Fixing fair prices in an unfair world : The Tribune India

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Fixing fair prices in an unfair world

Let us learn economics from the East and not be overly swayed by Western ideas

Fixing fair prices in an unfair world

Resilient: China has not been bowled over by Western liberal economists’ advocacy of open markets as the best instrument for determining fair prices. Reuters



Arun Maira

Former Member, Planning Commission

CHINA was the poorest among large countries of the world when the Communist Party took over in 1949, two years after India, the second-largest poor nation, became independent from the British. Until 1990, the two countries progressed at the same rates: per capita income in India was $367 in 1990; in China, $317. Then, a rapid divergence happened. By 2022, the Chinese per capita income rose to $12,720, five times higher than India’s $2,388.

Our farmers want a guaranteed policy solution that will not leave crop prices hostage to the greed of private markets.

The year 1991 marked a turning point in the history of economic ideology. It was declared the end of the history of ideologies by Francis Fukuyama, who said that with the fall of the Soviet Union, Western capitalism had prevailed over Soviet socialism. West-trained economists surged into the rest of the world with advice to governments to liberalise markets and unshackle private enterprise. US advisers persuaded Russian leaders to introduce market reforms with a ‘big bang’, abolishing public enterprises and handing over their assets to citizens.

The Chinese, however, stood firm. They chose to follow the Chinese way of “socialism with market characteristics”. Russia’s and China’s positions in the world economy have been reversed since they implemented different modes of marketisation. Russia’s share of the global GDP almost halved, from 3.7 per cent in 1990 to about 2 per cent in 2017, while China’s share increased close to sixfold, from 2.2 per cent to about 13 per cent. The Chinese government and its economists learned very fast. They lifted a billion people out of poverty in 25 years — a miracle, say economists. The Chinese also built world-class technologies as well as the world’s second-largest economy, which the US feels threatened by now.

Economic historian Isabella M Weber explains how China withstood Western pressure and chose its own path in How China Escaped Shock Therapy: The Market Reform Debate. The Chinese were great learners and open-minded experimenters. Rising leaders within the Communist Party, who seemed too cocksure of themselves, were often banished to remote ‘real places’ to live with ‘real people’ and learn from them. The Chinese invited the World Bank and Western economists to learn ‘modern economic science’ from them. The Chinese debated extensively on the relevance of those theories for their realities. Rather than comply with foreign, textbook economics, their path to reform was to “cross the stream by feeling the stones underfoot”.

The year 1991 was also a turning point in India’s economic history. India was pressed by the IMF and World Bank to open its internal and external markets to private enterprises. India acquiesced. Its economy did grow, albeit not as fast as China’s. India’s liberal market reformers say the country has not progressed enough because it has not reformed sufficiently. ‘Reform’, in their lexicon, is further reduction of government control of trade and industry to let the ‘market’ operate freely.

The management of prices has been a concern for the Chinese throughout their ongoing process of economic reforms. The Communist Party rose from the ashes of an economic and political breakdown of Chinese society in the last century. It knows it must maintain stability in society to retain the people’s support. It was not swayed by Western liberal economists’ advocacy of open markets as the best instrument for determining fair prices. Chinese leaders were concerned with the conditions of the poorest and least powerful people — those who earn little and can buy very little. Affordability and stability of the prices of food and clothing matter greatly to such people.

Liberal market economists insist that a ‘free market’, with no controls on what people can produce and buy, is the only way to establish the correct market price and keep supply and demand in equilibrium. According to their theory, price signals between suppliers and buyers must be direct, undistorted by any intermediary. However, producers and consumers do not transact directly in a market. There are traders between them. Traders buy when producers need to sell, and sell to consumers when the latter need to buy. Traders provide essential ‘storage sumps’ that enable markets to function.

Private traders are not altruistic public service providers. They invest their capital whenever they buy and hold stocks. They also take risks while deciding when they should sell to make more profit. The resource that traders bring to the market is money. Money, unlike the perishable produce of farmers or the hunger for food of consumers, can patiently wait for a good time to buy and sell for profit. Thus, traders can control the price on both sides and can set the market price.

During its imperial history, when emperors were praised for maintaining social stability, China realised that the government must own a substantial part of the trade in basic commodities (even if it did not own the means of their production) so that it could ensure stable market prices. By being the largest trader in any basic commodity, it can be the price-setter, even if there are private traders. In perishable commodities, market stability also requires control of the storage and logistical infrastructure to ensure equitable access.

The Indian government is struggling to find a sustainable and just solution to the row over farm prices. The government must not be swayed too far by its corporate and liberal market advisers. Indian farmers are not ‘anti-market’, though our liberal economists label them so. Our farmers understand where power lies in markets. They want a guaranteed policy solution that will not leave crop prices hostage to the greed of private markets.

Let us learn economics from the East and not be overly swayed by Western ideas of economics. When China opened its economy in the 1990s, it reduced government participation in many parts of it. However, it retained control and substantial ownership of channels of trade in essential commodities. The Chinese resisted ideological pressures from liberal market economists, who insisted that the market’s invisible hand was the only way to establish prices.

Chinese economists understood fundamentals of economics: those who control a non-perishable commodity (money) have more power in markets for perishable things like food and labour, which are often all that the poor can trade in the market.

#China


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