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Who"s davidlian?

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davidlian is an ultra-geeky chinese dude that works for a technology PR agency. He loves fiddling with techno-toys, plays Warhammer 40K, and shoots pictures wherever he goes. Here, he rants about PR, Technology and anything else. Don't expect balance and un-biased, he ain't no journalist. Anything said on this blog are solely davidlian's personal views. Don't confuse them with company mantra, client's views or views of any organisation he may be part of.

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Thursday, June 5, 2008

Rising petrol price, everything else to scale?

If you're looking for a real, solid commentary on yesterday's announcements, click here.

If you'd just like to read my wild speculation and often, unreferenced common wisdom thoughts, then continue reading:

I'm actually happy about the price increase. Not because it won't hurt my pocket (it will), but because I think the rolling back of subsidies will eventually allow Malaysians to up our standards of living to be on-par with developed countries.

What do I mean by this?

For a long time, Malaysia has been cited as one of the countries that has a 'low cost of living.' This is artificially so because of all the subsidies we have been getting. Cheap petrol, cheap chicken, cheap sugar, cheap electricity, cheap water, the list goes on. The 'low cost of living' has made it very lucrative for companies to invest into Malaysia because wages are kept low and the cost of doing business is lowered.

Of course, to the middle class folk, you'll realise that when it comes down to consumer goods, we pay just as much as any other country. How much does an iPod cost in Malaysia? Just as much as it costs in the US and in Singapore. This means that while we survive comfortably thanks to government controls and subsidies on essential items, consumer goods are still costly for us.

The rolling back of subsidies gradually will also mean that the cost of controlled items can no longer be maintained, and they must surely rise too. Chicken might cost more, rice certainly has and we're not even talking about raw materials and power here. The next thing that must surely happen is that wages too must increase, and this means services will cost more too.

What happens?

Take an average fresh grad earning RM 1,800 (yes, still!). Currently, he pays Rm 400 for his rent, RM 350 for public transport and RM 500 for food on a monthly basis. This means he only has RM 550 left of disposable income. He can't buy a car, and to buy consumer goods like an iPod means he's got to save for 3 - 4 months to afford that new gadget.

If, with the rolling back of subsidies, we see wages increasing about 30%, then the fresh graduate now would earn about RM 2,400. Rent goes up to RM 500, Transportation increases 40% to RM 490 and food to RM 600 monthly. His disposable income would have increased to RM 810 and this means his spending power now is much higher because consumer goods don't scale with the rolling back with subsidies (unless taxes are imposed).

Of course, I'm no economist and this thinking is probably very, very flawed in ways I can't spot. Still, it was worth a thought.

9 comments:

Kimberlycun said...

things hardly work by the textbook in this country. the gov only like to quote it out of context to shut people up.

Tim said...

2 things:
1) Assuming that companies will raise employee salaries. VERY BIG MISTAKE!!

2) Doing away with the subsidy is only acceptable IF the Government in turn makes Petronas accounts public. At the end of the day, we are still an oil exporter and Petronas is earning billions from the high prices of oil. At least let us know where the money is going!

KY said...

looks like david's getting a big pay rise!

davidlian said...

@Kim: We used to scribble on our textbooks when I went to school.

@Tim: Nope, I'm not assuming, and I'm not guessing it will happen soon. What I am saying is the cycle has started and in order for Malaysia to continue to prosper, adjustments will happen. More likely, companies will now need to evaluate what they are charging for goods and services, taking into account the need for their employees to earn a bit more.

Re: Petronas accounts, I'm sure you can buy a copy of their annual report or buy a single lot of Petronas shares and have it mailed to you for free.

@KY: Not in your dreams. This post was more forward thinking. I'm just hoping with the wheel starting to turn, in 10 years things will be much different.

Tim said...

Brudder no one knows where the money that Petronas gives the govt goes! Not even MPs.

steph said...

this is an interesting perspective. =) i think there will be pressure for companies to increase pay, but how soon this pressure leads to an actual pay rise can take years. unfortunately, it's not an automatic response. we all wish though. =)

dillon said...

i think it is unlikely that salaries will be increase due to the fact that people will be unwilling to spend much during this times. you can say it's sorta like a recession, and during recession times, cash is king! commercial and business themselves not only have to suffer the price hikes as well but also having to face a drop on their sales/revenue. at this moment, we are really stuck in a rut.....

just my 2 cents..

SlowCatchUpKuan said...

I agree with TIm. That's if employees really get a pay raise and the government don't fritter the money away.

davidlian said...

@tim: yes, so the problem in the country isn't that petrol prices are going up, as they will eventually, but that our MPs and people in power need to be more accountable. How we will get to that is another problem altogether.
@steph & dillon: Yes, I don't see my salary rising too either, not just yet. But look at the reports in the newspapers this past few weeks, today there was a story about canteen food prices going up. What are these canteen operators doing? Upping their "salary" lor. At the end of the day, the number on your paycheck is relative to how much you can get for it.
@kuan: like I said to Tim. :)