First published in theSun on 16 February 2017, here.
UNDER the guise of helping the poor, countries under communist regimes in the past imposed one of the most disastrous economic interventions ever: price controls. The results in these countries are well-known: starvation, poverty and economic turmoil. It is therefore unclear why our government has not learnt this lesson.
Section 15 of the Price Control and Anti-Profiteering Act 2014 states that the minister of domestic trade, cooperatives and consumerism has the complete power to impose price controls whenever he feels that profits are “unreasonably high”. Under the new mechanism that was introduced for immediate implementation on Jan 1, 2017, the minister has the power to fine any business if it charges even one sen more than the past three years’ profit percentages.
This matters because it applies across the supply chain, whether you are a small farmer or large supermarket. Even more ludicrous is that it applies to all household goods, and food and beverage products – including brooms, brushes, biscuits and snacks. The policy will have serious consequences on people’s lives, and already has.
In May 2016, it was reported that a 32-year-old retail store operator in Kuantan was fined RM8,000 for failing to respond to a notice issued by the ministry.
He had been asked to justify why he sold a packet of laundry detergent for RM10.60 instead of RM9.90, which the government said was more justified – just a price difference of 70 sen.
A fine of RM8,000 may not sound like much to a big business, but it could definitely eat into the business savings of a small kedai runcit. One wonders whether his shop survived after having to pay the hefty amount.
Policies like these hit the small businesses the worst, because they do not have the resources, infrastructure or economies of scale to adapt as quickly as big businesses. They do not have the same connections needed either to voice out these concerns to policymakers, whether it is to big law firms, business chambers or politicians.
Thousands of stories like these mean that the country loses as much as US$12 billion a year on cumbersome business regulations, economic opportunities that we would have otherwise gained. The poorest of the poor are affected, and worse, it stifles their spirit of enterprise and efforts to get themselves out of poverty.
The signs are already showing. The SME growth rate fell by 20% from 2011 to 2015 (7.3% to 6.1%), and worse, the total early-stage entrepreneurial activity rate – or the start-up rate in short – fell by almost 50% from 2010 to 2016 (4.96% to 2.9%).
If this trend continues, this will be of great concern to the Malaysian economy, since at the moment SMEs contribute more than one third to the country’s GDP, at about 36.3% as at 2016. They are the true drivers of growth as they create jobs, and perhaps more importantly, they are the very epitome of human potential that strives against all odds to better their lives and that of their families.
The Act was passed in 2014 to ensure that businesses do not profiteer out of the newly-implemented GST that took effect in April 2015. Price controls were supposed to have a limited period, up to Dec 31, 2016. But lo and behold, at the end of last year, with very minimal consultation, the government announced that it would be continuing an adapted version of this mechanism to begin effective Jan 1, 2017.
At a consultation with businesses held earlier last month, however, it did not sound like the mechanism was very well or thoroughly thought through.
First, the formula that is used to calculate “unreasonable profits” is a one-size-fits-all, when we know that profit calculations in fact differ from industry to industry. It also means that new or old businesses have to apply the same formula to calculate their profits, when in reality a company that is four years old and relatively new might want to have a lower profit margin to capture its customer base first, compared to an older company of 20 years. Assuming that all businesses across the board should adopt a standardised formula tells us that the ministry knows nothing about how businesses actually operate. Small businesses and entrepreneurs may not have the appropriate data-storing technology to be able to trace their historical profit margins. Without such records, it will be difficult to justify their prices to the government whenever they come a calling.
Second, government officials are still unsure as to how the policy actually works as they did not know whether or not palm oil is included in this catch-all scheme. Does it mean that other products are given exemption on a case-by-case basis? It is also ludicrous to include livestock, since as one farmer put it succinctly, their cows decide whether or not they get fat. If they eat a lot, they put on weight; if they do not eat, then they would stay skinny.
Finally, one needs to ask how much the government is spending to enforce this policy. Is the government setting up yet another enforcement body? How many additional civil servants will need to be employed or designated for this task – which by the way will need to be enforced throughout the country?
Last year, a mamak shop in SS15 Subang Jaya was fined RM4,000 for charging RM1 more for nasi lemak. This is an outlet that I used to frequent often when I was younger and had all the time to hang out with friends over copious amounts of teh tarik. Fortunately, the shop seems to have survived. But one wonders how long such earnest businesses and traders can carry on if they are constantly under the threat of bureaucratic government policies and their equally bureaucratic agents, especially if they are imposed with minimal consultation. Price controls are to be implemented indefinitely at this point. Worse, how many other foreign businesses might think twice about entering the Malaysian market given what seems to be an increase in such cumbersome business regulations? It is time to free small businesses from price controls.
