Government acting against free market
“The era of government knows best is over”, so declares the Prime Minister. However the government thought it fit to set the minimum retirement age for private sector at 60 including those industries which may require physical strength to perform the job. Further, for most industries, commencing on 01.01.2013, the minimum wage for the employees is RM900. The minimum wage is fixed without regard to the geographical circumstances of urban, suburban or rural areas.
Generally, laws are enacted to protect the weak from the strong; the poor from the rich. And the minimum wage legislation aimed to protect the workers from exploitation by the employers. The objective is commendable but may have unintended consequence. Employers may cut down the number of workers (unemployment) and require the remaining work force to work longer hours. By way of analogy, in the United States, the Americans with Disabilities Act of 1990 (ADA) was enacted in 1990 to prohibit discrimination based on disability. Under the ADA, employers are required to make reasonable accommodations to disabled employees. However, the unintended consequence of this enactment resulted in a sharp drop in employment among individuals with disability.
It is my view that wages should reflect the free market and it is for the employers and the workers to agree on the wages. Workers should be paid what they are worth. The setting of minimum wage and retirement age is seen as an interference with free market.
Other instances of interference with market
Of late, the government has initiated, among others, the following programmes:
The above initiatives, while they may help to ease the burden of the rakyat to a small extent, are good examples of the government competing directly with the private sector in industries or businesses which are best left to the private sector. For example, the KR1M competes with the small sundry shops as they both serve the same customer base.
The government’s role should be to improve the efficiency in the delivery system, reduce wastage and leakages, fight corruption (not by mere signing of pledges to be clean), remove monopolies and thereby create an environment in which private enterprises could flourish. The government’s role should never be to compete with the private sector in non-strategic industries or businesses.
I believe that if the government reviews its policies and implements necessary measures to control the number of cheap, unskilled labour imported from neighbouring countries, the wages of Malaysian workers will naturally go up, as simple economic theory of supply and demand dictates.
High income nation by 2020
The New Economic Model announced by the PM laid out a roadmap to raise income and living standards. By 2020, the income per capita will be USD15,000 (equivalent to RM45,660 as at 17.10.2012). This is to be achieved through the Economic Transformation Programme.
It took us 30 years from 1970 to 2000 to increase per capita income from USD900 to USD3,400. In 2011, per capita income was at USD9,000. Will we be able to raise per capita income from USD9,000 to USD15,000 in the next 8+ years on a backdrop of a dire global economic environment? With the commodity prices plummeting and oil reserve depleting, where is the next growth engine for Malaysia? Will the imposition of minimum wage of RM900 have catalytic effect on the economy and finally help us achieve the targeted high income nation?
The jury is out until 2020.
14.11.2012
Generally, laws are enacted to protect the weak from the strong; the poor from the rich. And the minimum wage legislation aimed to protect the workers from exploitation by the employers. The objective is commendable but may have unintended consequence. Employers may cut down the number of workers (unemployment) and require the remaining work force to work longer hours. By way of analogy, in the United States, the Americans with Disabilities Act of 1990 (ADA) was enacted in 1990 to prohibit discrimination based on disability. Under the ADA, employers are required to make reasonable accommodations to disabled employees. However, the unintended consequence of this enactment resulted in a sharp drop in employment among individuals with disability.
It is my view that wages should reflect the free market and it is for the employers and the workers to agree on the wages. Workers should be paid what they are worth. The setting of minimum wage and retirement age is seen as an interference with free market.
Other instances of interference with market
Of late, the government has initiated, among others, the following programmes:
a) KR1M – mini markets selling household goods and merchandises;
b) PR1MA – building affordable houses ranging from RM100,000 to RM400,000 in key urban centres for people earning salary of between RM2,500 to RM7,500 per month;
c) Menu Rakyat 1 Malaysia – selling nasi lemak.
c) Menu Rakyat 1 Malaysia – selling nasi lemak.
The above initiatives, while they may help to ease the burden of the rakyat to a small extent, are good examples of the government competing directly with the private sector in industries or businesses which are best left to the private sector. For example, the KR1M competes with the small sundry shops as they both serve the same customer base.
Is this the “enlightened intervention” envisaged by John Maynard Keynes, the 20th century British economist? Mini market? We think not. In fact, he advocated, “The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.”The government’s role should be to improve the efficiency in the delivery system, reduce wastage and leakages, fight corruption (not by mere signing of pledges to be clean), remove monopolies and thereby create an environment in which private enterprises could flourish. The government’s role should never be to compete with the private sector in non-strategic industries or businesses.
I believe that if the government reviews its policies and implements necessary measures to control the number of cheap, unskilled labour imported from neighbouring countries, the wages of Malaysian workers will naturally go up, as simple economic theory of supply and demand dictates.
High income nation by 2020
The New Economic Model announced by the PM laid out a roadmap to raise income and living standards. By 2020, the income per capita will be USD15,000 (equivalent to RM45,660 as at 17.10.2012). This is to be achieved through the Economic Transformation Programme.
It took us 30 years from 1970 to 2000 to increase per capita income from USD900 to USD3,400. In 2011, per capita income was at USD9,000. Will we be able to raise per capita income from USD9,000 to USD15,000 in the next 8+ years on a backdrop of a dire global economic environment? With the commodity prices plummeting and oil reserve depleting, where is the next growth engine for Malaysia? Will the imposition of minimum wage of RM900 have catalytic effect on the economy and finally help us achieve the targeted high income nation?
The jury is out until 2020.
14.11.2012
