Price spiral, government’s failure
and people’s misery
The predatory nature of profiteering by a section of the business community and the appalling price hike of essential commodities have, for all practical purposes, paralysed common citizens’ daily life and living. Of late, it would not be an exaggeration to say that everyday survival is at stake for most of the average Bangladeshis. Yet the government shockingly appears to remain unmoved and callously indifferent to the situation on the ground and pretext that the rise and fall in the price curve in the market place follow the law of free market, and the government ought not have anything to say about it. Moreover, some of the recent comments by top government leaders have added to the misery of the common people. Examples of such irresponsible and callous comments abound, and include the now (in)famous statements by the finance and planning adviser advising citizens not to compare the price situation with that of the historic regime of ‘Shayesta Khan’, and brace for a further rise in prices. In the same vein, a few other advisers have also advised the nation to feel a sense of relief that our prices are still lower than those of the ‘global market’.
The ministries of finance and commerce are immediately responsible for maintaining the national oversight and vigilance over the market and price regimes. Unfortunately, these ministries are not only failing the citizens on a daily basis, but also hurting the common people’s sentiment by a plethora of highly insensitive and irresponsible comments which have by now become typical hallmarks of some of the persons at the helm of these crucial institutions.
We feel that the government has shifted its focus on other areas, notably the (seemingly fruitless!) political ‘dialogues’ and attending pompous state ceremonial functions, and the issue of price hike and resultant misery of common citizens has receded into the background.
The situation in Bangladesh in fact warrants a direct and hands-on role of the government in response to the day-to-day developments in the market, because it is often manipulation and sheer greed rather than the classical canon of demand and supply that regulates the market place in this country. At the basic, the government cannot avoid the responsibility of citizens’ welfare, and currently the common feeling is that the government is not doing enough.
Dr Niaz Ahmed Khan
Professor, Development Studies, Dhaka University
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It has now become an established fact that the present caretaker government has utterly failed to control the prices of essentials which indicates that the people now in power have no ability to tackle the problems of the common people.
Abul Kalam Azad
Barisal
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The comments of some of the advisers in this interminable caretaker regime have been boorish and insensitive, bordering on sheer arrogance. These have also often been contradictory.
Right after the cyclone Sidr, when economists and experts cautioned the government about the possible food shortage, affecting the tenuous food security, the honourable adviser downplayed the impact with a combination of blasé, nonchalant and benign neglect attitude and outlook. The country is still suffering from the lack of appropriate policy and action in the aftermath of Sidr.
Invoking the name of Shayesta Khan and mentioning the unfeasibility of reduction in the out-of-control and never-before-reached-heights in prices of essential commodities in an uncaring and indifferent manner, the adviser has given another free license and carte-blanche to unscrupulous businessmen to maintain the high prices or increase them even further.
Since the adviser is obviously incapable or disinclined to do anything about the spiralling prices, the least he can do is not to compound or accentuate the miseries of the common people. The lasting legacy of this government, as exemplified by the finance adviser and his outlandish remarks, is likely to be incompetence to solve the pressing economic and other problems while acting in the most superficial and conceited manner.
Via e-mail
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While telling the nation that expecting the prices of the essentials to come down will be unrealistic, the finance adviser has mentioned Shayesta Khan. I failed to find any relevance. First of all, nobody expected to buy eight maunds of rice by one rupee. Secondly, we never heard that in Shayesta Khan’s time prices came down after having gone up.
Waheed Nabi
England
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This is not only a problem for Bangladesh but it is a worldwide phenomenon. Climate change, oil price hike, biofuel cultivation, wars and civil wars around the world, all have been blamed for this calamity. The economists have no single identifiable cause or a prescription of formal remedy, so what can a layman like me say or do?
However, I notice some small differences between what is happening in the West and the East. In Bangladesh and other Asian countries price of everything seems to be going up, whereas in the West, although the price of fuel oil and other commodities have gone up, the price of houses have come down and is likely to go down further. This is a clear proof that commodity prices, whether global or local, are still subject to the market forces of simple ‘supply and demand’ and that the root cause of the price hike in the developing nations of the East is ‘too many people’ and too little resources. As the population of most Western countries is stable, house prices have come down because of prioritisation of funds for commodities whereas this has little or no effect in India or Bangladesh.
So in addition to efforts to produce more food, simultaneous efforts of higher magnitude must be made to contain the population or even send it in a downward trend, otherwise famine and pestilence will be a regular occurrence to achieve balance of Nature.
There is no short-term solution however as stressed by the British Prime Minister Gordon Brown; we must all stop the waste of food and resources. In Bangladesh, a comparative effort would be to clamp down on birthday and other parties and weddings and wedding anniversaries and other wasteful celebrations, and donations may be arranged from such party-goers and holders to be given to charitable relief funds for the needy. Certificate of donations may be introduced to encourage donations. A time has come for observance of austerity for the well-to-do in society and for them to divert funds for charity and philanthropy while rationing may be introduced for essential commodities on a long-term basis.
Engineer Shafi Ahmed
London, UK
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We must be extremely naive if we are believe that the price of essentials can be brought down in the near future. With the price of oil at US$150 a barrel, and with everything so much dependent on oil, there is a knockdown effect on every other item.
We are being buffeted by high price of essentials because of the thoughtless profligate lifestyle of the wealthy and the powerful. And this is a worldwide phenomenon. The big corporations are carrying out a sustained campaign to make us buy their products, many that we do not need. Bigger cars, bigger houses, fancy clothes, even soaps and shampoos — you name it and it is there. And all this unfettered consumption is causing us to draw more and more from the environment, which is resulting in higher and higher prices of the basic essentials like rice.
Our population is growing and growing and now it has reached a point where our production is not enough for our needs. We need to tackle this situation with urgency. We need to bring down our population growth rate still more.
And we need to go back to our basics, to our religious values, to plain living and elevated thinking. We cannot hope to make the inhabitants of the rich and powerful countries see the light and revert back to a plain life.
But we can start from our own backyard, from Dhaka. We can ban private cars from the streets at least one day a month. The money we save can be diverted to the subsidy of the basic necessities. It might not be much but it can be the beginning of a long journey to sanity and reason.
AA
Via e-mail
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Cost of living has been increasing not only in Bangladesh but in other parts of the world too. The government would find it hard to tackle inflation since it is a global phenomenon. What it can do is provide concessions to the poor segments of the society so that they do not starve. The 100-day job scheme is a very good step. Industrialisation should be encouraged to create more jobs. The private sector should be encouraged to provide their blue-collar workers daily necessities at a subsidised rate. The NGOs should also work to help the poor. The rise in general level of prices is expected in today’s world; what the government needs to do is to ensure that the people have the continued ability to purchase food in this situation.
Tonmoy
Via e-mail
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Economics assumes that prices are determined by a balance between the supply and demand. The point at which these two forces meet determines the market price. This paradigm assumes that factors of supply and demand are independent entities. Change is reciprocal. Unfortunately, the human behaviour in matter of prices is significantly different and may often appear irrational.
When we look at a price of a product we compare, we rationalise preferences, we idolise the product and thus it has little to do with the cost of production. Otherwise, why should we pay for a Parker pen hundred times more than a throw-away plastic ball pen costing say Tk 2? After all, there is no difference in the end result.
The behaviourists have established the concept of arbitrary coherence. The basic idea behind this concept is that the initial prices, say of a Parker pen, are arbitrary. Once these prices are established in our mind they will shape not only the present price but also the future prices. This present price becomes anchored in our thought process and all future prices are relative to this price. Any change is observed as relatively high or low. Today the international crude oil price changes are a great media story because the price today is more than it was yesterday. But it has not reduced demand.
We see more of this price behaviour in the stock market. People are concerned when the index goes down compared to the previous day. We see share prices plummet. We see shares prices rally which means that prices which are anchored in the minds of some investors are being ‘defended’. Rarely do we look into the intrinsic aspect of prices, viz., the fall in its earning potential or a bad year. As we are anchored to a price at which we bought certain shares, this price becomes our ‘position’ in the market.
To further reinforce our price behaviour is what is known as ‘herding’. We tend to act on what other people say. We are moved by the crowd and believe that so many people cannot be wrong so we go along. If so many people are having the expensive coffee in Gulshan and Banani for Tk 200 each cup, we tag alone once in a while instead of sticking to our Tk 6 Nestle coffee sachet. If so many people are buying ‘x’ shares then we should also get some!
If we look at the initial economic model of supply and demand we may observe that any change in the price should affect the demand to a certain degree. This price change in terms of behavioural studies shows that the effect is based on memory and our desire to remain coherent with our past purchases. It may not reflect our true preferences or our level of demand. The same principle applies to recent enhancement of the prices of petroleum products. Under conventional economic theory this increase should cut demand. But would it really reduce petrol usage? Initially, people will cut back and think of economy car but in the long run the people will readjust to the new prices of petrol or diesel. After all, they have been doing the same all their life.
I think this is what Dr Mirza Aziz meant by his recent remarks about commodities prices not going down. Prices fluctuate, but they rarely go down.
Imtiyaz Husain
Gulshan, Dhaka
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The present caretaker government claims success in its activities but the common people think otherwise. One former adviser of the present caretaker government uttered words which accentuated the price of foodstuffs. Another adviser sacked all the workers of the jute mills in a city instead of thinking better ways to run the mills. He closed the mills to save the public money. Now the caretaker government is proposing to enhance the salaries of thousands of government servants to combat the rising tide of price increase using the same public money.
The government showed little understanding about the factors and mechanism that might influence the international fuel and food prices. If it did then preventive measures would have been taken much earlier before the calamity struck. Like the earlier politicians, the caretaker government showed lack of foresightedness in the running of statecraft. Even the mighty US thinks 50 years ahead about world energy resources, our government cannot think even six months ahead.
Business people blame the food price increase to the fuel cost increase. No doubt, this is true for the marketing of many agricultural products where long-distance road transport of commodities is involved. If this is the common complaint, then the government should adopt a policy of using railway transport only for the carrying of foodstuffs. This will significantly decrease the cost of transport of foods and consequently the price of foods.
All necessary steps should be taken to supply food items to the fixed income and landless people. The price hike of food products is benefiting the land owners and even the marginal farmers but killing the fixed income and the landless people. A large section of the landless people now has become city industrial workers with small take home pay hardly commensurate with the present food prices. The plight of these people has surpassed the tolerable limit. There might be social turmoil at the slightest provocation with the breakdown of law and order, halting all industrial production. The government should introduce rationing system without further delay. As a matter of principle, all foodstuff business i.e. procurement, distribution and selling should be done by government-controlled organisations. In this respect the open market policy should be abandoned whatever the big donors say. Increase of salary is only a temporary ineffective solution.
Sidr and back-to-back floods have opened the eyes of all people that agriculture is the backbone of the country. If this backbone is broken, no amount of industrialisation and foreign remittance can feed millions of people over long periods of time. Every effort should be made to increase agricultural production, if necessary, with subsidised electricity, gas and fertilisers. Increased food stocks should be the aim for any natural calamity. Research on agriculture should be strengthened manifold. There should not be any complacency in this regard. The aim should be at least two-fold increases in production for all types of items including cooking oil.
It should be understood that low-level corruption is many times more widespread and destructive than the high-level one as found out by the recent TIB report. Fight against corruption should be directed against low-level malpractices. The corrupt high-up politicians can be eliminated by the political process, but the low-level corruption in offices and on the roads is very difficult to eliminate. Even with abundant food supplies this will contribute to price hike.
F Islam
Dhaka
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Inflation has suddenly hit us and people went bewildered, and one group fiddling with the other. The government has said that inflation would soon be brought under check but the public seems unconvinced. Even if that actually turns out to be true, the rate of inflation coming down means prices of essentials still rise but less fast. It is like a bus that is reducing its speed but still moving ahead. So, lowering of the inflation rate means prices still rise and not fall. Blame is sought to be put on external factors like the worldwide food shortage and the rise in energy prices globally. Indeed, international prices of food and petroleum products have risen rapidly in the last few years and more specifically in the last one year. Why has all this become apparent to policymakers only in the last three months when the inflation rate suddenly went up? Why could this not have been anticipated given the international trend? Is our current leadership so short-sighted that it cannot foresee what is about to happen a few months from now? If that is the truth, how can the public trust the prediction that the steps now taken will succeed in curbing the rising inflation? There is a clear contradiction.
However, the farmers benefited from the food price increase. But all of them are not the ones getting the major share of the increased price of food because only the well-off amongst them have the holding power. Many of them were indebted and supplied their crop at given prices to the local traders and money lenders. It was seen that the price received by the farmer for the produce at the farm were a fraction of what it sells for in the urban consuming centres. Then, of course, there are the large numbers of marginal farmers who go to the market to buy a large chunk of their requirements. Only the rich farmers benefit from the food price rise.
Now, it is the businessmen and the corrupt that are benefiting the most from the price rise of essentials. Money from the pocket of the buyer goes into the cash box of the seller. Their collective profits and incomes have been shooting up. These sections are able to overindulge even more than earlier and that is creating further demonstration effect and unrest.
With elections approaching, businessmen have become emboldened to raise prices. They feel they can get away with speculation, hoarding, syndicate formation, etc. If there is a small shortage, speculation makes the shortage bigger. Suppliers hold back supplies to make a profit later and those wanting to purchase, try to buy more than they need currently so that they can hope to save on costs. Thus, the supply-demand gap widens and prices shoot up more than necessary. Futures trading by making more money available to speculators aggravate shortages. The government could do a lot more but acts reluctantly given its market-oriented philosophy. For instance, it could act against hoarders and force them to de-hoard the stocks but the steps taken appear to be lukewarm at best. This reluctance leads to delays and the situation tends to slip out of control.
Sirajul Islam
Consultant, INAFI Asia & Bangladesh
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The majority of people of our country are impoverished and indigent. Their living standard and lifestyle are of poor quality. The ever increasing price hike of commodities has affected the lower, middle and fixed income groups the worst; has severely aggravated their condition and prolonged their indescribable sufferings and pangs from starvation. The prices of foods and other essentials have more than doubled in a year and reached beyond the purchasing capacity and affordability of the majority of the people. People are to spend more than 70 per cent of their daily income on food purchase. The sky-rocketing prices of the essentials have thrown about 60 per cent people of the country under the poverty line. Eight lakh school teachers demanded food rationing to the government. The school-going children were seen standing in the long queues of the BDR-run shops during school hours.
The exorbitant increase in the price of commodities has resulted in reduction of daily calorie intake and of baby food consumption, ingestion of sub-standard foods and starvation in the extreme poor families causing serious malnutrition and ill-health.
The government has time and again assured the people that the price of rice would come down after the boro harvest. But the bumper boro harvest could not arrest the uptrend of rice price. Inadequate market monitoring and regulation, insufficient action against hoarding and hoarders, inefficiency of the government in dealing with the business syndicates and imprudent policies keep the price on the increase. The indiscreet and irresponsible speeches and knee-jerk reactions of the advisers (‘We have nothing to do with price hike’ — Tapan Chowdhury, ‘Expecting price fall is unrealistic’ — Mirza Aziz) have apparently reflected their abject failure and consequently heartened the business syndicates to increase the prices of essentials at their whim. Though the record-breaking increase in fuel price and bio-fuel production are mainly responsible for food inflation and price spiral of essentials worldwide, our government could have kept the prices of commodities much lower than now and within people’s purchasing capacity and affordability if they were prudent and efficient enough .
Alamin Al Azad
Zahurul Haque Hall, Dhaka University
