Saturday, May 07, 2005

Prices on "essential items" increases 25 percent - Gulf News

Recently the governments of the Emirates increased government salaries 25% for nationals and 15% for nonnationals. Fears were expressed increases in consumer items would result. They have.
The foodstuff and price control committee of the Abu Dhabi Planning and Economy Department has decided to set up a company to import foodstuffs directly from the producers in a bid to fight manipulation and high prices.

The committee met to explore mechanisms which allow consmuer cooperative societies to face manipulation of some commodities whose prices went up recently between 25 to 30 per cent, putting an additional burden on the consumer.

The committee, which is composed of members of the cooperative societies, the department, Abu Dhabi Investment Company and Abu Dhabi Foodstuff Company, discussed a number of proposals on how to deal with the suppliers who are insisting on increasing prices without taking into account the suffering of the low and medium income population.

The committee urged the government's concerned authorities to support the new non-profit company to help it achieve its goals properly.
There is no evidence that the price increases are justified by increases in import prices or by the cost of expansion to meet a higher demand. It does appear that the problem is that demand has become less elastic and monopoly trading firms have raised price accordingly. One solution is the one taken -- to open a government run non-profit to compete.

A better solution would be to allow entry of private firms into these sectors where state-sanctioned monopolies have been fostered. If granting these monopolies ever served a public purpose that purpose has been served. It's time to allow competition and let the market work.

Sometimes -- indeed, usually -- letting go of control is the best thing that government can do for the economy. It's a basic lesson of economics that I hope every student of economics principles possesses for life.

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