Policy Talk: Why is the Government Always Reactionary?

    Harare, Zimbabwe - March 15, 2016: A modern office block rises above the horizon in Harare, capital of Zimbabwe, at business closing time. The city is alive with commuters, mostly government officials working in the capital, on their way home. The country's economy is faltering, its government officials working in the city often not paid on time as Zimbabwe struggles to overcome economic sanctions brought about by the regime of the ageing President Robert Mugabe.

    The Government announced that it is now amending the Competition Act to empower the Competition and Tariff Commission to levy penalties on companies that violate competition laws. It also announced plans to introduce active price commission which may include price controls.

    Policy Talk with Tinashe Kaduwo

    These are all reactionary measures to skyrocketing prices in all markets that has destroyed consumer welfare. We published several articles dating back to January 2019 advocating for an active price commission to eradicate cartels and collusive behaviours in pricing. This is not new and even the greatest economic powerhouses, the US, once implemented the same. While working under the Keynesian philosophy of a greater role of Government in the economy, US political economist, John Kenneth Galbraith, was made in charge of a Price Commission in the US, to work towards obtaining correct price signals from the markets, In Zimbabwe’s real estate, commodities markets and even services sector, prices have been rising sharply. The need for emergency intervention in all markets in the country to restore sanity cannot be overemphasised. Indeed recent developments in the field of economics have seen a rapid rise and adoption of Neoliberal economics, primarily by emphasizing limited role of government from markets and through out-of-context push towards economic liberalisation. Economic liberalisation is indeed a good policy but with limited positive impact especially in developing economies such as Zimbabwe. In most developing countries, lack of Government intervention in markets has led to reaching sub-optimal prices and poor social welfare programmes.

    In Zimbabwe, it is clear that correction of prices requires greater government oversight of markets, not less. Markets in Zimbabwe both financial and real, require formulation of a price commission that allows economic agents to obtain prices that are both socially responsible and a fairer reflection of the true value of the product. What required is greater government oversight and intervention given the country’s weak market frameworks and supporting institutional structures. Countries that have gone through a deep recession or disturbances implemented price commissions with sole mandate of maintaining price stability and protecting social welfare. Government through the price commission, its active intervention will not be stopping the determination of prices through the underlying principle of demand and supply, but to ensure that the involvement of collusive practices of cartels, and political and economic elites is stopped. This will ensure that the profits and the prices are not favouring one group of people and not abnormally above the true equilibrium levels. The current spike in prices when wages and salaries have remained fairly flat is obnoxious. Citizens are paying for inefficiencies as most industries are using outdated technologies. Of course, businesses should be allowed to make profits but the wrong kind of artificially exacerbated profits leads to widening of the income inequality gap, and the increase in poverty levels. Such economic misery also means a rise of a tiny elite group with money and influence over policy. Some sectors need to be opened up and allow more competition in the absence of a price commission cannot be achieved.

    A price commission is, therefore, greatly needed. Its scope should be to check the price-setting mechanisms and the role of people in both the private and public sectors. It should be involved in markets ranging from financial sector, for example, profits of banks at the back of bank charges, spreads earned and interest rates charged. Monitoring the stock market and rationalising the extent of profits and dividends being earned may also be another scope of the commission. Pricing of agricultural and industrial produce, pricing of land and properties in the real estate sector and rationalising the profit of the middle-man, agencies.

    Indeed advocates of free markets may not agree but there is consensus world over that monetary policy has failed to influence prices. John Kenneth Galbraith in the US, was made in charge of a Price Commission, to work towards obtaining correct price signals from the markets. A similar commission in the country will help restore sanity in all the markets. However, the thrust should not be on price controls but to eradicate collusive behaviours and destroy cartels in the markets.

    Kaduwo is a Researcher and an Economist at Equity Axis. The article was 1st published in the Zimbabwe Independent. 


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