Sugar crisis: a dent in the concept 
of market economy

By Dr. Noor Fatima

Everyone is a little puzzled. The sugar crisis has left everyone wondering about the government’s ability to handle serious situations. The power of the vested interests made a mockery of the market economy. The selfish pursuit of individual gains is what makes democracy a travesty of our times. In the last decade, the worship of the free market has led to confusion about the deepest purposes of an economic system. The present ‘sweet stuff’ crises in Pakistan are a reminder that nothing is impossible in the process of free market economy. Is the “real world" of the economy different than the “models” based on the hypothesis and their simplifying assumption? It very much seems so.

Though, it has now become chic to put blame for the current financial or commodity crisis on past economic performances irrelevant of the time factor. This analysis happens to be largely correct and also questions a bit of intellectual honesty from free-market proponents. One tends to agree that a free and open competitive market is a good thing, because it offers protection to all participants in that market. But there are two preconditions that must be met to:  one is that all the participants have complete knowledge of the product, and the second that: each participant must have the same information about prices. It is quite clear from present crisis that even if the market economy is not seen as an end yet it poses greater challenge not knowing whether market can regulate itself? Are there any standards for the market economy? While it is reasonable to admit that there are certain criteria of market economy: a system of allocating resources based only on the interaction of market forces, such as supply and demand. A true market economy is free of governmental influence, collusion and other external interference. It will be incorrect to rigidly apply these criteria in an arbitrary way to a country like Pakistan. The framework of market economy criteria is a range of fundamental characteristics. Free markets work superbly, in theory. But in actually terms, free markets have relied on specific social, moral and political institutions. These institutions must be in good health if the free market is to deliver effectively. There is a stronger argument that let the market forces decide the fate of the consumer but the question is, whether a free market economy is really based on fleecing the consumer? And firms are not misusing free markets for making their exorbitant profits. For market also to set prices, a number of basic conditions are required. The greater the deviation from these conditions, the less efficient the market system becomes. In the “real world” of unregulated markets, stronger players get larger share. The "competitors" also collude through cartels or strategic alliances to increase profits by setting market prices above the level of optimal efficiency which we have seen in recent sugar crises. Bigger the collusive of market players, the difficult for the state to interfere through state institutions. As recently we have seen that despite a Supreme Court decision to fix the prices at Rs. 40 per kg, sugar is being sold between 60-80 Rs. per kg. The stock already with mill owners around 200,000 tones of sugar was stocked on the speculation of price rise. Not only that it was sold on double the price, the sugar virtually disappeared from the market for fuelling demand. Consequently, a general impression prevailed that government and state institutions are showing almost forgiving attitude towards hoarders and mill owners not hiding a more monopolistic and less competitive market. And then the strong and influential cartels exerted pressure on government for certain concessions. In the present on going sugar crisis, the invisible market players created lot of rent at the expense of poor consumers, and all this started when Pakistan Sugar Mills Association (PSMA) argued that they be allowed to sell sugar at international prices and duel models (support price) of economy should not be encouraged, which creates the gap of 10-15 Rs in the price. While the policymakers remained ignorant of the fact that hoarders and profiteers got free hand and consumers were being exploited for provision of sugar on the controlled price at utility store for buying a number of items before qualifying for a bag of 1-kg sugar. This was the institutional failure of the government, which needed an urgent interference in the market but failed to do so. One need to comprehend that market does not produce wealth for masses, particularly when there is lack of regulatory institutions, rule of law, and the challenges of free market economy model in Pakistan. The one most important aspect that comes to light is that the government failed for the reason that it could not manage this issue, because it is profitable for those politically empowered rent seekers. Those who have a major stake in policies that makes their huge profit earning survival. As long as this ‘politically blessed’, element are allowed to dominate public policy processes, change is unlikely. That’s the reason why the dispute over the sugar price is now turning into a conflict over the start of the sugarcane crushing season. The state institutions failed to evolve a strategy to get Supreme Court decision implemented. A temporary stability is prerequisite of transformation of pre-market to market economy; however, there could be a debate on the optimal level of government’s intervention for efficient economic gains.  Otherwise, this ‘thinking’ works on the assumption that market forces, such as supply and demand, are the best determinants of market efficiency and therefore, free market arguments are not applicable to the real world. Let it be known that in reality there are no perfect free market economies. Even in countries like USA, which is considered to be very devoted for the free market, many areas are under the government control.

What, in short, should we do now? Exactly the opposite of what our so called free world proponents say, and that is interventions by the government through policies and to become is instrumental in making markets work. While the invisibles hands are enjoying the benefits of a “free” market economy, there are many of us who are paying heavily for this ‘free’ thinking. Policy makers must not wait until economic unrest ensues to carry out unpopular political and economic decision.