Ending Subsidies and Changing Behaviors
Ending Subsidies and Changing Behaviors
The recent public outcry against reducing the petroleum subsidy underscores the difficulty in changing established patterns of behavior. If we have problems with a 30-sen per gallon reduction in subsidy, imagine how formidable the opposition would be to removing other major subsidies, like special privileges. Those who call for dispensing with NEP “crutches” would do well to heed this caution.
For a study in contrast, gasoline prices tripled in the last few years in America, yet there was no protest. Nor were there any discernible changes in the behaviors of the public. Gas-guzzling cars still sell, the highways are perpetually jammed, and buses and trains remain empty.
If we believe in basic economic assumptions, such increases in price should result in concomitant reduction in demand. That it does not, reflects the difficulty in changing habits and attitudes.
Changing Human Behavior
This does not mean that human behavior cannot be changed; it can, often quickly and dramatically.
The Arab oil embargo of the 1970s precipitated widespread changes in the collective behaviors of Americans. Thermostats were turned down in winter and up in summer, gas-guzzling motor homes remained unsold, and people took to wearing sweaters. Four cylinder cars, hitherto a rarity, suddenly became popular. Highway travel was reduced, and people drove slower to conserve gasoline. An unanticipated benefit was the dramatic drop in highway fatalities.
The Japanese occupation of Malaysia also precipitated seismic changes in behaviors and attitudes. For one, it shattered the myth of the White Man’s superiority.
There were other mundane changes. As portrayed in the movie A Town Like Alice, those “mems” hitherto used to having their every need tended to found that they too could scrounge barefooted in the villages with the natives in order to survive. My father, who had difficulty learning the much easier English language, found that he could speak Japanese and write kanji in a matter of months! The Japanese had a ruthless – and very effective – teaching technique: Learn, or you will be punished, and punished severely.
Ending Subsidies
There is a useful lesson here for those who bravely talk of ending the NEP “crutches” and other subsidies.
Take oil subsidy. If the objective is to stem the hemorrhage from Treasury, it would be wise to have slow incremental reductions. They would more likely be taken in stride, as the Americans demonstrate. If the objective is to wean off the cheap-oil lifestyle, then you would need “shock” treatment akin to the oil embargo.
Assuming the first objective, a 10-sen increase every few months would eliminate the subsidy in a few years while allowing for consumers to adjust. To cushion the impact on the poor, subsidize their season’s bus and train tickets, and hand out coupons redeemable for cooking gas. Additionally, reduce the tax or give tax credits for taxi owners and bus operators.
Regardless of the objectives, it certainly would not be wise politically and economically to reduce the subsidy and simultaneously announce a massive bailout for Malaysia Airlines.
Shock Therapy to End Subsidy Mentality
Ending the subsidy mentality among Bumiputras would involve major cultural and behavioral changes, thus requiring “shock” strategy. The objective here is less with reducing public expenditures (though that would be a significant side benefit) and more to changing societal and citizens’ attitudes and values.
A gradualist approach would not work, it would let people adjust and outsmart the system. Never underestimate human ingenuity to overcome obstacles.
Clinically, shock treatment is used for treating depression and in aversion therapy; in the hands of amateurs, it could kill.
Socially, if “shock therapy” were indiscriminately and unskillfully applied to end special privileges, there would be riots. The nation would be ripped part from the turmoil, negating whatever potential benefits that could be gained. Skillfully applied however, it could be socially and economically transforming.
One strategy would be to “shock” only the segment of society that could bear the pain most, and whose behavioral and attitudinal changes would influence the rest.
Imagine if henceforth Bumiputras who earned or have assets beyond a certain value were denied special privileges. The criterion should be such that the group would include members the royal family, ministers, members of parliament, business tycoons, professionals, and senior civil servants.
Consider the immediate positive effects. Knowing that their children would not get scholarships and other special treatment, they would now curtail their ostentatious lifestyles and save more. This would add to capital formation in the Bumiputra community, with the consequent positive economic impact. With the rich now off the public trough, more resources could then be diverted to the truly needy.
Similarly, instead of having ministers and politicians decide who would be blessed with timber concessions, Approved Permits for importing cars, and other valuable licenses, auction them off to the highest bidders, and use the proceeds to improve rural schools.
Likewise with the award of public tenders; there would now be competitive biddings to involve not only non-Bumiputra companies but also foreign ones. Bumiputra companies would then have to strive very hard to be competitive. Their principals would have to pay more attention to their businesses and less time lobbying politicians. The government would also realize immense savings, spared from paying the unnecessarily bloated costs as with the present practice.
On another level, the next time a vacancy occurs at the highest echelon of the civil service, public universities, and Government-linked companies, if the government were to use a reputable “head hunting” firm to recruit widely (including abroad) for a replacement, imagine the shock waves that would thunder through the establishment! That would be far more effective than the endless exhortations of gemilang, terbilang and cemerlang (excellence, glory and distinction).
Yes, there would be a political backlash from those grown gluttonous on the present system. However, the many more poor Bumiputras who would benefit from the changes would easily outvote the deprived rich ones!
Imagine the transforming effect to such a selective shock therapy. All Bumiputras would now strive hard to be competitive and less dependent on the state. The results would only be good, for Bumiputras as well as for Malaysia.
The recent public outcry against reducing the petroleum subsidy underscores the difficulty in changing established patterns of behavior. If we have problems with a 30-sen per gallon reduction in subsidy, imagine how formidable the opposition would be to removing other major subsidies, like special privileges. Those who call for dispensing with NEP “crutches” would do well to heed this caution.
For a study in contrast, gasoline prices tripled in the last few years in America, yet there was no protest. Nor were there any discernible changes in the behaviors of the public. Gas-guzzling cars still sell, the highways are perpetually jammed, and buses and trains remain empty.
If we believe in basic economic assumptions, such increases in price should result in concomitant reduction in demand. That it does not, reflects the difficulty in changing habits and attitudes.
Changing Human Behavior
This does not mean that human behavior cannot be changed; it can, often quickly and dramatically.
The Arab oil embargo of the 1970s precipitated widespread changes in the collective behaviors of Americans. Thermostats were turned down in winter and up in summer, gas-guzzling motor homes remained unsold, and people took to wearing sweaters. Four cylinder cars, hitherto a rarity, suddenly became popular. Highway travel was reduced, and people drove slower to conserve gasoline. An unanticipated benefit was the dramatic drop in highway fatalities.
The Japanese occupation of Malaysia also precipitated seismic changes in behaviors and attitudes. For one, it shattered the myth of the White Man’s superiority.
There were other mundane changes. As portrayed in the movie A Town Like Alice, those “mems” hitherto used to having their every need tended to found that they too could scrounge barefooted in the villages with the natives in order to survive. My father, who had difficulty learning the much easier English language, found that he could speak Japanese and write kanji in a matter of months! The Japanese had a ruthless – and very effective – teaching technique: Learn, or you will be punished, and punished severely.
Ending Subsidies
There is a useful lesson here for those who bravely talk of ending the NEP “crutches” and other subsidies.
Take oil subsidy. If the objective is to stem the hemorrhage from Treasury, it would be wise to have slow incremental reductions. They would more likely be taken in stride, as the Americans demonstrate. If the objective is to wean off the cheap-oil lifestyle, then you would need “shock” treatment akin to the oil embargo.
Assuming the first objective, a 10-sen increase every few months would eliminate the subsidy in a few years while allowing for consumers to adjust. To cushion the impact on the poor, subsidize their season’s bus and train tickets, and hand out coupons redeemable for cooking gas. Additionally, reduce the tax or give tax credits for taxi owners and bus operators.
Regardless of the objectives, it certainly would not be wise politically and economically to reduce the subsidy and simultaneously announce a massive bailout for Malaysia Airlines.
Shock Therapy to End Subsidy Mentality
Ending the subsidy mentality among Bumiputras would involve major cultural and behavioral changes, thus requiring “shock” strategy. The objective here is less with reducing public expenditures (though that would be a significant side benefit) and more to changing societal and citizens’ attitudes and values.
A gradualist approach would not work, it would let people adjust and outsmart the system. Never underestimate human ingenuity to overcome obstacles.
Clinically, shock treatment is used for treating depression and in aversion therapy; in the hands of amateurs, it could kill.
Socially, if “shock therapy” were indiscriminately and unskillfully applied to end special privileges, there would be riots. The nation would be ripped part from the turmoil, negating whatever potential benefits that could be gained. Skillfully applied however, it could be socially and economically transforming.
One strategy would be to “shock” only the segment of society that could bear the pain most, and whose behavioral and attitudinal changes would influence the rest.
Imagine if henceforth Bumiputras who earned or have assets beyond a certain value were denied special privileges. The criterion should be such that the group would include members the royal family, ministers, members of parliament, business tycoons, professionals, and senior civil servants.
Consider the immediate positive effects. Knowing that their children would not get scholarships and other special treatment, they would now curtail their ostentatious lifestyles and save more. This would add to capital formation in the Bumiputra community, with the consequent positive economic impact. With the rich now off the public trough, more resources could then be diverted to the truly needy.
Similarly, instead of having ministers and politicians decide who would be blessed with timber concessions, Approved Permits for importing cars, and other valuable licenses, auction them off to the highest bidders, and use the proceeds to improve rural schools.
Likewise with the award of public tenders; there would now be competitive biddings to involve not only non-Bumiputra companies but also foreign ones. Bumiputra companies would then have to strive very hard to be competitive. Their principals would have to pay more attention to their businesses and less time lobbying politicians. The government would also realize immense savings, spared from paying the unnecessarily bloated costs as with the present practice.
On another level, the next time a vacancy occurs at the highest echelon of the civil service, public universities, and Government-linked companies, if the government were to use a reputable “head hunting” firm to recruit widely (including abroad) for a replacement, imagine the shock waves that would thunder through the establishment! That would be far more effective than the endless exhortations of gemilang, terbilang and cemerlang (excellence, glory and distinction).
Yes, there would be a political backlash from those grown gluttonous on the present system. However, the many more poor Bumiputras who would benefit from the changes would easily outvote the deprived rich ones!
Imagine the transforming effect to such a selective shock therapy. All Bumiputras would now strive hard to be competitive and less dependent on the state. The results would only be good, for Bumiputras as well as for Malaysia.
posted by M. Bakri Musa | 3:24 PM
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