Monday, December 22, 2008

Cheap power may benefit foreign workers and rich more than ordinary Malaysians

The Penang state government has been actively meeting businesses to see how it can help mitigate the economic downturn and minimise retrenchments. A very common refrain is to please cut electricity tariffs. Pakatan MPs in other states are also getting similar feedback from industrialists and entrepreneurs, “The cost of business is going up, we're facing challenging times, please cut power tariffs.”

The subsidy mentality permeates all levels of our society. Cheap power is a subsidy too. And like all subsidies, we should look closely to see if it truly benefits those most in need. Before we cut power tariffs, we should find out: 1) How many Malaysians the companies actually employ and 2) What will the companies do with the savings?

How many Malaysians the companies actually employ” is particularly pertinent. When Indonesia liberalised fuel prices, including gas prices a few years ago, many manufacturers who depended on gas left Indonesia. It used to be a major player in the latex glove market – one where Malaysians such as Top Glove and Supermax complete. They quit, Malaysia ramped up market share.

But how many Malaysians did that really benefit? Top Glove, the world's biggest maker of latex gloves, was hit with a RM11.4m fine for having 1,769 illegal foreign workers on Aug 16, 2006. It has not reduced its dependence on foreign labour. The IHT reports that it employs 3,500 migrants - about half its work force - at 12 factories across the country. 

Why are we subsidising this company and all these foreign labourers? Subsidies should go towards developing core Malaysian skills and improving productivity, not employing low-skilled low-valued add foreign labour.

Which brings me to the next question, What will the companies do with the savings? Any bets it'll tell workers you're lucky to stay employed; and the owners will happily pocket the additional profit? That doesn't help Malaysia – it just means another long-term subsidy which we cannot afford. No pure handouts please. Companies must earn the cheaper power by coming up with better ways of doing business.

5 comments:

WY Kam 甘永元 said...

Dear analyst,

Cheap power is bad, regardless whether it is for the public consumers or industry users. Foremostly, it changes the user incentives towards power/electricity consumption - in which such subsidy leads us to un-necessary and ineffecient electricity usage. Moreso, as you rightly put it, across the board power tariff reduction will mean to target only the industry owners, particularly the electricity-heavy industry. Instead, the state or federal govertment is better off giving tax-credits (non-interventionist).

cinasami said...

Dear Chi-Chang,

By just looking on the side of reducing subidy, it will be pertainant to note that anything taken away suddenly will cause big problems. I too believe that subsidies on power will skew market prices and goods unnecessarily giving the illusion of cheaper goods made from efficient industries.
The issue here will be how do you reduce the subsidies without causing chao to the ecomony. As you rightly pointed out industries that employ foreign labor would benefit more for cheaper power. I cases likes these a mechanism such as rebates on power when you hire locals can be put in place.One can argue that subsidies are still in place but can slowly be removed and a tariff for increase can be imposed with the number of foreigners hired by the industry.

Anonymous said...

Chi Chang, I agree reducing power tariff would encourage wastage.
On the other hand, reducing tax for Malaysians individuals would be a real relief to locals only.
Between I am glad there is a reduction in petrol price. Initially there was a cause for concern that people would be wasteful too, however this days people are going out less to spend less, so that did conserve petrol usage. Marketing/Sales people rely on more marketing to make ends meet. The increase in toll price was already a burden in itself.
This we have to thank the Federal Government.

de minimis said...

Chi Chang

Happy Holidays to you and to your loved ones.

Jeffrey Chew said...

Seriously, I believe the Fed govt has done enough damage than good by raising oil prices in such a dramatic manner months ago. The people is now saddled with higher cost of living with no end in sight of rising prices and cost of living. It is a total failure