KUCHING: Centre for Market Education (CME) economist Carmelo Ferlito has argued that lowering regulation in markets may reduce the chances of exploitation and unethical profit-seeking.
The term “rent-seeking” is used to describe these kind of manipulations. Examples include trying to get government money, subsidies or rules in one’s favour for personal gain, and using government power to get rid of competition.
“Cutting down on rules, instead of adding more, is key to stopping people from making easy money by manipulating the system,” Ferlito said.
He highlighted the importance of market liberalisation and reduction in controls such as price controls, subsidies, and approved permits.
“The more we let the market do its job, the less chance there will be for these undesirable practices.”
This comment came after Prime Minister Datuk Seri Anwar Ibrahim recently said that the National Economic Action Council (NEAC) wanted to put an end to rent-seeking, which is locally known as the “Ali Baba” culture.
Anwar said that losses from these practices cost the country about 1 per cent of its Gross Domestic Product (GDP), with implications in various areas, including procurement, licensing, permits, quotas, and the distribution of subsidies and grants.
Addressing the political will to deregulate, Ferlito expressed optimism yet queried the sustainability of such efforts. “Will this determination endure and lead to fewer rules in practice?”
On the question of rent-seeking leading to a 1 per cent loss in the country’s GDP, Ferlito seemed less focused on the specifics.
Instead he suggested that the numbers were less important than the understanding that a culture promoting passive income can generate significant economic losses.
He identified multiple sources of potential rent-seeking, such as approved permits, price controls, subsidies, government-linked companies (GLCs), and public tenders. “These systems can make people want to earn easy money.”
This, in turn, can harm the economy as businesses that do not operate under market principles may emerge. They may supply goods and services without meeting actual demand, disrupting the balance of supply and demand, and obscuring true prices.
To explain this, he gave an example of an apple farmer who always has the longest queue, not because his apples are the best, but because he’s the only one allowed to sell apples.
Ferlito criticised Anwar’s observation about rent-seeking impacting areas such as procurement, licensing, and permit issuance.
Using our apples analogy, Ferlito’s response was like saying, “It’s not that the apple farmer, who got the permit, is creating the long line. It’s the market organiser who controls the permits, influencing where customers go. The apple farmer just saw an opportunity and seized it.”
In other words, Ferlito said, “It appears to me that it’s the other way around: these examples generated rent-seeking.”
He suggested that these systems – procurement, licensing, permit issuance, and subsidy distribution – aren’t just influenced by rent-seeking behaviour, they are the very source of it.
Ferlito also stressed that rent-seeking behaviour, which has been established over many years, is a cultural phenomenon that can’t be removed overnight. It has a strong role in consensus-building which makes it even harder to eliminate.
However, he pointed out the great potential benefits of getting rid of it, including new economic opportunities, better products, and lower prices.
“If done right, measures to decrease regulation could bring a wider range of better and cheaper products to the market,” Ferlito added.
He ended by stressing the need for a long-term cultural change and continued political commitment from current and future governments.
