Thursday February 22, 2024

Vicious open market economy

April 15, 2022

LAHORE: Industry and business in Pakistan operate under the principles of an open market economy, with the consumers at the receiving end due to weak state regulations and unholy cartels.

There is no effective consumer protection institution in the country. There are no effective consumer protection laws.

The father of open market economy, Adam Smith had warned that open market economy would become barbarous if pursued without proper regulation. That is happening in Pakistan.

There is no check on irrational increase in prices. Rates of milk, wheat flour, vegetables, pulses, edible oil, mutton, beef, chicken meat, egg, tea, now register a regular increase. A new entrepreneur class has emerged that engineers the rates of most of these commodities through hoarding.

Principle of supply and demand no longer applies. When the demand is high the prices naturally increase, but when the supplies are high the vested interests suppress them by withholding production or hoarding the stocks to create artificial shortages to keep the rates high.

Better-organised sectors like flour mills, ghee manufacturers and sugar producers, manage to shield themselves in over-supply situations through their respective associations and maintain higher prices that ensure for them higher profit.

Most of the food-related industries are catering to the local needs, yet their production capacities are higher than the local demand. They have no export market but even then, they have registered mushroom growth.

Flour mills have the capacity to produce at least three times the wheat flour needed in the country, yet there is no competition between them. Both efficient and inefficient flour mills are thriving due to lack of competition.

Similarly, the most efficient and the highly inefficient, sugar mills, edible oil units are in business because the retail rates are determined in such a way that ensure the viability of the most inefficient producer.

Consumers in Pakistan pay more for electricity because the government agreed to unrealistically high payments to the independent power producers. Consumers must absorb the high electricity losses. The losses are part of the power tariff. These losses occur either due to corruption or inefficiency of power distributors.

Health services in the country are exorbitant as the government fails to enforce transparency in the public sector health center and due to its inability to regulate the private sector. The operation costs in heart or orthopedic surgeries are 10-50 times higher in the private sector than charges taken by public sector hospitals. Rates of even common and cheaper drugs have doubled while the rates of third-generation medicines are out of reach of commoners. Substandard candies and chocolates available in the market impact the health of children. The regulation of fares in public transport is lopsided. The auto-rickshaws and taxis operate without meters. This violation of law has now become a norm. With increase in petroleum products rates the travel expenses even in public transport have doubled.

Institutional weaknesses of regulatory bodies and corruption encourage exploitation of consumers. The benefits accrued from sales during short supplies are rarely depicted in their tax returns. Vigilant tax machinery could keep track of price fluctuations in high demand cycles and match the sales values declared in the tax return by the manufacturers and distributors during that period.