Subsidies to reduce the impact of the oil crisis?

See “Fishery layoffs loom if costs keep rising” (business, page 3)
By Jon Fernquest

Are oil subsidies justified? Can oil subsidies keep businesses from changing and adapting to higher oil prices?

It seems increasingly likely that the oil crisis will continue. Are subsidies sustainable? Consider the following quote from an industry executive:

“Despite the higher cost, industries could not raise their product prices as it would add additional burdens to consumers”

At first glance, this seems reasonable, but anyone who has taken an economics class should think twice. Why is it necessary to control the market for fish? If fish become more expensive to catch because of rising oil prices, then shouldn’t the cost of fish rise? If you are an economics major in college, think through news items like this with supply and demand curves and production functions.

Some policymakers argue that oil subsidies reduce the permanent impact of a temporary change. For instance, if oil prices shoot up and the fishing industry is destroyed, it might take a lot of time and money to rebuild the fishing industry. But is the current change in oil prices really temporary?

High oil prices in the 1970's forced people to change their behavior. This is was the beginning of energy conservation which is so common today that we take it for granted. People started driving smaller cars and using car pools. Walking and bicycling became more popular. These changes happened because consumers faced the true price of oil, not a subsidized price.

Layoffs and unemployment are truly sad, but what is even sadder is if people get used to making a living in a way that is not sustainable in the long run. Sometimes industry lobbies and vested interests, not layoffs, are the real issue. In Chiang Mai songthaew trucks have replaced buses and Morchit Mai bus station, with all buses to Isan and the north from Bangkok, falls conveneniently a few kilometers short of light rail and the subway.

From another perspective, small fishermen may be an important part of Thai culture that are worth protecting as a part of Thailand's heritage. A sort of national treasure. Inventive farmers in the Lampang, Chiang Rai, and the United States have turned their farms into tourist attractions with hay rides on old fashioned carts. Tourist dollars, Thai and foreign, are often attracted by heritage preservation.

The fishing industry often makes the news because of protests, but subsidized oil prices can also lead to practices in our everyday lives that may not be sustainable in the long-run. Can we continue to use small mini-vans (mini-buses) instead of larger buses if the price of oil continues to rise? Large numbers of school mini-vans in the morning and afternoon cause traffic jams all over Thailand. Buses and light rail are not only more fuel efficient, they also decrease traffic and waiting. Can you think of other inefficient behaviours that oil subsidies have encouraged?

Faced with higher oil prices, inventive Thais will eventually come up with new alternatives. Maybe land-based fish farms or alternative fuels for fishing boats will become more popular. Recently, some farmers have started to use water buffalo again for plowing, instead of the their motorized plows (Thai: khwai lek = steel buffalo).

Everyone is tempted by the comfort and convenience of their own personal automobile. If oil prices are allowed to rise, things might change. For example, in Bangkok walking is often impossible because the sidewalks have restaurants, vendors, and whole markets on them (e.g. Klong Toey Market near Queen Sirikit Station). Motorcycle taxis even use the sidewalk as a quicker alternative to the road. Being a pedestrian is generally an uncomfortable experience.

Perhaps, if important pedestrian thoroughfares were easier to walk through, people would walk more, reducing the impact of the oil crisis. In European cities whole sections of town are turned into pedestrian areas shut off to cars. Downtown Chiang Mai has even experimented with this idea on the weekends.

These are all important issues to think about and discuss and would be especially good for lunch-time English Club discussions at school or work. The oil crisis will probably remain with us for a while.

Today's article also provides a good opportunity for doing some internet research. Diesel fuel with a high sulfur content is being substituted for use in fishing trawlers. Use the phrases in the article in a Google search to find out what "high sulfur content" in diesel fuel means (See answer key at end).

You can easily find a lot of interesting internet articles on the oil crisis. Checkout a recent BBC article on how oil prices threaten Asian economic growth. Econbrowser weblog, written by two economics professors in the United States, discusses how oil prices may remain high for several years. Energy Bulletin has a primer on "peak oil", the idea that oil is runnng out and we have to take immediate steps to deal with this problem. The Asia section of Alexander's Gas and Oil Connections is a good place to get all the energy related news for Thailand as well as China.

Vocabulary (in discussion above)

subsidies – money paid by the government to help an industry or a business
resources – the money, materials, and objects that a company or person has to help them perform their function, for example a newspaper writer has paper, a pencil, and a computer
inefficient – not using the resources you have in the best possible way
persist – continue to do something
take it for granted - it is so common that we don't think about it, but maybe we should
car pools – several people travel together in one car instead of each using their own car, most commonly used with children traveling to school or adults traveling to work (See Wikipedia:Car_pools)
fishing trawlers – fishing boats
making a living – what you do to make money to feed, cloth, and house yourself and you’re your family (Thai: liang-chi-wid)
lobbies - people who persuade the government to change laws in ways that benefit them
vested interests - people with protecting and supporting policies that benefit them
sustainable – can continue doing in the future without problems
heritage – the traditions of a society or country that have existed for a long time and are passed on from generation to generation, for example your grandmother wove cloth and she taught you to weave cloth too
pedestrian thoroughfares – a place where many people walk through, with a lot of walker traffic, for example near Silom Station in Bangkok

Vocabulary (in article)

layoffs, laid off – people lose their job, when the number of employees in a company are reduced because the company has less business, often because of bad economic times
loom – about to happen, threatening to happen soon
idled – when a person or machine goes from working to not working
sector – industry, a part of a country’s economy like the transport sector
seafood processing - the preparation of seafood for sale in a factory (including cleaning, cutting, and packaging)
upstream sector – initial production, catching the fish with fishing boats
downstream sector – processing, packaging, and marketing the fish
curb – stop or reduce
plight – a difficult situation
a fuel levy – a fuel tax, an extra amount paid to the government
trawlers – fishing boats

Posted by Jon Fernquest at 10:24 AM | Permalink | Comments (0)