Remember Price Controls? Govt considering implementing not too dissimilar strategy

As you have been shopping over the past few months, you have no doubt noticed the steady increase in prices of commodities. Or maybe it wasn’t even steady but sudden.

What triggered the price increases is that social media (WhatsApp) episode that eventually saw the creation of a Ministry of Cyber Security. If your memory serves you well, you’ll remember that a few messages predicting imminent shortages of basic goods were enough to cause a panic buying spree which in turn led to retailers increasing prices.

Since that whole debacle a number of retailers have not revised their prices downwards. Cooking oil being the best example, although for this product there have been other issues at play like supply bottlenecks.

Government has been looking at this scene play out and have decided enough is enough. Mike Bimha, the Industry and Commerce Minister revealed what government is doing about the price increases.

The inter-ministerial taskforce

An inter-ministerial taskforce was established in October to interrogate reasons for shortage of basic commodities and price increases. It was created in response to the WhatsApp caused price increases of September. The taskforce confirmed that they believe the price increases were caused by the above-mentioned WhatsApp messages of doom.

The taskforce’s mandate is not just on price stabilisation and and supply of essential commodities. It was mandated to come up with measures to enhance the performance of exporting companies,  to boost access to and enhance currency trading on formal markets and other important matters that we hope are being taken seriously.

Government believes the messages were the work of those seeking to destabilise the country and saw them as an act of cyber terrorism. To the retailers and manufacturers Mr Bimha had this to say,

When companies operate, they operate on the basis of licensing and permits, which Government has a leeway to withdraw if a company is not behaving as required. However, we do not want to come up with measures that punish everybody and yet they are probably few, its better for us to be able to identify the culprits and deal with them.

So here the minister is threatening to revoke the licences of businesses believed to be increasing prices without proper justification. This is the government trying to control prices by fear, basically saying you better have the paperwork to support your price increases otherwise you will be out of business.

Back in 2008

Back in the hyperinflation period the government was faced with a similar but more severe problem: prices of basic goods steadily increasing. The government could not stand by and watch and back then they decided to instate price ceilings, which means they set maximum prices for certain goods and retailers and manufactures could not price higher than that.

That strategy was a canonical mistake. That made everything worse as retailers made huge losses and could not keep selling at the prices government had set. More empty shelves resulted.

The free market

The problem was that the government decided to interfere in the market rather than let market forces determine prices.

The quandary the government finds itself in is that interference in the free market rarely works out well but at the same time the free market is not perfect and can be easily manipulated.

As businesses are left to make their own decisions it is to be expected that should they see an opportunity to profiteer some will grab it with both hands. This will be seen in unjustified price increases if the opportunity presents itself for example. Zimbabweans

This problem is not one the government can ignore when it pertains to essential commodities. If you, the reader, were in that position of power would you sit by and let the market forces do their work as people starve owing to essential commodities being priced out of their reach. It is the government’s job to make sure NONE of its citizens starve.

So as we look at Mr Bimha’s warning to businesses we see two things. The first is that the government learned from 2008 that price ceilings do not work. The second is that the government noticed the fragility and failings of the free market currently and is desperately trying to contain the situation. They are still trying to control prices but are trying out a new strategy: fear of being knocked off the companies register to foster cooperation.

What do you think about all this? Do you think the threat of licence revocation will be enough to lead to price stability? Of course that assumes the price increases are unjustified in the first place but if the price increases are justified what do you think will be the effect of the new price control measure? Do let us know in the comments below.