Free Market.. an Oxymoron?

[Thirdshifter]

With companies like walmart alike who are more influential and richer than many goverments, what is your stand on this issue?

If my memory serves me right, Malaysia is suppose to "free market" by 2010.

I personally think it;s a bad idea and it will only make the rich richer. Malaysian companies either have to join the bigger fish or end up being swallowed.

what do you think?

[__earth]

Petronas is richer than East Timor and I don't see a problem with that (rumor has it that it's richer than Malaysia).

We need to recognize the fact that with free market (with competitive nature) the society will benefit as a whole. When you expressed your concern that Malaysian companies will have to merge with others, that only represents a fraction of the society (ie producers). The consumers (which makes up a larger percentage of the society) on the other hand will benefit (as long as no monopolistic behavior prevails).

[Thirdshifter]

Ideally free market is good for everybody, no doubt. However the free market thats going to shape up is going to to be more of the same if not worse.

It can be the same in the sense that instead of goverments controlling prices, you have giant corps doing it.

It can be worst in the sense that public will not be able to ask for transparency in price.

Merging will create less diversity hence creating less competitiveness and we all will be worst that where we started from.

Atleast if the goverment regulates certain markets, the price in general are more consistent with the inflation rate.
I can't imagine corporation being more responsible than a goverment.

[__earth]

Well, when govt controls prices, there's no competition. When corps have that ability, there will be competition, as long as the corps don't conspire with each other to jack up prices (which is unlawful anyway) and again, there is no monopolistic behavior.

While firms have the ability to set price of their product in free market, the price is also determined by demand. Firms in competitive environment can't set price at their wimp because of the supply and demand law.

Atleast if the goverment regulates certain markets, the price in general are more consistent with the inflation rate.

What makes you think that?

From experience, the government in a controlled economy tends to make price stickier instead of flexible. Remember the scarcity and daily rationing that occurred in the Soviet Union?

It can be worst in the sense that public will not be able to ask for transparency in price.

Merging will create less diversity hence creating less competitiveness and we all will be worst that where we started from.

This is true. That's why we need anti-trust law.

Free market in totality might not be good in some cases due to market failure but in most cases, with proper and minimal regulations to prevent market failure, it's still superior to controlled market.

[Thirdshifter]

Again ideally Free market is good but since big business has become so enmeshed with our government that we will essentially become a Corpocracy.

There is free market capitalism, but there's nothing 'free' about it.

Why have so many people bestowed such lofty attributes to what amounts to the language of overlords?

You trust these people? Those who run YTL, MAXIS/ASTRO, MAGNUM (the list goes on and on) to run your Free Market?

Even after they've proven they're nothing but crooks with their hands in our government's pocket?

I'd trade that economics book in for a refund, it's worth less than the paper it's printed on.

[__earth]

I'd would take private firms over "benevolent" government in most cases.

What makes you think a single entity (which has unlimited power) is more trustworthy than several other competing entities (with limited power)?

[Thirdshifter]

I'd would take private firms over "benevolent" government in most cases.

What makes you think a single entity (which has unlimited power) is more trustworthy than several other competing entities (with limited power)?

I don't know how you got the impression that i think a single entity with unlimited power is more trustworthy..

I implied that either way it's going to be more of the same. free market or not. However having the corporate all by itself, no goverment regulation, we all will end up with a damaged market.

[DecentMerson]

(just to point out that you guys are not alone in this thread. will post soon. it's been a crazy week)

[Schye]

Its kind of a trade-off.
Any organisation without control will surely lead to nothing good.
A free market under the law and regulation of a "clean" government may at least lead us nearer to the ideal market.

When a company grows bigger, naturally it will be harder for them to reflect to the changes of the trend. Hence I belief there will always be competition in free markets.


Free market in totality might not be good in some cases due to market failure but in most cases, with proper and minimal regulations to prevent market failure, it's still superior to controlled market.

*nod**nod*

[__earth]

I got the impression from there

Atleast if the goverment regulates certain markets, the price in general are more consistent with the inflation rate.
I can't imagine corporation being more responsible than a goverment.

If I'm mistaken, then I apologize.

I implied that either way it's going to be more of the same. free market or not. However having the corporate all by itself, no goverment regulation, we all will end up with a damaged market.

Like I said, free market in totality might not be good in some cases due to market failure but in most cases, with proper and minimal regulations to prevent market failure, it's still superior to controlled market.

So, there isn't any disagreement, is there?

[Salvation]

I would take Maxis/Astro/YTL/Maybank/Petronas anyday over government controlled pricing. They are more efficient, and as earth said, we need anti-trust laws to go with it.


Merging will create less diversity hence creating less competitiveness and we all will be worst that where we started from.
It's a classical debate of economies of scale versus competition...lets take an example, a few years ago, the government urged the banks in malaysia to merge, reducing their number from 10 to 5 and later to 3. The argument is that
1. There are too much banks in Malaysia and it will create unhealthy competition (since when is competition unhealthy? )
2. The bigger banks can better compete with foreign banks
3. They can save money by operating less bank outlets and sharing existing once.
The opposite argument is that it stifles competition, and creates an ogliopoly that makes our market less efficient.

Who is right? I have no idea frankly.

[Thirdshifter]

I would take Maxis/Astro/YTL/Maybank/Petronas anyday over government controlled pricing. They are more efficient, and as earth said, we need anti-trust laws to go with it..

I'm not really sure i can agree that those few companies are more efficient then our goverment. Well one thing i'm sure is that they are the companies that have corrupted our goverment and made it unefficient.

Free Market is indeed superior, however how close to a real free market will Malaysia see when the backbone of Corporate Malaysia is already knee deep in market monopoly, huge part of the goverment (glec), price fixing (cell phone companies) , yada yada.

There's so far only one thing good that i can see coming out of this. People will revolt together.. because when it comes to money .. malay, chinese or indian won;t matter anymore.

[Thirdshifter]

So, there isn't any disagreement, is there?

ofcourse there is...

Free Market,.

How do you define a free market? That's another thing that i'm hazy about.

[__earth]

Free market is when price is freely determined by supply and demand. No government intervention (no price control etc.), all transactions are voluntary.

Simple as that. It may fail or work out given its models. In fact, Wikipedia has it in more details (http://en.wikipedia.org/wiki/Free_market) though that article explains free market in its purest form.

Notice that free market doesn't prevent monopoly which makes market un-competitive. That means, free market doesn't necessary means efficient market. That's why we need some regulation - so that we could keep the market efficient. Over-regulate it and there goes competitive market again.

The trick is to find balance - free market with proper and minimal regulation to keep the market competitive.

[Thirdshifter]

So there will never actually be a free market then. Only regulation from the goverment would be less.

Free Market combined with free trade is probably the more important issue to many devoloped/ing countries.

I don't know where exactly Malaysia will fit in. Does free trade means we have to totally open the door and let the free market decide the price of foreign goods?

I can;t see that as helping our economy in any way.

[__earth]

well, free trade (by definition, less restriction) means more trade which comes back to one thing that the common people care - employment. Like what been said earlier, on average, the society is better off.

People on the street don't care about nationalistic ideal when their struggle to meet ends day after day after day.


Anyway, some Malaysian firms might be acquired by foreign firms (Malaysian firms will take over some foreign firms too - for instance Telekom Malaysia has holdings in Sri Lanka, Bangladesh, India; Petronas in Iran, some African nations - latest, Petronas got some huge chunk of equity in a huge Russian oil and gas company; etc).

Free trade is not a one way street like many people like to believe. At least, that what those in the US are finding out after the CNOOC and the Dubai Port issue.

[DecentMerson]

yar... i think when we say free market, it's more like a direction we should head towards.

it might be a bit ambitious to achieve a perfectly free market, where there's no intervention at all, but lesser and lesser as the economy grows.

I don't know where exactly Malaysia will fit in. Does free trade means we have to totally open the door and let the free market decide the price of foreign goods?

free trade in the purest form do mean that we have to let the free market to decide the price of any goods, there will be a world price for anything, and that's the price that consumers will face...

something ironic about free trade is the creation of free trade area. Are having such pacts meaning less free trade? i mean, isn't having a free trade agreement with some countries implying a 'barrier' with countries which aren't in the agreement?

well, free trade (by definition, less restriction) means more trade which comes back to one thing that the common people care - employment. Like what been said earlier, on average, the society is better off.

People on the street don't care about nationalistic ideal when their struggle to meet ends day after day after day.

true, and that's why the government needs to step in and regulate... free trade does mean more trade, and hence more jobs, but, are the jobs created are those of what we wanted in the first place?

and i always wonder, of so many other products, why did Malaysia choose to produce so much semi-conductors and all... semi-conductors aren't high-tech or heavy or wat.

[__earth]

something ironic about free trade is the creation of free trade area. Are having such pacts meaning less free trade? i mean, isn't having a free trade agreement with some countries implying a 'barrier' with countries which aren't in the agreement?

This is a misconception FT area. Signing an FTA with a country does not mean raising trade barrier against other countries. The FTA behind the two countries only means to lower trade barrier with the two countries.

Creation of FT area is meant to lower trade barriers among members of the areas. It does not mean creating barriers against countries of outside of the areas.

In any case, regional free trade areas have been considered a building block towards global free trade, especially considering global talk on trade has been failing since the start of the Doha round.

true, and that's why the government needs to step in and regulate... free trade does mean more trade, and hence more jobs, but, are the jobs created are those of what we wanted in the first place?

and i always wonder, of so many other products, why did Malaysia choose to produce so much semi-conductors and all... semi-conductors aren't high-tech or heavy or wat.

Back in the 80s and the early 90s, Malaysia had the comparative advantage in that area.

the global economy is dynamic. the system will change from time to time.

re: jobs, how does government intervention will create jobs that you want?

[DecentMerson]

something ironic about free trade is the creation of free trade area. Are having such pacts meaning less free trade? i mean, isn't having a free trade agreement with some countries implying a 'barrier' with countries which aren't in the agreement?

This is a misconception FT area. Signing an FTA with a country does not mean raising trade barrier against other countries. The FTA behind the two countries only means to lower trade barrier with the two countries.

Creation of FT area is meant to lower trade barriers among members of the areas. It does not mean creating barriers against countries of outside of the areas.

In any case, regional free trade areas have been considered a building block towards global free trade, especially considering global talk on trade has been failing since the start of the Doha round.


it wasn't meant to create barriers against countries outside the FTA, however, is it prevented? and it might create several trading blocs, which might be self sufficient, hence, might be a greater trouble for reaching global free trade in the future.



true, and that's why the government needs to step in and regulate... free trade does mean more trade, and hence more jobs, but, are the jobs created are those of what we wanted in the first place?

and i always wonder, of so many other products, why did Malaysia choose to produce so much semi-conductors and all... semi-conductors aren't high-tech or heavy or wat.

Back in the 80s and the early 90s, Malaysia had the comparative advantage in that area.

the global economy is dynamic. the system will change from time to time.


re: jobs, how does government intervention will create jobs that you want?

projects like MSC and similar initiatives (i know they hadn't been successful), but it's a start... probably?

[__earth]

it wasn't meant to create barriers against countries outside the FTA, however, is it prevented? and it might create several trading blocs, which might be self sufficient, hence, might be a greater trouble for reaching global free trade in the future.

Nope. In any case, WTO and the affected the countries would give those that increase tariff a black eye.

projects like MSC and similar initiatives (i know they hadn't been successful), but it's a start... probably?

Probably. I do accept that government has a role to play because sometimes, market failure does occur.

[DecentMerson]

it wasn't meant to create barriers against countries outside the FTA, however, is it prevented? and it might create several trading blocs, which might be self sufficient, hence, might be a greater trouble for reaching global free trade in the future.

Nope. In any case, WTO and the affected the countries would give those that increase tariff a black eye.

true

but, it's not really that those countries are increasing their tariff, but reducing those in the FTA will cause other country to be facing a relatively higher tariff.

well, of course, WTO and other affected countries would be able to treat them the same.

[__earth]

Relative higher tariff, yes. However, we are concerned with the absolute level of tariff itself.

Imagine this scenario. Country A and B. A has 50% tariff while B has 60% tariff. Both trade with country C. All else equal, we would expect country A to have greater trade volume with C compared to B-C, true?

Now, imagine A have 10% tariff and B has 20% tariff and both trade with C. A would still trade more with C than B-C, true?

But between the two scenarios, which do you think has more trade volume as a system? Which system is better off?

Say B signs an FTA with C and assume tariff B-C is 0% with tariff A-C still at 10%. B-C would have greater volume of trade compared to A-C true?

But compare the final example with any of the previous 2. Which do you think would have greater volume of trade as a system? Which system is wealthier?

See the point of FTA?

Also, as you rightly mentioned, an FTA affect non-party but that in itself is an incentive to sign more FTAs, isn't it? And so, in the long run, zero or very low tariff environment will prevail.

[Randomphantom]

Free trade can only be a good thing for the Malaysian automobile industry.

PROTON for the lose.

[Thirdshifter]

Exxon announced a $10B profit for the last 3 months Alone... averaging over $79,000 per minute.

I don;t know whether the price truly represent the supply demand here, since just about 18 months ago their profit was quater of that.

Unless the number of consumers has increased 4 times in less then 2 years.. i don't quite understand the logic of it. I want to blame free market, but i know there's more to it.

Are we being stiffed at the pump?

Are you willing to bet that the oil cartels are not engaged in price fixing?

I'm not complaning about the fuel prices, but for the sake of argument on this topic..

Fuel prices and free market is a bad mix in my opinion.

[__earth]

Exxon announced a $10B profit for the last 3 months Alone... averaging over $79,000 per minute.

I don;t know whether the price truly represent the supply demand here, since just about 18 months ago their profit was quater of that.

Unless the number of consumers has increased 4 times in less then 2 years.. i don't quite understand the logic of it. I want to blame free market, but i know there's more to it.

Are we being stiffed at the pump?

Are you willing to bet that the oil cartels are not engaged in price fixing?

Well, if it's only crude that increases, maybe there's some manipulation.

But other commodities, from metal like aluminum and copper to palm oil is increasing at unprecedented rate. So, would you say some cartel is pushing every commodities known to man up?

Don't you think that's some sort of conspiracy theory?

Keep in mind, China and India have only been growth at a higher rate for the last couple of years. Their demand for commodities is pulling everything up, not just oil.

And yeah, keep in mind those wars in the mideast and disturbance in nigeria. And also Venezuela's socialist tendency.

I'm not complaning about the fuel prices, but for the sake of argument on this topic..

Fuel prices and free market is a bad mix in my opinion.

What would be a better mix in your opinion?

[Thirdshifter]

Well, if it's only crude that increases, maybe there's some manipulation.

But other commodities, from metal like aluminum and copper to palm oil is increasing at unprecedented rate. So, would you say some cartel is pushing every commodities known to man up?

Don't you think that's some sort of conspiracy theory?

Conspiracy, i'm not rulling it out. However i don't believe other commodities such as aluminum or palm oil had increased because of the demand factor, but because of the cost of transporting which is ofcourse directly related to the price of crude oil.

As for the question of which is a better mix?

It's hard to choose anything over a real free market, however considering there are more than one factor that is making that an impossible feat i would rather have an international governing body that overlook the output of oil.

Maybe even introduce a quota system for each country on how much oil they are allowed to consume. This could even create a ripple effect and esclate the research for alternative fuel. this is ofcourse never going to happen since all oil companies are in bed with the major consumer countries.

[__earth]

Conspiracy, i'm not rulling it out. However i don't believe other commodities such as aluminum or palm oil had increased because of the demand factor, but because of the cost of transporting which is ofcourse directly related to the price of crude oil.

Transportation cost is only a (very) minor fraction of most commodities prices, despite its increasing trend. Especially when its mored in great quantity due to economies of scale.

It's crazy to attribute most of the rise in prices of all commodities to cost of transportation.

As for the question of which is a better mix?

It's hard to choose anything over a real free market, however considering there are more than one factor that is making that an impossible feat i would rather have an international governing body that overlook the output of oil.

Maybe even introduce a quota system for each country on how much oil they are allowed to consume. This could even create a ripple effect and esclate the research for alternative fuel. this is ofcourse never going to happen since all oil companies are in bed with the major consumer countries.

Well, we already have OPEC. They have quota to control price so that price doesn't get too low, etc. As a matter of fact, they care for their profits too.

[Salvation]

Exxon announced a $10B profit for the last 3 months Alone... averaging over $79,000 per minute.

I don;t know whether the price truly represent the supply demand here, since just about 18 months ago their profit was quater of that.

Unless the number of consumers has increased 4 times in less then 2 years.. i don't quite understand the logic of it. I want to blame free market, but i know there's more to it.

Are we being stiffed at the pump?

Are you willing to bet that the oil cartels are not engaged in price fixing?

I'm not complaning about the fuel prices, but for the sake of argument on this topic..

Fuel prices and free market is a bad mix in my opinion.


By oil cartels who do you mean? If you mean the likes of Exxon Mobile, Shell, BP, Chevron, Total and co, it can't be them because they control around 8% of the world's reserve only. I don't think that there is any conspiracy going on though. It is rather due to 2 decades of low oil prices that discouraged the search for new resources.

During that time, oil prices oscillated between 18 and 20 USD per barrel, dipping below 10 USD per barrel in 1986, 1998 and 1999. Oil producers, terrified by the specter of overproduction, held back on the search for new oilfields. Some countries actually limited production to already active fields. (I refer to an article by Leonardo Maugeri of ENI in an article for the Forbes)

With a spare capacity of only 2% in today's oil production, any minor political/production crisis in oil producing countries will send up the price, as it already happended in Iraq, Iran, Venezuela, and various African countries. The level of oil price would not be high in the long run, as the high price encourages huge investment in oil exploration and developement in the last 2 years. So, basically I think this is an economic phenomenon rather than some market manipulations.

[Salvation]

something ironic about free trade is the creation of free trade area. Are having such pacts meaning less free trade? i mean, isn't having a free trade agreement with some countries implying a 'barrier' with countries which aren't in the agreement?

true, but its alot easier negociating an FTA with certain countries than the whole world at once.

[Thirdshifter]

Transportation cost is only a (very) minor fraction of most commodities prices, despite its increasing trend. Especially when its mored in great quantity due to economies of scale.

It's crazy to attribute most of the rise in prices of all commodities to cost of transportation.
.

Well transportation might be one, then you have oil that is consumed during production of these commodoties as well. I strongly believe that if the crude oil was to dip back to 1999s price, other raw materials would follow.

[Thirdshifter]

Well, we already have OPEC. They have quota to control price so that price doesn't get too low, etc. As a matter of fact, they care for their profits too.

But members of the OPEC can't no longer be relied upon to stabilizing oil output. Although they are a cartel, but with very little influence. More political than real power. Indonesia can't even meet their own quota.

[__earth]

Transportation cost is only a (very) minor fraction of most commodities prices, despite its increasing trend. Especially when its moved in great quantity due to economies of scale.

It's crazy to attribute most of the rise in prices of all commodities to cost of transportation.

Well transportation might be one, then you have oil that is consumed during production of these commodoties as well. I strongly believe that if the crude oil was to dip back to 1999s price, other raw materials would follow.

See this graph (http://www.infomine.com/investment/metalschart.asp?c=gold&u=oz&submit1.x=53&submit1.y=17&x=usd&r=1y#chart). Is it sensible to have 33% of the price is due to transportation cost, assuming the increase is due mostly to crude price?

Or the price of silver (http://www.infomine.com/investment/metalschart.asp?c=silver&u=lb&submit1.x=78&submit1.y=10&x=usd&r=1y#chart), according to you, 50% of the current price would be attributed to crude oil via transportation cost?

If transportation cost is that high, it doesn't make sense to trade. In fact, it would make greater sense to mine it or recycle it for local consumption since transportation cost is so prohibitive.

In fact, if transportation cost is the reason why metal prices are going up,why are agricultural products like pineapple or chicken or egg (discounting those that substitute crude or plastic like sugar or palm oil or soy or rubber) are seeing only modest increase in price (which would probably mostly attributed to inflation anyway)?

The problem here is that you're thinking in classical economics, which is obsolete by a few hundred years. Price of good is not entirely determined by cost of production. It's determined through scarcity.


Well, we already have OPEC. They have quota to control price so that price doesn't get too low, etc. As a matter of fact, they care for their profits too.

But members of the OPEC can't no longer be relied upon to stabilizing oil output. Although they are a cartel, but with very little influence. More political than real power. Indonesia can't even meet their own quota.

They're already have monopoly power even with current state. What do think would occur if there are more powerful? Would they lower the price or hike the price by lowering production?

Wha makes you really think OPEC would like to lower prices and hence, gain less profit? (note the crude oil has low elasticity, lowering the price won't necessarily mean increase in demand since demand)

[Thirdshifter]

OPEC wouldn;t want the prices to go any higher thats for sure. They want to keep their product in demand for atleast another while.

Also, your right to an extend. but i can't help but to draw paralels between the rising cost and everything else. Maybe i've been brainwashed by the Malaysian businessman who has to increase the price of Roti, Telur, Ayam by few cents from panicking hearing the goverment is increasing the Price at the pump to 10 cents.

Also commodities like Silver and gold can't be use a a good example as their prices has been traded up and down through out it's history. The demand for gold was always consistent with how well the world economy is. (economy suck = gold goes up)

[Thirdshifter]

Also i forgot to mention how most services that are non-regulated have been imposing riduculous "fuel surcharges" as well.

Currently there's a 220 USD fuel surcharge for flights between New york and singapore.

[__earth]

OPEC wouldn;t want the prices to go any higher thats for sure. They want to keep their product in demand for atleast another while.

The point is, having a international cartel chaired by countries doesn't help because a cartel is about monopoly.

Also, your right to an extend. but i can't help but to draw paralels between the rising cost and everything else. Maybe i've been brainwashed by the Malaysian businessman who has to increase the price of Roti, Telur, Ayam by few cents from panicking hearing the goverment is increasing the Price at the pump to 10 cents.

That's because our market is controlled and subsidized. The proper cost isn't reflected in the goods.

Also commodities like Silver and gold can't be use a a good example as their prices has been traded up and down through out it's history. The demand for gold was always consistent with how well the world economy is. (economy suck = gold goes up)

Then what would be a good example? (FYI, silver is widely used in the manufacturing sector)

Also i forgot to mention how most services that are non-regulated have been imposing riduculous "fuel surcharges" as well.

Currently there's a 220 USD fuel surcharge for flights between New york and singapore.

You forgot to mention that ticket price on average is over USD1500. That probably hasn't included airport tax.

You could see the fuel surcharge is a fraction of that ticket price.

[Thirdshifter]

BTW, Malaysia Air and singapore air both are advertising a r/t ticket NY - SG for 699 USD minus the fuel surcharge which is almost 250 if added with tax. Also average tickets are in the 1200 for coach (so those who are planning don;t freak out :P )

Anyways i ran questions to ask and this has been a great learning process in a way. Wished more economic majors were around.

When are you coming to USA?