Effects of price control

in Commodities
Energy Efficiency & Audit
Robin Neupane
075-MSESPM-16

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Robert G. Mugabe and his ‘revolutionary
policies’ of 2001
 He used price controls to try to stay in power by currying favor among the
poor.
 He imposed price controls on many basic commodities, including food, soap,
and cement,

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In 2007

 He imposed more extreme controls in 2007.

 A government edict cut the prices of 26 essential items by up to 70%, and a
subsequent edict imposed price controls on a much wider range of goods.
 Gangs of price inspectors patrolled shops and factories, imposing arbitrary
price reductions. State-run newspapers exhorted citizens to turn in store
owners whose prices exceeded the limits.
 The Zimbabwean police reported that they arrested at least 4,000
businesspeople for not complying with the price controls.

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 Reactions to those price control
 Initially greeted the price cuts with euphoria
 Yet most ordinary citizens were unable to obtain much food because most of the cut-
rate merchandise was snapped up by the police, soldiers, and members of Mr.
Mugabe’s governing party, who were tipped off prior to the price inspectors’ rounds.
 which led to shortages of these goods, and a thriving black, or parallel, market in
which the controls were ignored developed.
 Prices on the black market were two or three times higher than the controlled
prices.
 Manufacturing slowed to a crawl because firms could not buy raw materials and
because the prices firms received were less than their costs of production.
 Businesses laid off workers or reduced their hours, impoverishing the 15% or 20% of
adult Zimbabweans who still had jobs.

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Finally

 Zimbabweans faced starvation in 2008.

 Thankfully, the price controls were lifted in 2009.

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Lesson learned

  Price controls are only effective on an extremely short-term basis.

 Over the long term, price controls can lead to problems such as shortages,
rationing, inferior product quality, and black mar

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References

 https://www.nytimes.com/2007/07/03/world/africa/03cnd-wzimbabwe.html
 https://www.telegraph.co.uk/news/worldnews/africaandindianocean/zimba
bwe/1359176/Zimbabwe-puts-price-freeze-on-basic-foods.html