Who said govt can’t intervene in rising prices?

By Prof. Augustus Nuwagaba

Obama has intervened in the US financial crisis. Is our government saying Uganda is more economically liberal than America?

The protests over rising commodity prices in Uganda have posed a huge test to the government on how sensitive it is to the needs of the people. The commodity prices have skyrocketed while the fuel prices have now become unaffordable by the majority of the people except the corrupt whose demand for the basic commodities is inelastic to price. I realised that the situation is unbearable when I failed to buy a tin of fresh beans (my favourite dish) on my way from Kabale two weeks ago. When I asked the little girl, who was vending the beans by the roadside in Masaka, about the price, she told me Shs6,000 for a tin I used to buy at Shs2,500 previously. I did not believe the small girl. Considering her age, I thought she did not know the actual price. I demanded that she calls an older person from her home nearby. She obliged. To my amazement, the older woman came only to confirm the very price the little girl had told me. I could not believe that in a spell of less than a month, the price of fresh beans had been increased by 140 percent. Incredible!

As regards fuel, every week since February 2011, there has been a hike in pump prices of petroleum products. People in Kampala have only been crying of petrol and diesel prices but in the villages in Kanungu, where I was two weeks ago, people can’t afford paraffin for todooba (a small local tin lamp that uses kerosene) and have resorted to using glowing splint (orumuri in local vernacular, reminiscent of the period of scarcity during Idi Amin’s regime).

What does all this mean? In Uganda there are two types of people; those who have amassed so much wealth that they do not even know the amount of money they have and; those who are unlucky to have one meal in 24 hours and do not know where the next meal will come from.

It is therefore not only surprising but also unimaginable that the government which should have provided hope and comfort to the suffering population has instead affirmed in chorus that there is nothing it can do to help the people and that it would be a sin to intervene in the escalating prices of fuel and basic commodities. What reason has been given? That Uganda runs a liberal economy where the private sector is the engine of growth and where laissez-faire is the determinant factor for the survival of every one. That it would be abhorred to intervene in price controls and therefore it’s the price mechanisms (forces of demand and supply) which will sort out the people’s dilemma.

Some government stalwarts have sarcastically gone further and argued that in fact, the high food prices are good because farmers will fetch “supernormal” profits from their agricultural products.

Imagine such an argument! How about the price of transporting the very food products from the farms to the markets? Won’t the high transport costs “eat up” the would-be supernormal profits? It’s true Uganda’s economy is built on neo-liberalism, where ideally, the government should not intervene in price controls. However, who said that it is sacrosanct that a neo-liberal economy means absolute “government hands off” from ensuring the welfare of its people? What then would be the relevance of government? Does Uganda claim to be more economically liberal than the United States of America, the mother of global capitalism and economic liberalism? Yet, when the American government realised the calamity unleashed by the recent financial crisis, President Barack Obama had to come up with a stimulus package- the mother of all “fiscal stimuli”. In the words of Ben Bernanke, the chairman of the Federal Reserve of America (equivalent of our Bank of Uganda Governor, Tumusiime Mutebile).

The US government intervened because they did not want a repeat of the 1930 recession when the then government folded its hands while the recession wrecked the American economy and occasioned untold suffering to the ordinary people.

The US government had to intervene and rescue collapsing banks and it is common knowledge that it is this intervention that restored sanity in the global financial markets and hence arrested the financial crisis. This single action by the American government defeated lamentably all fallacies of the power of the market forces as a determinant of growth. It showed that laissez-faire is a rotten foundation for any economy.

To people like Professor Ephraim Kamuntu (Minister of State for Finance) , coming up with such a flimsy reason that the Uganda government cannot intervene in such an economic quagmire (escalating prices) as it is in Uganda now, we only say you have ashamed us- the graduates of London School of Economics. Did you not study the difference between “classical economics” (lassez-faire economic models of demand and supply) and “Keynesian economics” (the need for interventionist approaches)?

I am sure Kamuntu knows which among these economic models is more popular globally. Or has he simply refused to do what he knows? If Kamuntu refused to do what is good, that amounts to intellectual dishonesty or moral muteness.

Most of our leaders know what to do, but they simply suffer from moral muteness. This is the highest level of hypocrisy which borders on a crime of capital offence.

Governments across the globe have had economic crises and have intervened in the operations of the economy to protect and ensure people’s welfare. The Kenyan government has realised the sensitivity of the needs of its people and intervened to fix the prices of petroleum products. This is moral responsibility that people seek from their leaders.

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Prof. Augustus Nuwagaba is professor of Economics at Makerere University Kampala