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Let market forces prevail

/ 05:20 AM November 29, 2018

This should be the guiding philosophy in all government decision-making. It’s been unquestionably proven now that the market just works best. I’d even go so far as to say that it’s been equally proven that governments work worst.

Without the profit motive, there just isn’t the pressure to perform to the highest efficiency. This isn’t to say that some government actions aren’t conducted well. They are—but they’re the exception, and they’re for unique operations.

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Open markets just work, but there are some areas where the private sector should be given protection from open competition, where restrictions should apply. These are mostly in public services where a surfeit of competitors would lead to collapse of the system. Or where the capital cost is so high that too many competitors would make the system financially unviable.

An obvious one is power transmission and distribution. You can’t viably lay down two or more transmission or distribution lines. It’s hard enough to put in place and manage one. Distribution can’t operate successfully if you’re fighting for who should run a wire to a house.

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This doesn’t apply to off-grid systems, though. Self-standing systems, like small solar power systems, should be allowed to compete toward the best deals, but in a controlled manner. Allow for bids to supply a local community — competition — and the best one becomes the sole supplier. But also  controlled, to ensure that the supplier does so in an efficient and lowest-cost manner.

That’s the case for water, too. You can only have one supplier providing a system — but after competitive bidding. The water supply to the Greater Manila Area is, perhaps, one of the best examples of private versus public service. When the government was running it, it was a disaster. When the private sector took over, it became a world-recognized success. We have clean water in our homes now.

Another area, highly topical now, is communications. Here a monopoly wouldn’t work, since you need more flexibility, but neither do you need uncontrolled competition. You need competition, but not an unlimited number. This is essentially a public service where the service can’t be risked by failure through excessive competition, leading to corporate financial collapse.

It’s been decided there will be three players in the telco arena. But it can’t be just anyone who wants to. There needs to be a careful selection. This the Department of Information and Communications Technology has done.

Tied into this is the building of towers to mount the transmission antenna. Here, there’s no need to set limits. A tower is a simple thing to build, of not much cost. Anyone should be able to compete to build one — but one to rigorous specifications. If you think you can make money leasing one, go ahead and build it, but it must be accessible to all who want to use it. And that includes the telcos themselves, on the strict proviso that they allow the other telcos to lease space at a price the same as offered by independents.

Rice is another sector where government operations have led to disaster. A P170-billion disaster. There is absolutely no reason why the market shouldn’t just be allowed to operate. Anybody should be able to buy and sell local or imported rice, just like any other product — with adherence to global food safety standards and monitored by the FDA, only. The woeful NFA should be limited to maintaining a buffer stock for emergencies and unexpected shortfalls (highly unlikely in an open market). So it’s good that Congress has passed a law to shift to doing this. The benefits of an open market will manifest in the rice prices on your shelves soon.

Open, though, doesn’t mean uncontrolled; you can’t just let anyone do anything. There must be some standards to meet and conditions to adhere to. What they are depends on the industry and should be industry-specific. Banks need some rigid controls because they are dealing with our money, and money is a desirable thing to steal. Even toys need controls for the safety and health of our children.

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This is where problems can occur, because bureaucrats tend to overcontrol. They need to minimally control; what is the minimum needed should be the guiding philosophy.

The proof of open markets is all around us. America rose to the top by having a free economy, as did the other Western nations. China took off when it opened its markets, not when they were controlled. The most controlled economy in the world is the most depressed, North Korea. Its partner, open South Korea, is many magnitudes ahead—South Korea’s GDP per capita is 21 times higher, at $29,700 versus North Korea’s $1,400.

Governments don’t have the ability to manage markets, it’s that simple.

E-mail: wallace_likeitis@wbf.ph

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TAGS: Like It Is, market forces, open market, Peter Wallace, profit motive
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