Subsidy, its a favourite word nowadays, every man on the street is interested in it. They are yearning for it to be prolonged, on the other hand politicians are using it as a form of or a tool of negotiation. The politicians on the ruling side are claiming that Malaysians are heavily subsidized in their daily life, and this is burning hole in the Government pocket. Some quarters are claiming that subsidies have negative multiplier efect on the economy (is it true?)The politicians on the other side (the oppositions) are claiming that it is the right of the rakyat, and it is the Government of the day's responsiblity to ensure the continuance of it. Okay, lets start from basic, Econ 101, what is subsidy?
According to businessdictionary:
1. Economic benefit (such as a tax allowance or duty rebate) or financial aid (such as a cash grant or soft loan) provided by a government to (1) support a desirable activity (such as exports), (2) keep prices of staples low, (3) maintain the income of the producers of critical or strategic products, (4) maintain employment levels, or (5) induce investment to reduce unemployment. The basic characteristic of all subsidies is to reduce the market price of an item below its cost of production. Also called subvention
A sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.
Those definitions above are just three of the many definitions that you cant find either on the web or dictionaries. If you look at the definitions alone, can you find any negativity in subsidies?...The answer is plain NO....subsidies are described as.. support a desirable activity........ keep prices of staples low..... maintain the income of the producers of critical or strategic products.....(business dictionary), often considered to be in the interest of the public. (investopedia)......... so that the price of a commodity or service may remain low or competitive....
Everything about subsidies are described as good, I dare you to look at any dictionaries, you will come across similar answers and definition.So where is the bad and ugly part of subsidy?
Looking from the economic angle, at least the capitalist school of thought, zero Government intervention any any kind of distortion (be it tax or subsidy) is bad, and it will make the market inefficient, but those are the capitalist...and on the other extreme you have the socialist...where every economic decisions will have to be made by the Government, decisions such as What to produce?...How to produce?...How much to produce?...etc, and all resources are owned by the Government.And somewhere in between, you have the moderate school of thought, such as the Islamic School of thought, (many doesn't realize that the Muslim world have their own reknowned economist such as Ibnu Khaldun), whereby the tenets are markets should be allowed to float as much as possible, and the Government needs to intervene in order to maximize the welfare of the people (now the Welfare State announced by PAS in their recent Muktamar is starting to make sense...). Coming back to the question of subsidies having negative multiplier effect on the economy, they claim that susidies are unproductive expenditures. When subsidies are removed, especially on the staple foods and other basic needs, it will decrease the purchasing power of the people, the inflationary rate rate will cause pressure and strain, and it will have negative impact, on the other hand, ADEQUATE subsidies,carefully planned and cautiously executed, will ensure the well being of the people and spur them to work harder and this will boost the economy.Thats why even developed country such as USA are STILL subsidizing its people...especially those in the food and textile industry.
Subsidies, although considered as some sort of distortion, it is very much needed, in order to maximize the welfare of the people. It is compulsory in order to bridge the income of the rich and poor, it is vital in order to ensure the poor are not deprived of their daily basic needs especially the the need for food cloth and shelter.Every Tom, Dick and Harry....ooppss....Ali, Ah Seng, Muthu, deserve to be subsidized...but the conglomerates and IPPs....can do without it (Oh...I forgot, they are not subsidized, it is the forgone profit.
GOD have mercy on Malaysia and its rakyat....Subsidies are GOOD for the people, but the BAD politicians are rearing their UGLY heads in order to deny the rakyat from prospering adios...for now...a.h.baharom
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