Newsgroups: bit.listserv.slovak-l
Date:         Wed, 16 Dec 1992 23:19:51 PST
From:         lhdsy1!HOVMB.HOU281.CHEVRON.COM!TKMARC@UUNET.UU.NET
Subject:      Bread

Marian Kubaska writes:

> Mr. Marcinka,
> I have no doubt that it is convenient for you to criticise my
> "socialist" views (may be you are more socialist than I am) from
> the USA. (Excuse ne if I'm wrong).
>
>
> > Mr Kubaska, I have a bit of trouble understanding how will the
> > government control of prices help CS (or S) on the road to market
> > economy?
>
>   It could prevent the social revolts that won't be of any help to it.
>
>   You may have a look at my previous posting, where I put down that
>   only basic food and housing have to be regulated. And regulated in
>   such a manner that disables enormous profits of some "businessmen".
>   I spent some time in US and Canada so that I know what the usual
>   family shopping looks like. But here are no such possibilities as
>   take a car drive all town up and down and buy the foods where the
>   prices are lowest because you know it from the adds in your
>   newspaper. We have some businessmen here that take it seriously and
>   try to keep the prices as low as possible (fortunately this is the
>   case of the part ot the town I live in). But what would you use
>   against former communist potentate that defrauded money then
>   privatised the only store in suburb and now is selling bread for say
>   20 KCS ?

I can understand the frustration one must feel in the situation you're
describing. The question is, what can be done to improve it.

Although intervention (via price regulation, subsidies, or any other
direct control) seems like a very attractive option because it works
fast and it appeals to the sense of "social justice." The problem is
that it invariably fails to solve the problem--it treats the symptoms,
without touching the core of the problem.

Take the example of your ex-commie selling bread for 20 Kcs (soon to
be Ks :-)). If you make our dear ex-commie sell his bread for
12 Kcs, he will do one of two things: use rotten flour he can buy
at discount, so that he can still make a huge profit, or close the
grocery store and open a boutique. As a result, the consumer has
less choice, poorer quality, and perhaps a ride across town to find
a grocer willing to put up with being regulated.

On the other hand, if our dear ex-commie can make huge profit selling
20 Kcs bread, anyone
else can make not-so-huge-but-still-hefty profit selling 18 Kcs bread,
and given the opportunity, there will be others who will settle for
just regular profit selling 12 Kcs bread. Then, the ex-commie will
either match the market prices, or make better bread that some people
are willing to pay 20 Kcs for. Or, he will go out of business. As a
result the consumer will have more choice, and cheaper and better bread.

Of course, this is an ideal scenario, and in reality there are factors
that complicate matters. For example, based on the reports in media
and personal communication, much of the market in CIS (former Soviet
Union) is controlled my mafia, and they will use any means, including
coercion and brutal violence (breaking both legs is one of their
approaches) to control the market and prevent others from accessing
it.

Another barrier, very common in Latin America, is bureaucracy.
Francis Fukuyama on p. 105 of his book "The End of History and the
Last Man" cites an example from Peru, where "going through eleven
bureaucratic procedures required took 289 days and a total cost
of $1,231 in fees and lost wages (including the payment of two
bribes), or thirty-two times the minimum monthly wage." By comparison,
in California it takes about 10 minutes and $30 for publication of
the fictitious business name (a legal requirement), about 10 minutes and
$20 at the City Hall for the Business Licence, about 15 minutes at the
State Board of Equalization (what a name) for the Seller Permit
(for collecting the state sales tax), and about 10 minutes at the
bank to open the business account. It can all be done in less than
one afternoon in a bad traffic.

Instead of intervening in the economy, the government should create
and enforce laws against barriers such as the two listed above and many
others (such as anti-trust laws, consumer protection, etc.). But if you
try to jump-start the free market economy by removing the "free" from
it, you may be stuck eating bread made out of rotten flour
sold by ex-communists at regulated prices.

--Kamil Marcinka (Internet address: tkmarc@hovmb.ion.chevron.com)
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