COMPETITION AND REGULATION

The poor performance of the interisland shipping industry has been seen to be the outcome of the often conflicting forces of competition and regulation. Competition has been a sanction against inefficiency because the market is highly contestable. Besides a large number of firms already in the industry, new entry has been facilitated by, in practice, fairly low barriers to entry and a large pool of firms able to diversify into interisland liner shipping should profitable opportunities become apparent. These structural conditions have predictably given rise to both price and non-price competition unimpeded by any form of cartelization. Over time more efficient firms with lower costs relative to their quality of service have been able to increase their share of cargo and capacity at the expense of less efficient firms. This process has been referred to as the ‘transfer mechanism'. Insofar as this mechanism has been effective, the industry has been able to rationalize itself.

The spontaneous improvement in efficiency through the forces of competition has been impeded rather than assisted, however, by the impact of regulation. Although efficiency has been a declared aim of regulatory policy, some measures have weakened the effectiveness of market sanctions. Thus, licensing policy has endeavoured both to reduce the number of firms in the industry and to restrict new entry. Exit has also been impeded by allowing less efficient firms, which in some cases have not even met licence requirements, to retain control of lucrative public facilities in the form of front-line godowns. Some less efficient firms have also benefited from the provision of subsidized investment funds through P.T. PANN. These effects of regulation help to explain why competition has not been more effective in reducing the dispersion of efficiency within the industry.

Yet if regulation has weakened the effectiveness of competition, so has competition frustrated the implementation of government policy. The attempt in 1974 to consolidate the many independent shipping firms into about a dozen groups was a failure — the groups were formed as required but never functioned as co-ordinated units and were soon disregarded.

Over the years, Malay literature developed a measure of stylistic sophistication with blatant didacticism fast disappearing by the time of the 1960s. Stereotypes persisted, however, as did the dual preoccupation with the plight of the poor and the conduct of the leaders of the country, which largely characterized the literature of previous years. By and large, the latter concern tended to dominate the literary scene. In giving expression to this concern, however, the literature of the period was to show a slight variation in focus. In line with the change of leadership from the British to local bureaucrats on the political scene, the literature shifted its focus to this new breed of leaders. It presented them in their position as the sole administrators of the country, and their response to this new role. In the depiction of this new administrative class, the perception of Malay leaders seen in the 1950s prevailed. When portraying the MCS officers, who were variously referred to as Pegawai Kanan (Senior Officer), Pegawi Division Satu (Division One Officer) or Tuan DO (Mr DO or Mr District Officer), writers tended to dwell on their English or Western education which adversely gave rise to a new life-style of “vice and moral depravity”. Descriptions of these young leaders pointed to them as defenders who had betrayed their people and become strangers and alienated from their own society. Concomitant with this, phrases such as berkiblat ke Barat (facing towards the West) and bukan Melayu lagi (no longer Malay), highly perjorative in connotation, became common usage when these leaders were described, both in and out of fiction. The Wakil Rakyat(s) fared no better as targets for negative portrayals. They were perceived as “irresponsible and devious leaders” who put their own interests above those of the masses. They were seen as particularly glib, and excelling in making promises they had no intention of keeping and were portrayed as having a propensity for illicit sex.

Competition has the twofold virtue of eliminating inefficiency and of doing so by a process internal to an industry. Provided firms are subject to strong market pressures, an industry will be self-regulating as far as performance is concerned. Whether a market structure is conducive to effective competition depends very much upon the ease of entry. If there is easy entry, firms already in the industry will lack market power either to earn long-run excess profits or to operate in the long-run with excessive costs. In contemporary jargon, such a market would be described as highly contestable.

The interisland shipping industry is a good example of a highly contestable market. The number of firms already in the industry is large and new entry is easy. This chapter will first identify the main sectors of the industry and then examine in detail the dry cargo liner sector.

THE SECTORS OF THE INDUSTRY

Regulation No. 2/1969 divides the interisland shipping into several separately licensed sectors. These sectors are distinguished according to characteristics of supply, primarily the type of vessel with some regard to the nature of its employment (that is, whether'tramp” or “liner”). Despite some substitutability of different vessel types in meeting shipper demands, these sectors are nevertheless a workable basis for economic analysis. Table 3-1 indicates their relative importance according to their share of interisland trade in 1981. It should be noted that the customs documents from which the figures are derived appear heavily to understate the role of small-scale shipping.

The largest individual sector, accounting for no less than 40 per cent of the total cargo flow, is the carriage by tanker of crude oil, petroleum and other refined products. However, because domestic oil tanker shipping is a monopoly of the state oil company PERTAMINA, this sector belongs more logically not to the interisland shipping industry but to the vertically-integrated oil industry. This study will therefore be confined to the other 60 per cent of interisland trade which may loosely be referred to as non-oil or dry cargo.

The ASEAN economics are open and trade oriented, with the degree of trade dependence varying inversely with population size among member countries. Compared with other developing countries, each has a relatively large external sector and high exports to GNP ratio. The characteristic feature is the peculiar position of dependence on the West and Japan for trade, capital, technology, and even decision-making to generate domestic economic growth. This peculiar position of dependence reflects: 1. the inter-relatedness of investment (both foreign and domestic, imports and exports (most of these economies are dependent on machinery and equipment from the industrial countries which ultimately have to be accounted for by increased exports); and 2. the sensitivity of current output to the impact of external changes.

The Growth Performance of ASEAN in the 60s/70s

For nearly three decades up to the early 1970s, industrial countries experienced continuous and sustained growth. This extended period of economic growth was in part aided by trade liberalization measures which stimulated vigorous expansion of world trade. While the industrial countries concentrated on manufactured and capital goods, the developing countries as a whole were relegated to the export of primary products and were not able to share proportionately in this expansion of world trade. Nonetheless, the scope and vigour of this expansion promoted export growth in developing countries.

In the 1970s, dramatic changes in the world economic scene with important implications for trade and growth started to emerge. Beginning with the breakdown of the international monetary system established under the Bretton Woods Agreement, currency instability became the order of the day. This was followed by the two major oil shocks of 1973 and 1979 which changed the costs of production, production structure, and the balance of payments position of countries the world over. The world industrial market economies went through two recessions separated by a four-year period of modest growth. The first recession of 1974–75 though deeper than the second was quickly overcome in 1976 by a conventional combination of fiscal and monetary expansion. However, the results were not very satisfactory as inflation persisted at high levels.

Would America turn inwards again, as it had after the First World War? That was the great question of the immediate post-War years, at least for Europeans, and it was underlined by some of President Truman's early actions. The question was to be answered clearly in the negative. Within five years the United States had taken on the leadership of an alliance that included most of Western Europe, and was soon to be extended in effect to the Western Pacific. This came about largely because the Soviet Union insisted on having complete control of Eastern Europe, while the United States insisted that governments must be freely elected. Differences over Germany and Eastern Europe quickly broke up the wartime coalition and started the Cold War. But Asia played a part in the process too. The victory of the Chinese Communists over the Nationalists, coinciding as it did with Soviet acquisition of atomic weapons, turned growing concern about Communism in America into widespread fear, verging at times on hysteria. The charge that the Democrats had ‘lost’ China made it necessary for Truman to defend South Korea when it was attacked by the Communist North, and bring Asia to the centre of the Cold War.

The defeat of Germany and Japan left America by far the most powerful country in the world. The war effort had mobilised resources that had not been fully used during the 1930s, and had increased production by 50 per cent. The American share of total world production had risen from the quarter to a third. This feat had been achieved while five million men were under arms, a large proportion of them deployed overseas. Britain had played a critical part in the early stages of the war, but it was largely American armies that had completed the defeat of Germany, just as it was the American navy and air force that completed the defeat of Japan. With the cooperation of Britain and other allies, the United States had made two atomic bombs, which it used to obviate an invasion of Japan.

The treatment of Asians in the United States has been discussed a good deal, but not much in the context of America's relations with the countries they came from. When it is, the point that is often made is that relations with the home country have influenced attitudes towards Asian immigrants in America. It is not always acknowledged that the converse is also true — reactions to Asians in the United States have influenced American views of the countries they came from. That is not surprising: until recently, most Americans have had direct contact with Asia mainly through Asians living in the United States. The latest example of the influence of such contacts was the American reaction to the Tiananmen incident; but that is only the most recent in a history that goes back to the middle of the 19th century. And that in turn is part of the history of Asian migration, which goes back much further.

East Asia has long been a source of migration. The Americas were originally peopled from there, as was the South Pacific. The Chinese Empire was opposed to emigration: why should people who lived in the most civilised part of the world want to leave? But official disapproval did not always prevent Chinese from going overseas. As early as the 1st century BC, trade with Southeast Asia was leading to the establishment of Chinese communities in that area. They thrived on the positive attitude taken by the Tang and Sung dynasties towards contacts with the outside world, and suffered from the Ming reaction against foreign influence. Cheng Ho's naval expeditions early in the Ming period may have helped them, but they soon lost whatever they had gained in protection and prestige. When the Ming Emperor stopped the expeditions, he also forbade Chinese to go overseas without licences. Peking was still willing to receive tribute from rulers enlightened enough to offer it, and to respond generously in kind; but the Emperor did not usually accept responsibility for those who entered into this tributary relationship.