The Solution is Less Laws, ‎Regulations

By Sami Zaptia

The General People's Committee (GPC) announced by virtue of law 208 of 2010 ‎approval of the draft internal regulations of the 'Price Stabilization Fund', the General ‎Union of Chambers of Commerce newspaper, Maal wa Aamaal (Finance and ‎Business) reported recently.‎

The aim of the newly created fund is to 'achieve stability in the price of basic ‎necessary products and services and assure their adequate supply at reasonable prices ‎in relation to the average purchasing power and helping achieve a better standard of ‎living for members of society'. The fund will operate by studying various lists of ‎products and services and 'weighing' their importance as items of necessity. The fund ‎would then be able to take action in seven key ways.‎

Firstly, the fund can intervene by building up strategic stores of important goods. ‎

Secondly, by seeking alternative goods to those in high demand and short supply, and ‎trying to supply them. ‎

Thirdly, the fund can intervene by means of financial intervention by paying the ‎difference between officially approved prices and real market prices. ‎

Fourthly, the fund is able to purchase products not already officially subsidized and ‎sell them at cost price in order to achieve price stability in the market. This can only ‎be done after approval from the GPC for IET. ‎

Fifthly, the fund can transfer goods from one area of Libya to another in order to try ‎to stabilize and unify high prices. ‎

Sixthly, the fund has the authority to coordinate and cooperate with production and ‎importing sectors and is able to make provisions in the form of various incentives ‎including financial, and the provision of help in solving problems and barriers to lack ‎of supply and price instability. ‎

Seventhly, and finally, the fund can make advance payments to producers to ‎encourage price stability as long as these advanced payments are balanced by year ‎end. ‎

The honourable principles and ideals behind the idea of this price stabilization fund ‎are great. They sound good and noble in theory. No one can be against stable ‎consistent affordable prices. But in reality, the complexity of real life, a sophisticated ‎world market economy, the negative side of human nature, as well as decades of ‎examples of this kind of policies - say otherwise. As usual the central and centralized ‎executive branch of government is looking at this from completely the wrong angle. ‎The solution is not even more laws, regulations and committees, but less laws and ‎regulations.‎

The best way to make products and services cheaper is to remove internal barriers to ‎doing business. By reducing bureaucracy and red tape internally in Libya such as ‎reducing the bureaucracy of setting up and doing business, processing goods via ‎customs, reducing centralization, monopoly, nepotism and corruption, will lead to the ‎more stable and consistent flow of goods and services.‎

The Libyan executive should be mindful from past doomed attempts to control or ‎suppress market prices. We live in an inter-dependent world economy. Libya is not ‎cut off the rest of the world economically. Its borders are not sealed from its ‎neighbours, as numerous examples exposed in the Libyan media of large quantities of ‎smuggled goods have proved.‎

Perversely, price controls can lead to price and market distortions. They can send out ‎wrong signals and discourage enterprise. They can institutionalize supply shortages as ‎the system or market start to depend on the fund to supply. The expectation that the ‎fund will supply in the future will reinforce the dependency culture and leave ‎permanent supply gaps in market.‎

The state has tried to enforce non market prices before and it has failed miserably and ‎it will fail again. Artificial price controls are fantastic - not for the average poor ‎citizen - but for smugglers and black marketers. Whenever products are subsidized we ‎get a thriving black market economy. We will go back to the good old days when ‎subsidized products were out of supply in Libya, but were available freely at ‎unsubsidized market prices in neighboring countries.‎

Equally, who is going to define which products or services are 'necessities' and what ‎level of price subsidies to be applied? The great European Union tried this with their ‎Common Agricultural Policy (CAP). As a result the EU ended up with 'mountains' of ‎unwanted overproduced agricultural products. The average EU citizen is now stuck ‎with subsidizing unwanted products. ‎

Moreover, these products cannot be released on the market because they will cause ‎market prices to collapse which would damage the EU farmer. So the EU continues to ‎pay huge costs for storage of unwanted products or ends up destroying products ‎subsidized by EU citizens.‎

The issue of which products or services to subsidize is a real one too. One person's ‎luxury is another person's need. For some a flat screen TV, a laptop, a mobile phone, ‎a car, an internet connection are necessities of life. But even on a more basic level, ‎which is more 'necessary' and therefore should have state subsidies: homes, medicine, ‎medical care, babies' milk or education?‎

Need and necessity are subjective concepts. The best solution history has shown is to ‎give people a reasonable earning power by allowing them to freely trade and letting ‎them choose freely with their own money. ‎

The citizen and consumer should decide where their money goes. If the executive ‎insists on paying subsidies, they should do it directly in the form of indirect cash to ‎citizens by increased wages and reduced taxes. ‎

The executive - the bureaucracy - should stop thinking for the people and they should ‎stop spending the people's money on their behalf. The best way to beat rising prices is ‎to increase supply so that supply is greater than demand. By increasing competition ‎and flooding the market - prices will naturally fall. ‎

It is much better trying to attack the causes of price increases and the causes of high ‎demand than imposing price controls or price subsidies. The executive should try to ‎identify and solve the causes of the problem of high prices, not remedy the symptoms ‎with price subsidies.‎

Tripoli Post – 22/7/2010