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2 months ago

It is time to exercise consumer power

A vendor shows chicken on sale at a mega marketplace in Dhaka. —Xinhua Photo
A vendor shows chicken on sale at a mega marketplace in Dhaka. —Xinhua Photo

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In market economy consumer is sovereign, according to text book of Economics 101. Consumers convey their needs through their purchasing power transforming them in to ‘effective demand’. Market is to respond and comply with this particular demand. The fact that a significant number of people do not have adequate purchasing power to articulate this demand is a different matter which is expected to be resolved through fiscal policy of income support.

Meeting effective demand of consumers through market falls within the domain of microeconomic policy. Microeconomics deals with effective demand, supplies in terms of quantity that respond to it and prices that mediate between effective demand and supplies in market. Effective demand triggers the functioning of the market, galvanising producers to ensure supplies. Prices of consumer goods effect a balance between demand and supply in the market in the short-term and act as signals for producers and suppliers of goods. If supplies are inadequate to meet demand this balance is struck in the short-term by increase in prices of goods. Over medium term the imbalance between demand and supply is redressed through increase in production and supplies in market, bringing down prices.

Price of a good covers cost of production, expenses for supply (wholesale and retail distribution) and profits for producers and suppliers ( distributors).’Scarcity price’ resulting from mismatch of demand and supply is supposed to be replaced by ‘normal price’ that allows for near about 10 per cent of money invested by producers and distributors. Some producers or distributors may try to maximise profits in excess of the normal range (10 per cent), creating artificial shortage in the supply of particular goods through scarcity price. This is exceptional because it involves the distortion of the normal functioning of the market that ensures price of a good returning to ‘normal’ from the level of  scarcity  through adjustment of imbalance between demand and supply in the medium term. Prices at exceptional level that result from manipulated scarcity of supplies are not amenable to downward adjustments because of  emergence of oligopoly or cartel  in the market  for supply  of goods. When market mechanism of price of a good giving signal for its production and supply is subverted by profiteering oligopolists, microeconomics forces can be bolstered by policy makers through removal of impediments to competition or market intervention of government in the form of price control and import of the good in short supply.

In Bangladesh free market economy has been promoted after the political change in 1975 which has continued through successive regimes. Like many other developing countries, market for goods in Bangladesh is not fully competitive because of many imperfections including lack of information and political patronage. The latter gives rise to oligopoly or cartel which has been termed as ‘syndicate’ in popular parlance. This is not a problem of microeconomics though it plays out in market for goods. This is a problem of governance where market distortion takes place through omission or commission of policies. In regimes of political patronage, even seemingly countervailing measures like import of goods in short supply may be meant for benefit of a favoured lobby. It is telling that the countries apex trade body, the FBCCI, has openly called for making the supply chains system free from the influence of ‘invisible hands’ in order to stabilise the market. The trade body made this recommendation at a meeting of its standing committee on price monitoring. The meeting highlighted that price monitoring committee of FBCCI would meet various kitchen committees in Dhaka soon. (The Financial Express, March 25). That the apex trade body in the country is aware of the mischief done by ‘invisible hands’ speak volume about the state of the market. The exhortation of purging the market of errant elements comes from the horse’s mouth.

In recent years’ sharp increases in prices of essential commodities have hit the middle and low income groups hard. The government has sought to address this through: (a) import of goods in short supply; (b) fixing prices in retail markets; and (c) open market sale by TCB. Since creating artificial scarcity by syndicates has become chronic the most effective means of meeting the consumers’ effective demand is to make public distribution of essential goods, particularly food items, available through public rationing. The current TCB operation is sporadic and limited to metropolitan areas like Dhaka. The card holders entitled to distribution of food items through TCB outlet do not cover all those who are in need. This has to become universal throughout the country based on low and middle  income  groups identified through a survey.

Government of Bangladesh has been consistently giving fiscal support through subsidy in food sector despite pressure  from the International Monetary Fund (IMF) to tamp down the volume and level of subsidy. During the current fiscal year, subsidy in this sector amounts to Taka 6.7 billion as against Taka 5.9 billion in the previous year. It is anticipated that the amount may be around Taka 7 billion in the budget for the next fiscal. As regards efforts to tame skyrocketing prices of food items through price control by government agencies, experiences in the recent past do not provide much of a basis for optimism. In September last, the government fixed the prices of onion, potato and eggs but prices of these rose stubbornly on their own momentum. Attempt at fixing and enforcing controlled prices of soybean and sugar earlier in last fiscal met with the same fate. In spite of this lacklustre outcome of price control, the Directorate of Agricultural Marketing fixed prices of 29 food items before the start of the current Ramadan. Apart from some half-hearted drives by mobile courts led by magistrates to check price gouging and slapping fine for violations, nothing much has happened to make a dent on the market during Ramadan.

Alongside government intervention of public distribution and price control, consumers have to assert themselves to counter the machination of the rent-seeking syndicates. The most potent weapon that they can use in this respect is boycott of goods for some time. Apart from salt, rice, edible oil etc items like potato, onion, pulses, eggs etc can be boycotted for sometime by consumers without discomfort which will confront the syndicate-suppliers   with situations of unsold items rotting away in storages. They will be brought down to their knees in no time in the face of imminent loss through waste of piled up goods. For this to happen, the consumers have to be organised and motivated to make temporary sacrifice. Organising consumers with this end in view has become easier now with social media at the service. Virtual meetings can be held online and decisions about actions to be taken by consumers of concerned items in the form of boycott can be announced in various platforms. For this kind of activism any consumer can take the initiative without going through the rigmarole of forming organisations and electing office bearers. In the golden era of consumer activism in twentieth century, leaders like Ralph Nader in America had to visit industrial plants, hold meetings with workers and convene press conference to announce actions to be taken by consumers. Nowadays this time consuming procedure can be dispensed with, thanks to internet connectivity of social media. The government sponsored Directorate of Consumer Protection has not been dynamic enough to avail of this new technology to reach out to consumers effectively. It is time for a grassroots movement to articulate and exert consumer power. If this initiative complements government efforts through various ministries/departments and their programmes, a robust start can be made to take back control of   market captured by profiteers and rent seekers.

Consumer activism, like government intervention of price control and subsidised food distribution, distorts the functioning of free market. Therefore, these actions should be seen as remedial measures and not as substitute of market. These can be fine tuned with the working of market mechanism to determine their scope and extent at any particular period. But since market has a built-in bias to respond more readily and fully to the demands of those who have enough and to spare, there will always be some need for the   above interventions. These interventions can be said to be the ‘visible hands’ to counter the forces represented by what FBCCI has called the ‘invisible hand’.

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