Need of the hour
The early version of Neoliberalism, ever since the rise of neoclassical economics, has continued in an augmented sense of Washington Consensus of the late twentieth century, through the policy prescription of multilateral institutions like International Monetary Fund (IMF) and World Bank, and by the role of the likes of ‘Chicago boys’. Policy makers trained in these values at premier universities where this brand of economics has been adopted as the mainstream, under such influences as Milton Freedman and Hayek are returning into important policy-making positions in the developing world.
If the history of frequent downturns in developing countries and the repeating financial crisis globally is any indication Neoliberal economics has not allowed reaching true price signals, primarily by emphasizing limited role of government from markets and in generating public welfare, and through out-of-context push towards economic liberalization. The resulting consequences of this policy has been felt all the more in developing countries, where lack of government intervention in markets has led to reaching sub-optimal prices, and poor social welfare programmes, not to mention the lowering role of electorate from policy and an adequate check of burgeoning private sector. Moreover, monetary policy alone has at best dented high inflation levels for a short period of time, and at the cost of declining economic growth rates and employment levels- leading to stagflation.
The inadequacy of this policy has been quite universal- where on one hand the better performing social democracies on the scale of welfare and strengthening of democracy have suffered, and the developed world overall has found lack of usefulness of monetary policy in curtailing deflationary pressures; notwithstanding when policy rates were reduced to near-zero levels.
Voices are rising there as well in turn to involve greater use of fiscal policy in controlling both deflationary and inflationary pressures. The high level of penetration of neoliberal mindset has meant that multilateral institutions like IMF and World Bank have continued to not allow their research focus, analyze enough the role of fiscal policy and political economic variables as a) potential sources of inflationary/deflationary pressures, depending upon the context of developing and developed countries, respectively, and b) determinants that could help support reaching correct price signals.
Given a developing country, the markets in Pakistan- financial and real- require formulation of a price commission that allows economic agents to obtain prices that are both socially responsible and a fairer reflection of the true value of effort/labour/productivity.
The overall result has been that John Williamson’s prescribed policies of Washington Consensus- adopted almost everywhere, in both developed and developing countries, with virtually everyone jumping on the free market band wagon up till receiving the knee-jerk realization from the financial crisis of 2008, from one end of the spectrum of Chile in Latin America to Pakistan in the east, and beyond- has demonstrated that correction of prices requires greater government oversight of markets, not less.
What is then, therefore required, especially with regards to correcting prices is to move beyond the role of monetary policy to greater government oversight and intervention, especially in the case of developing countries like Pakistan where market frameworks, information with economic agents and supporting institutional structures/arrangements are weak to start with. Back in the day, a little later after the end of Second World War, while working under the Keynesian philosophy of a greater role of government in economy, the great American political economist, John Kenneth Galbraith, was made in charge of a Price Commission in America, to work towards obtaining correct price signals from the markets.
Pakistan needs to do something similar. Given a developing country, the markets in Pakistan- financial and real- require formulation of a price commission that allows economic agents to obtain prices that are both socially responsible and a fairer reflection of the true value of effort/labour/productivity. Here, it needs to be pointed that it is not being suggested that the markets will be stopped from following the determination of prices through the underlying principle of demand and supply, but to ensure that the involvement of collusive practices of cartels, and political and economic elites is stopped. This will ensure the profits and the prices are not favouring one group of people and not abnormally above the true equilibrium levels.
It also needs to be pointed out that while the PM is right in emphasizing that businesses should be allowed to make profits, he needs to understand that the wrong kind of artificially exacerbated profits and lopsided incomes earned have led to withering of the middle class, widening of the income inequality gap, and the increase in poverty levels. Such economic misery has also meant numerous negative domestic resource mobilization consequences for the state, and has led to a tiny elite group with money, to hold unjustified weight in elections and influence over policy.
Reversal of all of this needs greater government intervention in markets, so that artificially hiked prices, and profits and incomes/wages earned to the benefit of few, could be re-directed into a) reaching true price signals, and b) providing subsidies to safeguard the vulnerable and enhance economic activity- also making them more competitive in turn- especially in the agricultural and export sectors.
A price commission is, therefore, the need of the hour. Its scope should be to check the price-setting mechanisms and the role of people in both the private and public sectors. It should be involve in markets ranging from financial sector- for example, profits of banks at the back of spreads earned and interest rates charged, and rationalizing the incomes being earned in line with the effort made in the banks. Other measures could include rationalizing the extent of profits and dividends being earned in the stock exchange market by the big and small investors. Rationalising profits in the commodities sector, pricing of agricultural and industrial produce, pricing of land in the real estate market, rationalizing the profit of the middle-man, to wage structures of the labour market needs to be done as well. The price commission should also ensure that the related data of markets, collected by Pakistan Bureau of Statistics, is both correct and timely.