Get rid of market anomalies and monopolies, say economists
April 19, 2011
Economists say the country’s dependence on foreign workers has hurt local wages. — Reuters file pic
KUALA LUMPUR, April 19 — Malaysia’s poor purchasing power could be boosted by reforming its markets to be more competitive and free of entrenched monopolies and market distortions, say economists.
This comes as Malaysians grow increasingly doubtful over official inflation figures and critical of the prices that they have to pay in relation to their income.
The 2010 Prices and Wages report by Swiss bank UBS AG show that residents in KL have only 33.8 per cent the purchasing power of their counterparts in New York, 42 per cent that of London, 33.7 per cent that of Sydney, 32.6 per cent that of Los Angeles and 31.6 per cent that of Zurich.
Maybank Investment Bank chief economist Suhaimi Ilias said a lack of competition in Malaysia has resulted in less pressure on prices.
“There is still a lot of inefficiency in our economy,” he said.
RAM chief economist Dr Yeah Kim Leng said the Malaysian market needs more healthy competition and less monopolistic tendencies.
“We find that Malaysian industries are highly concentrated with just a few players,” he said. “Prices are in a way inelastic and not responsive to income levels.”
Both were in agreement market distortions, which have become a prominent feature of the Malaysian economy, need to be addressed for both prices and wages to be more aligned.
One of the most heavily distorted sectors, said Yeah, is the auto industry, where Malaysians have to bear some of the highest car prices in the world, resulting in 20 per cent of the RM581 billion total household debt in the country now being held in cars, an asset that depreciates over time.
Suhaimi said the prices that Malaysians are currently paying for cars do not seem to make sense.
“I can’t understand why a motorcycle should have to cost RM6,000-7,000 and a car like the Perodua Viva should cost over RM30,000,” he said.
Yeah said there is a need to change the national automotive policy and reduce tariff barriers as it would be good for both the economy and the car industry.
“This way we can attract more players and reshape the auto industry to be regional,” he said.
Suhaimi also expressed concern that prices for some goods are being artificially suppressed and price shocks could result when the subsidies are rolled back.
“For heavily subsidised industries, competition is the answer,” he said.
He also said the country’s dependence on foreign workers had hurt local wages.
Yeah concurred and said the government should not allow wages to be artificially suppressed.“There should not be an influx of cheap foreign labour,” he said.
He added the undervalued ringgit, which has been used in the past to make Malaysian exports artificially competitive, is another distortion which hurts purchasing power when it comes to imported goods.
The Malaysian government is planning to enforce the anti-profiteering act this year and the competition act next year which aims to prevent anti-competitive behaviour.
In the case of the latter, however, there will be allowances made for companies to apply for exemptions.
Industry observers also told local business publication The Edge Financial Daily, that it will be challenging for the Competition Commission, which will be established under the Competition Act, to take action, noting that many industries in Malaysia are dominated by big players where monopolistic or oligopolistic structures exist.
This was attributed to the government’s heavy involvement in businesses, through the privatisation of state services, awarding of licences and the presence of government-linked companies in many facets of the economy.
The government could also be loath to give up lucrative income derived from sources such as tariff barriers for imported cars.
But Dr Foong Kee Kuan, senior research fellow at the Malaysian Institute of Economic Research (MIER), reaffirmed more competition is needed to boost purchasing power.
“The government has to push it and make our industries more competitive,” he said.
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