Spitting on Marshall

Spitting on Marshall

In 1890, Alfred Marshall, whose contributions to Economics certainly should have won him the Nobel Prize in Economics (had it existed), published the influential Principles of Economics in which he introduces the concept of supply and demand, among other relevant economic concepts.

Today, about 121 years after Marshall introduced these simple and powerful concepts of supply and demand, Tanzania’s Energy & Water Utilities Regulatory Authority (EWURA), has recently issued a directive requiring fuel suppliers in the country to adhere to the following prices; TShs 2003.79 for Petrol, TShs 1910.84 for Diesel and TShs 1904.53 for Kerosene.  Please note that all these prices are prices at the pump and were effective from August 3rd.

Marshall’s brilliant supply & demand analysis would predict that imposing this artificial price, below the prevailing market price, would cause some suppliers to decrease supplying at this new price, and most importantly, would increase demand causing a net shortage of the commodity.  Well, abracadabra, Marshall’s magic is exactly what is going on right now in Dar es Salaam and throughout the country.

Some suppliers have refused to supply fuel at these new lower prices.  Demand has soared (or at the very least remained the same).  And the end result is that there exists a shortage of fuel.  Today’s Guardian newspaper ran this fuel crisis as its headline on its front page, noting that Mbeya faces the most acute shortages where many motorists have had to leave their cars at home.  In addition, this fuel shortage has not only affected the well-off in our society that have cars, but also those that use public transport (including yours truly).  Today’s Guardian goes on to report spikes in taxi fares as buses have become less frequent in almost all routes in Dar and thus demand for taxis having gone up.

An example of fuel shortage queues, this one from Zambia.

EWURA, of course, is not taking this lying down and has threatened that any fuel supplier who refuses to implement this directive will risk losing their licences to supply fuel in the country.  In this fight, although the government thinks they are Goliath, it is in fact the fuel operators who are Goliath and the government David.  And I do not think David will win this one.  In fact, closing down these fuel suppliers, will only shorten supply even further and create further uncertainty for business (not to mention for the common mwananchi).  Buses, finding it difficult to get fuel, will run less frequently, causing massive commuter problems, definitely raising dala dala fares (which also have a price ceiling imposed on them), taxi fares will go up further (as is the status quo), and might have far reaching consequences beyond the transport sector, to involve food distribution across the country among other critical sectors (not to mention fuel demand from those operating electric generators).

The sad part is that, Economic theory goes even further in its prediction of this doomsday scenario.  It predicts that a black market will emerge that will sell fuel to desperate consumers at prices relatively higher than those that prevailed in the market prior to this directive.  This will not only munch into bigger proportions of the mwananchi‘s disposable income, but also, cause budgetary strain on vyombo vya dola, whose job it will be to enforce this directive, at immense costs to the tax payer (as if taxes are not high enough).  This will lead into a downward spiral, the pits of which are bottomless and possibly lead into hell.

Okay.  Perhaps that last bit was a bit too dramatic.  However, as I have said once before on a piece written here, good intentions do not necessarily translate to good results.  The intention, of abating the mwananchi‘s fuel woes and thus easing the pinch on their wallet is certainly good and admirable.  Doing this via imposing arbitrary and lower prices than those that prevailed in the market ex ante of this directive, is not going to be successful.  What this will do is take us from a bad situation, to a disastrous one.  Recall US President Nixon’s imposition of price controls on August 15th, 1971, that were a monumental failure.

To conclude, it is now a bit over 19h00 in Dar es Salaam and I am going to stop writing this rant, and head out home from work.  I am, for once, not envious of those that have cars and commute to and from work.  Actually, on second thought, I fear the dala dala woes that await me out there, but hope that our policy makers re-consider their decision to spit on Alfred Marshall.  They should instead cede to the Law of Supply and Demand, just as we all adhere to the Laws of Physics in this, tiny physical world (and economic, arguably).

Constantine was born in Dar es Salaam and raised between Dar es Salaam, Nairobi and Lusaka. He enjoys history, comedy, and African live music.