Yesterday, the Chinese Petroleum Corp (CPC) asked the government to allow it to implement "a floating price mechanism" -- ie, to let the market determine prices -- so that it could better respond to volatile oil prices.
As a state-controlled company, CPC must receive permission from the government if it wishes to change the price of petroleum products. However, it is unlikely that the Ministry of Economic Affairs will accede to this request.
The ministry will say that it has to keep the consumer price index (CPI) steady, thereby thwarting inflation. It will say that the only way to do this is to retain a measure of control over oil prices, although its ministers can be relied on to support market economics "in principle."
"A floating price mechanism is a long-term goal, but it should be gradually implemented, or it may affect the domestic economy," Minister of Economic Affairs Morgan Hwang (
Hwang's comments beg a few questions:
If the government forces oil prices to be unrealistically low, doesn't that impact on the domestic economy?
And if the government supports the market mechanism as a sound principle, why must it be implemented "gradually"? Will an economic model that is inefficient this year somehow become less inefficient next year?
The economics ministry needs to take Economics 101. Let us take the ministry's reasoning to its logical conclusion.
If it is good and right and necessary for the government to interfere with the market mechanism in the case of oil prices, then why not everything? The CPI is compiled using a basket of goods, so why not let the ministry dictate the prices of all of the goods used to calculate the CPI? Wouldn't that be a more sure way of controlling inflation?
Obviously not. No one with half an ounce of sense is arguing for the government to try to take complete control of the economy a la the Soviet Union. Why are oil prices an exception?
Like any state-owned enterprise, CPC is just a fiction of a company. The normal motivation -- economic self-interest -- that applies to the free market has no place in the world of state-run companies. So long as the CPC must bend its decisions to the will of the government, its motivation is not economic, but political.
Although the administration has paid a lot of lip-service to the privatization of state-run companies and the liberalization of trade, the government still wants to keep its fingers in as many pies as possible.
Why is this? Is it because these leaders believe in a radical economic theory that calls for a centralized economy? Hardly.
No, their motivation is less intellectual, and more visceral: It's called cowardice.
Both pan-green and pan-blue politicians are willing to find reasons to delay the privatization of state-run companies simply because they fear (or cultivate for partisan gain) the wrath of minor, vocal segments of the population who oppose measures that are in the collective interest.
After all, it is much more difficult to get the general public to take to the streets over an abstract yet vital economic principle than it is to get a few hundred taxi drivers to besiege a government building over a tangible price hike.
It would be nice if sound economic policymaking was simply about defusing public protests, but unfortunately it is a bit more complicated than that. It is not the job of the government to interfere with market efficiency in order to placate special interest groups.