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Sunday, July 31, 2005
Competition benefits all? The Proton's saga
This is not really about personal finance. Well, remotely may be, as it does affect the car prices.
Many think that competition is good for the economy. It weeds out inefficiency, delivers products utilising lesser resources and ultimately benefits both consumers and producers. This is true.
Competition weeds out less efficient manufacturers like Proton and many other Malaysia manufacturers. Ford, Toyota, Nissan, Honda and many other more efficient manufacturers will sweep the market with lower cost products giving the world consumers, including Malaysian better deals. The world economy will benefit from such competition. It leads to better utilization of world resources.
Being a Malaysian, living and working in Malaysia, I will not want my inefficiency to be wiped out by competition even though it benefits the world's economy. Competition benefits the economy as a whole (the world's economy). It gives world's consumers (including Malaysian, myself) cheaper cars. BUT simultaneously it wipes us, the less efficient manufacturers, out. It wipes out the inefficient part (the Malaysia economy) of the whole economy (the world economy). It wipes out our capability to earn!
Due to our relatively small population, Malaysia economy is packed with (relatively) inefficient producers. It is difficult for our producers to reach critical mass by merely selling to Malaysian! This is unlike U.S., Japan and China, where critical mass can be easily reach before going abroad. With free competition, our “less efficient economy” wrecked; the entire world economy benefited.
In text book, money and human capital flow within this borderless ENTIRE economy. In real life, human capital like us trapped in Malaysia. The moment our inefficient manufacturing industry go, go with our job, our capability to spend and to buy. Not all of us could find a job overseas. (Economics text book assume mobility of human capital within a discussed economy. The discussed economy is the world economy. In real life, the world economy is not borderless.)
Economics theory on competition is correct, but the truth is only to be found if it is applied in the right context. Many misunderstand the theory and think that such free competition benefits Malaysia. But NO. It benefits the world economy as a whole, but wrecks the Malaysia economy, a less efficient economy due to our relatively small population. The truth is, applying it correctly, the economics theory on competition actually tells us that we will be the one that lose out if we allow free competition.
With this, I take the stand that we must practice subtle and clever protectionism. Yes, protect Proton quietly. Stop importing Korean cars unless 40% local content requirements are met. For the prosperity of Malaysian economy and my job (well, sort of indirectly. My occupation is not related to manufacturing). And yes, I rather pay for a higher car price if this ensures my country's balance of payment and my job intact. More importantly, off course, Proton must improve.
posted by chentong at
1:15 AM
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5 Comments:
Dear Chen Tong,
Your comment about American style free market shall never been practice in a small and incapable country like Malaysia, and it's even worst for its unprotected citizen, first confuse me a little bit, Then it seem to have some presuasive element that pop into my heart.
For a believer of otherwise, i feel like i should write some lines down on your argument. I'm not an economist just a normal biz man, this is for my own record while answering yours.
1) I agree some points, in fact most of it in your line,except you said,"the economics theory on competition actually tells us that we will be the one that lose out if we allow free competition."
A free economic structure will in fact make us better than those who are close, in term of anything!
2) There is no middle way of openning up our economy, we can OR may choose to open it with "road map" and , MUST be firm in its ultimate direction/goal, and make sure we follow the time table. Why? We all know it clear, if your want to take away someone's wheelchair, you must tell the patient to be prepare within a fix period, and you must take it away after that period, otherwise you with end up giving him the second wheelchair!
3) These lead us to current dilemma (if you chose not to open up quickly): namely a) the discretion of privilege, b) the distribution of interest, c) the misbehaviour of administation etc. All in all, we might rather choose to open it ( It's a better choice and fair chance for all of us!)
4) To close the economy or to choose a slower pact of openning it, will make us an even smaller and incapable country!
5) Human being evolves because our daily comfortable living practice was being constantly challenge and threatened. Free market is not the only choice, but there isn't any other viable alternative either!
6) It's my personal view of surviving, be challenged. I rather die standing then die slowly! And you know what? I'll educate my sons THIS way!
By
kingyakin, at 11:13 PM
Dear Sir,
Forgot to add one more reason.
PROTON - is not a good case to argue for protectionism.
Proton being Proton now, is the result of prolong protectionism itself.
It's a good case to be study, i believe, in oversea, to persuade one to adopt to free market ealier than later.
By
kingyakin, at 11:18 PM
Hi King Yakin,
"A free economic structure will in fact make us better than those who are close, in term of anything!"
This is, in fact, a misunderstanding of a correct theory. :)
In a free market, resources are better utilised. It leads to net gain from trade for the entire economy. Free trade is not a zero sum game, it is a positive sum game as after wiping out the inefficient producers. The efficiency of resources allocation improves. It was 1 and 1. Now it is 1+1=3.
Interestingly, most people think this automatically leads to the argument FOR free trade and that Malaysia should open up our market. I disagree, read again as below. The same concept, with new data feeded in.
In a free market, resources are better utilised. It leads to net gain from trade for the entire economy (world economy). Free trade is not a zero sum game, it is a positive sum game as after wiping out the inefficient producers (i.e. wipe out producers in small economy like Malaysia). The efficiency of resources allocation improves (for the world economy). It was 1 (world economy) and 1 (Malaysia economy). Now it is 1+1=3 (world economy), zero for Malaysia (as we all loss our jobs, trade deficit, and we don't have money to buy).
Isn't the economics theory on competition actually yelling at us, Malaysians, that we will lose out if we allow free competition? ;-)
The above seems to be too simplified. Please don't feel that way. The deterioration of developing countries' economy due to trade liberalization actually took place.
In one of Martin Khor's writings for International Herald Tribune...
"A clear explanation of why trade liberalization often leads to negative results is found in the report for 1999 of the UN Conference on Trade and Development. It shows that rapid liberalization of trade has contributed to a widening of the trade deficit in developing countries in general.
Liberalization led to a sharp increase in imports, but exports failed to keep pace...
Other recent studies show that countries which rapidly liberalized their imports did not necessarily grow faster than those that did so more gradually. One major problem is that a country can control how fast to liberalize its imports but cannot determine by itself how fast its exports grow."
By
Chen Tong, at 1:38 AM
We must remember the ultimate objective of institutional policies, i.e. decision on trade liberalization, is that the policies should lead to good life.
Therefore there is no rush to open up our market. Why take the risk? It is OUR good life at stake. There is no point taking the risk to "die standing". If being slow in opening up market leads to "die slowly". Then we should choose to "die slowly" and buy time in finding a way to live.
Remember, don't ruin our good life to fulfill other people's dream of utopia of free market.
We can confess the sins of our administrators. No problem. But open our market for imports before our export capability is assured is a bigger mistake. So until Proton is ready for competition, don't open up for competition.
Remember, don't believe someone who tell us that we have to give up our coffee in hand today, in order to have cafe late tomorrow. We WILL drink our coffee today and we WILL have our cafe late tomorrow.
Don't sacrifice today for tomorrow, simply because we can have today and tomorrow.
So we subtlely protect. Enjoy good life, prepare to improve and win when we open up our market.
Don't trust outsiders. They have too much to gain when our market opened up for them to be impartial in giving advice. Being too trusting were how our Sultans lost their land to British...a lesson from the history. :-)
By
Chen Tong, at 2:25 AM
Check this out about free trade and WTO.
Part 1 and Part 2.
By
Chen Tong, at 2:31 AM
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