Below are links to several articles about the use of price controls in the Philippines.
The first article from Reuters is about specific price controls on certain drugs that began last summer.
http://www.reuters.com/article/latestCrisis/idUSMAN479215
This is a press release by the Philippine Information Agency about price controls that were imposed by the government after the devastating typhoon that hit the country earlier this month.
http://www.pia.gov.ph/?m=12&r=&y=&mo=&fi=p091008.htm&no=83
And here is a news article about those same emergency price controls.
http://www.philstar.com/Article.aspx?articleId=510779&publicationSubCategoryId=63
We have spent a lot of time criticizing the use of price controls, like the price ceilings used here. But are there times when they are justified?
Use what you know about economics to comment on these price ceilings in 10 sentences or less. Remember, discussing in depth is preferable to breadth!
Barnali Dash
ReplyDeleteThough price controls have a lot of negative impacts on the economy, they are necessary at times.For example, price ceilings were set in the Philippines in the wake of the cyclone Ondoy.If the government does not interfere then the suppliers will exploit the consumers by rising prices to unreasonable levels. charging high prices in such adverse situations will be inhuman.But at the same time if price ceilings continued,the suppliers will not be able to cover their costs and go bankrupt.In that case price control will only be a good transient solution, while subsidies will prove to be a good option in the long run;as it will not only kick start the economy but also create jobs.The governments actions to protect the consumers are favorable and the buffer stock scheme for rice, which is the nations staple food crop, and the efforts to help rice farmers will stabilize that sector by naturally bringing prices down and maintaining high supply of rice.
It is important to note that if the government does not take necessary measures to help consumers rebuild their lives after such disaster it will lead to long lasting problems which would make the entire economy inefficient. For example, lack of proper nutrition will disable the workforce and thus affect every sector in the nation.The longer it takes the economy to recover the more resources are misused and more corruption plagues the society,with the less fortunate population being the obvious target. I agree with the pharmaceutical industry when they say that permanent price ceiling "is not the best approach",though temporary controls are more reasonable. Permanent price ceiling in this case might prove to be a vicious cycle, as small suppliers will go bankrupt and larger producer will start cutting on production. This will lead to shortages in the market and will remove the incentive for companies to invest in research and development facilities. Even though this price ceiling is intended to make important drugs available to the poorer population, this is unlikely to happen as the drugs continue to be too expensive for them.
Price controls affect the economy drastically in almost all of the situations, but there may be times when these are necessary for a country. Philippines was hit by successive typhoons which resulted in the government, putting price control on basic and prime commodities. Prices of basic necessities were automatically frozen at their prevailing prices. This step of the government was beneficial here as it protected the consumers from price manipulators and speeded up the rehabilitation of the affected areas. Therefore, if properly implemented, price control can indeed be a blessing as it punishes profiteers who take advantage of consumers, especially during a calamity and deters retailers from unjustly increasing their prices because of the penalties imposed. On the other hand, if the price ceiling is made too low, the retailer would rather not sell the product instead of losing money resulting in no supply and a shortage would be created.
ReplyDeleteI agree with Barnali on the fact that in this case, the government interference was a must or else the condition would have been worse. But, in the case of drugs, simply lowering the prices of drugs or medicines that the patients buy from available markets remains an ambiguity unless hospitals and doctors are to be subjected to a similar mechanism that sets to regulate or control the table of fees demanded from patients under treatment. Absent that, the law is only cosmetic even perhaps useless for its short sighted motive. A lot, therefore, depends on determining the correct price ceiling.
http://business.inquirer.net/money/topstories/view/20091015-230275/Price-controls-Blessing-or-curse
„The enforcement of price control is to provide protection to consumers by stabilizing prices and supply of basic and prime commodities, particularly in areas that have been affected by disaster or calamity.”
ReplyDeleteIn class, we have learned that price controls are the worst solution the government could set because the consequences (e.g. shortages, surplus, etc.) are always bad for one or more stakeholder groups. However, I believe that the situation in the Philippines is different. The price ceiling helps the consumers to have a chance to buy the products and stops producers to take advantage of such a catastrophe. The difference between this price ceiling and the common ones is that the price ceiling is set on the equilibrium before the catastrophe and not under the equilibrium.
Still, the price ceiling in the Philippines should be taken away a fast as possible, because if it stays, it will make the same consequences as the common price ceilings. Which will result in bankruptcy of firms and shortages. This will mean that the consumers will have it much harder to get what they need and would their lives even harder as before the price ceiling was set. As well as that, I believe there always will be people who want to take advantage of such a catastrophe and would sell their products on the black market, although this would be morally incorrect.
Thus, in the situation of the Philippines a price ceiling is justified, as long as it is only there for a short period of time, until everything has been somewhat stabilized. As is would be morally false to have producers take advantage of the people in such a catastrophe.
The government has put price ceilings on medicines, funeral services and cements. They are essential to help victims get out of their situations as soon as possible. We learned that price ceilings create black markets and shortages; all negative. However in some cases, like this one, price controls are needed. Otherwise it would be inhumane as Barnali mentioned. Price controls have to be temporary solution in order to stop other damages such as retailers going bankrupt, affects on other industries etc.
ReplyDelete(Less than 60 days according to Philippines Price Acts)
Normally the biggest problem would be that producers reduce the amount supplied. In this case however, key pharmaceutical companies and other businesses have declared to ‘voluntarily undertake’ the situation by continuously supplying products with stable prices.
With cooperation of companies and government, the situation will get better soon and hopefully the economy will recover with people going back to works doing economic activities!!
Price controls are justifiable when there are times of natural disasters, but these price controls should not be abused. In the case of the tropical storms in the Philippines, price controls are a reasonable implementation from the government, but only on essential products and services, such as funeral services, car repairs and basic foodstuff. Even though past experiences, like the price controls in Zimbabwe in 2008¹, have taught the negatives of price controls, which includes stampedes, hoarding and shortages, the damage from the Ondoy storm is a situation where actual human lives are at stake from a natural disaster not because of an economical error by consumers, producers or the government. They should therefore, all help, such as accepting theses price controls, like the pharmaceutical companies in the Philippines has done, saying ‘it would abide by the law’. However, the government must still be careful in what they put price controls on, to avoid shortages and losses in too many industries. The statement, that ‘the automatic price control on basic necessities shall remain effective for the duration of the condition that brought it about, but not for more than 60 days, unless however, sooner lifted by the President’ , seems to be a smart plan from the government because they obviously understand that the there are many risks in using theses price controls. Once implemented, the consumers would be happy for the lowered price, but as time goes on queues, stampedes and shortages would arise, and this latter stage will hopefully be avoided by the government’s limit on the duration of price controls.
ReplyDelete¹ http://www.newzimbabwe.com/pages/prices4.16627.html
Price ceilings were set on basic commodities by the government in Philippines so that consumers could purchase goods at a lower price (below the equilibrium point that is too high). There were massive typhoons in Philippines. This caused the demand of the emergency goods (medicines, food, etc) to rise. Because retailers take advantage of this fact, they increase the price when they sell those goods. Therefore, price controls were necessary so that more consumers can buy them. It is true that they cause further problems, such as shortage (disequilibrium, more quantity demanded than quantity supplied), as we learned in class. But according to Agricultural Undersecretary Jess Paras in Philippines, rice farmers have enough supply of rice which is a staple food. “Their buffer stock is adequate for the next 40 days.” He also states that “the government has also imported 1.7 million metric tons of rice enough for the next several months.” In this 40 days, country needs rehabilitation and the economy must be stabilized (price control should not last more than 60 days).
ReplyDeleteThus, government intervention was necessary and price controls were appropriate. They lead eventually to the rehabilitation of the economy because the panic gradually cools off. Although they cause a lot of problems, they were effective for a moment. In the case in Philippines, the price controls are justified in my opinion.
http://www.philstar.com/Article.aspx?articleId=510779&publicationSubCategoryId=63
I am very split-minded about the price cap in the Phillipines as these are rare and dramatic circumstances, however I want to present the opposing viewpoint
ReplyDeleteAfter “137,000 hectares of rice fields were damaged” by the tropical storm Ondoy, the government has inflicted price caps on basic and prime commodities, which include rice. By putting a price ceiling on rice and not considering the special circumstances the government is putting the market in great danger. However positive it sounds that “aside from the 40-day rice stock, the government has also imported 1.7 million metric tons of rice enough for the next several months”, it is ignoring the fact that this creates a big disadvantage for the Pilipino rice farmers, who will most likely go out of business, having to cut workers and destabilizing the Philippine economy.
Yes maybe it sounds good to put price caps on basic and prime commodities however is the government not taking away the basis for certain industries to boom and become prosperous until the next crisis occurs and the prices are levelled again? Isn’t it fair that as the demand for a product goes up the value (expressed in price) goes up? Another point that can be made is that some of the price caps will not even be effective as “nearly one-third of the Philippine population lives on less than $1 a day”.
During the winter, months as colds increase, there are also significant price raises: Is the industry also being immoral as they are taking advantage of the predicament situation of their consumers or is that just the normal way a market would develop?
And to counter what Bernali is saying about it being important to note “that if the government does not take necessary measures (if, with this, she means price caps) to help consumers rebuild their lives after such disaster it will lead to long lasting problems which would make the entire economy inefficient” Isn’t the economy inefficient too, if the lack of resources (due to destruction caused by Ondoy) and incentives create shortages and having exactly the opposite effect, namely not enough nutrition?
http://www.mdr.de/umschau/rueckblick/5022723.html
In any economy price controls are usually the worst solutions any government can appose, but in my opinion I think the price ceilings in the Philippians are a good idea. After the tropical storm,“Ondoy”, many people in the Philippians lost a lot of their basic commodities. The government placed price controls on these commodities because if they did not then the suppliers may raise the price to a unreasonable price. Some of these commodities were,cement and hollow blocks because of the destruction of homes,and some more were medicine and funeral services. These price controls helped to speed up the reconstruction of the Philippians. These price controls have to be temporary solution or the suppliers may end up going bankrupt, like su-jeong choi said. It is true that price controls can lead to bad things, like in this case a shortage but in my opinion I think the price controls were necessary. They helped stabilize and reconstruct the Philippians as they were recovering from a horrible tropical storm. So in my opinion I think the price controls were justified.
ReplyDeleteThe tropical storm "Onody" has damaged Phillipine, so obviously people have less money than they used to have. This means that it will be difficult for them to survive in this disaster without buying any drugs or commodity goods. Therefore, the Phillipine government has set a price cieling on 14 basic commodities so that the residents damaged by the storm "would be protected from profiteers."
ReplyDeleteBecause the storm victims will definitely need these goods, price cieling seems to be a good measure to help the residents. However it will cause a lot of problems too, as Reiner Gloor says "Price control may deliver some short-term benefits but the long-term negative consequences, not only on the pharmaceutical industry but in other industries, must be considered." The "negative consequences" are that shortage can occur (because quantity demanded exceeds quantity supplied), other industries (such as car repair shops and funeral palors) will be requested to be placed under price control one after another, and will be "reports of violent resistance from some retailers."
After all, I think that you can say price controls are not the "best" solution in any situations, but I do agree that in this case, it may bring short-term benefits. Therefore, if the government is using price controls they may set them with a "cut-off point". Then it might be easier for people to reconstruct, and might avoid the markets from collapsing completely.
Even though price controls have a bad connotation, they can sometimes be justified. After the typhoons hit the Philippines, people lost a lot of their belongings and property, and demand for basic necessities went up. Agreeing with mostly everyone here, in my opinion, using a price cap in this situation is a good idea. The government is merely trying to protect “consumers by stabilizing prices and supply of basic and prime commodities, particularly in areas that have been affected by disaster or calamity.”
ReplyDeleteAccording to what we have learned, as the demand for a good increases, the price will increase as well. Therefore, agreeing with Ryan, if the government wasn’t to use these price controls, producers could charge ridiculously high prices for necessity goods, such as bread, fresh vegetables, soap and especially medicine, causing people who desperately need them after the disaster to not be able to afford them.
The price controls are used to speed up the reconstruction of the Philippines. According to the articles, the price controls are only a temporary solution to this problem. “The price control on basic necessities shall remain effective for the duration of the condition that brought it about, but not for more than 60 days.”
However, there are downsides to the price ceilings; for example, they create shortages of the basic necessities, which can be fatal during a calamity. Also, “The pharmaceutical industry said that imposing price control "is not the best approach" in making drugs available to poor Filipinos”, as “nearly one-third of them lives off only 1$ a day”, meaning that even by lowering prices by 50% it would still be too expensive for them.
"'The pharmaceutical industry said it would abide by the law and guidelines set out in the president's order, but insisted that imposing price control is not the best approach' in making drugs available to poor Filipinos."
ReplyDeleteYes, we do know Price Control is catastrophe,
we do know Price Control is not the best approach to certain issues, and we do know it often goes the way that it wasn't meant to be. However, there IS some cases we need price control since it brings advantages to economy when it is done in short-term or else, in case of natural disasters. In the second and third article, we see the government putting price control automatically on basic goods and commodities in case there is natural disaster. Governments know that price control is appalling, and they are NOT 'fools' to repeat the conduct which will lead to calamity. The reason they put the price control on certain goods is to protect both consumers and producers from either suffering from not getting the basic commodities which will affect life, or going out of business. Although some price controls have gone bad ways, it is expected that under 60days in case of natural disaster, or other urgent incident is very appropriate. Considering all those factors, I think the price control, although have possibility to become a disaster; Zimbabwean case, is justifiable when it is done at the appropriate time, for appropriate length.
Price controls are used by the governments when either producers or consumers are unsatisfied with the price in the market for specific goods. A recent scenario shows the government of Manila, Philippines, ordering a list of basic commodities to be placed under a price ceiling, because a tropical storm newly hit Manila and other areas in Northern Philippines. This means that the government has set a price that is below the equilibrium price, where producers cannot charge higher than this price. After studying price controls carefully throughout this course, it has become clear to me that price controls are the worst solution the government could set, because of its many drawbacks. I agree with Sanneke Rothenberger, that price controls always cause problems such as a surplus or shortages for one or more stakeholder groups.
ReplyDeleteNevertheless, in this scenario, in my opinion a price control was needed to overcome ‘Typhoon Ondoy’. The price ceiling gives consumers opportunities to purchase necessary goods at a cheaper price. “The president has placed the entire country under a state of calamity, which would pave the way for the government to impose price controls on basic goods and commodities.” This shows that the president admits that Philippines will be going through a stressful time with the market change.
However, i think that this price ceiling should only last over a short time period, rather than a long term, because the effects of this natural disaster will only last for a short time, rather than long term in most areas around Philippines. The government must account for shortages and possibilities of firms becoming bankrupt in Philippines, because demand for these lowered commodities have risen.
All in all, i don’t think price controls are the best solutions in many scenarios, but it was necessary for the government to intervene in the Philippines, but justified only for a short time, until the effects of the natural disasters have cooled down.
Unlike many other comments above, I do not think the situation in the Philippines justifies the price control the government has set on basic and prime commodities.
ReplyDeletePrice ceilings are merely a short term measure against a rapid price increase in goods, and the government is also very aware of this, since price caps are removed after a month. Although it will be a temporary help for the consumers, it still brings "long-term negative consequences, not only on the pharmaceutical industry but in other industries", such as shortages occurring from the lack of supply because suppliers cannot cover the cost of production with the regulated price. Once the price ceiling is lifted after a month, the price in all the goods that were regulated may rebound, which means that there is no improvement to the prior situation.
I do agree with Barnali, who states that the "price control will only be a transient solution, while subsidies will prove to be a good option in the long run".
It is more beneficial for the economy to raise the supply by providing incentives, in other words subsidies, or importing goods from overseas to raise supplies to lower the prices of goods. Rather than wasting a month setting price ceilings on goods, the government should impose a measure that will lower the equilibrium point and thus the price.
If the government were to help the consumers recover from the Ondoy storms, they should think in long terms and what would be best for them in the future onwards.
A Price Control is either a price ceiling or price floor set by the government to support either the consumer or the producer. The Prices are set above or below the equilibrium point and cause, as we have expirienced in class, surpluses and shortages.
ReplyDelete„The enforcement of price control is to provide protection to consumers by stabilizing prices and supply of basic and prime commodities, particularly in areas that have been affected by disaster or calamity.” is a really good quote, where i have found that other people have used this exact same one, to explain the use and effect of a price control in a desaster Area like the Phillipines. The controlled use of a price caps are needed so people will not die. This means the goods where a price limit is set should only be neccessity goods which are needed to survive. The price caps should not be set for a long period of time though since producers will no longer be willing and able to supply goods at the limited prices and so these will go bankrupt or turn to the black market. For short term porpuses the price cap is a good thing because it can supply immidiate health to anybody in need. The sixty days should be held and the price caps should not be a long term thing because they can cause a major economic collapse in this market and the consumers who are in need end up with a shortage.
In general, price controls have negative effects on the economy/country in general - price ceilings cause shortages, can cause firms to run out of business, stampedes, queues, etc.; price floors cause surpluses and consumers not always being able to buy their desired goods/services, which, in turn can cause suppliers to earn less money due to decreased demand.
ReplyDeleteWith the situation in the Philippines, which witnessed a natural disaster, it is different, and things need to be done by the government to lower prices and make it easier for customers buy their desired products, especially medicine and basic foodstuffs. Therefore the price control on these basic necessities is justified, if the price ceiling is used temporarily and is removed after the situation in the country has improved and things are back to normal again.
There are of course many negative sides of the price controls in the Philippines. One of these is the bad effects on the pharmaceutical industry, which, if the price ceilings continue to be implemented, “is estimated to lose about 7-10 billion pesos ($146-$208 million) a year in sales” (Reuters article). This is of course fatal for the Philippine’s economy, especially for the pharmaceutical industry. Another, rather obvious, reason why the price ceiling might be a problem is because it creates a shortage for the various markets of goods/services that the price ceiling is implemented on. This shortage is enhanced because the consumers, seeing that times are bad and queues, stampedes may occur would buy more items than usual. Also, the police force is not used efficiently: “The national Bureau of Investigation has also assigned 100 field agents to work with the DTI [i.e. Department of Trade and Industry] to monitor the compliance of the retailers to the price ceiling” (The Phillipine Star article).
Some consumers may not even benefit from the price ceilings. “…Most drugs would still be expensive to the poor even if prices were lowered by 50 percent. Nearly one-third of the Philippine population lives on less than $1 per day…” (Reuters article).
Therefore, a better solution to the problem in the Philippines, rather than implementing price ceilings, would be lowering VAT or income tax, which would increase the consumers’ income and giving those who live on less than $1 per day a consumer subsidy. Another possible solution might be to give suppliers a subsidy, which would lower the prices of the goods/services and make available many goods for the needy consumers.
Timur Irdelp
Due to the fact that “nearly one-third of the Philippine population lives on less than $1 a day”; the Philippine authorities have all the right reasons to support the consumers in times of calamity. Since the poor majority of the country lives on close to nothing they cannot afford any higher prices without facing major difficulties. Therefore the government price controls imposed on basic necessities is one of the only options the government has to secure that the victims of the typhoons will not be abused by producers. It is however, legitimate that the medical firms would rather lower prices themselves on certain products than have the government impose a price cap restricting not only their proposed products but also the companies’ cash cows. The medical sector will lose large sums of money and some firms will struggle for survival; they will on the other hand earn more money now in times of calamity with higher quantities of wounded and a larger medical demand than they might have in a normal market situation. They will be able to save costs on advertising as demand will be sufficient by itself due to external factors in form of a natural disaster in the area.
ReplyDelete"If price adjustments do not result in market expansion, then affected companies will have to study options to remain viable." An option companies might look into is giving percentage discounts for very large bulk orders, promoting the sales of their medicine but also allowing it to spread samples to the normal consumers through aid groups. Doing this they have the aid groups paying for their ads and the aid groups are happy they get even more discount on that product and hence they will buy it due to the basic law of demand ( As the price of a good or service decrease, the quantity demanded increases…).
Price controls are, like Ryan said, in many cases the worst thing a government can do to its economy. But, in situations, like that of the Philippines after the typhoon "Ondoy", they are justified.
ReplyDeleteThe typhoon caused many people to lose all or most of their belongings, resulting in a much greater demand for many goods. The law of demand states that as soon as demand for a good or service increases, the price will also increase. This is the case because producers will want to have a greater profit. In the Philippines, the law of demand also applies. Without the government imposing a price ceiling, producers would have increased the prices so drastically, that many consumers would not have been able to afford the goods and services anymore.
Yes, governments which had imposed price controls in the past made the economic situation even worse, the best example being as Choon Ho mentioned, Zimbabwe in 2008. The imposed price control by the government resulted in hoarding, stampedes and shortages. The current situation in which the Philippines is in though, can best be handled by imposing a price ceiling, which will protect consumers from higher prices. But, the price ceiling will have to be handled carefully by the government because the result of carelessness could be fatal for the economy.
Although, price controls will either in the short or long-term harm the economy, a price ceiling is essential after natural disasters, rebellions, wars etc. especially for the poor people.
ReplyDelete,, Nearly one-third of the Philippine population lives on less than $1 a day, according to latest government statistics.'' In particular, after a Typhoon which might have destroyed their homes and hoardings. A lot of people will not be able to pay for necessity goods like water and bread and would have therefore died starving if government did not have the ,,Price Act of the Philippines'' which states that:,, prices of basic necessities are automatically placed under price controls whenever the President declares an area under the state of calamity, disaster, emergency(...) or when the privilege of the writ of habaes corpus has been suspended.
Further on, the standard of living is not very high for a high percentage of Filipinos, the people living in the Philippines. Therefore, hygiene is not very high and they are more likely to catch an harmful disease. With their low budget as pointed out before, they can not afford the expensive medicine. To solve this problem, the government has imposed a price control on some medicines and cut the price by some popular drugs by 50 percent.
But as soon as problems like destroyed houses and lack in nutrition are solved after a natural disaster like the typhoon, the price control should be removed again ( in the Philippines the price control is active for maximum 60 days) because otherwise the usual problems like queues in front of stores, the creation of black markets and hoarding would occur.
Even though, price controls usually harm the economy, it is essential in some cases to save a large group of people from dying in an area, which is declared under the state of calamity by introducing a price ceiling for necessity goods and vital medicines.
By Adrian Radzyminski
Price controls are, in a normal economy without a natural disaster, never a good idea. we have seen this in class, and in real life examples. however, price controls such as price ceilings can be helpful to the well being of citizens during a crisis. The limits put on prices of essential goods can be life saving for the poorer citizens of countries such as the Phillipines. As long as the use of price controls are removed after temporary use, they are justified and usually a good idea. In one of the articles, they say how this is what the phillipine government is doing. "Accordingly, the automatic price control on basic necessities shall remain effective for the duration of the condition that brought it about, but not for more than 60 days, unless however, sooner lifted by the President." As long as the phillipines and other countries in the same situation stick to the plan, the use of price controls can not only be justified, but will be beneficial to the country as a whole.
ReplyDeleteAs Viola, I am also very uncertain as to wether this price control is a negative or positive act made by the government. Of course,the circumstances must be seen. The tropical storm "Ondoy" has left countless civilians in the Philippines with food shortages, homeless, and in need of care (medical help). This makes the demand of such commodities increase unbelievably, causing producers temptation to take advantage of these higher demands by raising the prices. I do believe it is immoral for producers to take advantage of consumers during catastrophes. But will a price ceiling really help the Philippines in the long run?
ReplyDeletePrice controls do indeed have a bad reputation, resulting in bigger problems than in the beginning (shortages, riots, etc.). But, i do believe that in this situation a price control might be beneficial and necessary for human survival. However, as Sanneke mentioned above, the price ceiling should not be used for a long period of time. This way, the people will be able to buy the commodities they need to survive after the catastrophe. However, hopefully, the price will be raised after a short period of time, to prevent shortages along with bankruptcies.
The general consensus seems to be that a price ceiling was indeed justified after the typhoon "Ondoy" that hit the Philippines earlier this month. I agree that the implemented price control was justified to some extent, but one cannot overlook the fact that within a matter of days problems with the price control were arising.
ReplyDelete"The President said...there have been reports of violent resistance from some retailers," not only is this adding unnecessary danger to the already disastrous situation, but it is demanding help from the police force to keep people in control. Also, the price ceiling is keeping retailers from selling their goods at the prices they would like, causing some of them to sell their goods at a higher price than the set price. In order to prevent retailers from doing this there have been "100 field agents (assigned) to work with the DTI to monitor the compliance of the retailers to the price ceiling." This means that many policemen and agents who could have been used to rehabilitate the Philippines are instead being used to keep track of retailers, and also that otherwise innocent citizens are being apprehended. Adding to this the possibility of a shortage, the Philippine price control is starting to look like a pretty bad idea.
The question is: do all the positive outcomes of the price control exceed the negative ones? I think it's safe to say, taking into account all the previously mentioned successful outcomes, in the other comments, of the price control, that the Philippine price ceiling was justifiable and probably the best solution. In my opinion, though, it's very rare that price controls run as smoothly as the case of the price ceiling in the Philippines and they are therefore only justifiable under very specific conditions.
As many of my fellow students have mentioned before, price controls are usually one of the worst methods a government can inflict on the economy, due to its wide range of negative side effects (which include social unrest, shortages and surplus, economic instability, etc). In the case of the Philippines, these price controls, specifically price ceilings, were put into place after and during (some already before, example: medicine) the several typhoons started to hit the country beginning when the first, "Ondoy", came September 26, placing the Philippines into a declared national state of calamity.
ReplyDeleteConcerning this matter, the price controls on certain goods, for example rice, the staple food of the Philippines, is a two sided blade. A key factor to this is that the set price ceiling is not as many government dictated price control different to the equilibrium price at that point in time, but rather the price the good had before the typhoons came.
On one hand, I agree with Sanneke and Paddy that it is good to implement this price control for a short period of time. The fact is, that a huge body, one-third nearly, of the Philippine population live on less than $1 a day, and due to the natural disasters, the price controls on certain goods prevent producers to use this situation for their own benefit, which would harm the mentioned poor people, and also to make necessity goods available at an affordable price for them in the time were prices and demand would typically rise.
On the other hand although, I agree with Viola that the price ceiling has a large negative effect on the producers too. This is that the price ceiling does not help the increased cost of the producers and the decreased revenue, due to damage to their production methods, etc., compensate, creating great losses for them. However I do not share her view on that the increase in amount of imported rice to the philippines would harm the local farmers as much, for the reason being that the Philippines is already the largest rice importer in asia and this increase would not have a large effect.
To conclude, the price control imposed on certain goods are greatly beneficial (and in this case justified) to the entire (consumer) population, as goods are affordable in times where generally everybody is not that financially liquid, however the “sweet-spot” concerning the duration needs to be found in order to prevent harm to the producers and ultimately the entire economy (which is hard, as there is another typhoon “Lupit” predicted to hit the Philippines, October 23).
Jong-Ha Park
ReplyDeletePrice control is not the best way of getting over a problem in society after a disaster or some kind of other problems that affects the consumers or the producers. There are also many cases that price controls brought out negative effects. ‘The pharmaceutical industry is estimated to lose about 7-10 billion pesos ($146-$208 million) a year in sales, making it hard for smaller drug firms that produce and market three or four products to survive, Gloor said previously.’ Smaller industries fall apart because they are not able to earn enough to survive with a price control. However, to make the poor Filipinos survive, it is sometimes necessary to put price ceilings on basic goods, which the government also did. By this, it might have a good result in 'short term', however the long term negative effects, such as 'shortages' should be considered.
Anyways, even though price controlls might cause a lot of negative results, in some cases they are justified to over come harsh moments.
Due to the havoc they wreak on a country's economy, I believe that price controls are usually a poor choice in policy for a government to make. However, following a catastrophe such as the typhoons which have hit the Philippines, they can be justified as a means to ensure that consumers are still able to obtain their basic necessities. Following such a natural disaster, resources have been depleted, which would cause producers to raise their prices in a natural market. Yet the homes and livelihoods of consumers have also been damaged and threatened, meaning they are not as able to pay for their goods as usual. In this circumstance, I agree that price controls are a good temporary solution to protect the basic needs of consumers.
ReplyDeleteHowever, I do not think that the price controls on some medicines imposed recently in the Philippines are similarly justifiable. At the time the policy was instated no sudden disasters had occurred to in any way threaten the market for the medicine other than the producers failure to comply with the government's first attempt to meddle in the industry. Seeing as there are no extenuating circumstances, the economic conditions of the medicine industry are such that I believe it would be ultimately better for the economy if it were left to ebb and flow naturally. It may mean a period in which drugs are harder for poorer Filipinos to come by, but in the end I believe they would be worse off under a policy of price control.
By: Alexander Mire
ReplyDeleteIn general I agree with Lucas Hess, that price controls are a short term solution, and that it must be ended on the “sweet spot,” although there are some additional points I would like to add.
In a case such as in the Philippines which was hit by the typhoon Onody, price control (specifically price ceiling in this case) could be justified. Some have stated how the price control is not so effective as “Nearly one-third of the Philippine population lives on less than $1 a day, according to latest government statistics,” but in my opinion because 1/3 of the population live under the poverty line, the severity of excess demand which occurs when price ceilings are set is mitigated.
That does not mean, however, that there would be no excess demand. There would be excess demand on the long run, as producers were left devastated by the typhoon as well, and the consumers would be more able and willing to pay higher prices as the economy recovers. In addition to the price ceiling, it is noted in the article that “the (Philippines) government is now in the process of helping some 130,000 rice farmers affected by the recent typhoon and rehabilitation of fishponds is also underway to help the fisheries sector,” meaning that the Philippines government is also working to have some long-term solutions as well as short term ones, which was a point missed by many people.
One of the reasons for excess demand which was discussed in class was because the consumers become fretful that the supplies would run out, and so the consumers begin hoarding goods. To ease the insecurity in the Philippines, “Department of Agriculture assured the people yesterday that there is sufficient supply of rice in the market despite the devastation of about 130,000 hectares of rice fields by Ondoy,” indicating that the government is doing their best to avoid confusion fear amongst the consumers, through commercial usage.
As for the Reuter article which stated that “The pharmaceutical industry is estimated to lose about 7-10 billion pesos ($146-$208 million) a year in sales” is grotesquely misleading, as it omits a section of the law which clearly states that the duration of price controls will last “not for more than 60 days” which is slightly less than 1/6 of the year, in which there would be overwhelming demand for the drugs meaning more quantities would be sold.
Considering the above points, I came to the conclusion that price controls are justifiable in cases of emergency, but only if other long-term solutions are also taken into action, such as support for the producers who were also affected, and media campaign to comfort the consumers to prevent future shortages in the market.
http://www.reuters.com/article/latestCrisis/idUSMAN479215
http://www.pia.gov.ph/?m=12&r=&y=&mo=&fi=p091008.htm&no=83
http://www.philstar.com/Article.aspx?articleId=510779&publicationSubCategoryId=63