‘For every complex problem, there is an answer that is clear, simple, and wrong.’ –H. L. Mencken
The answer the International Monetary Fund’s (IMF’s) Extended Fund Facility (EFF), and the government found to not take on procurement of essential crops, so as to take the government out of the business of supporting farmers, so that prices reached are more efficient, and greater competition allows for enhanced productivity gains. Hence, a supposedly simple solution is the wrong one, not because it is not always possible to have a straightforward solution to a complex problem, which is reaching better price recovery in agricultural markets; in this particular case, the problem of complexity is not being recognized.
The problem is very inefficient functioning of markets, on the back of poor market creation by the government over the years, which means that the market does not appropriately reflect demand and supply signals in the prices that are reached. Instead, ‘collusive behaviour’ of the buyers in the wholesale market, which also internalizes in general a handsome profit for the ‘middlemen’ or ‘arthis’ that buy produce from the farmers, exploiting them by reducing their profit to as little as possible, given their bargaining power that is derived from the situation on ground in general, and which is that most of which do not have the financial means or the availability of needed extent of transport to take their produce themselves.
Rather than addressing these issues that leave the market highly dysfunctional, and where the actual producer, and then the end-consumer get highly sub-optimal prices– where the latter gets much higher prices because its price includes the wrong profits of exploitative ‘middle men’, and collusive sellers in wholesale market, not to mention poor price recovery at the level of retail market as well at the back of weak regulation of government– a straightforward answer is preferred ignorance by government of these issues afflicting the pricing mechanism, and to leave the farmer, and end-consumer to the exploitation of these actors, and all of this done in an at-best naïve thinking that markets left on their own will find a way to efficient pricing!
This is the result of one-dress-fits-all kind of thinking, where the dress is Neoliberalism, and the idea of a market is being used for is some utopian thinking of a well-functioning market, under a strong economic institutional, and regulatory environment. Having said that, even in most developed countries, the misgivings of the last four decades of neoliberal assault, have seen increased income inequality at the back of lack of capacity of both real-, and financial markets to deliver appropriately good levels of price recovery.
This is done under an environment of good market creation, one that sees an active role of government, especially in terms of putting in place strong governance, and incentive structures; where negative incentive structures include regulation, taxes, and price controls for instance, and positive ones include subsidies, and if not a support price then provision of indicative prices, especially for goods and services that are strategically important like major crops for food security, and important relevance for exports.
Therefore, unfortunately, this short-lived macroeconomic stability does not allow reaching sustainability in terms of both stabilization, and economic growth, because what is needed is an appropriately strong presence of government in shaping economic institutional quality, and through it providing a conducive environment for well-functioning organizations, and markets.
For instance, China introduced ‘dual-track’ pricing mechanism, where commodities that were strategically important for domestic consumers, intermediaries for strategically important industry, and for main exports, and which were also in scarce quantity at the same time, had their prices fixed through the application of ‘price controls’, and provision of even a subsidy if needed be. At the same time, commodities, which were in excess supply, and also less important, were left to greater control of markets, which is not to say that even those markets were not well regulated, so that improved level of price recovery can be achieved.
Another simple solution to an otherwise complex problem of reaching a sustained level of macroeconomic stabilization is adopting an over-board austerity policy, to curtail aggregate demand primarily, as a bread-and-butter policy prescription of the neoliberal-minded multilateral institutions like IMF, and rampant ‘Chicago boys’ styled domestic policy makers, while what is needed is a policy approach that at least equally focuses on aggregate supply to reduce inflation on much stronger footings.
Moreover, once inflation comes down at the back of high economic growth, and employment sacrifice– and here too through lopsided tax exemptions, and untargeted subsidy provision in favour of vested interest, moneyed groups that reap the benefits of undue ‘public policy favour’ as a consequence of supporting political parties in their election campaigns, for instance– the solution suggested while simply austerity policy, the result, as seen through years of experience of neoliberal policy– in IMF programmes, or otherwise– is only short-lived macroeconomic stability, since what is required is strong balanced aggregate demand, and supply-side, counter-cyclical, non-neoliberal policy.
Therefore, unfortunately, this short-lived macroeconomic stability does not allow reaching sustainability in terms of both stabilization, and economic growth, because what is needed is an appropriately strong presence of government in shaping economic institutional quality, and through it providing a conducive environment for well-functioning organizations, and markets. Sadly, the proposed Federal Budget, under the guidance of the ongoing EFF programme adopts simple solutions to otherwise complex problems, which may not have been a problem because at least sometimes the most complex problems have simple solutions, but given these simple solutions are neoliberal, and over-board austerity policies, which have deep misgivings, present in both Pakistan’s own economic history, and also globally in general, they will most likely continue to only increase economic misery – almost 45 percent of the population is below the poverty, as per recent World Bank estimates – without allowing the country to reach sustained macroeconomic stability, and economic growth.
