ECONOMYNEXT – Sri Lanka’s Consumer Price Authority has ended the black markets and shortages it created by imposing price controls from March 18, making the goods disappear from shop shelves and causing hardships to people already battered by curfews.
“ACTING under the powers vested in it by Section 20(5) of the Consumer Affairs Authority Act, No. 09 of 2003, the Consumer Affairs Authority do hereby remove “Mysore Dhal” and “Canned Fish” from Order No. 61..” the CAA said.
Canned fish disappeared from shop shelves as the price controls were slapped in a textbook economics taught to first year students.
When price controls are set, the quantity demanded goes up and there is a shortage as the controlled price is below the market clearing price.
The supply cannot go up as the cost of production (pr import) may be below the controlled price. As a result the products disappears off the shelves and the trade at a market clearing price in the black
The CAA set the price for tinned fish at 100 rupees and dhall at 65 rupees, making both disappear from shop shelves. They were however available under ration from LakSathosa.
In the 1970s controlled era, many rationed goods under price control were available from Co-operative shops under ration. The rest went to the blackmarket. In the 1970s co-operative managers were rich.
Authorities then arrested the black marketeers that they themselves created with the price controls.
Price controls, black markets and rationing are result of economic illiteracy of the part of authorities, not only in Sri Lanka but in any planned economy.
Top economist W A Wijewardene writing in Sri Lanka’s Daily FT newspaper on April 27, explained how price controls led to rationing in the 1970s. Prices usually go up due to money printing which creates inflation and foreign exchange shortages.
“To prevent prices from going up, price controls were introduced,” he explained. “Since price controls gave rise to black markets, a compulsory rationing system was introduced to distribute the essential goods among the needy people.
But Sri Lanka has apparently learned nothing in the last 40 years.
On March 19 after price controls were slammed Information Minsier Bandula Gunewardene said there were complaints that tinned fish was not available at the controlled price even at the wholesale market in Pettah and he approved rationing.
“When the price was set, a person who usually buys 100 cases of tinned fish now comes today with a truck and asks 2,000 cases of tinned fish,” Minister Gunewardene said.
“This is because after buying the tinned fish at 55 rupees, they would hide it under the bed, and later sell it at 125 rupees and buy a small car.
“Then the CAA tells (the wholesaler) that you have to give all the tinned fish asked for, under the CAA law because it is illegal to have stocks and not sell them.”
“But at this time it is not illegal not to sell all they ask for.
“So I told them to give the same amount that they issued the buyer last month.”
In the Coroanvirus crisis, the CAA also arrested sellers who had tried to supply market at higher prices, television reports showed.
Classical economists have pointed out that no bureaucrat who mis-uses the coercive power of the state to control business in a planned economy are ever ashamed of their actions.
“It is further true that bureaucracy is imbued with an implacable hatred of private business and free enterprise,” wrote economist and philosopher Ludwig von Mises half a century ago.
“But the supporters of the system consider precisely this the most laudable feature of their attitude.
“Far from being ashamed of their anti-business policies, they are proud of them. They aim at full control of business by the government and see in every businessman who wants to evade this control a public enemy.”
If price controls persist for a long time, suppliers and producers would shift to other businesses and no new entreprenuers would enter the business, which may lead to a shrinking of a sector.
Minimum prices on the other hand may lead to over supply and rotting of stocks in government warehouses wasting land, people are resources that would have been better used at a market clearing price.