First published in The Malaysian Insider on August 4 2010.

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Politics & government

[2231] Of fluid Australian politics

It happens once every three years. That is how often the Australian Federal election has to be held. That is probably why Australian politics is as fluid as it is today.

Just how fluid is it?

Consider the fortune of Kevin Rudd, the Labor Party and its opponent the Coalition, which swung back and forth all within just a year.

In weeks prior to the ouster of Rudd, it was clear that he was becoming increasing unpopular. This is in stark contrast to the atmosphere a year ago when he was wildly popular.

Meanwhile, the Coalition — made up of the Liberals and the Nationals in the opposition — was squabbling among itself. The source of tension was Labor’s proposed carbon cap and trade legislation. Labor did not have the numbers to get it passed in Parliament. To do so, they worked with some within the Coalition, including Malcolm Turnbull, the former Opposition Leader.

It was a masterstroke by the government. While Turnbull and his fraction within the Coalition supported the legislation in one way or another, many others in the opposition did not. So bitter was the division that the Labor government under Rudd needed not do anything to come out on top. The Coalition was on self-destruct mode.

Rudd and Labor even had the option of dissolving Parliament if the legislation failed to pass. Projection at that time suggested that the Coalition could be wiped out if an election was called.

The legislation did fail. All Rudd needed to do was to finish it. Yet, he did not exercise the option. In retrospect, he should have.

After labeling the climate change as the forefront issue of his administration, his failure to get it through doomed him. There were other issues like government spending, refugees, migration, censorship and the mining tax of course but climate change was truly the battle the turned the tide against him.

He met with opposition when he first introduced the legislation on climate change. That was inevitable. When he decided not to push it, he ended up angering everyone, including the supporters of the legislation. It was yet another example of the peril of flip-flopping.

He should have called an election when he had the chance. It would have saved him from the flip-flop, the embarrassment and the backlash. Furthermore, it would have prevented the Coalition from reorganizing itself.

Tony Abbott replaced Turnbull. By the time the government tried to introduce an unpopular mining tax, Abbott went full steam ahead on the offensive along with the mining industry.

Combined with Labor’s failure and a resurgent opposition, Labor’s approval rating fell. This was worrying to Labor because election had to be called soon. The balance tipped so much that the factions in Labor decided that Rudd was a liability. The issue on tax sealed his fate.

At first, there were just rumors. Australian media were highlighting the popularity of his deputy Julia Gillard. Later, it happened: the first female prime minister for Australia.

The first thing she did as prime minister was to — so-called — clear the deck. She undid some of Rudd’s major initiatives and helped Labor salvage some points in the approval rating polls. The factions in Labor, nervous about going through an election, bet on Gillard and it worked. That is, it worked in a sense that Labor is now predicted to have enough support — just barely — to form the government in the next term.

Of course, it is yet to be seen who will form the next government in Australia. Pundits are expecting a close election. It appears that although Gillard is more popular compared to Abbott, the support for her has not translated into support for Labor so far.

That will depend on the rollercoaster ride in the next four weeks or so.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

First published in The Malaysian Insider on July 26 2010.

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ASEAN Conflict & disaster Politics & government

[2220] Of Jose Ramos Horta and Indonesia

Some rights reserved. By Mohd Hafiz Noor Shams.

The University hosted President Jose Ramos Horta of East Timor recently and I was lucky enough to get a seat for his speech. After Joseph Stiglitz, the President is the second ever Nobel Prize winner that I have had the opportunity to listen to first hand.

The speech was interesting, but it was not a memorable one. I am unable to recall too many points of the speech.

What I do remember the most is East Timor’s ties with Indonesia.

He is concerned with attempts at punishing Indonesia for past violence in East Timor. He said Indonesia should be given the room to face its own history. The context that Indonesia finds itself in should be understood and taken into account: it at one point came close to repeating the history of the Balkans. That is a painful part of modern Indonesian history. Raising it up would cause old woulds to reopen and ignite an unproductive and divisive debate.

Furthermore, this is not the best time to demand for justice. Such demand at this juncture or in the near future may risk whatever progress, which is a lot, Indonesia is making. He said, such demand would sap energy away from development. President Susilo Bambang Yudhoyono of Indonesia should not be burdened with an international controversy. The fire of nationalism should not be lighted up.

He believes that as Indonesia matures as a democracy, its society will address it eventually. I definitely think that such approach is better at attaining sustainable peace and good diplomatic relations. Although an exaggerated example, the problem of post-World War I Germany comes to mind with respect to effort to punish Indonesia. Keynes was right about Germany and the current President of East Timor may be right about Indonesia.

In other words, it is in East Timor’s interest to have Indonesia focused on its developmental agenda.

He also made it clear that any attempt to set up a tribunal to punish Indonesia would not get the support of East Timor.

And I thought, those were wise words. And I am on board.

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Photography Politics & government

[2219] Of the Spill

Some rights reserved. By Mohd Hafiz Noor Shams.

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Politics & government

[2218] Of wanted: political capital and will

There is mutual frustration between those in government and those who identify themselves as ordinary citizens in Malaysia. The frustration originates from the incapability of both to understand the other side’s challenges. This makes the gears of a huge machine — the government — stuck. It needs to work again.

The period immediately after the March 8, 2008 was supposed to be an opportunity for major reforms. The machine was supposed to work again after years of abuse that exhausted its credibility. The filters were supposed to have been washed, even if partly. Rusted wheels replaced. The joints, oiled.

That was not enough, apparently. Skepticism against the government — or perhaps more generally, against the state — not only persists but also grows. It has grown so much that it is disconnecting the government from the people, and the people from the government. It is threatening the idea that the government is the people, and the people are the government.

Given the record of the Barisan Nasional federal government, however, that skepticism is justified. In fact, skepticism against the state is a good thing to have. It is the first line of defense against tyranny.

Yet, skepticism is healthy only up to a certain dose. If there is too much skepticism, the central functions of the state cannot be carried out. Too much skepticism erodes the reason for a state. And there are signs that skepticism has become a monster in Malaysia, devouring too many regardless of agenda.

In the current political and economic climate, that skepticism has grown to a point that no reform can take place. The size of government is big so that it needs to be cut down so that there is less opportunity to repeat abuses of the past. Unfortunately, efforts to reduce it and put public finance in order are widely seen by many as a deliberate attempt to short-change citizens.

The problem of a big government is very real. Its effects on individuals and society are observable. Its growth over the years in Malaysia is something that cannot be missed. The Abdullah administration committed gross gluttony while the supposed benefits of big government were unseen. Something has to be done now, but nothing moves. Loud popular opposition stands in the way.

Part of the reason is that the challenges associated with big government are far removed from the ground. Public finance, for instance, means little to men and women on the streets. Individuals do not directly face it and hence, they do not see it as problems to solve, at least not soon.

Incapability to see it does not mean all is fine and dandy. The tragedy is this: Efforts to solve it inflicts relatively immediate pain while its benefits will only come relatively later. Furthermore, benefactors of big government will obviously defend it. Coupled with those is the fact that most of us enjoy the idea of instant gratification, so the loud popular opposition is not a surprise.

In justifying their opposition to initiatives to cut the size of government, they do raise very pertinent questions. What about corruption, what about leakage and what about inefficiency in the public sector? These are among the questions many have asked. Why should we pay for their excesses?

Recent allegation by the civil servants’ union, Cuepacs, that nearly half of civil servants in the country were suspected to be involved in graft does not instill confidence. The size of the civil service suggests that the government is uninterested in cutting down its expenditure seriously. Purchases of overpriced defense equipments suggest unwise spending. The investigation of the Port Klang Free Zone (PKFZ) is going unsatisfactorily, if there is any progress at all. Recent large losses of enterprises linked to the government exacerbate the image of the government of the day as incompetent.

Slammed with the idea of a goods and services tax along with the withdrawal of subsidies, rightly or wrongly, taxpayers get the perception that they are picking up the tab for somebody else’s mistake. As far as critics are concerned, the government is swimming in excesses, disconnected from the concerns of the masses.

The boilerplate answer to this two-way disconnect is commitment to democracy: Voters should till the land. Get a completely new captain and crew to staff the bridge.

It is an attractive solution as it removes one disconnect. As with any boilerplate argument however, it is insufficient. A libertarian fear revolves around this: Such a democratic solution solves only one part of the equation. It may build the trust that is required to run the machine smoothly again. What it may fail to do is to address the problem of big government.

The alternative in the form of Pakatan Rakyat has not demonstrated their grasp of the issue. They are happy with mere populism so far, such as promises of free water and bigger subsidies.

They really cannot be blamed for that. It is only expected. The truth is that Pakatan Rakyat needs to run a populist campaign to enter Putrajaya.

That does not negate the fact that economic populist policy tends to run a country down. That does not negate the fact that unpopular moves are required to solve the problems. Clearly, political capital is required to run unpopular policy.

But who has the political will? Who has the political capital?

Putrajaya, so far, lacks at least one of them.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

First published in The Malaysian Insider on June 14 2010.