KARACHI, July 19: Official efforts to reduce the cost of building materials to make housing affordable to the middle income groups is encountering difficulties as cement and steel prices are skyrocketing.
And the prices are rising when rupee is strong and imports are cheaper because of falling international prices and major industrial economies are facing the risk of deflation.
Price increases indicate that demand for building materials is picking up particularly on the back of soaring home remittances flowing into investments in the housing sector.
The cement and steel producers are, however, indulging in profiteering. According to press reports, cement prices have jumped up from Rs185 to Rs240 per bag despite cut in excise duty by 25 per cent from July 1.
Similarly, the steel prices have shot up from Rs22,000 to Rs32,000 per ton. Recently, the rising prices of cars provoked a strong controversy, leading to a spate of strong official statements against price-hike but with no worthwhile concrete results.
And if past experience can serve as a guide, the government would not like to effectively intervene to protect the consumers though there may be loud noises against the wrong doings of the cartels. The Monopoly Control Authority, like most government departments, is weak and ineffective. In the past, it has failed to curb the cartel formed by the cement industry.
The issue of price is linked to the international and domestic trend in the corporates to forge alliances and cartels. To remove competition, acquisitions and mergers take place. Oligopolies or very few companies dominate the market at the cost of consumers.
In Pakistan, three foreign banks dominate the domestic market served by the overseas branches of foreign banks. About 44 per cent market for branded tea is controlled by a multinational.
Ice cream production and sales is a monopoly.
As the market economy finds universal acceptance, corporate giants tend to eliminate competition and create either monopolies or oligopolies. And yet the corporate profits are plummeting in industrial economies facing uncertain recovery in the short-term. Mergers, alliances and acquisitions have not helped beyond a point. Multinationals are trimming through retrenchment of staff and closure of unviable operations. Corporate bankruptcies and mortality is increasing. Production capacity is in excess of demand. Corporates need to be re-designed to serve the needs of the consumers and not to profit at their costs. It is often forgotten that it is the consumer demand that keeps the industry running. The future of the companies lies in the hand of the consumer, on his prosperity and his purchasing power.
In the current environment, the companies need to cut costs to become lean and thin and to shed all fat. It means no corporate umbrella for the employees. On the one hand jobs are lost for no fault of employees and on the other, prices are increased arbitrarily.
In the mainstream economic activity, social exclusion is growing. This has raised the issue of corporate social responsibility more vigorously.
As the welfare state is withering away, the common citizen is left to fend himself in the economic boom and busts. There is no government intervention to curb cartel, oligopolies and monopolies. Having minimized its role in economic development, the government depends on the private sector to serve as engine of economic growth. Hence the monopolies and oligopolies will continue to prosper at the cost of the consumers unless the companies realise their social responsibility or the consumers offer an organized resistance.