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October 30, 2020

Price in monopoly

Opinion

October 30, 2020

Prime Minister Imran Khan has accepted that the price hike is a major issue and needs to be addressed on priority basis. He also said that high inflation and rising food prices have given him sleepless nights.

The PM is obviously worried about the problems of ordinary Pakistanis and I have no reason to doubt his intention. But in the material world, good intentions must be followed by concrete policies, mechanisms and alternate plans to solve the problems.

The problem lies in the policies and vision of change not in the intentions. The neoliberal ideologues of the PTI government are telling us that an unregulated free market and more power to big business is the solution to the economic problems we are facing.

They are not ready to accept the simple fact that government policies and decisions to increase electricity, petrol, gas, medicines are contributing heavily to the rising inflation. The failure of economic managers to take timely decisions to import wheat and sugar also played its role.

The decision of the federal government to allow the increase in the prices of medicines within a month made the medicines expensive. The government first increased the prices and then blamed the mafias for the price hike. On the one hand, the PTI government claims that it is trying its best to bring down the prices but on the other hand it has silently allowed the increase in medicine prices. The Drug Regulatory Authority of Pakistan (DRAP), Ministry of National Health Services, Regulations and Coordination, has increased the prices of medicines from 22 to 35 percent yet again within one month.

The DRAP notification, dated October 5, 2020, approved increase in the rates of 235 drugs. This is the second increase in the prices of medicines within a span of one month. This decision will add a further burden on consumers.

People are already struggling to survive as prices of drugs, food, wheat flour, electricity, gas and other items continue to rise. The government needs to take the necessary measures to control this price hike.

The problem is that the same elite that have captured the political and economic system make 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 PTI government is trying to break cartels and monopolisation through the same policies which give rise to such monopolies. Policies such as deregulation, privatisation and structural adjustments led to the monopolisation of the economy.

Cartelisation takes place when the government fails to regulate the market and stop the powerful elite from manipulating production and supply to increase prices. As the price goes up, these businesses make gains of billions of rupees at the expense of consumers.

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 a 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. We are dealing with a capitalist economic system dominated by big corporations, big business and big banks. There hardly exists any free competition between capitalist enterprises.

The Polish Socialist economist, Michal Kalecki, brilliantly sums up this phenomenon in an April 1938 article in ‘Econometrica’, which highlighted the differences between his approach and that of Keynes, especially with respect to two crucially important and closely related subjects -- the class distribution of income and the role of monopoly.

With respect to monopoly, Kalecki stated at the end of the article a position which would henceforth be central to his theoretical work: “The results arrived at in this essay have a more general aspect. A world in which the degree of monopoly determines the distribution of the national income is a world far removed from the pattern of free competition. Monopoly appears to be deeply rooted in the nature of the capitalist system: free competition, as an assumption, may be useful in the first stage of certain investigations, but as a description of the normal stage of capitalist economy it is merely a myth.”

In Karl Marx’s words, “The battle of competition is fought by [the] cheapening of commodities. The cheapness of commodities depends, ceteris paribus, on the productiveness of labor, and this again on the scale of production. Therefore, the larger capitals beat the smaller.” Further, the credit system which “begins as a modest helper of accumulation” soon “becomes a new and formidable weapon in the competition in the competitive struggle, and finally it transforms itself into an immense social mechanism for the centralization of capitals” (Marx, 1894, chapter 27).

Austrian Marxist thinker Rudolf Hilferding in his book ‘Finance Capital’ published in1910 explained the process of monopoly capitalism. “Prices under conditions of monopoly are indeterminate and hence unstable. Whenever concentration enables capitalists to achieve higher than average profits, suppliers and customers are put under pressure to create counter combinations which will enable them to appropriate part of the extra profits for themselves. Thus monopoly spreads in all directions from every point of origin.

“The answer to this question must be that there is no absolute limit to cartelisation. What exists rather is a tendency to the continuous spread of cartelisation. Independent industries, as we have seen, fall more and more under the sway of the cartellised ones, ending up finally by being annexed by the cartellised ones. The result of this process is then a general cartel. The entire capitalist production is consciously controlled from one center which determines the amount of production in all its spheres.”

The writer is a freelance journalist.