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The Argument against “Government Knows Best” - The Maize Illustration.
05. April 2019 at 09:01
The free market with its demand and supply mechanisms interact with one another to determine the prices of commodities. However, now and then, the government may intervene in the market with good intentions but this more than often hurts the very people the government set out to protect.

One of the popular notion in Africa is "Government knows best". So for any problem, the suggested solution is often preceded by "Government should". Hence, too many governments in Africa interfere with the smooth operations of commodity markets in order to placate certain special interest groups such as consumers. But quite often, state interventionism hurts the very people the government set out to protect, as I will go ahead and illustrate.  

Let's assume consumers in an African country A, complains and demands their government take action against the increasing prices of maize on the market which currently sells at 2000 naira a bag. And the government abides and imposes a maximum price or a price ceiling of 700 naira on a bag of maize above which it will be illegal to sell maize, to soothe the consumers. As the government forces producers to accept the price of 700 naira on a bag of maize, three things happen.

First, because human beings everywhere operate by incentives, producers of maize will start smuggling their produce to country B, especially if the price of a bag of maize in country B is substantially greater than 700 naira for a bag of maize. The smuggling of maize from country A to country B with a relatively unchanged demand for maize in country A leads to a chronic shortage of maize in country A.  

Second, because producers of maize produce or sell maize to make profit, they will under-produce or cut back on the production of maize and grow or produce something else, after they realize that the government imposed price on maize is less than what they can get on a market where prices are determined by demand and supply forces. The immediate effect of this will be a shortage.

Third, because the imposed price on maize is generally lower, it artificially cheapens maize and thereby induces greater consumer demand for maize. Also, since producers don't want to lose money on maize, they will withdraw the existing bags of maize on the market from sale. Subsequently, consumers who go to buy maize will find that there is no maize. But if one is willing to pay significantly above 700 naira for a bag of maize (government imposed price), there would be plenty of maize to be purchased. This inevitably leads to another appalling phenomenon called the "Black Market" where maize will be sold above the official government sanctioned price. What's more, this problem leads to the illegal hoarding of maize to be later sold in the "Black Market" which eventually translates to the chronic shortage of maize on the original market.

So irrefutably, prices are determined by the market forces and no government in this whole world can successfully impose price controls and battle market forces. And unfortunately for African countries, government policies to make basic commodities available at reasonable prices flout not only the laws of economies but also common sense. At the same time, it hurts the African people.

Cite This Article As: Nana Kwaku M Asamoah. "The Argument against “Government Knows Best” - The Maize Illustration.." International Youth Journal, 05. April 2019.

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