When will the government settle on formulating priorities?
When demand for a commodity, at prevailing price, exceeds supply, basics of market economics tell us that letting price increase will clear the market. Price rise will dampen demand and it will increase incentives for more supply and hence we move towards market clearance. Economics also tells us that it does not matter how inelastic (non-responsive to price) demand and supply are, as long as they are not absolutely inelastic, which is rare, we will have the said response and the move towards market clearance.
But if prices cannot be raised, for whatever reason, we will have a situation of unmet demand and will need to figure out some method of rationing if we want to avoid chaos in this market. And there can be very important and valid reasons for holding prices down. The government might not want to discourage certain activities or investments, it might fear public unrest, there might be fixed cost or sunk cost issues, especially with some industries/commercial activities, which the government might not want to incur and so on. But if prices are not allowed to rise, or cannot rise to clear the markets, we will have excess demand situation and will need to find some way of rationing the supply amongst people demanding the good/service.
If the government has valid/important reasons for not allowing prices to rise, that might be the place to look for, for priorities on rationing too. For example, if wheat prices are controlled for the benefit of the poor, and in particular urban poor, ration shops where people are registered to receive wheat at controlled prices (as used to be the case for wheat and sugar up to the end of the ’70s) or utility stores where the requirement to stand in queues helps with sorting people (those who can pay higher prices do not like to line up and wait) are needed.
The case of electricity is clear. We cannot raise the prices of electricity too much as we feel the baseline consumer should not be burdened too much, we cannot make our local energy cost too high or our industry becomes non-competitive, and higher prices increase incentives for stealing electricity. We have been using loadshedding as a means for rationing but the criteria for deciding who gets electricity and who does not have been extremely unclear and quite unjust as well. Perception has been that rural area have been discriminated against, large parts of Balochistan have taken a heavy brunt, and in urban areas relatively less well-off areas have taken a heavier burden than the richer ones.
More importantly, the prioritisation between industry/commercial activity and domestic consumer has not been clear. This has definitely been a weakness of this government. Domestic usage is important, and not having electricity imposes heavy cost on consumers, especially at the height of winter and summer, and at night when light is needed. But to starve industry hits us twice. It reduces output and employment which reduces current as well as future income. And this can lead to a downward spiral where lower output/employment lead to lower investment and consumption, and then to lower output/employment. Should the government not have prioritised industrial/agricultural supply over domestic one? But we saw that the government was much more concerned about the hue and cry from the domestic consumer than the loss that we were incurring due to electricity outages to industry.
The government was very worried about consumer unrest, especially in urban areas. After some serious rioting in Gujranwala, the government moved immediately to ensure more supplies for urban centres. There is a very high level of lack of trust, by the public, in the government. People do not believe what the government announces and they always feel that every government decision is taken to further the interests of those in power or other powerful interest groups. Part of this is driven by general distrust of the government coming from other issues, but part of the distrust has to do with the general feeling that government policies are not based on equity and fairness and do not treat citizens as equal citizens.
Why should electricity loadshedding not happen at the President House, Prime Minister House or Army House, why should citizens of Islamabad be treated differently than the citizens in the rest of the country, and why should the same distinctions be made between urban and rural citizens? Given the distinctions, how can people trust what the government says? And if there is no trust, clearly rationing will be messy and not in accordance with even announced priorities, and of course, the distinctions are not the priority that makes sense for us. Furthermore, the fact that powerful groups get away with pressurising the state and getting their way means there are incentives for groups to do that.
The same dynamics can be seen in the gas sector now. Demand is much higher than supply, at the given price. But the government is doing the same song and dance of not prioritising properly and clearly, not following up, not doing things transparently and equitably, and being open to pressure from powerful lobbies. Once again industry is not being prioritised, again to the detriment of production and employment, and at the cost of future income. Public transport is not being prioritised and all CNG consumers are being treated as a monolith. The government is not resorting to time-of-day load management ensuring supply to domestic consumers in the morning and evening (for breakfast and water heating in the morning and cooking in the evening) but focusing on industry for most of the day. Even within industry, there are no available criteria that make more sense for us to provide for more than others. The only known criteria seem to be: who can bring more people on the street against loadshedding and create more pressure on the government.
Rationing will definitely involve loss, for one group or another, and for the country as well. The idea should be to attempt to minimise the current loss and prospects of any future losses from current actions. Leaving aside the larger issues about producing enough electricity or gas, we have to ensure we use well what we have. Currently, we are not doing that. And the losses, from mismanagement, seem to be quite large.
The writer is an Associate Professor of Economics at LUMS (currently on leave) and a Senior Advisor at Open Society Foundation (OSF). He can be reached at [email protected]
