Milton Friedman is quoted to have said that "if the federal government were put in charge of the Sahara Desert, in five years there would be a shortage of sand." The father of 'right to free enterprise' movement was probably resorting to hyperbole for dramatic effect. But if the lessons of big government failures from the past century are any guide, there is cause for cautious celebration that Friedman's thought experiment has never been put to test.
While even former communist nations have learned the bitter lesson of unnecessary intervention in functioning markets, self-belief of babus back home is still in no short supply. Just yesterday, DC office Islamabad's attempt to 'fix' prices of essential kitchen items were showcased in this space to emphasize the harm well-meaning people in positions of power can cause once they overstep their mandate.
But the capital territory's district administration is not alone in its desire to tamper with the markets. Daily newspapers from last week carried words from various federal cabinet members desirous to bring the price of essentials down. Finally culminating in the Prime Minister, himself summoning the djinn of provincial price committees to reign in food inflation gone wild.
What's wrong with trying to control price of food commodities at a time when all economic classes are feeling the pinch of austerity, one might ask? Mainly that in their bid to ease economic pain, babus will probably end up doing more harm than good, never mind the noblest intentions.
Should the profiteers and hoarders go unpunished then? The answer, surprisingly, is yes. Hoarders earning abnormal profits are not proof of market failures as is popularly imagined, but rather evidence of absence of freely functioning markets.
The most outlandish price movements generally observed with food are that of perishable commodities, and latest example of which has been the price of teary-eyed vegetable, onion. While by and large public acknowledges that price increases caused by poor seasonal poor crop yield are tolerable, hue and cry is raised because the ultimate beneficiary of shortage is often not the grower but the middlemen or trader.
While it is unfair to assume that the middlemen add no value, let us leave the discussion of aiding in price discovery mechanism to another day. But it is still valid to ask what ground realities allow the middlemen to pocket the largest share of profits?
The answers are endless. First, absence of storage facilities for perishable commodities such as vegetables mean that grower is held captive to his buyer's offered price out of fear of crop going to waste, irrespective of glut or shortage. That is not a market failure, but an absence of functioning market of storage facilities.
Second, the absence of functioning marketplace of middlemen/traders itself. Even model market committees ran by district managements are dominated by traders/wholesalers with assigned geographical and/or commodity quotas - virtual kings of their fiefdoms. Consider that until recently the role of arthi in Punjab was considered hereditary, following the adage of arthi ka beta arthi. Yet it is easily forgotten that kingdoms are the most bare and raw embodiment of monopolies, and markets blamed for profiteering instead.
The government's job is in fact to ensure that markets functioning freely. Yet, worse still is the control exercised of price of commodities at only one stage of inputs, whereas the remainder of the supply chain is left deregulated. Time and again governments have tasted the bitter medicine of fixing price of raw material in the cases of wheat and sugarcane, only to result in alternate seasons of bumper crop and shortage.
When governments control price at only one stage of value chain, they in fact enter the business of choosing winners and losers in private enterprise. Consider the desire to fix retail prices of pulses for example. This would be equivalent to market committees deciding the rate of returns retailers are entitled on the commodity. Why would any economic agent engage in retail of pulses when he is allowed to only charge a fixed return, while wholesalers and growers are free to charge their own prices? Is it entirely unfathomable that retailers would simply stop stocking the commodity in question, sending perverse economic signals throughout the value chain - possibly leaving the already exploited even more worse off?
Of all the perverse memories of purana Pakistan, sarkar's fetish for price controls probably stinks the most. A U-turn on this one, would not hurt.
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