When we talk about subsidies, many of us would have probably heard such comments like “why should I the taxpayer, who works hard to earn my money, use my taxpayer money to pay for the subsidies of the poor, who are most likely poor because they are lazy, unskillful or untalented”.
The impression given here is that the government subsidies are only helping the poor, lazy and unskillful, while punishing the rich who have earned their wealth through merit.
The fact however is that this is not the case at all.
Our subsidies, research have clearly shown, chiefly benefit the rich. 53 percent of our petrol subsidies for example, goes to the T20. On average, at least 40 percent of subsidies are being enjoyed by the T20 . In other words, it is big businesses and the upper classes that operate hundreds or thousands of vehicles and possess a portfolio of assets that chiefly benefit from the cheap price of subsidies, petrol and diesel, not the person who is doing their fair share to carry the weight of the world.
More than benefiting the poor, the subsidized sugar or cooking oil is likely being used by factories to reduce their operating cost and generate profit for their businesses.
No one sees foreign workers as a form of subsidies, but foreign workers are exactly that – a subsidized workforce for the rich. The market rate for a palm oil plantation worker or a waiter in a restaurant is actually much higher than what the palm oil plantations or a restaurant operator are paying. The palm oil plantations and restaurant operators are paying a much cheaper cost, simply because their workforce is being subsidised by the country through the use of foreign workers.
Let me give you an example.
A foreign worker is probably only receiving RM 1680, or RM 60 a day, for working as a waiter for 12 hours a day, 28 days a month. Considering that the minimum wage in Malaysia is RM 7.21 per hour, and considering that these foreign workers are working for 336 hours per month, if a restaurant operator were to hire a local worker and pay a minimum wage, they should be paying a minimum of RM 2422. 56. In other words, for each foreign worker employed, their employer is receiving a subsidy of RM 742.56 a month. A restaurant operator that is hiring 20 waiters, in other words, is receiving a whopping RM 14, 851.20 in workforce subsidy each month.
Rather than helping the poor, much of the subsidies that the government provides doesn’t reach the poor at all, and often, subsidies like the workforce subsidies, offered through the availability of foreign workers, are detrimental to the interest of the working class.
It is precisely because of the workforce subsidy offered by the government to the rich, for example, that many jobs for the working class have disappeared and wages for the working class have stagnated for years if not decades.
The dependence of the rich on subsidized workforce is so extreme, that even barber shops in Malaysia is operated using foreign labour. There is actually no reasonable grounds for the government to subsidize barbershops with foreign barbers. Foreign barbers are not even essential to the country. Without a foreign barber, at worst, your hair and moustache will be longer, that is all. Nobody in the country is going to die or suffer just because your hair and moustache is long.
If we do away with foreign barbers, however, we could have a local barber who could be earning up to RM 300 to RM 450 a day cutting hairs. If we had barbers who could earn RM 300 to RM 450 cutting hair, they could apply for bank loans to start their own barber shops. If local barbers could start their own barber shops, instead of having just one T20 individual operating 30 barbershops with 60 foreign barbers, who are likely sending most of their money back to India, which not only contributes to the depreciation of the ringgit, but also causes our domestic economy to be lethargic, because money that could have stimulated the local economy is now being used to stimulate the economy of India, we could have had 60 local barbers, proudly serving their own community and earning a good honest wage as a business owner.
Our rich people are also likely not as talented as they believe they are.
A talented rich person is a person that can provide real value to the market. You can only provide real value to the market, if your business model is able to generate real sales that are above the business's real costs.
By relying on subsidies such as subsidized rice, sugar, electricity, petrol, diesel and even foreign workers, many of the rich in our country might actually be making a profit without generating any real value, because these subsidies are artificially reducing their cost.
Take a restaurant owner for example. If the restaurant has 20 foreign workers, as calculated above, that restaurant is receiving a subsidy of RM 14, 851.20. If you consider the other subsidies that their business is receiving – like subsidies of sugar, cooking oil, rice and whatnot – let's say that they are receiving a subsidy of up to RM 30, 000 a month to run their business. If at the end of the month, the restaurant generated a sale of RM 300, 000 while accruing a cost of RM 275, 000, on paper, the restaurant would seem like it has generated a real value of RM 25,000, which is what makes up its profits.
The real story however is that the restaurant is actually running at a loss, because its cost has actually been artificially suppressed via subsidies. If we take away the subsidies, the real cost of running the restaurant is not RM 275, 000, but RM 305, 000. Without the aid of subsidies, the restaurant operator would have actually accrued a loss of RM 5, 000 every month. The reason the restaurant operator makes a profit of RM 25, 000 per month, instead of a loss of RM 5,000, is not because they are so talented that can create a business model that can actually generate real value, but because their profit is being propped up by subsidies.
A big part of the reason why many Malaysian businesses are unable to compete in the foreign markets even after they have reached the scale where they should attempt to penetrate foreign markets, is simply because they don’t have a business model that can generate real value. That is why many of our businesses only expand within Malaysia. Their business can only be successful in Malaysia, where their business is able to remain profitable, even when it cannot generate real profit, simply because their profit is being subsidized by the government.
The working class need to understand that the targeted subsidies that is being implemented by the government, which will ensure that subsidies will only reach the working class, will almost certainly be opposed by the parasitic rich, because many of them have a flawed business model which will not be able to generate any real profit, unless they are able to receive any subsidies.
While the collapse of these flawed businesses might have some repercussions in our economy, because it will, for example, cause some of us to lose our jobs in the short run, for example, this re-balancing of our economy is going to benefitting us all.
This re-balancing of our economy, if done well, will ensure that the working class can look forward to having a good life by earning a good wage through their honest work, and it will also remove many of the flawed businesses in Malaysia, which cannot generate any real value in our economy, and is only running because they are able to remain profitable through subsidies.
Once these flawed businesses collapse, then the true rich, or the rich who became rich because they actually have a business model that can generate real value in the economy, will flourish. It is only when the true rich flourish that the economy will be able to leave the middle-income trap, and begin our journey towards becoming a truly developed economy.
Nehru Sathiamoorthy is the author of “While Waiting for the World to end”. He was a columnist at FMT and a frequent contributor to the South China Morning Post, Malaysia-Today, MalaysiaNow, MalaysiaKini and Focus Malaysia.
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