Is liberalisation of services a good thing for Malaysia?

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Blog reader KJ shares his thoughts with us:

Re liberalisation/de-regulation: I think the general literature is pretty clear on this that over the past quarter century or more liberalisation has meant de-regulation. It was said that over-regulation was the problem, hence the need to liberalise, i.e., de-regulate.

This should not be confused with competition and a competition policy. Many comments on this, and the previous, post appear to have confused a liberalisation stance with a competition policy stance. In many areas, liberalisation has, in fact, created monopolies, and allowed monopolies to flourish. One clear example is the media: the Murdoch group controls Fox, Star, the Wall Street Journal, Dow Jones, The Times (UK), Far Eastern Economic Review, etc. The five largest banks in the US — most of them in deep s… — control over 70 per cent of the business, are busy raising credit card fees, cutting credit lines, etc.

Should there be a competition policy? Yes.

As for whether the foreign boys will do better than the local, well, in the first instance, at this time and the medium term, there isn’t going to be much investment.

In the second, does it mean that if the foreign boys come in that services will be cheaper? Not necessarily; in some sectors, it will likely become much more costly — the most costly health care services in the world are in the US, where every year some 30 per cent of cases are misdiagnosed. Also, if you are local supplier, be prepared to face pressures to reduce your prices every year if you hope to deal with the big boys.

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Thirdly, will wages rise? Depends on sector; amongst the most poorly paid jobs in the US are jobs in the retail and hotelling services with the former being amongst the most anti-union. For a further indication, over the last quarter century, the US income distribution has become much more unequal, so much so that from a position where it was much more equal than in Malaysia in the mid-1960s, it is now as unequal as in Malaysia. Between 1993 and 2006, as the services sector grew, and especially the financial services, and the economy boomed, all the income gains went to the top 1 per cent, a little bit to the next 9 per cent, and virtually nothing to the remaining 90 per cent; the top 1 per cent captured half of the economic growth of the period.

Fourth, will there be more jobs? Can’t tell without a full assessment — but as has been noted, the bulk of employment here is from SMEs, many of them in the services sector, e.g., in in-bound tourism, transport, retailing and distributive trades. Sure, they can’t compete with big foreign players if they should come in. Wouldn’t we be better off to look into how we can help them improve, grow, be competitive? Why keep trying to go down the path of foreign investment, export-oriented growth — and make no mistake about it, the reason for the government’s move is to try to grow services exports. Whether you enjoy better, cheaper services or not is secondary. So, e.g., health tourism, to try and grow both travel services exports as well as health services exports.

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Finally, there’s a great book by Korean economist Ha Joon-Chang, based in Cambridge (UK), called “Bad Samaritans”, which sets out very clearly how when the countries we now called developed were (once) developing, and they were very selective about intellectual property rights, very protectionist, and so on, but now go around telling the developing countries not to do what they did — basically what he calls “kicking away the ladder (after they’ve climbed it)”.

Finally, finally, all in favour of the wholesale liberalisation of services — and it looks like it’s coming — better get ready to pay RM100-150 for your DVDs, no more pirated software, no more photocopying books, etc. because you can be sure that the foreign boys will be demanding such regulatory structures as a condition of their entry. It’s ok, you can subscribe to NetFlix.

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8 COMMENTS

  1. Anil,
    Be careful for what you are wishing for. Soon, the big boys would buy your idea and start regulations of their services. Making it hard for Malaysia to export goods to rich countries.
    It’s not that simple, Anil. WTO can’t resolvethe issues overnight. You think you can…..

    Anil,
    The only solution would be the second coming of Christ. I am serious………There will still problems……It’s like nailing a leak. You create another one

  2. KJ on April 27th, 2009 at 2.29am

    ===

    There is NO definite defination on what is liberalization and de-regulation. Don’t wasting time to debate academically. The economists are like weather forecaster, they can only predict accurately after the fact. Go read FEER published one year before the financial crsis, see whether they have forecasted financial crisis or not.

    Let see and examine a real example surronding us, opening up Malaysia retail sector to foreign hypermarkets is good or bad to consumers?

    Many traditional Chinese sundry shops are winding up after foreign hypermarkets come into local retail market, but at the same time new sundry shops or chains with better management and marketing strategy are filling the gap. In overall, local consumers pay lesser with more competition.

    Liberalization without basic regulation may create monopoly, that is why we still need anti-trust law to regulate human greedy. But no liberalization with over regulation definately create monopoly.

  3. Good analysis this.

    And liberalisation is NOT de-regulation per se.

    As in Life and Nature, man-made systemic structures too, such as Government or the Economy, work well when they are in good balance with sufficient latitude to flexibly stretch for stress and the dynamism of growth without compromising or breaking-down the whole structure. So you need to find the right balance for your unique economy and then get that economic balance to fit in with the economic balances established for other nations.

    That is what is known as the balanced approach of optimisation of the sub-parts in order to achieve a maximisation of/for the whole. And that simple fundamental balanced approach seems to work at both the macro and micro-levels of just about any natural/biological or man-made systemic structure that one cares to look into.

    But to get those optimal balances worked out just right in the first place in order to get to that balanced approach for maximisation of the whole, and then to be able to maintain it at that balanced and also dynamic mode through appropriate freedom and regulation is the…er….HARD part.

    “Imagine Power To The People” John Lennon.

  4. Anil can you get Malaysiakini to remove the moron KJ’s picture on the front page. Maybe can replace with a … picture.at least can give some good publicity for borneo. tq

  5. Pardon me for repeating some of what I had written in another post.

    Please do not confuse loosening of regulation on ownership rules with deregulation of financial and operational controls. The deep s*it which US financial institutions find themselves have their roots in the loosening, even abdication of financial & operational rules – management made operational decisions based, frankly, on greed. It may have a linkage to the go-go mergers and acquisition cycle which arose from ownership deregulation in the States, but there is no direct cause-effect link.

    In Malaysia, the heavy dead-hand of ownership regulation have created a culture of entitlement and “Know-Who” in many service sectors. Such an environment is hardly fertile breeding ground for excellence and efficiency.

    The service sector I’m most familiar with of the 27 announced sub-sectors, which is Transportation is a very good example. Anyone familiar with that line of business will know what I’m talking about.

  6. Good article. Much effort and thoughts went into it. More balanced than Netto’s, shall I say, shrill, “anti-liberalisation” piece?

  7. China liberalize its market and prosper and Yet you still can buy a lot of pirated DVDs pirated Software, pirated books and even pirated Nike, Adidas and many more. They are even cheaper that Malaysia’s pirated things.

    “Bad Samaritans” is better than “hypocrite UMNOputras”

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