Maintaining the market equilibrium
Barrister Chowdhoury Mohibul Hassan Nowfel
From sugar to steel, an endemic problem haunts cash strapped consumers of today; an exorbitant and uncontrolled hike in price on a daily basis. Ordinary citizens are generally seeing this as the first and foremost failure of the Grand Alliance government, who rode the wave of public discontent over the last government's failure to control price and formed government with mammoth mandate.
In the 1990s when Bangladesh finally embraced the free market with full zeal, all the hopes of regulation were rested on the “self-regulating” nature of the market. This hands off, free style approach was convenient for the policy makers. From governance point of view, whatever the problem, be it price hike or defective products, they could have blamed them on to the market and left to be self-regulated. It never occurred to them that for an immature, weak, and asymmetrical emerging market economy, absence of any regulation would ultimately harm the objective of the free market, that is consumer welfare. Eventually, with a peripheral and weak government, an infrastructure and information poor disconnected geography and population, and with access to power and financial credit sporadic and limited to a few, syndicated price fixing and practice of manipulating the market has become real and the norm.
Considering the existing legislations on regulating price of essential commodities and market regulation, they are not only outdated but also out of context. There is no agency or enforcing authority to investigate and prosecute activities for malpractice. Statutory definitions of offences related to market manipulation are sporadic and exist in such a vague manner that there has not been any successful prosecution in the last twenty years. The two relevant legislations The Control of Essential Commodities Act, 1956 and The Essential Commodities Act 1957 are so outdated and beyond the scope of modern economy that not surprisingly, they have never been used. These Acts are all about establishing the government's control over commodities trading and have no scope of appreciating supply and demand dynamics leading to competition to determine optimum price level. The acts are mostly about prohibition and are very typical of a country in transition. Another much touted law in relation to this is the Consumer Protection Act 2009. This Act is mostly about product safety, product quality and ensuring consumer rights thereof.
The most relevant and yet never utilised legislation in this matter is The Monopolies and Restrictive Trade Practices Ordinance, 1970. Although a Pakistan era ordinance, technically this has became part of our rulebook since 1971. It has never been invoked in any prosecution neither has it had any noticeable attention from the policymakers. Interestingly Pakistan, the original initiator of this ordinance had a functioning Monopoly Control Authority MCA to enforce this ordinance. The MCA is now a specialist quasi-judicial body, Competition Commission of Pakistan. Looking at our neighbouring country India, it has, arguably the most advanced regulatory framework in the sub-continent. Out of several agencies that are authorised to monitor market, Competition Commission India sits at the core. It is an independent organisation mandated by an act of parliament working in supervisory, investigative and judicial capacity. It has now become a cornerstone of regulatory authorities around globe setting precedence in regulating a transition economy. Besides Competition Commission, India has Tariff Commission, Food Corporation of India and other agencies with their defined jurisdiction intervening where it is necessary and suggesting policy to government where there is scope to do so.
It is interesting to note the Awami League in their election manifesto had management of market and price control issues as their first agenda. The 2008 Election Manifesto “A Charter for Change” reads, point 1 (i): Commodity Price Hike: Measures will be taken to reduce the unbearable burden of price hike... A multi-prong drive will be made to control prices along with monitoring the market. Hoarding and profiteering syndicates will be eliminated. Extortion will be stopped. An institution for commodity price control and consumer protection will be set up. Above all, price reduction and stability will be achieved by bringing equilibrium between demand and supply of commodities.”
This was indeed a visionary suggestion that recognises market failure and syndicated practices that are endemic in the country. It recognises the significance of demand and supply factors and the need for maintaining the equilibrium thus keeping the market competitive and conducive to consumers. Above all this key promise specifically suggests an institutional solution to the problems, that is, creation of an agency for market monitoring and regulation. Two years has passed since the government has taken oath, sadly the very first promise seems to be most neglected one.
At present in Bangladesh, deployment of law enforcement agencies against perceived manipulators seems to be the only measure for regulating the market place. Often the government seems to rely on media reporting and civil society reactions. Actions thereof are often based on subjective observation by unrelated policy makers at different levels. One recent example would be cancellation of “Delivery Order” (DO) system in Oil and Sugar trading. It has been replaced with Dealership system as an attempt to stop price rise. No empirical or coordinated study has been done before abruptly bringing this structural change. Setting aside some of these sporadic knee jerk reactions, the sad reality is, due to absence of legislation or authority there has not been a single case of conviction or prosecution for malpractice. If a group of businessmen decide to fix the price of any commodity either by implicit conduct or in agreement, except social, political and arbitrary pressure of the state no lawful action could be taken against them.
As a first step towards delivering on the first promise of the Charter for Change it is now imperative that the policymakers start to hold wide ranging consultation with all the stakeholders; lawyers, economists, business leaders, and consumer groups . The proposed agency created through a due act of parliament cannot be a talking shop or a harassing organ of the state. It has to have investigative and prosecution wing, for self-initiated investigation and allowing private citizens to file cases. It needs to have an inquisitorial approach whereby it will commission expert panels to file their findings in an independent adjudication and appellate specialist tribunal comprising of judicial and academic members empowered to take punitive actions. This agency could also have an expert advocacy panel that will look into specific markets and suggest relevant policy actions to government to withstand adverse times and protect consumers.
In this age of limited public sector and growing liberalisation there is no alternative to building effective regulatory agency. Governments in both the developed and developing world have increasingly taken the role of a “referee” in the free market where they oversee whether the players are abiding by the rules and ultimately consumers are being benefited. In our transitional economy we are in dire need of legislations leading to creation of effective regulatory body and legislative framework. Despite having been promised of a market monitoring and regulation agency deliverance in this key electoral promise remains far from reality.
The writer is founder director, Chittagong Chambers of Commerce and Industries.