Our View: The state should keep out of the market economy

Many would have been aghast hearing about the proposed law that would allow the minister of commerce to set a maximum price on certain products. It seems the government has decided to resort to the discredited economic policies of the previous century, when interfering in the market and going against the forces of supply and demand were considered a political obligation of the state.

The sixties, seventies and eighties were a time of protectionism and state monopolies, but once the country began EU accession negotiations in the nineties all these restrictive practices were eventually phased out. Free trade became established, the protection and subsidising of local industries ended, and everyone had to come to terms with the free market. There were protests for a while but there was no going back.

This was until last Wednesday when the council of ministers approved the law proposal that would give the power to the commerce minister to set a maximum price for products of broad consumption at specific points of sale. The Minister, George Papanastasiou, gave as an example bottled water sold at airports and ports. For products such as water, the price had to be controlled because at the specific points of sale “some prices are unjustified.”

Was he being serious? Has he not noticed that almost everything is overpriced in airport shops and that there is no airport in the world at which bottled water is not overpriced. Does Papanastasiou not know the basic rule of economics – that businesses pay extremely high rents for shops in airports and ports, because they can charge high prices. If ceilings were put on prices, demand for these shops would fall and so would the rent people would be willing to pay. Maximum prices result in shortages, which inevitably lead to higher, not lower prices.

Perhaps the government should be reminded of the attempt of the Christofias government to impose a plafond on the fuel price, which was abandoned after just three days, because petrol garages closed down. It was a misguided attempt to pander to the people complaining about high fuel prices.

Funnily enough, nobody has protested about the high price of bottled water at airports and ports, because most people accept this is how the market works. They are not even obliged to buy water from shops if they felt they were being ripped off, as there is free drinking water available from taps at the airport.

There is absolutely no justification for the government to set a maximum price for any item anywhere. We have a market economy, which the state should keep out of at all times, because its interference fixes nothing, but can make a situation worse. Unless of course the proposed law is just a communications gimmick, aimed at appeasing people protesting about high prices and Papanastasiou has no intention of exercising his power to set maximum prices.