Home Insider Insider Analysis Government to the Rescue?

Government to the Rescue?

Now that we are following the pathway to the capitalism, we have moved from centrally planned economy towards the market economy, where the risks takers are rewarded and government is playing more of a regulator role.

This makes much sense as the government cannot be more efficient than the private enterprise in production of most goods and services. The only goods that government should bein charge of producing are merit goods (such as education, healthcare) and public goods (such as fire and police services, roads and lamp posts, etc.). The Government has been, to a certain degree, successful in ridding off loss making government owned organizations onto private hands.

With that policy and direction in place, would it be Government responsibility to rescue an industry if it is in dire straights? Unless it would cause total economic collapse and stability of the whole country becomes an issue, i would say ‘NO’ to government rescue and intervention into any private enterprise. A good example for res- cue would be a banking crisis. During the financial crisis of 2009, US government did rescue some banks and insurers, to prevent the collapse of the financial system on which

the whole world is dependent upon.

I have long predicted the expected toll on the construction sector arising from the collapse of the presales market in proper ty development in my EMBA and day MBA classes in the Yangon University of Economics. It is now evident that the event has taken place; as hardly anyone is buying presales these days, due to the lack of confidence in the developers and the safety of the money prppaid to developers. It is even more noticeable by looking at the number of con- struction and property development companies shifting from private sector to compete for government projects. In the recent tenders for Ministry of Education, there are more than forty (40) companies battling for a couple of projects in such a far away place as Pa Ann (Kayin State). In another Minis- try of Health tender that ended on July 19, there are more than ninety (90) companies fighting out three projects in Mon state. This is the sorry state of affairs for contractors at present.

MCEA (Myanmar Construction Entrepreneurs Association) has been trying to garner Government support to shore up the industry, from trying to ease foreigners buying into condo projects (thru relaxation of rules in the upcoming condo laws) to for CHDB (Construction Housing Development Bank)

being able to use the 5% deposit money that government gathered from successful tenderers as performance guarantees.

The ‘E’ in MCEA stands for Entrepreneurs. Entrepreneur is defined in American Heritage Dictionary as ‘A person who organizes, operates and assumes the risk for a business venture’. All construction entrepreneurs and property developers takes risks for their private ventures, because they predicted they will be rewarded handsomely. And they have been rewarded handsomely in the past. If you name 10 largest companies in Myanmar, all of them is involved in construction and property development. So, when the market is good, they have taken all the re- wards. Now that the market has turned bad, who should be bearing the risks and losses. The Government?

It would not be wise for government to res- cue or intervene or go against the market forces:

– Market is best is deciding when and what to produce and which property developer or contractor to support and who it should abandon. It is not government or MCEA or CHDB role to determine which company is to prosper or which should be left to die.

– Governments liable to make the wrong decisions – influenced by political pressure groups,government may end up spending

on inefficient projects or making suboptimal decisionswhich lead to inefficient outcomes. It will create excess bureaucracies and inefficiencies, as if current YCDC’s red tapes are insufficient.

– Economic intervention deprives people of personal freedom and individual decision on how to spend and act.

– Politicians do not have the same market discipline of seeking to maximize the use of limited resources, e.g., nearly 10% interest can be earned on the performance guaran- tees placed for government projects, by put- ting the money in treasury securities issued by Central Bank. Unless CHDB is paying a higher rate, it would not be wise to put the money in them, as CHDB definitely is a higher risk entity compared to the Central Bank of Myanmar.

– Goverment intervention causes more problems than it solves. For example, Government support of construction industry may encourage the survival of inefficient firms. If government bail property developers out, it creates moral hazard where in the future property developers have less incentive to avoid bankruptcy because they expect a government bailout.

– At best government intervention makes no difference to the length of a downturn, but may just postpone it.