Dismantle monopolies, not mandates

Wong Chin Yoong

The writer says it is more complicated to end Bernas’ monopoly of more than four decades, as it is not as straightforward as ending the monopolies by Touch ‘n Go and Puspakom. – AFP pic, April 4, 2023.

REMEMBER a board game called “Monopoly” we used to play in our teenage years?

It is called “Monopoly” because this is what the game is all about: competing to monopolise the whole streets with your businesses. But we also know the game was designed with a set of rules.

To get the game started, we must learn the way the game is governed, like who goes first? What to do when you get your lucky card? When must you pause from action?

The game is most enjoyable and fun when everybody knows how to play by the rules and abides by them. In the end, the luckiest and most competent one wins. No one complains.

So, you probably can guess what I’m trying to say. Monopoly does not necessarily carry the origin of sin.

While it is true monopoly reduces choices, it is equally true that granting monopoly status to a particular company or small group of companies is to sometimes compensate for the continual massive sunk investment cost necessary to maintain the flow of services. Electricity generation and supply is one such case.

While monopoly leads to higher prices that deteriorate the welfare of the consumers, abnormal price markup sometimes is needed to feed the costly innovation.

No breakthrough innovation ever comes from companies struggling for bread and butter due to the throat-cutting market competition that squeezes the profit margin.

That’s why ChatGPT is funded by the boring bad guy Microsoft.

Monopolies are bad, but competitive monopolies are not. Monopolistic competition can do society a lot more good than perfect competition.

The key is a combination of competition and monopoly for a balanced trade-off between consumers and producers, static versus dynamic gains, individual and social objectives, and so on.

This brings me to Prime Minister Anwar Ibrahim’s call for dismantling monopolies on multiple fronts.

This is a long-awaited and applaudable move, and if the initiative works out thoroughly, not just on the monopolies owned by the tycoon Syed Mokhtar Al-Bukhary, known to have a closed relationship with former prime ministers Dr Mahathir Mohamad and Muhyiddin Yassin, it is going to be consequential to the economy and society.

It is not a complex decision not to continue Puspakom’s concession as the sole agency providing inspection services, as the services are not the type of monopoly that naturally exists due to the unbearably high start-up costs or powerful economies of scale.

Likewise, ending the Touch ‘n Go monopoly in the payment system for tolls and public transport doesn’t incur insurmountable technical barriers, as the digital payment system in Malaysia has been well developed.

What’s more complicated is to dismantle Padiberas Nasional Bhd’s (Bernas) monopoly of more than four decades, as it is not as straightforward as ending the monopolies by Touch ‘n Go and Puspakom.

The monopoly has different layers, serving different stakeholders with multiple objectives. It is not only the rice importer but also the wholesaler of local rice.

It serves not only the welfare of consumers but is also responsible for those of farmers. It must satisfy not only households’ dietary needs but also safeguard farmers’ livelihood and national food security.

And often, they are incompatible with each other.

As the prime minister said, “This import permit is not a concession and not a form of reward for him, but instead given to Bernas.”

While Bernas shall not be a tool for private companies to profit via handsome dividend pay-out, Bernas itself is the guardian of the country’s rice management via the single gatekeeping mechanism to ensure the availability of rice at an affordable price, guarantee the wellbeing of farmers, and prevent food crises.

It is not without a reason why we can still go to any shop and continue to purchase rice at a subsidised price when the world was suffering from a food crisis last year and in 2008.

So, by dismantling Bernas’ monopoly of rice imports, are we talking about ending an individual’s monopolised stake at Bernas or abolishment of the the mechanism?

One can expect a favourable outcome for consumers when the rice import restriction is liberalised which opens access for competitive companies via open bidding.

The auction generates revenue for the government, while the fostered competition among importers is likely to result in more reasonable markups and lower retail prices.

But will it crowd out local supply of rice, jeopardising the livelihood of the disadvantaged farmers, and defeating the national goal of self-sufficiency in the food supply?

If we allow farmers’ associations to participate in the lucrative business of importing rice, as the prime minister has raised, wouldn’t it encourage the farmers to pursue trading businesses at the perils of domestic rice production?

Apparently, there are many questions to be resolved. But one thing is for sure: dismantle monopolies, not the mandates. – April 4, 2023.

* Wong Chin Yoong is a professor of economics at Universiti Tunku Abdul Rahman, Kampar campus.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.

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