Recently, the prices of oil and electricity have become a hot topic for discussion. The main reason for this is the steady increase in the international price of crude oil, compared with the relative stability and low prices of public utilities such as water and electricity. This has given rise to speculation as to whether there will be an increase in the cost of these utilities, how much the rise will be and when it might happen. The anxiety fostered by the media has already caused short-term disruptions to prices.
Taiwanese society enjoys a high level of social freedom, and it is reasonable to suppose that it would also have a high degree of economic freedom, with few impediments to the operation of free market mechanisms. People are used to the fact that prices of commodities rise and fall. So why is there such controversy over adjustments to the prices of water, electricity and petrol? It is because they are "public utilities" and their prices affect virtually every member of society.
Because of their special significance, the sale of these commodities cannot be controlled by any private individual, or even a small number of firms, but instead requires the direct involvement of the government, which is the representative of the people and (hopefully) puts their best interests first. Superficially, this argument seems perfectly reasonable, and so these commodities have often been controlled by state-run or state-owned enterprises. Under such a system it is perfectly reasonable for the government to control both supply and price. Many countries have used this system, and Taiwan is no exception.
In the 1980s, under former US president Ronald Reagan and former British prime minister Margaret Thatcher, the trend toward privatization became the norm, and this trend also affected many "public utilities." Taiwan followed closely on the heels of this trend, even though implementation proceeded less than smoothly. As for petroleum, this market was said to have been privatized as soon as Formosa Petrochemical Corp entered the market. But with only two competitors, it was ridiculous to suggest that petroleum prices were now subject to market forces. After all, Chinese Petroleum still had overwhelming market dominance and was still a state-owned enterprise. With its tendency to support government policies to stabilize the market, market-driven decision-making was impossible, let alone a true reflection of market costs. So, in fact, the Taiwanese petroleum market has not been privatized.
The choice lies between immediately privatizing Chinese Petroleum Corp, or accepting the current situation pragmatically, and establishing a mechanism by which the government can have total control over the setting of petroleum prices. It is quite right and proper for the government to talk about "looking at ways to adjust the pricing mechanism," and there is no need for it to find excuses for itself, going on about how the Executive Yuan does not want to return to fixed government pricing, that the petroleum market is part of the free market, that the government respects the free market mechanism and so on. It should in fact come out and say, without any ambivalence, that the government wants to establish a mechanism for setting the price of petroleum, with an emphasis on "rapidity and clarity." After all, the price of petroleum is important information for everyone, and this information should be clearly stated to avoid public apprehension about the issue.
If a policy can be quickly and clearly arrived at, then there will be less grist for the rumor mill to generate public fear. The question is, should the decision be made by the government behind closed doors, or by an independent commission? As long as the process is public and transparent, it doesn't really matter which method is adopted, but in order that there is public trust and democratic process, the choice of an independent commission is probably preferable.
A final point needs to be emphasized: it is important that the price reflects the cost. After all, resources are limited and their efficient use should be a basic principle. Unfortunately, calculating costs is no simple matter, especially at a time when state-run enterprises are not trusted to put public interests before their own, and the public doubts whether they would put sufficient effort into keeping costs under control.
Ultimately, it is probably best that we develop towards a free competition model, with the government playing the role of an "honest broker," that, without actually being involved in setting a price, performs the role of removing obstructions to competition. Of course, it will be necessary for the government to control the money supply, which will be a precondition for its ability to stabilize commodity prices.
Wu Hui-lin is a research fellow at the Chung-Hua Institute of Economic Research.
Translated by Ian Bartholomew
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