Amid reports that gas stations have started shutting down, the government announced yesterday that the freeze on oil prices would be lifted by Monday. This episode should teach the Arroyo administration about the wages of using state power for populist purposes.
Private individuals will give to charity, and we saw a lot of that in the aftermath of storm “Ondoy” and typhoon “Pepeng.” But they will not deliberately run their businesses to the ground by operating at a loss, which is what President Arroyo, needing a popularity boost, compelled the oil industry to do by slapping price controls on petroleum products throughout Luzon, even in areas that did not suffer from the natural calamities.
Those affected were not just the “Big Three” oil companies, but also small players in the industry — the franchisees operating a gas station or two, and the even smaller retailers of liquefied petroleum gas. There were no complaints about rising fuel prices before the price controls were imposed, and transport groups, aware of the suffering of millions in the disaster areas, were not seeking an increase in fares. Yet President Arroyo decided to issue Executive Order 839, requiring private businessmen to freeze oil prices at pre-Ondoy levels.
You can appeal to private businessmen for self-sacrifice, but you can’t compel them to do so without bracing yourself for the consequences. It’s confiscatory, and the economist who now occupies Malacañang, of all people, should know that. No one goes into private business to lose money. Prices of fossil fuels in particular are tricky to control when nearly all of the country’s supply is imported. The importers simply stop buying, and the dealers simply stop selling. Who suffers in the end? Not Malacañang officials, who will be the last to run out of fuel.
Still, the price freeze, in the short term, was lauded by motorists, because of perceptions that it was the only way oil companies raking in huge profits could be made to give up anything for the public good. That perception can be blunted through measures such as staggered price adjustments to recover losses due to E0 839. Oil companies may consider the perception unfair, but changing it requires effort. They can start by showing that they need no executive order to ease public suffering in a time of crisis.