Malaysia should get rid of price controls so that it can compete better in the global market, say economists

Malaysia's position in global competitiveness rankings has been declining in recent years, prompting economists to call for bold reforms, including discarding price controls on essential goods. As the country aims to transition to high-income status and improve its economic standing, experts argue that reducing government intervention in pricing mechanisms is crucial for fostering a more dynamic and competitive market environment.

Recent reports have highlighted Malaysia's slipping position in international competitiveness assessments. According to the IMD World Competitiveness Ranking, Malaysia dropped to 34th place out of 67 countries in 2024, marking a concerning trend for the nation's economic outlook. This decline extends to regional comparisons as well, with Malaysia falling behind neighboring countries Indonesia and Thailand for the first time in the Asia-Pacific rankings.

The Case Against Price Controls

Economists are increasingly vocal about the need to reevaluate Malaysia's approach to price controls, particularly for essential goods. Carmelo Ferlito, CEO of the Center for Market Education, emphasizes the detrimental effects of such policies:

"Malaysia's competitiveness will continue to plummet if the government persists in setting floor and ceiling prices for selected items," Ferlito warns.

The rationale behind this argument is that price controls distort natural market dynamics, leading to inefficiencies and potentially discouraging investment and innovation. By artificially maintaining prices at levels that may not reflect true supply and demand conditions, the government risks creating long-term imbalances in the economy.

Impact on Supply and Demand

One of the primary concerns raised by economists is the effect of price controls on supply and demand equilibrium. When prices are kept artificially low, it can lead to:

• Reduced supply as producers may be disincentivized to increase production
• Increased demand due to artificially low prices
• Potential shortages of essential goods

Goh Lim Thye, a senior economics lecturer at Universiti Malaya, suggests that "easing price controls could inject vitality into the market and potentially improve Malaysia's IMD ranking". This perspective underscores the belief that allowing prices to fluctuate more freely could lead to a more efficient allocation of resources and stimulate economic growth.

Balancing Economic Efficiency and Social Welfare

While the argument for removing price controls is compelling from an economic standpoint, policymakers must also consider the potential impact on vulnerable populations. Goh emphasizes the need for a careful approach:

"There is a need to carefully assess the impact on low-income consumers when making policy adjustments to ensure economic efficiency while safeguarding citizens' welfare," he states.

This highlights the delicate balance that must be struck between fostering a competitive economy and ensuring social protection for those who may be adversely affected by price increases.

Attracting Foreign Investment

Another critical aspect of improving Malaysia's global competitiveness is its ability to attract foreign direct investment (FDI). Economists argue that the current system of price controls and subsidies may be deterring potential investors.

Goh recommends "reducing restrictions on foreign investments to attract more capital, job opportunities, and technological advancements". This suggests that a more open and market-driven economy could make Malaysia a more attractive destination for international companies looking to expand their operations in Southeast Asia.

The Path Forward: Gradual Reform and Targeted Support

Given the complexities involved in reforming price control policies, experts advocate for a measured approach. This could involve:

• Gradually phasing out price controls on select items
• Implementing targeted subsidies for low-income groups instead of broad price controls
• Improving regulatory frameworks to ensure fair competition
• Enhancing transparency in pricing mechanisms

By adopting a strategic and phased approach to reform, Malaysia can work towards improving its global competitiveness while mitigating potential negative impacts on vulnerable populations.

As Malaysia strives to enhance its position in the global economy, the debate over price controls highlights the need for careful policy recalibration. While economists make a strong case for reducing government intervention in pricing, policymakers must navigate the complex task of balancing economic efficiency with social welfare concerns.

Ultimately, the goal is to create a more dynamic, innovative, and competitive economic environment that can propel Malaysia towards high-income status and improved global rankings. By carefully considering the recommendations of economic experts and implementing thoughtful reforms, Malaysia has the potential to revitalize its economy and strengthen its position on the world stage.