Continuing price spiral: How to tame it?
Alfred Marshall developed the theory of supply and demand to explain the rise and fall in prices. When the supply is more than the demand the prices fall and when demand exceeds supply the prices rise. Perhaps taking a cue from it the PM and her son propagated in public gatherings for sometime that prices are increasing because people can afford more goods and services under FPA rule. BNP Secretary General also aired the same theme by saying that with economic progress price rises. Quantity Theory of Money stipulates that prices increase when too much money chase too few goods. Therefore, the central bank has embarked on restraining monetary expansion, particularly for the private sector. The Finance Minister with all his acumen in accounting found a rational for price spiral in the increases in prices in the international market. I am not here to question their wisdom. The explanation whether demand-supply gap or expansion of money supply and rise in international prices propelling the price spiral or not is of no consequence to general public, all are indicative of government's failure to take measures to counter them timely.
Matching demand with adequate supply is the key to ensure price stability. In the aftermath of 1998 flood the apprehension was ripe that the country would confront serious food shortage and a devastating famine was imminent, which may claim as many as 200,000 lives. AL government allowed duty free import of food grains. Further, they ensured adequate supply of agricultural credit and inputs throughout the country. The farmers met the deficit shortly by increasing production. Timely interventions and coordinated actions of the ministries of finance, commerce, agriculture, industry, food and disaster management not only averted an impending crisis, the country achieved food autarky soon.
For all latest news, follow The Daily Star's Google News channel. A former FPA commerce minister once opined that in free market economy commerce ministry has little to do in arresting prices. He has a point, but this is not the whole story. A newly appointed minister once asked me what would make him a successful Commerce Minister. My reply was, ÂSir, good relations with your cabinet colleagues, particularly with the Finance MinisterÂ. Commerce Ministry by itself in most cases can hardly influence rise and fall in prices, but a concerted governmental action can. Most items of our daily necessities -- rice, pulses, vegetables, edible oil, salt, sugar, onion, etc. -- are produced in the country. The shortages are met with imports. There could be natural as well as man-made interventions to disrupt the supply chains. For example, salt is a very sensitive item. Country's entire requirement of salt can be met with production in the costal areas. But in an unfavourable weather serious shortages may occur.
Bangladesh Small and Cottage Industries Corporation (BSCIC) monitor supply of inputs as well as volume of salt production. It also provides impetus for productivity and quality improvements through technological innovations and adoption by the farmers. Bangladesh Rifles is there to stop illegal smuggling from neighbouring countries. NBR is responsible to ensure minimum tariff protection to domestic producers maintaining a fine balance between producers' and consumers' interests. The Commerce Ministry allows import when there is production shortfall. The banks provide credits to producers and traders. Ministries of home, communications and shipping ensure unhindered and uninterrupted movements of supplies.
The production, processing and distribution of salt are in the private sector. Profit motive is their guiding principle. A crisis situation may provide one group or another opportunity to profit. There are many market players. The free market economy is complex, but the government has the authority and the means to mould and manipulate it. It is the responsibility of the Ministry of Commerce to monitor carefully the price situation, identify signs and causes of unusual price movements well in time and either initiate or pursue concerned ministries and departments to take corrective measures.
A former President used to check prices, particularly of cereals every day and ensured that coarse rice prices remain within the purchasing capacity of ordinary citizens through out his long tenure. Price stability was a prime concern of Sheikh Hasina when she was Prime Minister. The country witnessed unprecedented price stability during her time. Prime Minister Khaleda Zia has been showing some interest in price situation of late. The other day she called several ministers to her office to discuss unabated price spiral and reportedly emphasised the need to contain prices before election. Soon after, at the conclusion of a follow up meeting with business leaders, Commerce Minister declared that prices will come down by June next. Similar pronouncements of his predecessor proved hollow in the past. I wish that the minister, who was a star footballer, would succeed in hitting his goal posts through.
The minister did not divulge how he will bring down the prices. In any case, The Shamokal, a vernacular daily in its May 18 issue listed several of them. It seems tariff reduction and import and distribution of essential commodities by the Trading Corporation of Bangladesh (TCB) are high on his list of contemplated actions. They may help to an extent but unlikely to have a big impact. Business syndicates will gain at the expense of the exchequer from tariff reductions and import and distribution of goods through TCB would push prices up in a likely scenario of appointment of party cadres as distributors. The minister also intends to fix prices consulting the traders. Price fixing without ensuring adequate supply simply would not work.
The prices have not gone up in a day and there is no quick fix either. There are, however, measures which may give results quickly. Of them, freeing retail and wholesale markets as well as movement of goods by land and water across the country from illegal collection of tolls by party cadres, organised goons and members of governmental agencies would reduce prices immediately by a few percentage points. However, most people perceive that the prices are exorbitant because supply and distribution of many items are controlled by powerful business syndicates with close links with ruling party high-ups. Trade liberalisation has had some unintended consequences in Bangladesh. Most essential commodities have low price elasticity. With small variations in supply their prices can be manipulated widely. Over the last decade and a half in an environment of liberal trade regime the country witnessed the rise of a few big import syndicates. They control supply of most essential items through bulk import and hoarding.
Taking advantage of opaque tariff classifications and lax banking procedures with willing cooperation of a section of customs and bank officials and political patronage some of them have amassed large fortunes and have gained the strength to control the market. Piling of a few thousand custom revenue cases for disposal at the High Court is indicative of their power and influence. By quickly disposing these cases off the government can send a message that their hay days of honeymoon are over. The government would be able to tame the price spiral only if it succeeds in regulating or breaking the oligopoly without disruption of the supplies.
Bangladesh has in last two decades progressed economically, but at the same time its society has lost much of its harmony and cohesion and has become fragmented and is now suffering from unprecedented internal conflicts and tensions. The efficacy of liberal trade regime and free market economic policies should be reviewed in the light of their social impacts. Increases in national income and wealth are of paramount importance but economic gains would be jeopardised any time if the distributive justice is ignored. About 50 percent of 140 million citizens of Bangladesh, after 35 years of independence, are still languishing in abject poverty of less than a dollar income per day. The number of ultra poor now almost is one third of the total population. The income inequality between the rich and the poor has increased manifold. The income of the top 5 percent of population compared to the bottom 5 percent is 84 times higher now from less than 20 times before 1990.
The Transparency International has indexed Bangladesh most corrupt country in the world for five consecutive years since 2001. Political system has become a handy tool for personal aggrandisement and enrichment. Money and muscle power has engulfed it totally. The country is also witnessing unprecedented rise in religious fundamentalism and terrorism. The pro-rich hand off laissez faire approach the FPA government is pursuing in its economic management is at the root of many of these malaises including the price spiral. What is needed is sincere engagement of the government in protecting citizens' interests by its judicious interventions in preference to narrow business interests of a few, combating corruption and bringing accountability and transparency in its own dealings. Only then it would be possible for the commerce minister to bring down the prices for the benefit of common people.