Third Eye on the Third World

Date :March 26, 2008

Author: John Mangun

BUSINESS MIRROR

“Outside The Box”

Title: “Rice and the Free Market”

It was with relief that I noticed there is not a shortage of mangos, onions, tilapia, pork, or chicken and many other commodities including tissue paper, pencils, and soap.

Should I point out that these aforementioned items are not subject to an undue amount of government control in terms of production and pricing?

What do you call a person who does the same thing over and over and over again without any success? A) an idiot, B) an economically ‘liberal’ politician or C) all of the above?

Pork prices have recently exploded. From approximately P135 a kilo where I shop, pigue is now selling at P173, an almost overnight increase of more than 30%.

Well, there is obviously only one solution: price controls, right? Or maybe use government funds to subsidize the price back to P132. Both of those ‘solutions’ are being offered by certain politicians regarding the price of gasoline, so why not pork also.

Except, government interference in the free market will only lead to both shortages and higher prices. Unfortunately, the policy experts have not figured that fact out even with a 4,000-year track record of failure.

Required reading for all elected officials should be “Forty Centuries of Wage and Price Controls” by Schuettinger and Butler, first published in 1979. It is a fascinating study for the fact that it seems some of the same people who were running ancient governments are Philippine legislators in 2008.

From “Four Thousand Years of Price Control” by Thomas J. DiLorenzo of Mises University and Loyola College in Maryland; “In 284 A.D. the Roman emperor Diocletian fixed the maximum prices at which beef, grain, eggs, clothing and other articles could be sold, and prescribed the penalty of death for anyone who disposed of his wares at a higher figure. The results were that the people brought no provisions to markets, since they could not get a reasonable price for them and this increased the dearth so much, that at last after many had died by it, the law itself was set aside.”

I have never understood why government people mistrust if not hate the free market system. With all of its faults, it works. They refuse to accept the fact that price controls always, always, cause shortages. And the free market always provides supply and fair pricing.

Rice prices should probably go up to grow the agricultural sector and rice production. When inter-island shipping was deregulated, transportation prices initially went up. But the industry became more competitive and profitable giving consumers better service and in the end, better pricing.

Farmers would make more money enabling them to modernize and increase production. Everyone might want to, not plant camote, but plant rice. Then, guess what? Supply would increase and prices would go down.

Oh, you say, but then prices will go up without some sort of government control. Yes, and then they go down, equalizing out because of the law of supply and demand.

The National Food Authority controls only five percent of the total rice supply. Yet it costs some 10 billion pesos a year to accomplish very little. The biggest problem facing our rice producing industry is credit facilities for farmers who now suffer at the hands of “five/six” lending practices. The government should fill the gap by using that P10 billion to provide reasonable credit access to enhance the free market system.

But what about all the poor people if prices rise? In every case with our ASEAN neighbors, government control hampers both production and the farmer’s income. And our usually ignored rural poor are these agricultural workers. Thailand is the largest rice exporting country primarily because of its credit support. But farmers that fall under government price ‘protection’ are less well off than those that sell and compete in the free market.

If price support and subsidizes are so wonderful particularly for the poor, why after 35 years of NFA existence are our farmers some of the poorest on the planet and our rice production is one of the worst on a per hectare basis?

A great part of the world’s foodstuff price and supply problem is improper government intervention as in the case of corn-based ethanol production in the US. Land that formally produced wheat now produces corn because of government mandates and subsidies.

Paranaque Congressman Roilo Golez is showing courage and wisdom in my opinion, by asking for a moratorium on the development of biofuels that would compete with food production.

Of course, according to the politicians, the current rice price/supply problem is ‘very complex’ (for them) and is because of climate change, population, and conversion of agricultural lands to name but a few factors.

No way it could possibly be because of decades of government interference here and abroad in the free market? Every government policy to keep prices artificially low fails and worse, is counterproductive to production and economic growth.

But just keep trying, policymakers. Maybe you need only another 4,000 years to prove the free market wrong.

Email comments to mangun@email.com.