Guyana Oil Tax: Your Future
On January 13, the opposition PNC called for implementation of price control (ceiling) to address rising price of goods. This is an old idea of the PNC, seemingly in built in the political and economic DNA of the PNC. It was implemented around 1970 resulting in disastrous socio-economic consequence for the population. It was abolished in Hoyte’s economic reforms around 1988 as a condition for the UK and US restoring economic aid to Guyana.
President Irfaan Ali rightly rejected the idea of price control, stating “I would not ever take Guyana back to any system that did not serve us well”.
The PNC price control regime was a failure. It was meant to close down private shops -- most of which were owned by Portuguese, Chinese, and Indians. The Portuguese and Chinese were mostly the importers and distributors or wholesalers. Indians were retailers, mostly small shop keepers but there were some were distributors or wholesalers. Indian distributors would purchase from the Portuguese and Chinese and then wholesale to the smaller shop keepers. Burnham simply wanted to put the private sector out of operation. because they were from ethnic groups not supportive of his party, he targeted them in every which way possible to run them out of the country.
In a normal economy such as ours or US, prices are determined by the market and cost of production. There is a dynamic interaction of supply and demand – as well as cost of production, transportation, scarcity, preference by consumer, affordability -- that determine how much (if any) will be bought at any given price. Consumers will purchase more of a product as its price declines, all else being equal. Analogously, they will consume less if price rises. Supply and demand shift constantly in response to tastes and costs. Currently, prices are high because of scarcity due to the floods and transportation costs. Government must address those two issues and provide incentives for farmers to produce.
During the period of Burnhamism, Burnham introduced this looney idea of price control (fixed price) on goods. Price control simply means the government put a selling price per item (fixed quantity) of a good. Burnham implemented the policy years before he started banning food imports (that he called imperialist or White man food). Almost every food item had a price control. Even toilet paper was under price control. The price of them item had to be publicly displayed in front of it (on the shelf); if not posted, it was a hefty fine.
As a youngster, I helped to run a small shop. So I was well aware of the policy. Heavy fines resulted in selling above the controlled price. It did not matter for Burnham if the cost of the good is more than the selling price, the grocer had to sell at the controlled price or face a fine and jail time. The fixed price was the same all over the country-- on the Corentyne or in Essequibo or far away from Georgetown. Transportation costs were not factored in when determining the price of goods. The costs of almost every item was much more than the selling price. Government didn’t offer any assistance to grocers to make up for the difference. Shop keepers had to sell at a loss. Which shopkeeper would remain in business selling at a loss? It was simply unprofitable, unwise for grocers to stay in business. Shopkeepers found ways to “kak’ consumers so as not to lose money. They would sell the goods at the controlled price but lower the weight of the item; unsuspecting consumers didn’t pay attention to weight because most items were pre-packaged.and consumers didn’t bother to focus attention on the scale when goods were weighed. So instead of selling, as an illustration, one pound (16 ounces) of sugar for seven cents (government price), they would give 14 pounces. Ditto flour, dhal, alou, onions, garlic, channa, boradhal, chaoor (rice), salt, etc. For canned (sardines, corned mutton, tomato paste, etc.), or bottled items, or toilet paper, etc., shopkeepers won’t put them out on display for sale. Only when consumers asked for those items, they would be told the practical (not government) price. The shopper decided whether to purchase the item. The shopkeepers only sold items above price ceilings to those shoppers they knew personally and who would not report them to the food police. In all instances, shoppers or consumers paid the demanded non-controlled price. Consumers or shoppers knew that the fixed price items were not profitable for shopkeepers and they could not be obtained elsewhere. As an illustration, how can a tin of sardines be sold for the same price (24 cents) in 1970 in Georgetown and in Port Mourant? There was not transportation or labor costs to move the sardines from Georgetown to the Corentyne. Goods were often not sold to far off locations by Georgetown wholesalers because they were forced to supply to retailers at fixed prices. So goods became scarce in West Berbice, Corentyne, West Bank, West Coast, Essequibo, etc. Shopkeepers from far off areas had to go to town and purchased their goods at fixed prices. And inevitably, prices went up (sold above price controls) because grocers had to factor in transport and labor costs. The government didn’t take into consideration in setting prices compensation for spoilage and spills. Many items were perishables that would lead to losses? Didn’t the Burnham government recognize the idiocy of its policy? Was the policy driven by race? Almost all the stores were owned by Portuguese, Chinese, and Indians. Almost all the importers were Portuguese and Chinese and they did the wholesaling. The larger Indian stores also served as wholesalers and distributors. Almost all the retailing and community shops were owned by Indians even in Mixed neighborhoods and African villages. Then the import ban came as well as government control of all imports and exports in offices staffed by supporters of the PNC. The Portuguese, Chinese, and wealthy Indians and Mixed packed up and left the country running successful businesses in US, Canada, UK, and Barbados. Guyana’s economy collapsed. banned goods were sold in the underground economy for several times the price when consumers purchased before they were banned.
Price control led to the collapse of the Soviet bloc and was one of the causes for the low growth of the Indian economy. China’s economy ballooned because of the introduction of the market economy in the 1980s. Price control was failure in Guyana under PNC. Desmond Hoyte rightly ended it. President Irfaan is right to reject PNC’s proposal to return to price controls. It will lead to ever increasing shortages and rising prices of the very items that would have to be sold underground as happened under the PNC ethnic dictatorship.
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