Vol. 5 Num 1141 Tue. August 14, 2007  

A business unfriendly government

Oh my! How perceptions have changed since January! In the immediate aftermath of 1/11, I kept thinking that was a pity that the famous singer James Brown, the man with the potent rasping voice was dead. He could have had a nation of 140-million swaying their hips to the song "I Feel Good."

Yes, those few days after January were amazing. Law and order being restored, excellent systems installed, good people rising in eminence, crooks going behind bars, and so on. In essence, it was a time when the nation enjoyed "Fakhruddin's biriyani" to their hearts' content. It all seemed so rosy.

But now, there is a stench from the rose garden.

A climate of self-righteousness accompanied by an unrelenting propaganda machine that would make Karl Rove blush seems to have replaced the modesty and commitment to justice that once characterised this administration. It's never a good sign when men play God, yet a God-complex among some of the higher-ups is unmistakable.

The honeymoon period is over. Far from the euphoria, there is nervousness and disillusionment -- especially among the staunchest supporters of this government.

The reasons for this shifting public sentiment have been addressed thoroughly in the press. Now, the latest addition to the charge-sheet is business unfriendliness.

It seems that this government has resuscitated the corpse of tired-old-arguments. The discredited regulatory mechanism of price-control is very much in vogue. And, denouncing evil business syndicates as the root cause of all economic malaise seems to be a mandatory part of everyday government briefing.

Yet, the whole world now accepts that the best regulator of prices is competition itself. Only in circumstances where competition cannot be fostered is price regulation justified.

Sadly, the government has chosen to differ from the learned opinion in the rest of the world.

Putting a price-cap on mobile phone call charges is a case in point. Competition is fierce in this market, with prices being slashed every day. There was absolutely no need for price control here.

Essentially, losing the battle with rising food prices has caused the government to panic. It is now frantically trying to contain the overall cost of living by interventions in well-functioning markets.

But this line of thinking is misconstrued. First, food price inflation affects the poorest the most. This group is unlikely to be making calls on cell phones on a regular basis. Second, unlike food, cutting back on phone bills is easy. One just makes fewer calls, or opts for text-messaging that is much cheaper.

All that this supremely unnecessary intervention has achieved is to send shivers through the rest of the private sector that their industry is the next victim of a serial price-controlling government.

The effects of price regulation are seldom benign. Take for example the case of life-saving intravenous saline, prices of which have been regulated for years. Of late, the cost of plastic has increased so much in the world market that it is no longer feasible to produce this product at the regulated price.

As a result there is likely to be scarcity of a life-saving product in the coming months. Moreover, in anticipation of a scarcity, a black-market in IV saline has already started where these products are being traded at several times their stipulated maximum retail price. Here is a classic example of price-control leading to the exact opposite result that was intended.

Losing the battle against rising food prices was a fait accompli. Food prices have risen everywhere in the world. So, most of the inflation in food grains is imported and unavoidable.

A thoughtful government would have sought to cushion the poor from the impact of food-price rises through some form of compensation mechanism. Instead, it took a harsh moralising tone against, "evil-profiteering businessmen." This witch-hunt caused entire supply chains to disappear making the problems of inflation even worse.

Well-functioning markets are the best guarantor of consumer welfare. The right question is therefore not whether prices are too high, but is there enough competition in the market? Save special cases, in most instances, the correct policy decision is to foster competition -- not control prices.

Sadly, in all the markets where interventions have occurred are precisely those that are highly competitive and efficient. Such markets tend to have well-identified business houses that form soft targets for this government which seems to have an innate longing to point fingers.

It does not ask: "What's the problem?" Instead, the question invariably becomes: "Whom can we blame?" This approach leads to spectacular news headlines, but also disastrous economics.

A caste-system seems to have surfaced in the society. The government sees itself as the Brahmins (although technically they are the Kshatriyas), and the, "dirty businessmen," the lower Vaishya class.

Thus, to cleanse the residential areas, the Brahmins feel it is their moral duty to evict offices of the Vaishyas. Who cares if a small, struggling businessman drowns in puritanical whitewash!

There is an old saying: "The road to ruin is paved with good intentions." This government might mean well, but it has a very poor understanding of how a market economy functions -- even less so of the key players in it.

So when businessmen complain about over-regulation, inconsistencies in fiscal policy, and impediments to day-to-day functioning, it's just a bunch of evil profiteers trying to push through some sordid underhanded scheme.

A wise man once said to me: "Look sonny boy, we hate these uncouth businessmen. And God forbid, if our daughters want to marry them; but the fact remains, that they are the heart and soul of economic development. We need them."

Apparently, this government believes that 50% of the above statement is true.

S.M. Abdur Rahman is a freelance contributor to The Daily Star.