SHAH ALAM - A think tank has said Putrajaya's move to introduce a moving ceiling price for food items will lead Malaysia to a Soviet-style country with ‘prices’ fixed by the government authority and production decisions taken by government agencies.
Center for Market Education chief executive officer Carmelo Ferlito said it was concern by the political pretense ‘to fix’ the economy.
The move, he added demonstrates an abyssal ignorance of economic theory and history lessons where these experiments were tried but famine prevailed, like in the Soviet Union (5.7 to 8.7 million deaths due to Stalin’s economic experiments just 1932-1933) and in Mao’s China (15 to 55 million deaths due to the Great Leap Forward)”.
"The reasons why this new experiment in social engineering cannot work is because prices are not determined by costs of production but by the interaction of supply and demand in the market, which is by the interactions between millions. Government-fixed prices are not prices at all, they are just arbitrary figures," he said in a statement.
He said prices are interconnected and consumption and production decisions are based on prices and profits.
"If some of the prices are not determined by the market, they do not reflect the structure of demand and supply and therefore constitute a "bad signal”, leading to wrong production decisions. Artificial prices will potentially bring to the market wrong products at wrong prices, compromising the entire economic system such as failures and unemployment," he added.
Yesterday, Prime Minister Datuk Seri Ismail Sabri Yaakob said the government will introduce a moving ceiling price for food items in a bid to strengthen food security. He had said the ceiling price will be adjusted based on changes in the price of various inputs in the supply chain.
But Ferlito said they are concern over the decisions made by the two past governments which now want to address inflation after nationwide lockdowns, monetary expansion and a "reckless" expansive fiscal policy.
He said the State is not an entrepreneur and operates outside the market. "Government agencies base their production decisions on what bureaucrats think the system needs, rather than what actually the system needs. This means the economic system will be flooded with products that are not in demand while there may be shortage of what the market asks for," he added.
Food prices, he said is determined by production costs, supply and demand in the market, and expectations from consumer. "Therefore, wrong consumer prices fixed by the government will create a chaos in the market."