Proton in Perspective: Industrial Policy Gone Wrong

Proton has hit the headlines again (excerpt):

Proton must ‘graduate’ from govt protection, says Mustapa

PETALING JAYA: Proton needs to “graduate” from Government protection, says International Trade and Industry Minister Datuk Mustapa Mohamed (pic).

In a statement on Friday, Mustapa said that the Government could not continuously protect heavy industries, including the automotive sector, noting that although other countries such as Japan and South Korea have protected their automotive industry, these measures were short- and medium-term in nature, and were eventually abolished.

“Proton, which is our national car project, needs to graduate from this protection,” he said.

Competition And Private Sector Waste

A fascinating blog post from Antonio Fatas, and having worked in the private sector for many years, one I fully agree with (excerpt):

Does competition get rid of waste in the private sector?

It is very common to hear comments about the waste of resources when referring to governments and the public sector…In fact, we all have our list of anecdotes on how governments waste resources, build bridges to nowhere and how politicians are driven by their own interest, their ambitions or even worse pure corruption. If only we could bring the private sector to manage these services!

Industrial Policy: Picking Winners Works, Provided…

One of the interesting things about development in East Asia over the past half a century is the degree of government involvement in promoting certain sectors of the economy, notably export-oriented manufacturing. That’s been the guiding principle of Japan’s and Korea’s development for instance, and Singapore and Taiwan haven’t been far behind.

In Malaysia’s case, attempts at directing industrial policy has been a bit hit and miss – some industries (palm oil for instance) have been pretty successful, but others (heavy industry) much less so.

This new working paper published by the NBER helps to explain the reasons why (abstract; emphasis added):

Industrial Policy and Competition
Philippe Aghion, Mathias Dewatripont, Luosha Du, Ann Harrison, Patrick Legros

This paper argues that sectoral policy aimed at targeting production activities to one particular sector, can enhance growth and efficiency if it made competition-friendly. First, we develop a model in which two firms can operate either in the same (higher growth) sector or in different sectors. To escape competition, firms can either innovate vertically or differentiate by chosing a different sector from its competitor. By forcing firms to operate in the same sector, sectoral policy induces them to innovate "vertically" rather than differentiate in order to escape competition with the other firm. The model predicts that sectoral targeting enhances average growth and productivity more when competition is more intense within a sector and when competition is preserved by the policy. In the second part of the paper, we test these predictions using a panel of medium and large Chinese enterprises for the period 1998 through 2007. Our empirical results suggest that if subsidies are allocated to competitive sectors (as measured by the Lerner index) and allocated in such a way as to preserve or increase competition, then the net impacts of subsidies, tax holidays, and tariffs on total factor productivity levels or growth become positive and significant. We address the potential endogeneity of targeting and competition by using variations in targeting across Chinese cities that are exogenous to the individual firm.

No Datuk Seri, Restricting Competition Doesn’t Encourage Higher Productivity

I think I’m going to barf (excerpt):

Local veggies only by 2015

KOTA BARU: All farmers’ markets and National Agribusiness Terminal (Teman) outlets will no longer be allowed to sell imported vegetables by 2015.

This move is to give support to the local farmers, said Agriculture and Agro-based Industry Minister Datuk Seri Noh Omar.

“From 2015, all farmers’ markets and Teman outlets should source their vegetables locally.

“The move will indirectly encourage productivity in the country’s agricultural sector.

Competition Act: Monopolies Everywhere

From this weekend’s news:

The Competition Act and Anti-Profiteering Act to change the way business is conducted

THE Competition Act 2010 and the Price Control and Anti-Profiteering Acts 2010 will completely change the way business is conducted in Malaysia if fully implemented as expected by next year as they help pave the way for greater innovation and service to consumers at competitive prices.

The Competition Act 2010 took over 15 years to be implemented in Malaysia due to legacy issues such as industrial policies and protectionism given to selected industries such as the construction and transportation.

We Want Competition! Don’t We?

I’m in sunny Kota Bahru today for an academic conference, and these two articles in the Star caught my eye on the flight over (excerpts):

Promoting competition

THE Competition Bill 2010, which was passed last month and expected to be implemented by mid- or end of 2011, is aimed at creating a better business environment and to check against anti-competitive practices.

The bill, once gazetted, will be known as the Competition Act 2010.

The bill describes the “process of competition” as encouraging efficiency, innovation and entrepreneurship, which promotes competitive prices, improvement in the quality of products and services and wider choices for consumers.

“In order to achieve these benefits, it is the purpose of this legislation to prohibit anti-competitive conduct,” it says in the bill.

...which strongly contrasts with this one...

SMEs: Sugar ruling will hamper business

JOHOR BARU: Small and medium enterprises (SMEs) are equally bitter with a proposed ruling that requires them to buy sugar only from designated wholesalers.

The proposal by the Domestic Trade, Cooperatives and Consu-merism Ministry would create more bureaucracy and hamper business, said Malaysia SME Association deputy president Teh Kee Sin.

He said such a ruling would create more hassles, affect business and limit the supply of sugar for SMEs, especially those in the food manufacturing sector.

“I will not discount that SME businesses will resort to buying from the black market should the Government impose such a ruling,” he told The Star here yesterday.

The ministry’s proposal comes amidst an impending boycott by about 20,000 members of the Malaysian Federation of Sundry Goods Merchants’ Association over the licensing rule to sell sugar and other essential items.

On the one hand, we finally have a major piece of  legislation that mandates a level playing field in all business ventures (GLCs not excepted), and is also one of the keystones for the foundation of the New Economic Model.

Then, right at the same time, we have a major ministry proposing a non-price rationing mechanism (which is what licenses are), as well as sanctioning the creation of an monopolistic/oligopolistic cabal in sugar distribution.

I mean, what’s wrong with allowing the price mechanism to ration supply? Especially since Teh is as good as saying that SME sugar consumers are willing to pay higher for a steady supply.

The irony would be really funny, if it weren’t so infuriating.