In the ongoing sugar crisis, much has been made of the so-called invisible hand of the market. It started with the Pakistan Sugar Mills Association (PSMA) arguing that they be allowed to sell sugar at international prices, which just happened to be hovering around Rs60 per kilo.

Interfering with markets, they contended, never serves anyone be it the consumer or the producer.

The Supreme Court, however, held its own, arguing that market or no market, it was the constitutional duty of the government to make essential commodities available at affordable prices to the masses. In order to set a ceiling for the sugar price, the court asked the Competition Commission of Pakistan to calculate the cost of production for sugar in the country.

Their submission, which is publicly available on their website, devoted about five pages to the calculation and around 10 times that many to arguing why it is best to let ‘free’ markets work on their own, and why governments should refrain from interfering in them.

Predictably, every member of the PSMA was strutting around with a copy of the report, now using this new piece of ‘evidence’ to make their case for respecting the ‘laws of the market’. The Supreme Court, however, refused to back down, and censured the Commission for going beyond its mandate of cost calculation. Going forward, who is right? The PSMA who is arguing for the market? Or the Supreme Court for curbing market forces?

There is much to be said for markets. When working efficiently they engender competition thus forcing producers to pass on value to consumers. A good illustration is the Pakistani mobile phone market, perhaps one of the most competitive in the world. Despite the many virtues of markets, however, it is not necessary that they serve everyone all the time.

The reasoning is simple. Markets are blind and allocate on the basis of effective demand, i.e. demand backed up by purchasing power. Thus, if Demi Moore, say, wishes to take a milk bath every day, the market will ensure delivery of sufficient milk to her, even if it means that 100 African children, who cannot afford the price, go without a drop.

Amartya Sen who won a Nobel Prize in economics pointed out how many of the world’s worst famines were actually caused by unfettered market forces.

For example, the Irish Potato Famine in the 19th century which led to a quarter of the Irish population being exterminated on account of hunger, was due to potatoes being exported to England because they could fetch higher prices there than in Ireland. The Irish starved even though they were the ones growing the potatoes.

This dynamic can also be found closer to home. Mike Davis’ critically acclaimed historical work Late Victorian Holocausts documented how market forces priced food beyond the reach of ordinary Indians under British rule in the 19th century. Over six million Indians died as a result. What is interesting to note is that the Mughal administration would actively intervene in the market to forestall such human tragedies.

Mike Davis documents that Mughal rulers relied on policies that included embargo on food exports and policing the grain trade in the public interest. Moreover, thanks to these market-unfriendly policies, the number of Indians that died in famines during the entire Mughal period was minuscule compared to the vast numbers that perished under the pro-market British Raj.

Simply, the first responsibility of any democratically elected government is towards the electorate. If so-called global market forces, which in the case of sugar and other commodities are incidentally heavily influenced by powerful speculators, force the international price of an essential commodity to rise beyond the reach of a country’s population, the government must step in.

In the process, if it has to trample on free markets, then it is a price that is worth paying over and over again. An illustration of this was the anthrax scare in the United States, which prompted the US government to create a stockpile of the anthrax antibiotic Cipro, with the government threatening to override Bayer’s patent on the drug in order to obtain cheap, generic alternatives.

President Bush explained this by citing a provision in World Trade Organisation guidelines that allows governments to override patents in times of national emergency.

The biggest proponents of the free market, are ironically the first ones to ‘interfere’ in markets. It is well known, for example, that the United States gives enormous subsidies for growing cotton as well as other agricultural commodities. Recently, the US has been interfering in market forces by propping up failed enterprises in a whole range of sectors.

This is true also for EU, Japan, and other advanced economies. The UK government did not think twice before nationalising most major banks. The state is not there to worship what the Competition Commission report calls the ‘higher ideal of the free market’ but to protect its citizens from the vagaries of the market.

The PSMA is fooling no one. It leans on the government when it is in its interest to do so (e.g. to delay importing sugar until prices have climbed sufficiently high or to stop imports entirely when international prices are lower than domestic rates), and happily accepts subsidised inputs such as water and fertiliser. It should also be prepared to share a percentage of its profits with its consumers when market forces are acting against them. It is the state’s responsibility to ensure that. That the Supreme Court has to intervene to make this happen is a matter of shame for the government.

The writers teach at the Suleman Dawood School of Business, Lahore University of Management Sciences.