March 25, 2022
The Majlis Research Center says the government’s policy of many decades of setting prices for a multitude of goods has been a disaster for the economy.
A review of rules allowing administrative bodies to intervene, directly or otherwise, in pricing formulas shows the government’s extensive role and oversized presence when it comes to dictating prices over the past three decades, the parliamentary thank tank said.
The mandatory “pricing system per se has become an ultimate goal for the government rather than being an instrument of supportive measures,” the center said in the report published on its website.
It said the policy has resulted in hoarding, the closure of factories and the refusal of many suppliers to sell their products at the state-set prices.
“This did not help in regulating the market and taming inflation and in many cases fueled inflation,” the report said.
The Majlis think tank said policymakers intervene to set prices for a variety of reasons. One is their short-term approach and lack of vision about the long-term consequences of their decisions on prices and manufactures. Another is their disregard for the cause-and-effect relationship between economic and political factors and the impact on prices.
Policymakers are often guided by the wrong perception that controlling prices is the only way to support poor consumers, the center said.
“In most cases, interventions have not been successful and disrupt the economic system, encouraging suppliers to hoard goods, resulting in higher prices.”
The center took stock of the outcome of government price interventions in many industries, saying that in some cases monopoly was a conspicuous outcome. For example, the policy dictating auto prices has given rise to ingrained inefficiency and a duopoly of the two main carmakers.
Steel, cement, dairy, electricity, fuel, medicine and cars are among key items that have fallen victim to stringent government pricing rules.
Such rules are incompatible with competitiveness and the free market mechanism, where demand and supply should determine prices.