Effects of price control in Commodities Energy Efficiency & Audit Robin Neupane 075-MSESPM-16 1 Robert G. Mugabe and his ‘revolutionary policies’ of 2001 He used price controls to try to stay in power by currying favor among the poor. He imposed price controls on many basic commodities, including food, soap, and cement, 2 In 2007 He imposed more extreme controls in 2007. A government edict cut the prices of 26 essential items by up to 70%, and a subsequent edict imposed price controls on a much wider range of goods. Gangs of price inspectors patrolled shops and factories, imposing arbitrary price reductions. State-run newspapers exhorted citizens to turn in store owners whose prices exceeded the limits. The Zimbabwean police reported that they arrested at least 4,000 businesspeople for not complying with the price controls. 3 Reactions to those price control Initially greeted the price cuts with euphoria Yet most ordinary citizens were unable to obtain much food because most of the cutrate merchandise was snapped up by the police, soldiers, and members of Mr. Mugabe’s governing party, who were tipped off prior to the price inspectors’ rounds. which led to shortages of these goods, and a thriving black, or parallel, market in which the controls were ignored developed. Prices on the black market were two or three times higher than the controlled prices. Manufacturing slowed to a crawl because firms could not buy raw materials and because the prices firms received were less than their costs of production. Businesses laid off workers or reduced their hours, impoverishing the 15% or 20% of adult Zimbabweans who still had jobs. 4 Finally Zimbabweans faced starvation in 2008. Thankfully, the price controls were lifted in 2009. 5 Lesson learned Price controls are only effective on an extremely short-term basis. Over the long term, price controls can lead to problems such as shortages, rationing, inferior product quality, and black mar 6 References https://www.nytimes.com/2007/07/03/world/africa/03cnd-wzimbabwe.html https://www.telegraph.co.uk/news/worldnews/africaandindianocean/zimbab we/1359176/Zimbabwe-puts-price-freeze-on-basic-foods.html 7
