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April 10, 2020

Cartels and consumers


April 10, 2020

What the prime minister’s inquiry committee led by DG FIA Wajid Zia has revealed in its report is just a tip of the iceberg. This report provides us detailed insight into the manipulative practices of the sugar industry, and how the sugar industry used its powerful position and strong connections to influence government policy to export sugar to create an artificial crisis and then took advantage of the situation to manipulate prices.

The situation is no different in other sectors of the economy. Any deep analysis and investigation would reveal similar malpractices and manipulative maneuverings and tactics used in other sectors by the big players of businesses.

This report has reaffirmed the already known fact that the sugar cartel not only exists but continues to use manipulative practices to increase prices to maximise profits. This report has revealed how big business uses its power and influence to get favourable policy decisions from decision-makers.

This report has also revealed the weak check and balances within the system to stop or detect a flawed policy decision or to ascertain the facts in a particular case in which millions of people could be affected. In this particular case, the Sugar Advisory Board, the ECC and the federal cabinet led by Prime Minister Imran Khan approved the export of sugar without realising the impacts of that decision.

As the report shows, a summary was moved and it got approved without a single question or any attempt to verify the facts from multiple sources. This raises serious questions on the transparency of decision and policymaking. This top-down highly bureaucratic model of policy and decision-making on important issues directly affecting millions of people only serves the interests of the powerful elite and ruling classes.

The problem is that the same elite that have captured the political and economic system make decisions and policies to serve and protect their interests. We need to realise the flaws of this top-down bureaucratic model and replace it with a more transparent and inclusive model and process of decision and policymaking.

The sugar industry gets a lot of attention because big political names are involved in this business. The political elite and the sugar industry are linked closely. This strong link makes it easier for this industry to work as a cartel to manipulate the market to fix the prices. As a result of this manipulation, customers were forced to pay billions of rupees extra to purchase sugar.

Cartelisation of the economy takes place when the government fails to regulate the market and to stop the powerful elite from manipulating production and supply to increase prices. Cartels enjoy freedom to manipulate prices and suppy. As the price goes up, the businesses make gains of billions of rupees at the expense of consumers. Sugar mills form the most powerful cartel in Pakistan.

Cartels exist in all the major sectors of the economy. The different investigations and inquiries initiated by the Competition Commission of Pakistan (CCP) in different sectors like cement, fertiliser, pharmaceuticals, flour etc have also confirmed this fact.

Pakistan has been held hostage by these cartels since the massive privatisation of the state sector in the 1990s and earlier 2000s. This privatisation reduced the competition between public sector and private sector enterprises. All the profit-making public sector enterprises were privatised and loss-making units were mostly shut down. We were told that private sector competition will not only improve the quality of products and services but also lower prices. But in most cases the opposite was the result.

The private sector was against the state-owned monopolies as that killed competition. But the big players did the same after the privatisation of state-owned public sector industries and enterprises. Weak regulations and reluctance of the state to intervene to stop cartelisation in different sectors helped big companies dominate and manipulate the free market to fix higher prices.

These cartels increased their influence and power in collusion with politicians, bureaucrats and other power players, making it difficult for regulators to hold them accountable. They almost enjoyed complete impunity and freedom to exploit not only the working people but also the general public as customers. The cartels have also severely impacted the ability of medium and small businesses to compete with big business in an unregulated free market.

Neoliberal capitalist ideologues told us that the free market economy works for the interests of the customers. It drives competition that lowers prices and increases the quality of products and services, and customers have more choice to select products and services. They want us to believe that the free market is natural and beneficial for all.

But the fact is that unregulated free markets are the major source of exploitation of customers by the big business. One investigation after the other from America to the European Union and India to Pakistan has revealed over the years that big business manipulates markets through control over production and supply to maximise the profits.

The real issue is to take action to break these cartels. Now the government of Prime Minister Imran Khan is going for a forensic audit before taking action. Why is the government not formulating a policy framework to break these cartels to safeguard the interests of consumers?

The writer is a freelance journalist.