Will early market closure help?

Here we go again. As expected, with the arrival of summer, problems related to the provision of electricity have raised their ugly head again. The ever-widening gap between the demand and supply of electricity refuses to go away.
But what is even more confounding is the lack of any viable solutions to this problem. Stop-gap measures like rental power plants have muddled the scenario further. The latest hope comes in the form of the projected Chinese investment in energy, which will take a relatively long time to materialise.
In the fight against this gargantuan problem, one of the favourite weapons in the armoury of our decision-makers has appeared in the form of proposed early closure of markets. This has been tested before, and is now being tested again after the Council for Common Interests (do we even have one?) approved early closure of marketplaces by 8pm.
At best, these kinds of steps only serve to expose the lack of any concrete ideas on part of the decision-makers. At worst, it’s the typical continuation of administrative measures that defy logic, and are based on faulty precepts that are bereft of any careful analysis.
Let’s try to discern these official actions in the light of logic. The first one is the assertion that traders should open markets early and then also shut shop early. This will take care of the problem of loss of time due to early closures. Well, this rather benign notion fails to account for the fact that for traders it is not time per se that matters, but the time when most customers are expected to visit the market. That time does not begin early (when the government wants traders to open shops) but rather begins late (when the government has decreed the closure of shops).
We can gauge that there are two sets of people who face a loss due to this: traders (in terms of forgone income) and consumers (in terms of leisure and variety). But there is also a third, less noticed loser: the government itself. I am sure this will surprise many (including the government) but there is an explanation for this – in the coming paragraphs.
Back to consumers and traders. Many of the consumers belong to the working class, and after a gruelling summer day are in need of some leisure activity for relaxation. Amongst the few options available, a major one is roaming the markets. In the summers, the weather becomes less suffocating only after sunset. By that time its almost 8pm, which is now the official time to close down markets. So consumers end up losing that option. It is pertinent to mention here that leisure has no substitute.
As for traders, are they not already contributing to saving energy by opening late in the morning? Perhaps our decision-makers are in possession of some numbers that clearly reflect substantial electricity saving by opening and closing early. But I have yet to see these. At the moment, we can only guess. Moreover, what do we expect them to do after shutting down early? Wouldn’t they be using any electricity at their residence? The end result may be little saving (if any), and lots of acrimony between the business community and the government.
I mentioned above that there is a third loser in this strategy, the government itself. To understand why, one will have to understand a simple economic distinction between cities and rural areas. Cities are the engines of growth, while rural areas don’t have that kind of economic dynamism. Cities are engines of growth because the opportunities for exchange, work, flow of ideas, income, resources, etc, are far greater here than in the rural areas.
And economic growth also has an important aspect in the form of opportunities to earn more revenue through taxation. Indirectly, increase in economic activity is a reasonable proxy for increase in revenue. Business, being an important part of a city’s economic activity, is also a good resource of revenue generation. Curtailing business, especially in peak hours, is akin to curtailing probable revenue. In this sense, closing shops early will cost the government and affect prospects of overall GDP growth as well.
There’s another cost to the government, an important one but often neglected and rarely considered. This again concerns revenue, but is rooted in the simple economics of demand and supply rather than taxation. But before I attempt to explain this, let me give a very recent example to make it even clearer.
This past Saturday saw the richest mega fight in boxing history; it took place in Las Vegas. A day before the fight, there was the customary weigh-in. The tickets for weigh-in were ‘fixed’ at $10. But the demand to just have a glimpse of the fighters was so immense that tickets actually sold for $300 or more. Remember that this was not the actual fight, where the tickets for the nearest seat to the ringside sold for millions. The argument here is that demand was so immense that the final price settled well above the ‘fixed’ price.
Ask any trader (or for that matter a consumer) and he will tell you that his real problem is the provision of electricity and not its price. And as far as the government is concerned, it’s the ‘seller’ of electricity, selling it on a fixed price. The markets dynamics here are the same as the one described in the above example; demand far outstrips supply.
Just like tickets were selling at $300 rather than the fixed $10, electricity can be sold at a much higher rate during peak market hours. This will bring in much needed revenue from the sale of electricity at a higher price, which can then be ploughed back into the production, transmission and distribution of electricity for increasing the efficiency of this extremely inefficient system (rather than taking on more debt for this sector). Just imagine the kind of revenue that could be realised by rational electricity pricing during peak hours in cities like Karachi and Lahore.
There is much more to write on this very interesting topic, including the fact of economic history that ‘fixing’ a price rarely (if ever) works (for interested readers, the famous price edict of roman emperor Diocletian offers the earliest example of this folly). Yet, somehow, governments cling onto it.
To cut the story short, if the government wants to act as both producer and seller, then it should be good at realising opportunities for profit-making in line with demand and supply basics. Tried and tested slam dunks like early market closures won’t help the government’s cause much, especially when it comes to solving the critical problems of energy shortages. It has to think out of the box and come up with unorthodox solutions.
Just take the example of Tesla’s new batteries, which have the potential to make the need for electricity grids and poles redundant. This is how serious people come up with serious solutions.
And last but not the least, why should traders be penalised for electricity shortages? Are they responsible for the problems afflicting the energy sector? Take, for example, the Gomal Zam Dam which started production last year. It was initially approved in 1963. So who is responsible for this half a century delay? Shouldn’t the people responsible for this delay be penalised?
The writer is a researcher and has taught at Bahria University and Iqra University.
Email: shahid.mohmand@gmail.com