WASHINGTON DIARY: Behind the scenes (sugar crisis)
by Dr Manzur Ejaz, USA
Courtesy: Wichaar.com, September 23rd, 2009
In Pakistan, the same people or families produce goods, make laws about the production of those goods and then implement them. Therefore, the system is not structured for a free market economy
Bulleh Shah famously said:
Kitay Ramdas kitay Fateh Mohammad, eho qadeemi shor
Nipat gia dohan da jhag’ra, wichon nikal pia koi hor
(At one place, his name is Ramdas, and at another, Fateh Mohammad. This is the ongoing dispute since antiquity. When their dispute was dealt with, something else emerged.)
Following Bulleh Shah’s wisdom, every Pakistani thought that once terrorism was dealt with and the jihadis and Taliban suppressed, Pakistan would again become a paradise. But now that the terrorists are being pushed back, Pakistanis are discovering that their problems lie elsewhere too. Newspapers are reporting every day cases of land-grabbing by the rich and powerful and corruption cases being dropped by the accountability authorities, among other things.
Bulleh Shah’s verses haunted me while thinking about the crisis related to sugar shortages. The prices of sugar skyrocketed overnight and the government did not take any notice. When Lahore High Court took suo moto notice and fixed the price at Rs 40 per kilo, sugar producers refused to accept the court verdict. They challenged the LHC’s decision in the Supreme Court of Pakistan and when the highest court refused to reverse the decision, federal and provincial governments came out to protect the sugar producers. The government’s behaviour has exposed the ruling elites, who are not only running the government, but sugar mills too.
The question about courts’ jurisdiction is highly debatable. Similar questions were raised when the Lahore High Court was asked about its authority to fix commodity prices, and which institution was responsible for it. If I was asked this question by the court, I would have said that in free capitalism, being practiced in Pakistan, the market under the rules of supply and demand, determines prices. The honourable judge would then ask me why there are shortages, in a market-led system, when sugar is plentiful; how can a few players hoard and manipulate the market?
The answers are complicated.
In a free market, hoarding becomes impossible because of multiple reasons. First, producers cannot form cartels and collude to fix prices because of anti-trust and anti-monopoly laws. Second, if a few producers start hoarding, other suppliers jump in to grab market share forever. Third, by the time the producers take their goods to the market, they will have paid every factor (raw materials, supplies, labour, middlemen etc) and borrowed capital from the banking sector. They would be under pressure to pay back the banks and therefore would be keen to sell their products as soon as possible.
In Pakistan, hoarding is easy because producers can delay payments to suppliers, labourers and distributers. In addition to the piles of money they already have, they can get millions from banks and then have it written off. Therefore, producers in Pakistan have immense power to hold back supplies and manipulate the market.
There are no effective institutions against collusion and price-fixing. In short, Pakistan lacks the legal framework that is necessary for the smooth functioning of the free market system. Even the United States ran into problems in the last two decades because the Republicans killed or watered down the regulation regime necessary to guard against market manipulators. Nonetheless, the markets corrected themselves in the US by crashes in the real estate, commodity and financial markets. Such corrections are not possible in Pakistan.
In Pakistan, apart from capitalism and socialism, all kinds of ‘isms’ exist. The same people or families produce goods, make laws about the production of those goods and then implement them. Therefore, the system is not structured for a free market economy. The exploitative classes have started playing their games again and very openly. In addition, sections of the ruling classes that were out of favour with the Musharraf regime or were suffering during that period are trying to make up for their losses, and have jumped head-first into the markets to plunder. It is not clear how the courts will deal with this army of dragons.
I have stated several times in this space that the Taliban have provided the perfect shield for the exploitative classes of Pakistan by hogging attention: no one was looking at what the rich were up to during the time when religious extremism was on the rise.
Now that Ramdas and Fateh Mohammad’s dispute is settled, something else has started to emerge.
The writer can be reached at email@example.com