Crisis mode is no strategy

TRANSPORT Minister Anthony Loke has told Malaysians something governments rarely say out loud.

“This is not a laughing or joking matter,” he said. “It is a very, very serious matter.”

He was referring to the stress the country is under as energy costs surge amid disruptions to global supply routes.

The government, he confirmed, has entered crisis mode.

The difficult question is what “crisis mode” will mean in practice.

The record is not encouraging.

In moments of genuine stress, governments tend to reach for instruments that resolve the pressure of the present while deferring adjustments the future will demand.

The central danger is not misdiagnosis, but delay.

Costs postponed under political pressure accumulate, and the arithmetic ensures they return enlarged.

The oil shocks of the 1970s remain the clearest record of this dynamic.

They are distant enough to examine without panic, and close enough in structure to be illuminating.

What they show, above all, is that the most consequential errors were made not by the reckless, but by cautious governments.

These were governments that believed themselves to be acting prudently, yet in fact extended the life of the problem they sought to contain.

The American case is instructive.

When the Arab members of Organisation of the Petroleum Exporting Countries announced their embargo in October 1973, the United States was already operating under wage and price controls imposed to contain inflation.

When the shock came, the political cost of removing those controls proved prohibitive.

They remained in place, suppressing the price signals needed for adjustment, encouraging consumption while discouraging supply, and producing the shortages that defined the decade.

Monetary policy, loosened to support a weakening economy, reinforced the inflation it was meant to restrain.

When correction finally came, it arrived as a shock of its own.

The lesson is straightforward. Instruments chosen in a crisis do not expire with the crisis.

Temporary measures, once embedded, reshape incentives and outlast the conditions that justified them.

What begins as protection becomes distortion; what is deferred returns with interest.

That lesson is directly relevant to Malaysia.

In 1973, Malaysia faced the oil shock as most developing economies did: as an external tax on growth.

The government responded with subsidies to cushion the domestic impact.

That choice was understandable, and defensible in the short term. But the shock had a second effect.

It exposed the extent to which domestic oil resources were controlled and monetised externally, and it precipitated the creation of Petroliam Nasional Bhd or PETRONAS in 1974.

Over the decades that followed, petroleum revenues transformed the fiscal capacity of the state.

This achievement was substantial. It also enabled a more subtle error.

Oil resource revenue made it possible to postpone structural adjustment.

At its peak, oil-related revenues accounted for a significant share of government income, creating fiscal space large enough to defer harder reforms.

Subsidies, introduced as temporary relief, became embedded.

The underlying questions of productivity, wage growth, and economic composition could be deferred because the fiscal space existed to defer them.

The cost of that deferral accumulated gradually, and is still being paid.

Recent subsidy reforms are the delayed settlement of earlier choices: choices that served real distributional purposes at the time.

The parallel with the United States is not in the instruments themselves, but in their logic.

Faced with external pressure, both governments adopted policies that reduced immediate strain while leaving the underlying adjustment incomplete.

In both cases, the burden was transferred forward and the eventual correction proved more difficult because it had been delayed.

The present crisis differs.

Malaysia’s economy is more diversified, its financial system more resilient, and its policy tools more developed than they were half a century ago.

These are real advantages.

But the structural temptation remains unchanged: to treat the crisis as a reason to pause reform, to extend support beyond its useful life, and to assume that temporary measures will remain temporary.

This is the risk embedded in “crisis mode”.

It signals urgency, but it also creates permission – for delay, for expansion of support, for the quiet assumption that adjustment can wait until conditions improve.

Historical records suggest otherwise. Policies adopted under pressure tend to persist.

Governments rarely intend to prolong them.

Yet they do so because the cost of reversal, once constituencies have adjusted to their presence, becomes politically higher than the cost of continuation.

The question, then, is not whether intervention is required.

It plainly is. The question is whether intervention preserves adjustment or prevents it.

Support that protects the vulnerable and sustains viable firms is necessary. Support that shields the entire system from price and cost realities is not.

The distinction is clear, even when the politics are not.

In a prolonged shock, consumption and production must adjust to constraint. Policies that deny that constraint defer it.

What must be avoided is the transformation of short-term relief into long-term structure.

Malaysia has already begun to move in the right direction, through more targeted subsidy mechanisms and gradual rationalisation.

These steps are necessarily incremental. They are also necessary.

The current crisis will generate pressure for broader support, larger interventions, and slower reform.

Some of that pressure will be justified. Much of it will not.

The discipline required is to ensure that action does not entrench the conditions that made the system vulnerable in the first place.

The lesson of the 1970s is not that governments acted irrationally. It is that they acted rationally within political constraints, allowing economic constraints to compound.

That is the pattern to be avoided. The record is clear about what deferred adjustment costs and how those costs return.

Crisis mode is not a strategy. It is a condition.

What matters is whether it is used to accelerate necessary change, or to postpone it.

The arithmetic will not adjust itself. The only question is whether the adjustment is made by policy, or imposed by events.