Missing voluntary exchanges

LAHORE: For all the globally known economists, who support the free market, any solutions proposed by the government to a problem are usually as bad as the problem itself.

A few years back, tyre manufacturers convinced the custom officials that tyre importers are heavily under-invoicing their imports. The actual solution was to fix the import tariff price to actual level (that could be verified through the internet on exports of the same tyres exported to other countries). Instead, the officials punished the importers by increasing the import duty by 10 percent. The problem in their eyes was solved.

When a tyre worth Rs100 is imported at Rs20, an importer saves 80 percent of the duty and 80 percent sales tax on duty paid value. If the duty is increased by 10 percent, the importer would be saving 70 percent duty and 70 percent sales tax on duty paid value.

This measure might slightly increase the cost of unethical imports, but it would not provide any relief to the domestic industry.

The government guided by the bureaucrats is always keen to resolve the problems faced by different sectors of the economy. They first formulate and announce a policy after listening to a set of stakeholders and then listen to the grievances of stakeholders.

Influential stakeholders (they are the ones who are badly hurt by that policy) immediately approach the concerned minister (knowing little about the issue) and the bureaucrats revert back to the previous policy.

Businessmen are worried about the uncertainty that has engulfed the nation. They do not trust politicians, who tell people what they want to hear.

They promise an end to corruption, end to cronyism, reduction in prices, accountability of police, but what actually happens is the opposite.

Businessmen are not angels. There are many crooks amongst them, but there are some honest souls as well who do not trust the system, which is neither open nor fully closed; where rules are violated with impunity without any accountability.

Milton Friedman said if you put the federal government in charge of the Sahara Desert, in five years there would be a shortage of sand. Our state-owned enterprises are the living example in this regard.

We have ruined the goldmine infrastructure of Railways, grounded the once pride airline of Pakistan, and devastated the Pakistan Still Mills.

Economist Paul Samuelson thinks Asia’s governments come in two broad varieties: young, fragile democracies - and older, fragile authoritarian regimes. Pakistan qualifies both definitions.

Our consumers brave periodic high inflation and permanent moderate inflation by global standards. Yet our rulers rue our saving rates are very low.

Alan Greenspan said that in the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. This fits perfectly on Pakistan.

Businesses are losing hope because the major political parties are not on one page for a genuine economic agenda. We have a system that increasingly taxes work and subsidises non work.

Friedman said many people want the government to protect the consumer. A much more urgent problem he insisted is to protect the consumer from the government.

Concentrated power is not rendered harmless by the good intentions of those who create it. Governments never learn but only people learn that too when the damage is done.

If we look at history we will find that the greatest advances of civilisation, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralised government. It is unfortunate that the government of Pakistan is usually run by individuals pursuing their self-interests.

Politicians in Pakistan still have some doubts about the free market economy. Most arguments against the free market show a lack of belief in freedom itself.

People cooperate together voluntarily through the free market, which is why preserving individual freedom is of the utmost importance. When both parties benefit, the system thrives.

Pakistan would move ahead if the government in power adheres to principles of free market economy in letter and spirit. People of Pakistan and genuine businessmen are yearning for such a government.