Stances on price abuse

Of course it was inevitable that the Malta Chamber of Commerce, Enterprise and etc. etc. would react the way it did (October 10) to the editorial of The Times (October 6) on Market Imperfections and Price Abuse. Their vested interest is well known, and can be summed up in one simple, totally wrong, belief and position: that any forms of price controls, including price monitoring, are to them unacceptable. For them the market is god, and simply should not be touched by anyone in authority in any manner whatsoever in its operating.

Market imperfections are not something that exists only in Malta. The detailed study of market situations can be one of the most difficult areas in the study of macroeconomics, as many students will vouch. It is against this background that I, and possibly other teachers of the subject, will be using the Times's editorial as a class testing tool, along the lines of, say, some assignment or exam question: "Critically analyse this recent newspaper editorial".

Let's consider some parts of it. It is well known that central bank governors (everywhere, just look at Jean-Claude Trichet for example) use the art of euphemism to a highly sophisticated level. If the CBM governor attributes higher prices collectively to "market imperfections", that could be a polite way of simply telling government "Hey chums, these prices are also attributable to people who have developed the concept of pricing at what the market will bear (and much can be said about that term "ability to bear") to an obscene level." (As an aside, one wonders whether the net annual after-tax profits of such people do show the same types of drops of net-after-tax take-homes of employed workers).

The CBM governor could be politely telling the authorities what many of us have been saying for ages, namely that a small market (i.e. one where on the two sides of the trading process critical mass - numbers - are small) such as ours is, is not one which allows what The Times describes (but does not define) as "the dynamics of competition". It is only now that the more attentive of what really happens in the Maltese market and society have been saying, "In a market like ours prices cannot be simply left to the theoretical interplay of supply and demand, or what is often glibly called 'price competition'."

In another part of the editorial much is made of the fact that "no political party is promoting the reintroduction of price controls enforced through some government agency". But doesn't this type of reasoning seem to suggest that price levels are of concern, and something to be decided upon, solely on the basis of what the political parties' stance on the subject is? This is not to say that the parties' views are unimportant, but shouldn't the views on forms of "controls" (yes) as held by others, or other social groupings (e.g. the trade unions, the religious organisations, the philanthropic bodies, nay even uncommitted economists) be given as much weight as those of the politicians?

The Times, and probably also the Chamber, also openly and mantra-like keep repeating that "importation by the government is not a feasible option". Now the background to that type of statement is of course the bitter experiences of the Mintoff era bulk-buying schemes. But how dogmatic can one be that government direct involvement in importation can only be done under that formerly disastrous methodology? The worst stance that anyone can take when analysing market situations is that of dogmatism, including that of remaining rigidly based and thinking only in terms of past circumstances or situations, which of course time more than changes. Just to posit a small example for consideration: aren't public-private partnerships successfully being operated in various areas of our nation's economic life already?

I am a strong believer in communication, detailed, factual, consistent and insistent. And so The Times is right in saying that an efficient and effective consumer protection agency to advise people on who are the suppliers with the best terms should exist, and that such an agency should have power to name and shame abusers.

Of course the Chamber would write that it finds this notion "objectionable" (after all, its role is to defend the commercial class), but the Chamber then fails to give examples of how such a seriously run body can be "open to abuse". If what it is thinking along the lines of has anything to do with what it later complains about (that "bona fide businesses continue to face illicit competition from traders that did not comply with fiscal, environmental, and other regulations"), then shouldn't the Chamber also be turning itself into a more effective body, i.e. one which both names and shames such law-breaking competitors, as well as regularly telling the policing authorities who they are? So, see, the Chamber finds naming and shaming "objectionable" and, to it, also "unacceptable" any proposal related to price monitoring agencies. But at the same time it shirks from doing something tangible and visible against what it describes as "illicit competition". How's that for covertly declaring "No change whatever please, Mr Government"?

Market imperfections can take many forms and many examples in different economies. In Malta it isn't the high prices for food, medicines and many services that are the only examples. We also have the classic imperfection example of a non-clearing market in the property market.

I submit both that the obscenely generally high prices that are demanded in that market, and even now when prices for the most deplorable-standard properties have fallen, are an example of market imperfection that cries out to the heavens for official intervention, and also that the high general price levels in that market are at the source of much of our domestically sourced inflation.

For many to simply keep on saying "the market is god", or refer to "the hidden hand", or "supply and demand, man", or that latest buzzword "self-regulation", as so many glibly persist in doing, without also asking for fundamental change in current policy stances, is simply to demonstrate that correct understanding of this delicate macroeconomic subject is still miles away.