{"id":209536,"date":"2020-04-18T01:17:21","date_gmt":"2020-04-17T19:47:21","guid":{"rendered":"https:\/\/www.colombotelegraph.com\/?p=209536"},"modified":"2020-04-21T02:41:18","modified_gmt":"2020-04-20T21:11:18","slug":"covid-19-economic-structure-failure-of-market-mechanism","status":"publish","type":"post","link":"https:\/\/www.colombotelegraph.com\/index.php\/covid-19-economic-structure-failure-of-market-mechanism\/","title":{"rendered":"Covid-19: Economic Structure \u2013 Failure Of Market Mechanism\u00a0"},"content":{"rendered":"

By Hema Senanayake<\/a> –<\/strong><\/span><\/p>\n

\"\"<\/a>

Hema Senanayake<\/p><\/div>\n

A few days ago, I watched the TV news in which it showed that the military assisted by District Secretary of Anuradhapura were purchasing farm produce. That news made me both happy and sad. I felt happy seeing the smiles on farmers\u2019 faces having been able to sell their produce for a better price. I felt sad by observing the dysfunction of domestic supply chain having practiced almost \u201cfree market\u201d principles since 1977. This intimates the need of establishing more disaster resilient market mechanism in post-pandemic era instead of replacing it by certain kind of administrative version.\u00a0<\/span><\/p>\n

I have argued and continue to argue that there are at least two main systemic weaknesses in the present economic model. These two systemic weaknesses have created three distinction grave problems for any country, developed or developing. Those problems are severe systemic indebtedness, \u201cover consumption\u201d and ever increasing \u201cregrettable component of GDP.\u201d I have argued the need of removing those weaknesses to establish a better and resilient economy for the wellbeing of all citizens. Yet, there are strong elements in this present economic model which are needed to be protected and be further enhanced for a foreseeable future. These features will be necessary an integral part of the new post-pandemic economic order we are thinking of. During this pandemic good intention of the government and the military might weaken such vital mechanisms in the economic system, if the government does not philosophyically understand the limits and better methods of intervention. Good things are good, bad things are bad.\u00a0<\/span><\/p>\n

One such good mechanism is the market mechanism and the other is the price mechanism. Any destruction of these mechanisms either in purchasing perishable farm produce or grains including rice will make more and lasting damage to the economy. Therefore, the government needs to rethink in establishing more disaster resilient market mechanism and the support extended by military and government\u2019s administrative machinery could be supplementary when a disaster hit the country again. Why we need to have a free market which could be made functional even during a disaster as the foundation of the economy? Possibly, we can make subsequent macroeconomic adjustments as and when necessary in view of the country\u2019s national economic objectives. But preserving the foundation is important. In fact, what the free market mechanism does? In order to answer this question, let us think, as to how a pencil is produced. This is simple but powerful illustration of market mechanism.\u00a0<\/span><\/p>\n

\u201cThe thousands of persons involved in producing the pencil performed his task not because he wanted a pencil. Some among them never saw a pencil and would not know what it is for. Each saw his work as a way to get the goods and services he wanted\u2014which goods and services produced by those who want to get the pencil they wanted. Every time we go to the store and buy a pencil, we are exchanging a little bit of our services for the infinitesimal amount of services that each of the thousands contributed toward producing the pencil. It is even more astounding to see how the pencil was ever produced. No one sitting in a central office gave orders to these thousands of people. No military police enforced the orders that were not given. These people live in many lands, speak different languages, practice different religions, may even hate one another\u2014yet none of these differences prevented them from cooperating to produce a pencil. How did it happen?\u201d Market and price mechanism made it happen.\u00a0<\/span>(Above quote is from Milton Friedman\u2019s. I made a few changes to make it more readable for non-economic readers.)\u00a0<\/span><\/p>\n

Authorities which set the benchmark prices and the officials in regulatory bodies such as Consumer Affairs Authority must understand these principles more than anybody. And those who promote home gardens must think of a better way to ensure national food security and it can. Otherwise their good intensions might weaken the capital formation in those sectors of the economy. Prices should reflect the amount of social resources used in producing something, instead prices should not reflect the whims and fancies of any administration. Let us build a more resilient market mechanism in post-pandemic era.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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