Cause for concern

LAHORE: Consumerism triggered the unpredictable inflation that we are facing today in our country. It arbitrarily redistributes wealth from savers to debtors and discourages people from holding financial assets. Citizens must forgo consumption today in return for higher standards of living tomorrow.

Inflation is partly because of flawed government policies, but consumerism in Pakistan continues to put pressure on prices. When there is shortage of any item, the purchase of which could be delayed or avoided, consumers in our country take the prices so high that it becomes out of reach of the majority and an incentive for hoarders to manage supplies. It stands true for both food and non-food items.

Prices tend to increase because of various reasons like increase in international commodity rates, decline in production or unusual increase in demand (like sudden change in weather from warm to cold or higher demand of some medicine suddenly required in very large quantities like paracetamol these days).

Consumers in Pakistan are undisciplined. If there is a shortage of any food item like wheat flour, rice or edible oil they would rush to stock these items much beyond their needs. In many cases they may consume the stocks for months. The mild shortage turns into acute shortage and takes prices to unbearable levels for the lower strata of the society. Almost 50 percent of Pakistanis procure their food needs on a day-to-day basis. After the increase in prices, resources of the poor became insufficient to procure these items.

The mentality of the rich is not restricted to food but on all other items. Many famous textile designers have minted money by producing limited quantities of their fabric designs. They then invite a few hundred rich buyers for dinner at their farm houses where they offer their signature designs for sale at two to three times the normal prices. They usually sell their stock within an hour.

The buyers just want to show off that they were the first to wear the signature design of the fashion designer. Later, the same version of the same quality is copied by some producers which they market at 1/10th the original price.

With this general mentality, it is an uphill task to control prices. In a poor country like Pakistan, domestic demand is no substitute for the current liberal global market. Its home market is small and relatively “inelastic”. Its consumptive elite classes usually do not like what the home producers make and prefer imported stuff.

All successful economies promoted domestic savings by making their financial systems less ready to extend consumer credit. By doing so they forced their citizens to save.

The economic wizards of the government want to curb the imports by increasing import duty and other regulations like opening of letter of credit on 100 percent cash. These measures may not impact the import of luxury cars that the filthy rich segment of the society is prepared to buy at any inflated price.

These measures would curb import of smaller smuggling prone items like cosmetics, food products and milk preparation. The regulatory institutions have failed to curb smuggling in the past; it benefits them as well as the smugglers.

The International Monetary Fund does not factor in this attitude of the consumers in Pakistan and suggests strategies that are applied successfully in other countries. Its insistence to go on increasing the petroleum levy to increase revenue from petroleum products and at the same time reduce its consumption has not worked in Pakistan. Consumption of petroleum products in Pakistan has increased regularly although the price of petrol has increased from Rs81 per liter to Rs146 per liter. Increase in petroleum product rates triggers inflation all over. Ideally the petroleum prices should be increased in line with increase in international prices, while the taxes and levies should remain the same.

Our governments are not fiscally responsible. They spend money in the same mode of consumerism that is the hallmark of our citizens.

They run from pillar to post to get loans for their consumptive policies. Running high budget deficits in the short-term is not bad if the government remains fiscally responsible. All the economic managers must do is to ensure that the public debt does not get out of hand by ensuring that the economy grows faster than the stock of public liabilities. Growth is about more than economics. It also requires committed, credible, and capable governments.