We often tempt to blame our
government for all our economic woes. Popular media accuse government of the
day for not creating enough jobs, price rise, exchange rate depreciation,
farmer’s suicide, farm crisis and what not?. Let us see whether the government
is really responsible for all these and if so, is it because of any omission or
commission by the incumbent government?. Let us examine the issue in
perspective.
We all agree that we are living in a
market economy and not in a government controlled socialistic economy. In any
market economy, prices are decided by the market participants through demand
and supply dynamics. In other words, no government officer can dictate prices
in a market economy. If the demand is high and supply is not matching towards
it, naturally the prices will shoot up, which will compel people to consume
less. When prices increase, more producers will be entering in to the market
and hence after some time, prices will have to moderate.
Government simply can’t directly
interfere in this market and ask the producers to reduce their prices. Of
course, government can intervene to frame policies that will help to increase the
production, increase level of competition, reduce entry barriers, if any, which
will help more players to enter in to and produce more. Government can unleash competition
by preventing any monopolistic tendencies and enforcing competition.
So, before blaming government for
price rise, please see whether it was because of any particular action or
inaction by the government that caused prices to increase. If not, wait for a
while and let the market itself to correct it.
How many of us blame government for
‘unemployment crises’. Let us go back to our fundamental ideas. In any market economy,
government don’t and can’t create any jobs. Jobs are created by firms,
factories and entrepreneurs. They recruit and retrench people as per their need
and production cycle. Government can’t
ask these people to create ‘more jobs’. At the best, government can give some
tax concessions and subsidies for creating more employment but this can only be
a short term solution that comes at the cost of tax payer’s money.
Instead, what the government can do
is to create policies for promoting industrialization, exports, which includes
provision for land at concessional rates, ease of approvals, providing physical
and electronic infrastructure and many more. On the other side, government can
ensure quality education which will churn out youngsters with necessary skill
sets and are readily employable.
Thus, if we want to put the blame on
government for not creating enough jobs, we will have to convincingly argue
that because of these omissions and commissions, that the government can be
blamed for job crisis. Simple rhetoric
of ‘unemployment’ cannot be put across against the government if it is not
substantiated.
Similar is the issue of Farm crisis-
Farmers are believed to be in a crisis as their products are not remunerative
enough and hence the government is blamed for a ‘farm crises’. Opposition
parties are taken up cudgel against the government for neglecting agriculture
and farm sector.
As said earlier, no single individual
can decide the price of any particular product including farm products. Because
of improvement in production and storage technologies, we are living an era of
abundant production. Prices are suppressed because demand has not been
increased proportional to production. Market clearing price cannot be go up
unless demands shoots up or supply drops down.
The main demand of protesters was that
Minimum support price (MSP) may be declared on all agriculture products. If so,
the prices of those items will be increasing and correspondingly, the
consumption will come down. It will result in excess stock of the product which
no one will be willing to buy.
As per my early principle, government
can’t dictate a price and expect other market participants to transact under
this price. The government at best can subsidize the farmers and his produce.
However, this unsustainable way of ‘protecting farmer’ will be too burdensome
for other taxpaying citizens.
It may sound cruel, but the fact is
that every individual farmer is an economic agent who will have to shift his
production, techniques, and reallocate his resources according to the market
price signals. It is the market prices and incentive structure that should
guide his behavior and if not, he will remain a miser. He can’t put the onus
on the government for not getting remunerative price for his product. If that’s
the case, he should abandon his farm and look for some other gainful
employment.
If enough number of people leave farming and
look for factory jobs, the remaining few farmers will get a reasonable income
from their produce. Government in its side should encourage more people to
discontinue farming and facilitate their migration to urban areas where they
can be more gainfully employed. Only solution for the ‘farm crisis’ is
factories and not MSP.
Let us learn few fundamental characters
of a modern market economy and how it differs from a state dictated socialist
economy. In any market economy, the role of the government is believed to be limited
and it is not supposed to interfere in the market unless there is a market
failure. It can influence prices, wages, interest rates, job creation etc only
through its tax and fiscal policies which includes subsidies. Primary economic
role of a government in a liberal market economy is to collect taxes and spend
it wisely for the larger public interest. Any attempt to breach this role by
interfering in prices or wages will have a serious negative impact even though
it may appear to be attractive and beneficial for some.
It may be our economic illiteracy or
intellectual errors that prompt us to support these kinds of interventionist
ideas. However, all these above mentioned popular fallacies are something in
common. When somebody/ some group is perceived to be in a crisis, we wish to
have quick-fix solution. This is because, these ideas appeals to man’s darker
side which is primitive, non creative, dependent, non- productive and destructive
side of human nature. These bad ideas are easy to define, articulate and spread
faster. But its end results are also
equally disastrous in the long term. Despite, demonstratively failed in every
country, this is the reason why still many of us are attracted to the socialist
and communist ideas of this nature. It is a ponzi scheme whose initial illusion
of success attract many, and seductive at times. However, end result will be
always the tyranny of the government and misery for millions.
Besides economic argument, there is another
dark side of the whole issue. A modern liberal democratic government is based
on a fundamental assumption that it will grant liberty to the citizens to
pursue any legal economic activity and will respect the sanctity of private
property. If government interferes too much, not only our economic freedom will
be at peril, our political freedom will also be threatened. A Government which
can dictate market prices can also dictate our private life. If government can
enforce price control, it can enter in to our bed rooms and arrest us as well.
After all, our economic freedom and political freedom are intrinsically
interlinked. As proverb goes, the road
to hell is paved with good intentions.
