The past week saw an extraordinary event in the Russian economy. Prime Minister Putin and other Cabinet Ministers made a surprise visit to one of Moscow’s supermarkets and personally regulated the price rates. Putin discovered that the trade margin on an array of foodstuffs in Perekryostok supermarket is significantly higher than the average. In fact, Putin ordered price cuts, while Yuri Kobaladze, managing director of X5 Retail mid-price chain and Putin’s former foreign intelligence colleague, promised to slash the prices.
The government’s intervention in pricing issues and attempts to institute administrative control over retail prices are the most glaring attributes of a totalitarian socialist economics. The economic history has repeatedly confirmed the policy’s total ineffectiveness and inaptitude, including during the recent Soviet age.
Admittedly, Putin’s affected check-up of retail prices is populist in nature. He cannot but consider the people’s concerns over price growth. They have soared 7.2 percent since the start of the year and could well rise by 13-15 percent by the end of the year. However, the Prime Minister is trying to blame the owners of grocery chains and save his own person and the government from taking the flak. They are the ones whose errors and inordinate government spending are stimulating inflation in Russia.
Many government watchers have remarked upon the somewhat inappropriate way Putin checked up supermarket prices. The supermarket of his choice was among the expensive ones located in one of Moscow’s elite western districts. Small wonder, the supermarket prices were set with due account for the supply/demand ratio. In addition, there are many more expensive grocery supermarkets in Moscow including those controlled by the Kremlin’s cronies.
Tellingly, Putin’s price control initiative resonated with other Russian politicians anxious to score political points in populism. Speaking at Putin’s recent meeting with the State Duma faction leaders, Duma Speaker Boris Gryzlov called to set a trade margin limit on various goods and re-introduce the government monopoly on alcohol production. This would spell a return to tough government regulation of prices and rejection of a vital free market mechanism.
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6 Responses to “Russia Market Economy Short Lived?”
Roger S., MA. on June 29th, 2009 at 3:55pm said:
How long before Russia, once again, starts “borrowing” wheat from the U.S. ?
Anybody care to ask what will happen if ever we had to “borrow” from them ?
Spiritof76 on June 29th, 2009 at 3:55pm said:
I am sure Obama will follow in Putin’s footsteps. He had already taken hold of GM and Chrysler.
Andrew, Washington DC on June 29th, 2009 at 3:55pm said:
Dear Yevgeny:
Do you too consider a 150% mark up “normal”? Everyone knows that markets are quite imperfect (just look at the current crisis), and even more so concerning supermarket chains. How often do you see two or more supermarkets of different chains in the same neighborhood? You know, supermarkets are very, very “territorial”, they are never too close to each other, knowing that their customers — should I say victims? will go shop to the closest one. There’s little oversight over these obvious “territorial agreements”, if any. Therefore, let’s not lightly invoke the principles of the market economy to justify price abuse, even less in this specific area, where the “markets” get so exposed in their imperfection that a “corrective touch” by the authority is oftentimes more than welcome.
Todd Geiger, Upper Marlboro, MD on June 29th, 2009 at 3:55pm said:
Replying to Andrew: If the store has willing customers at 150% mark-up, then yes, it is normal and free. I disagree that looking at “the current crisis” serves as proof that markets are quite imperfect. When not interfered upon by government, markets, that is the free exchange of goods and services, mutually beneficial to both sides of the transaction work quite well. It is when government interferes that markets struggle to meet an arbitrary definition of “perfect.”
My neighborhood has 3 close by supermarket chains; Giant, Food Lion, and Safeway. Each in competition with the others, attract enough customers to remain profitable in spite of Labor Laws, Minimum Wage Regulations, Taxes, Rent, Construction and Capital Equipment charges and a host of regulations far too numerous to mention here. Your world view is distorted, I dare say sick. The world is not full of victims, but rather independent individuals, each seeking to achieve their objectives through the best alternatives available to them at the moment. Government interference makes satisfying individual goals that much more difficult.
If you want a surplus of a good or service, mandate a price above current market prices, if you want a shortage of a good or service, mandate a price lower than current market prices.
Without economic freedom, political freedom is impossible.
dennis florida on June 29th, 2009 at 3:55pm said:
it seems that in the free market you have competition. prices are low. when goverenment is calling the shots, they impose the prices to what ever financial government needs are required at that time.which is usually unaffordable. just another plus for capitalism as opposed to socialism.
Spiritof76 on June 29th, 2009 at 3:55pm said:
To Andrew,
Supermarkets operate at razor-thin profit margin. They locate so that they can attract customers to their stores. They need customers in order to sell their stuff and make money. The customers are free to go wherever they want to go shopping. It is not yet a government edict to shop in a government store. Leave the capitlistic system alone either to succeed or fail on its own. The current crisis is created by the goverment and its stupid policies starting with Fannie Mae and Freddie Mac and forcing them to buy up worthless mortgages that the government forced the banks to issue in the first place. I guess you will rather stand in line to get bread as the people in that workers’ paradise called Soviet Union did not just that long ago.