Refsa on subsidies: Still off the mark

Dr Lim Teck Ghee

The response by Research for Social Advancement (Refsa) institute to my note is disappointing. It provides little value added to the current knowledge on subsidies in Malaysia; repeats various motherhood statements about the need to rein in subsidies and selectively focuses on so-called various ivory tower statements that they have detected in my note to triumphantly declare victory.

The major contention in my note is necessary to repeat:

It is necessary to remind the REFSA-IDEAS team that subsidies have an important role to play in providing a safety net for vulnerable groups. They help bring down the cost of living as well as enable access to health, education, transport and other necessities.

They are a necessary burden in a highly skewed capitalist economy such as Malaysia’s where the lower classes of labour do not get the fair remuneration that they are entitled to or deserve.

We already have one of the highest levels of income inequality in the region. In pushing for a free market system without due attention to the structural defects of our political economy, proponents of a neo-liberal ideology run the risk of throwing out the baby with the bathwater.

For Refsa (and the Institute for Democracy and Economic Affairs / IDEAS) to be taken seriously, they need to address these concerns directly. They also need to buttress their stand on subsidies with some of the following:

1. Empirical verification for the major assertions made in their initial joint note

2. Details of the subsidies that need to be reduced or abolished (by sector, in ringgit and sen, etc)

3. Practical strategies to effectively implement phasing out of subsidies

4. Clear socio-economic justification for the cuts, and their effects to the economy and society

In the 1970s, Jacob Meerman produced a classic work on “Public Expenditure in Malaysia: Who Benefits and Why” (New York, Oxford University Press, 1979). His study utilized a sample survey to generate data on the household consumption of education, medical care agriculture, public utilities and welfare transfers – in other words on the entire range of subsidies. The results provided an estimate of government spending on households for the various services, particularly by income, region, ethnic community and other variables. His approach was not that simply of narrow income accounting. It also provided an analysis of the benefits of benefit incidence in terms of the locus of the benefits, their duration and their valuation.

Unfortunately Meerman’s work has not been replicated so that many are groping in the dark whilst pontificating about how the poor man on his motorcycle is really subsidizing the rich man in his BMW!

Meerman’s study can be a model for the work that Refsa/IDEAS should engage in, hopefully by way of a grant or subsidy from the government or other benefactors.

Should that work be deemed beyond their capabilities, I propose that Refsa/IDEAS go after various lower hanging fruit that have contributed more to our financial crisis. Should my initial proposal of a cutback in the civil service be seen as politically unpalatable or incorrect, then they may want to research on the capitalist and rentier captains who have adroitly manipulated the subsidy system to give it such an undeservedly bad name.

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