As the New York Times noted last week,
food prices have been on a tear in Russia. With elections approaching,
Vladimir Putin decided pricey potatoes and pierogies just wouldn’t do.
The solution: Soviet-style price controls.
I am a fan of Daniel Gross’s Slate writings, but I don’t think that claim is quite correct. What made Soviet-style price controls Soviet-style was the absence of normal residual claimancy. As David Levy has shown, the resulting incentive was to lower prices to deliberate shortage-inducing levels. Managers would then sell access for favors, often access to goods and services elsewhere. Therefore the incentive was to enforce the price control and limit access to the good. Shortages were virtually everywhere and much of the economy reverted to barter.
Today most Russian firms are private or at least involve residual claimants, and both managers and owners wish to accumulate money not favors. The incentive is to evade price controls, or to adjust the quality of the good to match the new specified price. Most markets will still clear, albeit in inefficient ways. These price controls are hardly a good idea, but their impact won’t be one tenth as bad as the price controls of the older regime. Often the goal of such price controls is simply to lower the measured rate of inflation, or to allow the government to claim it is doing something rather than nothing. I’d be surprised if shoppers at the major Moscow supermarkets notice a major difference.
Excellent point about residual claimants.
I wonder how this will play into dollar denominated Russian debt and their local stock markets though.
Who said this was Putin’s idea? AFAIK it was the Prime-minster Zoubkov, who was concerned about increasing food prices. The major cause of this is slow production growth in the agriculture sector that cannot catch up on the increasing income. Partly because of monopolization. What’s wrong with controlling monopolies?
Gross forgot Zimbabwe and Venezuela. Rather than “soviet style” which IS so last century, I like “mugabenomics”!
Yes, In Venezuela people in the goverment ruled “stores” are marked with a pen in order to allow them to buy only once a day. Most strores are tables in the streets with the armymen, generals included, selling sugar ( 1 kg,) milk ( 1 kg can) and 2 kg of poultry.You have to buy all together.My mother in law is diabetic and has to buy sugar to buy poultry.
In the private supermarket people is allowed to buy only one can of milk.The police and the national guard have to control people.Last week I see a woman knock another in the face because the latter was waiting his husband with the money.Then former “robbed” the milk.
You can not find milk, ketchup, sugar, toilet paper, eggs,salt or specially corn made cooking oil.Thanks to 5 years of price controls .
But the government says that George Bush is to blame for making etanol with corn.Also the high demand from China made milk unavailable.
On the other hand, in Colombia thanks to failing dollar food prices are going dowwn .The Vezuelan government says this new of the colombian television is a media campaign against his government
BTW:price are failling also because of to the contraband of venezuelan goods.In Venezuela is illegal ,since 1986 ,to take out of the country regulated price goods.
I have a 3 years old daughter so i have to buy colombian milk , 4 times the regulated price.
“They were systematically wrong too, they underpriced raw materials and over-priced industrial goods. This made the allocation of inputs across sectors grossly inefficient.”
In general I agree that the allocation was not correct for many goods and services in the Former SU. On the other hand,
It was relatively efficient in the sence of the tasks the Soviet authority formulated – space, nuke, rocketss,
oil, … (For example, Sputnik and Gagarin).
Also, when I read about the sizes of yachts for oligarhs and top managers over the world I do not see this as a specially
efficient allocation. Everybody has own problems. The latter problem with luxury things is growing up.
How does your argument relate to Zimbabwe where we see price controls too? The effect, as far as I saw on a brief visit there last month, is that some goods completely disappear (meat, milk, petrol, cellphone calls) but some other goods were still available. Of course, part of the reason that some stuff is still available is because government forces firms to produce, where many would have preferred not to. Most firms in Zim are still private so the argument about distribution of profits does not hold in this case.
By saying that most shoppers will not see any difference are you implicitly saying that the controls will not be enforced? In Putin’s Russia?
The generic point about residual claims is powerful and also helps explain why privatisation is critical and why governments rarely price goods and services efficiently. Argaubly it is also a good reason for establishing ans maintaining robust property rights.
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