Recently there has been a lot of hue and cry over the price regulation of pharmaceutical drugs and school fees. Not surprisingly many people are supporting the price fixation by the government or by the judiciary. But is the popular opinion tenable?
Drug companies and schools may be charging many times over, including through transfer pricing that is difficult to track. But pricing fixation is not the way to go about to provide good quality drugs and education to the masses in a fiscally poor country that has poor quality standard regulation. Opening up the market, increasing competition, lowering the price and non-price barriers to production is, together targeted subsidy to the poor is.
Think again! Those in the government who want to fix the price of drugs and education, and those who support that decision, must also then fix the price of labour that goes in the production of pharma and education; they should also fix the price of raw materials, the price of utilities, and everything else that goes into the production of these goods and services.
They should also control the profit margins and prices in other business sectors (including their own wages) till such time the margins, wages etcetera in other business sectors are equal to the margins and wages in pharma and education. Otherwise workers and investors will migrate away from pharma and education in search of better returns or wages.
In the conquest between myth and reality, myth sadly emerges victorious on most occasions; only to come back to haunt again, and again. One of the many jobs of the modern state is to bust the myths that prevent a country from marching into 21st century. That price controls work is one such myth.
At the last Pakistan Economic Forum organised by the Pakistan Business Council PM Khan had clearly stated that “there is nothing wrong with making profits” and that “one of the many troubles that Pakistan faces is the demonising of businessmen”. Mr. Khan: now is the time to walk the talk!
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