Why are prices rising?

Posted by admin on July 7th, 2006 filed in General

I guess the gahmen doesn’t like to face or answer hard questions. But there are some things which we must seriously think about holding them to account for, after all these years of giving themselves grand accolades and mad propz.

Let us consider the issue of cost of living. I think we should make a distinction between the general cost of living, which is measured by the CPI, and the costs associated with specific necessary goods and services.

First question: We are constantly having the message that the global economy is fiercely competitive drummed into our heards by the state-controlled media, so ok, fine, we know that there’s plenty of competition everywhere. However, a basic observation of economics is thatwhere there is intense competition, prices fall.

There are abundant facts to support this observation. Ever since China entered the world market, prices have fallen across a broad range of goods. Textiles (clothes), computer products, IT products, etc. Just ask any techhead and they can tell you that the prices of computer hardware has fallen tremendously over the last 5-10 years.

Since I don’t know where to find information regarding the CPI in Singapore, the first thing we have to know, is that whether the general cost of living has risen over the past 5-10 years. And if it has, by how much. Once we can establish these facts, we can start asking the really hard questions. My guess is that the general cost of living must have actually fallen during the “recession” years, from 1997 till 2002, and most likely slowly rising again from 2003 to 2005.

The real issue however, has to do with specific goods and services which defy the rigours of competition, and continue to rise in price. For example, transportation and medical services, both of which are really basic necessities. If i am not wrong, prices in public transport and medical services not only did not fall during the recession years (I believe they held steady), they rose as the economy started growing again.

Another important point to remember is that both the medical sector and public transport have become privatised over the years. An important purpose of privatisation is to increase competition and allow the competing commercial entities to provide better services to consumers. If that were true, then prices in public transport and medical services should have fallen, and should be falling. Obviously, they are not. The really hard question here then, is why have they not? I think the answer is simple. There is no competition in the public transport or medical services market.

Public transport consists of 2 main companies, SMRT and SBS, which operate rail, bus and taxi services, plus an assortment of various small taxi companies. SBS and SMRT have carved up Singapore into geographical regions in which they do not compete, effectively allowing each to retain a monopoly on their respective regions. On top of this structural monopoly, they are also effectively insulated from actual competition by a licensing regime controled by the government that is a powerful barrier to entry. It is no surprised that the requirements for obtaining a license overwhelmingly favour the industry incumbents. Furthermore, a cursory examination of the Board of Directors of both SBS and SMRT would reveal not a few interesting facts about these people.

The same thing has happened with the health sector, which have been grouped into “clusters”, National Healthcare Group and SingHealth. A look at their Board of Directors would reveal the same type of star-studded cast. The medical licensing regime is even more restrictive than for transport businesses: how likely would it be that a non-incumbent that has the resources to set up hospitals would be allowed to? On top of these barriers of entry, the supply of doctors is effectively controled at its source: NUS has quotas for the intake of medical students every year, and the rules allowing foreign medical graduates to practice in Singapore are certainly restrictive.

The answer to everyone’s questions why transport and healthcare costs are rising every year, amidst the blatant falling of prices in every other class of goods and service, is because these industries are protected by the government. There is no competition in these industries, and hence prices are not falling. The answer as to where to lay the blame, is clear.

PS: Some people would assert that public transport is naturally monopolistic, but I think that is a load of rubbish. I can provide many examples where goods or services which at one time were thought to be “natural” monopolies have eventually become no longer so due to technological progress, and the only reason why the monopolies still exist is because of government regulations itself. But this is another discussion for another day.