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Mauritius: Intervention and Nonintervention in the Market
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L'Express (Port Louis)
COLUMN
27 August 2007
Posted to the web 27 August 2007
Ahmad Macky
Port Louis
The recent celebration of the 40th anniversary of the Central Bank of Mauritius and what has been discussed at that ceremony regarding our marketing system invites some analysis.
Both the government and the Central Bank are agreeable for an intervention (if need be) and nonintervention (if there is no need to) in the market. Speeches from both Finance Minister Sithanen and Mr Bheenick, the governor of the Central Bank seem to give us a clear indication that there will be intervention and non intervention in the market in future.
Government intervention in the market can itself lead to problem. The case for nonintervention (laissez-faire) or very limited intervention is not that the market is the perfect means of achieving given social goals, but rather that the problems created by intervention are greater than the problems overcome by that intervention. The proponents of laissez-faire, therefore, concentrate on (a) criticizing government intervention and (b) demonstrating that the problems of the free market are relatively minor.
If the government intervenes by fixing prices at levels other than the equilibrium, this will create either shortages or surpluses. If the price is fixed below the equilibrium, there will be a shortage. For example, if the rent of HHDC and other council houses is fixed below the equilibrium in order to provide cheap housing for poor people, demand will exceed supply.(...)
If the price is fixed above the equilibrium price, there will be surplus. For example, if the price of food is fixed above the equilibrium in order to support farmers' incomes, supply will exceed demand. Government will have to purchase such surpluses and then perhaps store them, throw them away or sell them cheaply in another market, or ration suppliers by allowing them to produce only a certain quota or allow suppliers to sell to whom they can.(...)
The government may not know the full costs and benefits of its policies. It may genuinely wish to pursue the interests of consumers or any other group, and yet may be unaware of people's wishes or misinterpret their behaviour. It may be poorly informed of the consequences of its policies, particularly if there is a considerable range of possible outcomes and if the factors influencing such outcomes are themselves uncertain.
If government intervention removes market forces or cushions their effect (by the use of subsidies, welfare provisions, guaranteed prices or wages etc ), it may remove certain useful incentives. Subsidies may allow inefficient firms to survive. Welfare payments may discourage effort. The market may be imperfect, but it does tend to encourage efficiency by allowing the efficient to receive greater rewards. It also encourages factor mobility into those sectors of the economy offering higher rewards.
The economic efficiency of industry may suffer if government intervention changes too frequently. It makes it difficult for firms to plan if they cannot predict tax rates, subsidies, price and wage controls etc Government policy is likely to change with a change in government, but even existing governments may change policies as they succumb to various political pressures or as a general election approaches.
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The economic issues before the electorate are often highly complex. The average voter is unlikely to appreciate the costs and benefits of the programmes of alternative political parties. Voters may be highly susceptible to political propaganda and deceit. That's a government programme may not really represent the "will of the people".
Once elected, those in power may pursue their own interests rather than those of the people. Governments may not follow through the programmes on which they were elected. Also, the government may have a majority of seats, but have been elected by only a minority of the population.
One of the major arguments put forward by those advocating laissez-faire is that government intervention involves a loss of freedom for individuals to make economic choices. The argument is not just that the pursuit of individual gain is seen to lead to the social good, but that it is desirable in itself that individuals should be as free as possible to pursue their own interests with the minimum of government interference, that minimum being largely confined to the maintenance of laws consistent with the protection of life, liberty and property.
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