Leanid Zlotnikau: Authorities turn the economy into chaos by restraining price rise

Officials can't stop doing stupid things, and we are those who pay for it all.

The economist Leanid Zlotnikau said about it to charter97.org. He believes that all constraints and artificial restrictions in pricing do much harm and hinder the economy to achieve a new balance with new adequate prices in current situation. In any case prices are to change even if the cost of some products remains the same.

— For how long will the authorities restrain prices?

- It's impossible to do and the price rise will continue although they put the price for each item under control. But this is the truth: it results chaos, when there is a price increase only on imports.

- Give an example of what is happening today behind the scenes of each price tag for a particular commodity. What is the mechanism of pricing?

-Let's say I produce goods and use three kinds of raw materials for it. For example, I grow the product, use fertilizers and buy cars. So, if I buy some imported fertilizer, which has risen in price, I have the right to include it in the price to cover the cost, but this is all. But if I buy, for example, nitrogen and potassium fertilizers, I can't raise prices, because they are of Belarusian production. To produce fertilizers one needs a lot of electricity. We rely primarily on imported oil and gas and so on to produce electricity. It means that it leads to higher fertilizers prices although they are produced in Belarus. And when I, as a farmer, buy this fertilizer, there is no order so that I could raise the price of my agricultural products. It turns out like I have no right to increase the cost of my products. It needs to be raised but there is no permission to do it!

So it is all done so there is a need to recalculate the cost and price of goods with every cost increase of raw materials. Can you imagine what a mess there will be even if, for example, the price increase for own-produced goods is allowed? All the enterprise will have to sit down and calculate! It is a bad idea, another one. The authorities do not realize what they require. There can be price increase only on imports but not on Belarusian production. But if you stop and think, it becomes clear that the import is everywhere! If I do not directly use imports, it may be used by a supplier of some raw materials, which he produces with the help of Russian energy and so on. Everything is rising. Prices should raise one by one until the circle complete itself. This is such a mess! This is the rule: I have to recalculate the price on every piece of raw material and component used for my product so that the price increase for it to be economically sound. But now it is only allowed to raise prices of imported goods and have them continuously counted. But it is enough to give it all up! The situation will stabilize without any instructions from authorities.

- You say that authorities will not manage to restrain price growth for a long time.

- It's impossible. And if it were, it would mean continuous recounts. Prices will differ if we count only Belarusian products. The instructions say that the price may be increased due to changes in the cost, but profitability should not exceed a given proportion. But at the same time there is a price increase of everything!

Wouldn't this moderation of natural economic processes be the cause for empty shelves?

Officials said there would not be price increase, they would be restrained. But this is a clear stupidity: after all, if the product is imported, the price will still rise. It means if I do not rise the price of imported raw materials I will go into bankruptcy. They have scratched their heads and say: yes, we must take this into account. This says that the people in charge even do not know how to run the situation. They have no idea of pricing mechanism. How have the authorities managed to realize the situation? Due to various business associations which have made a fuss about it and proved that it does not make sense. They scratched their heads and said: yes, we have to fix it. And has it done. Now we are waiting for them to realize that they have made another mistake. Here's the way they learn.

- And what will it mean for an end user?

–Let's say that there will be a reasonable price control. And even now it is hard to predict something. You see, prices are not linear. They should depend on the cost of materials, or somehow correlate with the cost of goods, but this requires some time, and everything to stabilize. Prices formed, a devaluation and inflation started, currency disappeared and everything was broken and as a result the proportions of production were broken too. People cannot afford luxury goods as it was before, because they have become poorer. Therefore, prices will vary depending on the setting of new ratio between demand and production.

- And what is the factor for a new price of goods?

-Let me give you an example. Here one produces butter and bread. For example, in the following year they produce twice as much butter as it has been this year. The cost will be the same. What will happen on the market? The price of butter will hardly increase or even decrease two times. The price depends on the output. In other words, the price does not depend linearly on costs. They are trying to make prices rise linearly depending on cost. But when ratio on the market have been violated then some goods are getting cheaper while others are not being sold out. What are the indicators of present broken proportions? First of all, real disposable money income decreased 10%. It means that people stopped buying some expensive food or unlikely call a taxi. In other words, the taxi prices should be reduced as real disposable money income decreased. And it does not matter how much the taxi driver spends on gasoline.

Does it mean that some goods become cheaper or even disappear?

- Now it is the time to establish new consumption ratio. Some products have become more popular than the others. Prices are to change, no matter how the cost of goods have changed and even if it remains the same. And the people, regulating it, do not understand that bringing prices in line of supply and demand will form a new proportion. Our economy has already had such changes: currency collapsed, revenues decreased and there's a shortage of foreign currency. All these factors will affect the situation. Authorities did not realize that the economy itself should reach an equilibrium position between output and demand, supply and demand. These prices will not depend on the amount of consumed raw materials. Costs of products will be almost the same, but some of them either increase or fall in price, this is inevitable. And someone will have to cut its output. And the price mechanism will control it. Officials do not even understand the mechanism of price changes and the pricing system they do not understand more so than all! This is the prerogative of the market economy.