Monday, June 1, 2009

Breaking the monopolies

When you go around in Male' shopping for a jeans, or anything for that matter, you get to decide from where you want to buy it. You can decide whether you want to buy from the local corner shop, or you want to buy from the supermarket where the product comes in good packaging. A perfume X available for 100/- at the supermarket might be available at 95/- at the local corner shop. There is healthy competition.

Suppose one day, the government decides that it is in the interest of everyone that the government decide who sells perfume. The idea being that, the right to sell perfume will be given to selected 4 or 5 parties, hoping that the public don't have to worry about fake products and low quality perfume. Do you think such state granted monopolies will actually improve quality, reduce price or benefit the public in general at all?

Well, such a thing was done in the land of Elvisdam. A similar thing has been ongoing right here in Maldives, the exclusive right to export tuna had been granted to selected companies. What right does the state have to give away the country's resources to selected parties? Does that really improve the conditions of fisherman or the small entrepreneur?

Fortunately, the news has come that the current government is atleast thinking of abolishing the state granted monopolies. These monopolies are one of the main reasons for the troubles faced by the fishermen. Some parliamentarians, during their campaign, promised to solve the problems of fishermen. But what everyone had in mind was more subsidies in fuel, ice and loans. Such subsidies hurt in the long run, and make the fishermen dependent, rather than independent and self sufficient.

Ofcourse, the question remains of how to actually abolish the monopolies. They too have made massive investments, and there should be appropriate compensation. There will be jobs lost and many other problems in the short term, but it is the sour but right medicine that we have to take.

In addition, in the recent news conference held by the employment ministry, it was stated that the exclusive monopolies given to so called 'expatriate workers importing agencies' need to be broken. That's right, state should grant no monopolies here too.

24 comments:

Hilath said...

Tourism has been one of the most horrible monopolies until now.

On the excuse of protecting our Islamic culture, guesthouses by private people until now were forbidden, and families like Koli ensured through Maumoon that tourism remained only a monopoly in the hands of selected ('beyfulhu'?) families.

In the process, Maldives became so upmarket that middle market and low end tourists were shut out of experiencing these paradise islands. Of course the excuse was to keep out hippies from smoking ganja on our streets and having sex with Maldivian girls.

What hypocrisy. This is enslavement of the highest kind by the state,preventing ordinary people from benefiting through tourism. As a result the gap between the rich and the poor have become so wide. Luckily Anni is getting rid of these Maumoonish enslavisms.

meekaaku said...

Yes tourism industry is already monopolised. Anything lucrative, the deals are already done. Whats left for ordinary folks are cornershops unfortunately.

axee said...

Isn't it the same with the architect/Engineer regulation....I heard the menu for restaurant needs approval from the govt too.... they decides what type of food we can eat depending on the seats, environment and kitchen size etc....pathetic

meekaaku said...

Yes it is like that unfortunately. and they are trying to control how you buy ur cigarettes too!!

meekaaku said...

also see my comment on this thread

f i Я a s said...

Yes, subsidising is bad and illegal under international trade laws, but the REALITY is that ALL the developed countries subsidise their corporations in order to muscle out competition, especially from the third world.

A democratically elected government and democratically elected law makers do have the right to control prices and to regulate trade.

What right does a private company (or a few companies) have to dictate prices and to exploit a country's resources?

meekaaku said...

firass:
Yes, developed countries do subsidise corporations, and thats the merchantilistic approach. Economically it is counterproductive. Almost all societies progressed with increase in trade. Those who blocked trade suffered. Not only in modern times, but pre-industrialrevolution period too.

As for:
"A democratically elected government and democratically elected law makers do have the right to control prices and to regulate trade."

And what happens when they do? they make exclusive monopolies like the fish cartel. It is the democratically elected government that gives exclusive monopolies. Why are we giving the politicians the power to give the entire countries' resources to selected companies? Why are they blocking the small entrepreneur from making a living? Why are they making everyone else to work as wage earners to these companies? The private companies are able to 'dictate' a price only if they are made a monopoly. If there is competition, the price will come down. Those who are inefficient will go bust.

What makes a politician better suited to set price? Do you want our politicians to set the price for the food, clothing and everything else we buy? Or would you rather buy it from a competitive market?

Yes regulations should be there, but price controls and state planning does not work in the long run.

f i Я a s said...

Elected official are better suited because they are elected. they are the ones WE choose to fight for our rights.

to regulate trade doesn't mean to stop trade, but to let the PEOPLE (represented by elected officials) have a bigger say in controlling and making decisions related to their country's resources.

yes the World Bank and IMF will come barking coz you're being "business unfriendly". but the free-trade, free-market systems are sending 100's of millions of people into the depths of extreme poverty as we speak.

stricter regulation and greater state control of resources is the solution to the problems of poverty and inequality in third world countries.

meekaaku said...

"Elected official are better suited because they are elected. they are the ones WE choose to fight for our rights"

Apparently they didnt!! Look at what they did to the country's resources! What if the elected officials decide to go all laissez faire? Or full state ownership of everything? Does that make them better just because they are elected? I think not. Yes democracy gives some control to the people. But whats good for the people is good whether done by elected officials or dictator. Do these elected officials fight for the rights of minority? See suppression of religious sects in Maldives let alone other religions.


Yes there are valid criticism of imf/wb, but not all or even majority of world poverty is the result of freemarket. Nor it is the result of communism. But market based approaches have brought thousands out of poverty.


"stricter regulation and greater state control of resources is the solution to the problems of poverty and inequality in third world countries."

No it is not. See south-east asia for example. Countries which adopted state-control and other nationalistic policies stagnated, while others (such as singapore, s.kore, thailand) which liberalised their trade developed.

f i Я a s said...

just for record, our fishing and tourism industries were NOT gifted out to the fish cartels and tourism families by democratically elected officials, but due to the lack of it. the free market is pretty much like the law of the jungle, where the strong eats the weak.

tell me - why are the world's financial institutions and business corporations being NATIONALISED as we speak? in the UK, US, Europe, Japan, Dubai?

South Asian countries were and are driven into poverty by corrupt undemocratic rulers, who sell their natural resources to PRIVATE COMPANIES at extremely low prices, just like our tourist islands.

Singapore probably has the strictest regulations and heaviest taxation on the planet. While South Korean farmers, fishermen and even industrialists are increasingly waking up to the fact that they are being muscled out of business and out of work by heavily subsidised American products.

The ONLY thing that keeps the free trade and free market going is the advanced weaponry of USA, and its willingness to strike at ANY country that opposes it.

axee said...

Meekaaku, stop thinking free market is the silver bullet for all economic problems we face....free market is- able eating the disabled, raw and alive.. Yeah it does have it's silver lining but mostly it is storm clouds..

You can read through literature on what happened to many carribean islands after they allowed multinational companies into their tourism industry...all small trade went bust, all jobs are taken by foreigners and all locals are slaves in there own country (seems like we are going in the same direction)...true they have better resorts/hotels and for a visitor it's a good improvement but NOT for the natives....Minimum degree of regulation is required...the real question is how minimum??

axee said...

Just a thought...Firas does not want any qualification requirement for MPs and Meekaaku wants..But when it comes to the theme of economy Meekaku does not want regulations and Firas wants them....Boing!! Seems like if its convenient its the right way for you guys....

f i Я a s said...

for me, the question is whether we want 5 billionaires, 50 multimillionaires, 150 millionaires and 150,000 earning less than a dollar a day in the country

OR

do we want to distribute the wealth derived from the country's resources more equally...

axee said...

Let’s forget all these market liberalisation, socialism and anti-american talk for a minute... and go back to zero

We can all agree that all individuals should have a fair (not the same as equal) distribution of wealth of the land. By fair I mean anyone who works hard and smart should get a proportionally larger share of the wealth than the one who decides to relax under the tree or in the cave. By fair I also mean people possessing weaknesses such as mental and physical challenges should be catered by the wealth produced from the land.

Now the question is even if we go all the way back to zero, I mean prehistoric times, individuals in a society will not be equal. You can than drop on them the free market model and hope for the best. No laws to control anything and the answer would be unfair wealth distribution. The people who are stronger or who starts first will do everything to avoid sharing the wealth. Eventually it will be survival of the fittest, let the weak die!!

Similarly, an attempt for equal wealth distribution (socialism kind of thing) will slow down progress as no individual will have the drive to make an effort as what ever they do they will get the same sum as the rest. We can be happy that there will not be a rich getting richer scheme yet this is not a fair deal.

It seems no model provides a fair wealth distribution.

meekaaku said...

firass:

Ok fine i agree it was done in maumoon time so it wasnt democratic. But what stops the current government/parliament (assuming lets say this is a democracy) from keeping the monopoly? or giving the monopoly to someother party? or the current proposal of dismantling it? It all depends on the majority (provided it needs parliament approval in the first place). Just because they are elected democratically does not necessarily bring about what is good for the people.
As to the topic of this blogpost, do you think the dismantling of the monopoly is a good thing?

Apparantly the banks are not being nationalised enough, and it is worse than being nationalised. The taxpayer (who's money is used for bailout) is not getting a say in the management or the banks practices. The public has no control over them still. Its a scheme to loot the public coffers into the hands of the bankers, because the bankers are an extremely powerful lobby. That is NOT nationalisation. Its social welfare for the rich like I already mentioned

Yes, singapore has its share of regulations (especially on press freedoms). But taxes are NOT high especially income tax, and it has a fairly lax regulations for foriegn investments and free enterprise. One would think why singapore is rated high by freemarket bodies like heritage foundation.

Wealth redistribution is not an end itself. You could tax 90% and redistribute, but it wont solve inequality but it will reduce gini coefficiant. But it would reduce incentive to investments and wealth creation and hence total wealth creation will reduce. You need ppl to create wealth to redistribute it in the first place. Closing off the economy and too much central planning is counterproductive.

If you look at the heavily taxed scandinavian countries, you will find they also have liberal trade policies and open to foriegn investments and free markets.

meekaaku said...

axee:

Its not that i am against regulations. There should be, and it shud be a good balance. I would tend to lean on minimal necessary regulations rather than over regulation.

Freemarket is not a silver bullet. Neither is anything. But what i am in support for is market based policies and engaging pvt sector more. And any policy will have its negative effects too. For eg, when maldives is being opened up, we don't have tax laws, we dont have ip laws, we dont have enough skilled ppl to take up the jobs etc etc. Freemarket does not exist in a vaccume. We have to have strong institutions to absorb the challenge. I dont know whether maldives is ready or not, but the basic premise of liberal trade policies are a good think imo.

Your example of starting from zero assumes there is no rule of law and enforcement of property rights. These and other institutional arrangements should be there for markets to work. Just like we need seperation of powers and other institutions to make democracy work.

Yes social security should be there for those who need. Freemarket is not against that. What is needed is what works for SS or any welfare. Since you mention SS, there are govnt based SS and pvt and semi-pvt SS successfuly running guess where? Singapore.

meekaaku said...

axee:


About qualifications for MPs.
The MPs are elected to make laws that govern ppl. If they are going to tell me to abide these laws (which dictates where I pray, how many cigarettes I buy, which architect i should hire eg.)which unfortunately restricts our freedoms day by day, i would want them to have some qualification, rather than be just the most popular orator and who would blindly vote for the populist policy of the day.

Is it not the same thing (like you said above) about cigarettes, architects/engineers, copyrights, patents, elvisdam, crack down on jihadists, secularism (and everything else that i have written in this blog). Arnt they all just ways to control ppl lives and the expense of liberty and freedom?

Not that there is a qualification requirement that can be drawn up, or being qualified will stop these marches. It was a suggestion.

f i Я a s said...

as i said before, if what you call "over-all wealth" is the creation of a 100 millionaires and 200,000 poor people, say, in this country then then it's better to have 300,000 starving people straight away. because that has been the end result in deregulated, free-market, free-trade 3rd world countries in the history of the 20th century. international private companies, heavily subsidised by their own governments come and tap the country's resources for absolutely nothing.

the so-called principals of free trade (if such a thing ever existed) are never respected nor followed by the militarily advanced nations on earth.

meekaaku said...

Yes the militarily advanced nations have their powerful lobbies, and their politicians too are subject to these lobby efforts. No one wants their business to fail. Hence they lobby to get protective tariffs and other favoritism and the result is corporatism. Such protectionism benefits only the business, not the people of that country. There is nothing freemarket about these. The whole point of freemarket is stopping these favoritism. Be it draconian patents, long copyrights protective tariffs etc. You see, industrialists in the developed countries are complaining now that japan/china/india producing cheaper and better products than them. Not just products, look at the fuss about IT outsourcing to places like India. And this happened only because India and China opened up their economies to trade in the 1990s and earlier. They leveraged the comparative advantage they have. They opened up and brought in foreign investments from these US companies, and now they are beating them at their own game.
Now this did not complete eliminate poverty, but its a long way forward. Yes I know the working conditions are sometimes horrible and exploitative, but these things are being addressed and as their institutions (such as trade unions etc) become strong it will improve.

Corruption, nepotism and favoritism are just that whether they occur in freemarket or socialist states. There is no justification for it.

meekaaku said...

If you look at 20th century history, you will find that closed off economies and socialism (at least what was practiced as stalin-leninist and maoist forms) failed their own people.

f i Я a s said...

Yes meekaaku, you have come to my exact point. these private companies only outsource to the poorer countries for under-priced materials AND slaved labor. i.e. to MAXIMISE profits. And when the workers demanded even a cent of a pay increase the companies simply shut down the factories moved to the next country.

and every worker who fights for better pay and social welfare are quickly labelled Communists, warranting sanctions and even military action.

imdhaah said...

i think its time we all gathered around one table and continue the discussion. i'll try to act as the moderator.

meekaaku said...

firass:
But that same thing makes indian programmers earn better living than what they would have achieved otherwise. Same goes for other fields. The tech companies are also trying to maximise profits too.

What i think that you are pointing is the conditions of the unskilled labour. Is it not why there are minimum wage and other laws (with its both positive and negative effects)? Minimal regulation is required, but not over regulation. Some countries dont have minimum wage laws but have a de-facto minimum wages obtained by collective bargaining between trade unions and companies.

It is not only when foreign companies come that such problems are found. You can have a look at how some maldivian contractors are housing their labourers. Such conditions is better as the institutions improve. This does not mean that it is better to regulate everything or the state should overtake.

As individuals, arent we also maximising our profits (technically utility) when we go shop around for better products with lower prices?

Arnt we creating our own little competitive market when the fish monopoly is dismantled and giving opportunity for everyone to participate?

As I mentioned in my previous post about architects, regulating who can design what is not a good thing for the people. It is best left for free competition. Sure the designers will try to maximise the profits, but the competition will tend to lower the prices and give better benifits to the buyer. The only way someone could maximise the profit to the heart's content is when it is a monopoly.

meekaaku said...

and the proposed regulations(for the architect/engineer thingy) does just that.

And the legalised fish cartel also just did that.