The Majlis Research Center says the government(s) policy of pricing goods has been an exercise in futility and more often than not has failed to deliver.
A review of rules allowing administrative bodies to intervene, directly or otherwise, in pricing formulas shows the governments’ extensive role and oversized presence when it comes to dictating prices over the past three decades, the parliamentary thank tank said.
The mandatory “pricing system per se has become an ultimate goal for the government rather than being an instrument of supportive measures,” MRC said in the report published on its website.
It said hoarding, closure of production companies and suppliers’ refusal to sell at low prices are among the consequences of the governments’ unwanted and unhelpful practice of intervening in the markets.
“This did not help in regulating the market and taming inflation and in many cases fueled inflation”.
Despite the visible detrimental impact, policy and decision makers tend to intervene in setting prices for a variety reasons. One is their short-term approach and lack of vision about the long-term consequences of their decisions on prices and manufactures.
The other is their disregard toward the cause-and-effect relationship among economic and political factors and their impact on prices.
Policymakers are often guided by the (wrong) perception that controlling prices is the only way to support end users, a misguided approach that has never delivered, the MRC noted.
It recalled that decision-makers resort to price intervention whenever the economy is in distress, namely under the tough economic and financial sanctions and steep increase in forex rates.
“In most cases interventions have not been successful and disrupt the economic system encouraging suppliers to hoard goods resulting in high and rising prices.”
The think tank called on the government to find the root causes of price volatility before venturing into pricing and regulatory policies.
The MRC took stock of the outcome of government price interventions in many industries, saying that in some cases monopoly was a conspicuous outcome. For example, the policy dictating auto prices has given rise to ingrained inefficiency and monopoly of the two main carmakers.
Observers say setting arbitrary prices by the government and not letting prices be determined by demand and supply are intrusive and unproductive to the detriment of consumers and suppliers.
The issue has come in the limelight in recent months when the government decided to set a price ceiling for some goods offered in the Iran Mercantile Exchange.
The decision attracted sharp rebuke from shareholders and capital market authorities and forced policymakers to rethink to some extent. Many products are still directly/indirectly priced by market regulatory bodies.
In the past few years many listed companies failed to generate to make profit due largely to obligations to sell at prices dictated by the government. Capital market officials claim ending mandatory prices will have an immediate positive effect on the finances of such companies.
Steel, cement, dairy, electricity, fuel, medicine and cars are among key items that have fallen victim to stringent government pricing rules.
Stock market observers insist that such rules are simply incompatible with competitiveness and free market mechanism where demand and supply determine prices.
