Sri Lanka small restauranteurs defy price controls

ECONOMYNEX – Sri Lanka’s small restaurateurs have defied 1970s style price controls slapped by the current administration making nonsense of its claims to operate a ‘competitive social market economy’.

Sri Lanka’s Daily Mirror newspaper said Asela Sampath, who claimed to be national organizer of an industry body styled Canteen Owners Association had raised the price of hoppers by 5 rupees, defying a controlled price of 10 rupees.

Before price controls different prices ranging from 11, 12, 14 or 15 was found in the market depending on quality, the location and general ambience of the take away outlet (air condition and exhaust fans which consume power), salaries of workers and most importantly the sales volume.

Price controls automatically generate black markets as sellers meet the demand at a market clearing price outside the controlled price.

The price control can also create shortages, not just because some goods go off the ‘legal shelf’ but some law abiding producers may also decide not to produce the price-controlled good and move to another good, or produce lower quality goods.

Sampath said the price controls had created a ‘black market’.

He said members of the association would increase the price of plain tea by 5.00 rupees, with milk tea increased from 35 to 40 rupees. A rice and curry lunch packet has been increased by 10 rupees.
 

Sri Lanka started printing money to finance higher salaries of state workers in a move strongly backed by the Janatha Vimukthi Peramuna. The rupee has plunged from 131 to 143 rupees over 2015, pushing up prices despite a general global fall in commodities.

Sri Lanka abandoned price controls ending shortages, black markets and low quality goods as part of market reforms after 1970s.

Price controls resumed under then Consumer Affairs Minister Bandula Gunewardene, during a 2007 – 2008 bubble fired by central bank money printing during the Rajapaksa administration, when inflation soared to 29 percent and nation-wide price index was discontinued.  Ironically he was a former economics teacher.

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The actions in the period gave moral and legal backing for the Consumer Affairs Authority set on a destructive path, disrupting markets, generating shortages, reducing the quality of goods, spreading economic illiteracy in the country, harming peoples freedoms and competition.

The CAA price controls also undermined society by making criminals out of law abiding people and make them disrespect law in general by imposing controls that are practically impossible to follow.

Canteen Owners Association’s Sampath said they were raising prices and challenged the Finance Minister to find a place where price controls were followed and said the association would be dissolved.

Price controls on the other hand imposes arbitrary pricing, and may also have the effect of pushing up prices in some areas where completion had forced higher productivity.

The action of the association itself is bordering on collusive pricing behaviour and shows another negative fallout of the results of the CAA action.

Sampath himself said prices of canteen items cannot be set as one price because costs were different in different areas.

Economists had warned that the current administration was on an ill-thought out slippery slope of price controls.

In another irony, the current administration claims to build a competitive social market economy (Soziale Marktwirtschaft) which originated with the ending of price controls of the currency depreciating Nazi era and set Germany on the path of a post-war economic miracle.

Economics analysts had warned that the price controls and also the money printing and ‘competitive exchange rates’ cheap labour strategy runs counter to the original sound money based social market economy based with a very strong Deutsche Market which ended inflation in Germany and boosted industrial exports while the British industry collapsed amid rationing and labour unrest amid currency trouble coming from socialism. (Colombo/Nov27/2015)
 

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