Warranted governemental Interference in Free market
I have written this article in support of the ruling party’s action against businessmen who hiked the price of salt by 900% overnight. Its action has prompted some questions.. When should the government’s action warrant interference in the free market? Who protects consumers when businessmen nilly-willy fix prices? Do businessmen have the right to fix prices in free market? and what is a free market?
A free market is, “a market in which prices of goods and services are arranged completely by the mutual consent of sellers and buyers. By definition, in a free market environment buyers and sellers do not coerce or mislead each other nor are they coerced by a third party”[1]
In a free market a seller sets a price of a product without
any interference from peers, government, or any other third party. The
objective of a free market is to promote competition whereby consumers benefit
from competitive prices which would result in improving customer services,
increasing market efficiency, allowing the entrance of new entrepreneurs into
the market, and others. In a perfect free-market economy, “all
capital, goods, services, and money flow transfers are unregulated by the
government except to stop collusion that may take place among market
participants.” The question then is, if Ethiopia is exercising free economy,
why is the government interfering? Does a free economy allow merchants to hold
meetings and fix the price of a product? Is that a free economy or sabotage?
Does the government have the right to protect its citizens and stop unfair
trading practices? The Sherman Antitrust Act of the USA defines that people who
conspire to fix prices or attempt to monopolize trades are held criminally
responsible[2]. Even in the
USA, the icon of the free trade, the integrity of the free trade is protected
by law. The decisive and prompt actions taken by the Ethiopian government are
encouraging. Its action in the unfair salt trading warrant interference.
Can you imagine
if the government has not taken any actions against those greedy salt
merchants, how the prices of other commodities would have skyrocketed? I would
say, it has averted an unnecessary inflation and an outcry by the people who
are barely surviving the already unbearably market.
As the PM Meles has eloquently and understandably
explained it, the price hikes in Ethiopia is not only as a result of the
Ethiopian booming economy but also factors beyond the control of the Ethiopian
government such as the devaluation of US dollars, increased infrastructure
related constructions through out the world, increased food consumptions in
China and India, the 400% increase on price of oil, and others. For the sake of
fairness, let’s stop blaming the government for price hikes. On the other hand,
we should encourage our government to continue prosecuting businesses and
individuals who artificially raises the price of goods and services. Moreover,
greedy businessmen can breed corrupted government officials; therefore, the
government must be wary of its officials who may otherwise be bribed by crooked
businessmen to circumvent a fair trade practices.
Free economy is
free to every one provided that no one monopolizes necessity goods and
services. Merchants must be free of
setting their prices without involving in price fixing. Consumers must have the
right to deal with any sellers based on price, quality, customer service, location,
and other factors.
In a free economy,
there should be three major players: buyers, sellers, and the government,
particularly, in developing countries. The buyers and sellers are free to
exchange goods and services for the price that is acceptable to both. The
government is a watch dog to ensure transactions are fairly traded. In the
Western world, most transactions are known to the government, even the ones
that are traded on-line. Therefore, the government of Ethiopia should not be
different from the Western world.
In developing free economy, the genuine participation of buyers, sellers, and the government are crucial. Buyers must avoid unfair trading. Sellers must be given several choices. The government must stay away from unnecessarily interfering in free trade unless otherwise unfair trade practices are exercised by the buyer and/or seller. Having said that I believe the recent measures taken against salt traders are necessary and timely. It is unfair to increase the price of salt by 10 folds overnight, especially, in a country that is endowed with infinite supply of salt.
Haile B
03/21/08.