Is liberalisation of services a good thing for Malaysia?

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.

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.

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.