Why is the gvt always reactive?


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 an active price commission whose mandate may include price controls.

These are all reactive measures to skyrocketing prices across all markets that have negatively impacted on the consumer welfare. We published more than three articles under this column since January 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 put 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 across 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 neo-liberal economics, primarily by emphasising limited role of government from markets and through out-of-context push towards economic liberalisation. 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 is required is greater government oversight and intervention given the country’s weak market frameworks and supporting institutional structures.

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.

A price commission is, therefore, greatly needed. Its scope should be to check the price-setting mechanisms. It should cover all sectors including the financial, 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, land and properties in the real estate sector and rationalising the profit of the middle-man and agencies.

Indeed, advocates of free markets may not agree, but there is consensus the world over that monetary policy has failed to influence prices. A similar commission to the one set up in the US is needed in Zimbabwe to help restore sanity in all the markets. The thrust should not be price controls, but to eradicate collusive behaviours and destroy cartels in the markets.

Tinashe Kaduwo is a Researcher and an Economist. Contact kaduwot@gmail.com