Underground Economy Thrives When Governments Issue Mandates Replace Market Forces...and The Results are Deadly

There is a lesson for Americans coming out of the Egyptian bread riots.  Anytime government attempts to replace market forces with command and control government edicts, it leads to shortages, especially among the poor, with deadly consequences....and a thriving underground economy. 

To quell the riots, Egyptian President Hosin Mubarak ordered the army to the bakeries to bake the bread.

Buried toward the end of the USA Today front page article on April 30 about Egyptian tensions over the scarcity of wheat for bread is a section titled:   A government-fed problem.

"The government keeps bread almost free--one loaf costs less than a penny---by subsidizing the wheat to produce it (bread).  However, the system is vulnerable to widespread corruption."

In recent months, as the global market price of wheat rose steadily higher, bakers began selling their subsidized flour to private bakeries rather than using it to make bread for the poor.  Fifty-pound sacks of flour purchased from the government at a steep discount could be resold on the black market for roughly 10 times the subsidized price."

"With the global food crisis roiling from Asia to the edge of Europe, at lead 11 people have been killed recently in such (bread) lines here (Cairo), struggling to get their daily bread."

Again, there is a fundamental lesson here for American politicians who want government to take more and more control over our market system, whether it be over health care, energy or food production.  Command and control centralized governments where bureaucrats replace entrepreneurs collapsed the Soviet Union and stifled creativity and innovation.  Simply put, heavy-handed government is not sustainable especially during periods of short supply and when prices spike. The consequences are especially harsh on the most vulnerable.

Americans pride themselves on creativity and innovation. Our federal, state and local governments ought to set workable laws and regulations which protect our health, public safety and environment and then get out of the way.  Instead, today those we have elected seem bent on more regulations, setting unworkable mandates, and ignoring costs.  We just tend to ignore the details in our quest to be either the leading city, first state to try something, or the nation which will show the world by our example.

They need to remember there is a difference between an incentive and subsidy.  Incentive spark markets and innovation.  Subsidies suppress market forces. Egypt's problem dates back to 1960 when the government started subsidizing wheat for bread.  Today, Egypt is the world's largest importer of wheat, placing annual orders for seven million tons which is roughly half of its consumption. When the prices spiked and supplies declined, Egypt was in trouble.

Egypt is in a really pickle, but it is not alone.  The United Nations' Food and Agriculture Organizations estimates that 37 countries face a food crisis.  By today, World Bank President Robert Zoellick hoped to raise $500 million from the international community to help those nations avert rioting and alleviate hunger.  As always, the United States was one of the first to pledge its money.  President Bush immediately sent $200 million in aid.  It will be interesting to see what other "have" nations do to help the "have nots."

Don C. Brunell, President (DonB@awb.org)

Comments

[RR Anderson]

government regulation eh? That's what caused the food riots? So by your reasoning deregulation would lead to a bounty and surplus of food? Hmm. Seems like that's exactly what a pro-business association would say.

Why don't starving people just buy food with their credit cards? I mean we're paying for a war on our credit cards... so far so good.