Rents on 3G License

In March 2006 blog, I commented to the exercise of awarding 3G licenses. One of the point raised was the substantial amount that DIGI would have to pay for a 3G license if it were to purchase it from one of the 3G license owner.

In May 2008, DIGI acquired TIME dotCom’s 3G licence by issuing 27.5 million new shares, valued at MYR649 million (USD194.6 million). This amount would definitely be substantially more that what TIME paid for the license in 2006, reported to be around RM50 million.

This examples nicely illustrates the value of rents on licenses issued by governments.

Picture source: http://www.mobileworld.com.my

Did we or did we not have a Social Contract?

The debate on 'Social Contract' continues to be hotly debated in Malaysia. In a recent forum (STAR, 12 May 2008), Royal Professor Ungku Aziz stated that the notion as it is used in Malaysia was “a fantasy created by politicians of all sorts of colours depending on their interest”.

In the same forum, Tun Mahathir disagreed with Ungku Aziz on the matter. According to Tun Mahathir, a social contract did exist although not in written form. The following statements from Tun Mahathir were reported by the STAR (12 May 2008):

“There is no written social contract. But there was an understanding among the founders of the Alliance that we should share.

“Tunku (first Prime Minister Tunku Abdul Rahman) gave one million citizenships to the Chinese, and in response, he expected the Chinese to give some support to the demand for independence and to the sharing concept. He didn’t spell it (the contract) out 100%, but there was this understanding, not written,” he said.

Dr Mahathir said the social contract was a social understanding, which included sharing the economic cake with the bigger portion given to the bumiputras “so, eventually they can catch up with the non-bumiputras.”

Why all the fuss about social contract? The term 'social contract' is associated with the French philosopher Jean-Jacques Rousseau. It refers to an agreement by individuals or social entities within a society to fulfill certain obligations in return for each other's promise to do certain act.

In the Malaysian context, the social contract (if it exists) refers to the 'special status' accorded to indigenous population (or Bumiputras) in return for the granting of citizenship to non-indigenous population, namely the immigrant communities in the country. This interpretation is clearly what Tun Mahathir had in mind in the above statements.

The recent round of debate certainly raises a few interesting issues.

With regards to the issue of 'existence' of social contracts, do they need to be 'written' in the first place? The answer seems to be no, as social contracts are not generally regarded as implying legal obligation. But some argue that such a contract was indeed written into the Federal Constitution of Malaysia in the form of Article 153.

If the existence of such a social contract is assumed, the legitimacy of such a contract may also arise. Do parties, namely politicians, to such a contract truly represent the 'people' involved (even when they are elected representatives)?

Another important issue pertains to fairness and justice. Can a social contract that is an outcome of unequal bargaining power be an unjust one?

Implement Competition Law Before Removing Price Controls

The new Minister of Domestic Trade and Consumer Affairs, Datuk Shahrir Samad, is to be lauded for boldly suggesting the removal of price controls for essential goods. Whilst a casual reading of any economics textbook may initially suggests that market forces can lead to efficient allocation of resources, such argument are more nuanced. The same textbook will also suggests that markets are often imperfect and can sometimes fail, particularly so in developing countries. Even though the removal of price controls may temporarily increase prices, it is hoped that this may ultimately lead to an increase of supply with concomitant reduction in prices, thus benefiting consumers. However, this scenario may not come to pass in markets that are dominated by a few firms intent to using their market power to extract higher prices from consumers. In fact, a number of such cases have been reported in the media in the past. Recent examples in the country include beef cartel and price fixing in ferry services. In each instance, the government has struggled to rectify such problems through the use of blunt policy instruments such as encouraging more firms to enter such markets through the issuance of more licenses. In many countries, such problems have been more effectively dealt with the implementation and enforcement of a competition law which essentially prohibits anti-competitive business practices such as price fixing and collusive bidding in tenders. Thus, the existence of a competition law is absolutely essential if consumers are to benefit from any removal of price controls in the future.

Economics, Psychology and the 2008 General Election

In his recent book titled Predictably Irrational, Dan Ariely provides evidence that our decisions are influenced by the structure of choices available to us. More specifically, we like to narrow our choices to options that can be compared.

It is thus possible that one of the factors driving the 2008 general election in Malaysia is the election strategy of the opposition party in fielding only one candidate against the candidate from the ruling coalition, Barisan Nasional (BN). One can imagine that the sight of only two available candidates makes it easier for many voters to decide whom to vote for.