Monopoly, monopsony, civil servants’ wage hikes, inflationary pressures & pensions reforms

In the context of Malaysia, there’s very little evidence of a surge in demand-pull inflation based on available data.

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Published by AstroAwani & BusinessToday, image by AstroAwani.

This article attempts to tie the practice of monopoly and its “off-shoot” monopsony together with wage hikes (civil service), inflationary pressures, and pensions reforms in sequential form, accordingly. 


Currently, the Competition Act (2010) and the Competition Commission Act (2010) regulate competition in the market. Exceptions are for the telecommunications (Communications and Multimedia Act, 1998), electricity and gas supply (Energy Commission Act, 2001), oil and gas resources (Petroleum Development Act, 1974) and aviation (Malaysian Aviation Commission Act, 2015) sectors (as governed by their respective legislative frameworks). 

The principal regulatory/legislative and policy thrusts of the State as embodied in the Competition Act (2010) are aimed at 1) anti-competitive agreements (sections 4-9) – vertical and horizontal in the supply-chain; and 2) abuse of dominant position (section 10). 

The unity government’s commitment to dismantling monopoly practices and further liberalising the markets will complement and supplement the pre-existing regulatory/legislative and policy frameworks and enhance anti-trust efforts by the Malaysia Competition Commission (MyCC). 

To take just one example, a statement issued by MyCC last year (March 21, 2023) lauded the move by Prime Minister Anwar Ibrahim to look into the monopoly of Touch N’ Go for the tolls payment system on our highways. 

By extension, the initiatives set in motion by the Works Ministry alongside the Ministry of Transport (MOT) in introducing the multi-lane free-flow (MLFF) system will allow for other payment methods via radio frequency identification (RFID) that works together with an automated number plate recognition (ANPR) to be implemented by 2025.

The anti-monopoly agenda is eminently in line with the principles and ethos of Malaysia Madani. 

The existence of cartels (monopolies, oligopolies, duopolies) in the economy significantly contribute to supply-side inflationary pressures and higher/elevated prices – as transmitted onto the costs of business and cost of living – compared to a situation with market competition. 

Breaking up cartels will not only ensure lower or more competitive prices for downstream businesses and consumers but should critically be seen as an integral aspect of the wealth redistribution agenda. 

Monopolies mean the concentration of profits and, therefore, wealth. 

Their absence means that income and wealth can be redistributed more equitably across the board – along the supply-chain and to the end-consumer resulting in higher purchasing power and, concomitantly, more savings. 

At the same time, it means that government subsidies and tax incentives can be more widely distributed as opposed to only enjoyed by few players. 

By extension, it can’t be emphasised enough that dismantling monopolies and enhancing market liberalisation will also contribute to higher tax revenues for the government. 

There’ll be more industry players, i.e., tax-payers (fragmentation) – resulting in the widening of the tax base. 

On the contrary, a narrower tax base from only a select few players (concentration) where collusion is common also increases the potential for higher tax leakages via aggressive tax avoidance practices that exploits transfer pricing practices by violating the arm’s length principle as the basis for base erosion.  

Moreover, under a monopoly, any losses incurred are largely confined to a few major market players (i.e., the cartels) in a certain industry or sector, thus representing concentration risk, and, therefore, a direct loss of revenue for the government, as these losses can’t be offset as easily as in the presence of vibrant competition.

Even multinational companies (MNCs) can engage in forms of aggressive tax avoidance – where Malaysia is used for the purposes of under-declaring profits, as one example. 

Instead, with competition (fragmentation) in the supply-chain, particularly referring to the upstream and midstream, it’s possible for market players to mitigate any supply-side shocks emanating from external sources. 

This is so since there’d be diversification of sources and multiple channels of distribution. 

From a wider perspective, ironically or paradoxically, anti-trust and competition laws and policies along with the political will to enforce them are necessary and prerequisites to uphold and protect the workings and dynamics of a “free” market. 

It’s only through State intervention that competition can survive and thrive, thereby benefitting all stakeholders concerned. This is well supported by evidence and empirical facts. 

In the US, only the big railroad companies survived during the Gilded Age due to cartel practices which precipitated the enactment of the Sherman Antitrust Act (1890). 

A more competitive market where cartels can’t flourish or survive for long will contribute to a more progressive and civilised society where excessive greed gives in to the wider good and interests of society. 


Much less highlighted is the situation of monopsony – which can take benign forms, especially when the State is in view. Monopsony simply refers to the buyers’ monopoly (in contradistinction to the sellers’, as is usually the case). 

Under a monopsony, though not always the case, unit labour cost (ULC) is typically variable (rather than fixed) or somewhere in between, i.e., a hybrid. Consequently, it doesn’t function as a marginal cost (MC). As such, each increase in employment doesn’t add to the overall ULC. This means that additional wage costs incurred from the additional employment doesn’t necessarily result in higher production costs.    

There’s then no cost-push effects translating into inflationary pressures. 

In other words, sale prices remain constant. Of course, in practice, if the monopsony is also a monopoly which is usually the case also, there’ll always be the desire to hike sale prices due to the leverage of market power. 

But this isn’t due to the dictates of operational costs. Again, it’s simply sheer monopolistic behaviour. 

Civil service/public sector wage hikes

In the case of the State where monopsony/buyer’s monopoly is the rule, there’re no increases in the “final price” of provision of public services. 

Therefore, there shouldn’t be inflationary pressures emanating. Of course, on the other hand, there’s always the fear of potential tax hikes following the wage hikes to foot the bill. 

More pertinently, there’s the fear of a demand-pull inflation, however. The fear is always justified, to be sure. 

Inflationary pressures

But in the context of Malaysia (which isn’t Sri Lanka, Turkey or Greece), there’s very little evidence of a surge in demand-pull inflation based on available data. 

The current very low inflation (below 2%) is in line with the easing of energy (oil, gas – production) prices (see, e.g., “Malaysia’s inflation is cooling, but beware of five potential disruptors”, Diana del Rosario & Wee Chian Koh, ASEAN+3 Macroeconomic Research Office (AMRO), The Edge Malaysia, February 16, 2024). 

And as the economy continues to pick up in recovery mode from the scarring effects of Covid-19, inflation has decelerated (disinflation). In its Economic & Monetary Review (2023), Bank Negara reports that, “[t]he Malaysian economy is projected to grow between 4%–5% in 2024, underpinned by continued expansion in domestic demand and improvement in external demand: Growth will be driven by resilient domestic expenditure …” (Outlook and Policy in 2024, p. 13).

Any inflationary pressures will emanate from the removal of subsidy rationalisation measures – again in relation to energy (pump petrol – distribution) prices (“BNM: Malaysia’s inflation to average 2-3.5pc in 2024 even with fuel subsidy rationalisation”, New Straits Times, March 20, 2024). 

Furthermore, any demand-pull inflation would take time to seep in. This is because as the monopsony “par excellence”, the State sets the floor for wage price levels in the economy. Should the private sector be compelled to compete with the State, this would render the minimum wage order (MWO) moot.

However, presently in Malaysia, our heavy reliance on foreign labour (with implications on ULC, including the non-obligation to contribute to the Employees Provident Fund/EPF) weakens or renders inoperable (the “bidding”) competition between the State and the private sector.

Pensions reforms

The announcement by the Prime Minister of wage hikes of over 13% (involving an initial allocation of more than RM10 billion) for our civil servants is a critical step in easing the transition from a pensions-based system to the EPF. 

This not only reflects the Madani government’s concern for the welfare of the civil servants in the area of cost of living but also for their retirement prospects. 

It’s reflective of the concern of CUEPACS (Congress of Unions of Employees in the Public and Civil Services) that the (starting and early-progression) salaries of lower grade civil servants may not be adequate for contribution into the EPF.

What’s needed now is for another “super-fund” to emerge (taking the cue from Professor Dr Geoffrey Williams’s original idea) from the consolidation of the combined asset contributions of the entities concerned. 

EPF can provide a certain percentage of its assets under management (AUM)) – on loan (i.e., for a temporary period). This can be executed via share swaps, for example, with the proposed super-fund.

The same goes to KWAP or Kumpulan Wang Persaraan (Diperbadankan)/Retirement Fund (Incorporated).

The rest of the contributions can come from Khazanah Nasional Berhad and PNB (Permodalan Nasional Berhad).

Petronas can contribute some of the seed funding alongside Bank Negara. 

Instead of a merged entity, the super-fund will be separate and constitute a sovereign wealth fund (SWF) in its own right. 

Over the longer-term horizon, this SWF can be positioned to expand its mandate to provide what can be a basic state pension (BSP)/universal state pension (USP), including for those (both public and private sector retirees) who don’t have enough in their EPF accounts. 

This will be supplemented and complemented by taxation (under the operational expenditure/OE of the government) albeit at a reduced level (i.e., in terms of allocation). 

And, finally, the government could place a (flexible) cap on the level of OE allocation for pensions – based on a wider formula involving the ratio of sources (e.g., 65% from the super-fund and 35% from taxation). 

Jason Loh Seong Wei is Head of Social, Law & Human Rights at EMIR Research, an independent think tank focussed on strategic policy recommendations based on rigorous research

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