Firdous-Sonia tiff opens debate on market economics
If you have signed into your social media account today, you are highly unlikely to have missed the video of Firdous Ashiq Awan scolding Assistant Commissioner Sonia Sadaf in a Sialkot bazaar, apparently for not doing her job right.
The video went viral and became a national discussion within hours because it had all the ingredients. It is Ramazan, people are fasting and prices are high, but no one seems to take the responsibility. Enter Awan, the Punjab’s CM special assistant on information, finds the quality of fruits to be substandard, grills the AC in charge of the area, publicly.
The incident was filmed and shared on social media. It went viral instantly, leaving people divided over who is wrong and who is right. On one side are people who blame the government as well as public servants (read bureaucrats) for not providing them any relief in prices and on the other side are those questioning the language and manner in which Awan spoke to a “respected civil servant”. (Firdous Ashiq apologised on Monday)
At the centre of this debate lies the role of civil servants, which has divided people as well. Some argue that bureaucrats are responsible for price stability, but when they fail to deliver, they are not unaccounted for. Others argue, including Sadaf’s batchmates, that she or any AC for that matter is not responsible for ensuring the quality of fruit and thus Awan’s public questioning of Sadaf was uncalled for.
So who exactly is responsible for price stability? And should the government even fix prices in a free market economy like Pakistan’s?
The existing mechanism is complex. We are a free market, but we try to fix prices at the same time. A prominent economist tells me that we need to decide whether we are a free market economy or a welfare economy. When you choose to be a welfare economy, the government also buys stocks and dumps them in the market when prices start to go up. So by selling its stock, the government forces hoarders and profiteers to sell at market prices.
In a free market, you can’t fix prices. The government tries to enforce it through public announcements or court orders, but it doesn’t work like that. In a free market, prices are left to the market forces of demand and supply. However, the government, competition commission for example, should make sure monopolies and cartels don’t develop. (So yes, the government can ensure that the price of electricity or gas or petrol is managed, cartels or monopolies don’t develop in the sugar sector. But this is linked also to infrastructure costs).
In a free market, there is no concept of hoarding either. You can’t force traders to sell if they don’t want to because they are looking to make a good profit.
Regardless of which system you choose, the role of the government is crucial. Even in the west, where prices depend on market forces, the government ensures competition. They have policies that support farmers markets where people can buy quality produce at lower prices, but our markets are dominated by arthis (middle men or agents).
An arthi also plays the role of a financier for farmers who usually do not have enough resources to grow food, let alone transport it to the mandi. They charge a commission, which pushes prices up. In the past, wholesalers would send prices to the commissioner’s office, who would then issue a price list. There used to be price committees to determine the price every day. These committees would witness auctions and decide prices accordingly. These practices have vanished over time and prices are not decided based on demand-supply estimates nor do they take into account input costs. The price determination mechanism is weak, which results in a gap between government prices and market prices.
To monitor hoarding, the government fixes prices of some 40 to 50 essential commodities including fruit, vegetables, meat, chicken, and milk. After the 18th Amendment, price stability became the responsibility of the provincial government, but they have to use civil servants to enforce these prices because of the latter’s magisterial powers to impose fines. The problem, however, is when they don’t monitor or fail to enforce prices; people don’t get relief.
For the system to function, public servants have to increase their oversight of markets by physically visiting shops. Their presence makes a big difference, but there is an element of corruption as well. Sellers often complain that they have to bribe the officers to avoid fines.
One way to counter this menace is farmers markets. The government can allocate space to farmers to set up their own shops and eliminate commission agents or middlemen. For example, there is enough space at City Station in Karachi where farmers can come and set up their market. You can do this all over the city.