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Put up prices: go to prison

9 June 2008 by Mike Gogulski
Posted in economics | 1 Comment »

That Robert Fico and his government are utterly ignorant of how markets work should come as a surprise to nobody. But then, they do say that ignorance is bliss…

Me, I’m off to go jack up the rates I charge to translation agencies now, so they can’t jail me later.

From The Slovak Spectator:

Put up prices: go to prison

Businesspeople may face jail for euro price hikes under planned law

9 Jun 2008

UNJUSTIFIED price hikes prior to the adoption of the euro as Slovakia’s currency might result in businesspeople being sent to jail if a government plan to protect citizens from pre-euro price inflation becomes law.

[…]

Children branded by their new currency masters

Children branded by their new currency masters

The revision, which would impose a prison sentence on anyone who violates price discipline rules, would become valid in September.

Prime Minister Robert Fico described the law as a tool to penalise those who plan to make a fortune at the expense of others during the euro-switch.

“If someone is such a crook that they elevate prices only to become rich at the expense of someone else, the penal code will be applied,” Fico told a press conference on June 4.

[…]

Judging by details available so far, it seems that any citizen who feels they have suffered from an unjustified price increase will be able to report the business concerned to the police.

[…]

The revision indicates a lack of understanding of the basic principles of the market economy, where the optimal price is generated based on demand and supply, said the executive director of the Slovak Business Alliance, Robert Kičina.

“The freedom to set prices is a basic right of businesses operating in a competitive environment, and price changes are not a reason for criminal proceedings,” Kičina told The Slovak Spectator.

Richard Ďurana, director of the economic think-tank INESS, agrees that such legislation has no place in market economy. “It certainly won’t help businesses if the prime minister flatly throws them into the same group as criminals,” Ďurana told The Slovak Spectator.

[…]

“Instead of explaining the advantages of the euro, the government is evoking an unjustified suspicion among people that businesses want to use the switch to the euro to elevate prices,” Kičina said. “The revision criminalises the business environment.”

The best price regulator is competition and a watchful customer, say business professionals.
Lifting prices above the optimal level is disadvantageous for businesses because sales drop, Kičina said, adding that if prices fall beneath the optimal level consumers also lose out because production falls.

An important pre-condition for a functioning market is free access, so that if a business elevates prices in an unjustified way alert competitors can immediately enter the market and compete with lower prices, Ďurana said.

“The solution is to erase regulations, not to create more,” Ďurana said.

Neither Ďurana nor Kičina expect businesses to use the euro-switch to push up their prices to any great extent.

“If there was currently room to inflate prices, businesses would increase their prices today and would not wait for the euro,” Kičina said.

No country entering the eurozone before now has implemented criminal penalties for raising prices. However, in Slovenia businesses and the government signed an agreement about not elevating prices before the euro’s adoption, in order for the country to be able to meet the inflation criterion, said Kičina.

“The moment the term of the agreement expired, prices jumped and Slovenia is now struggling with the highest inflation within the eurozone,” Kičina concluded.

According to Ďurana, Malta installed a tough regime of price controls and a system of reporting price increases, with the added pressure of financial penalties.

“Such artificial intervention in prices meant that once regulation ended, inflation increased rapidly from 0.9 to about 4.5 percent,” said Ďurana.

Related: Police to pursue pricing

  1. One Response to “Put up prices: go to prison”

  2. By Tom Humes on 9 June 2008

    Nice Site layout for your blog. I am looking forward to reading more from you.

    Tom Humes


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