by ANIS HAZIM / pic MUHD AMIN NAHARUL
THE government’s plans to introduce a moving price ceiling for food items in a bid to strengthen the country’s food security is concerning.
The Centre for Market Education (CME) CEO Dr Carmelo Ferlito said the decision will lead Malaysia to become a Soviet-style country as prices are fixed by government authorities, while production decisions are taken by government agencies.
“This demonstrates an abyssal ignorance of economic theory and history lessons. Where these experiments were tried, famine prevailed, like in the Soviet Union (more than 5.7 million deaths due to Joseph Stalin’s economic experiments in 1932) and in Mao Zedong’s China (more than 15 million deaths due to the Great Leap Forward),” Ferlito said in a statement today.
According to the government’s statement on Monday, the price ceiling will be adjusted based on changes in the price of various inputs in the supply chain, as proposed by the Economic Action Council.
Moreover, Prime Minister Datuk Seri Ismail Sabri Yaakob said Malaysia is looking to expand its agro-food ecosystem with supply chains led by government-linked companies, government-linked investment companies and government agencies.
“CME is highly concerned about the decisions taken by the two past governments, which now want to address inflation with central planning after having created it with lockdowns, monetary expansion and a reckless expansive fiscal policy,” noted Ferlito.
Among the reasons moving price ceiling cannot work is because prices are determined by supply and demand in the market rather than the costs of production.
Meanwhile, the decision is to be made by the state which is not an entrepreneur and will turn the economic system to be flooded with products that are not in demand and there may be a shortage of what the market asks for.
“Real prices correspond to the structure of supply and demand, emerging in the market and not via costs. Production costs, in fact, are also prices and are determined by supply and demand in the markets for production factors.
“The entrepreneurial demand for them will be dictated by entrepreneurs’ expectations on consumer prices. Therefore, wrong consumer prices (fixed by the government) will create chaos in the market for production factors and thus the production structure will turn into a sum of irrational decisions,” he added.
Hence, CME is highly concerned by the political pretence of being able “to fix” the economy as if it were an engine rather than a complex, organic and evolutionary system.
“Policy requires humbleness rather than arrogance — a humbleness dictated by the awareness about what the economy is, such as a complex and evolutionary network of human interrelationships,” he concluded.