PR: Populists’ Dream, Economists’ Nightmare?

Pick your local idealists' champion: free water, lower petrol price, RM100 payouts for senior citizens. Someday the full force of global economic reality will hit them. Hard.

From other perspectives, subsidies distort prices and contribute to market distortion. The latter sends wrong signals to the entrepreneurs in that their enterprise appears to be viable while, in fact, it so only because of the subsidies.

Energy-intensive industries tend to fall in this category because energy in Malaysia, gas especially, is well below market price, sending the signal that the energy costs are inherently low.

With the controlled price regime in place, the distortion gets amplified all the more.

– Tan Sri Sulaiman Mahbob, chairman of the Malaysian Industrial Development Authority (Mida) and former director-general of the Economic Planning Unit. [Lagi]

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