In the latest Yemen observer, there are a couple of real “howlers” when it comes to economic things. There is an ongoing problem with wheat prices going up rather quickly. The world price of wheat has gone up significantly (due in part, no doubt, by the ethanol subsidy in the US making people switch to corn and lowering overall supply) and people claim that the price here has gone up more than it should. The headline of the most recent article is “Greedy businesses keep prices high,” or something to that effect. The caption under the photo in the article says that merchants are selling wheat “for more than it’s worth.” Now it’s one thing to ask for more money than it’s worth (you won’t get it) but it is impossible to sell it for more than it’s worth short of doing it at gunpoint (and then I guess technically it would be called theft). If they sold it, it was worth the money they asked to someone…
The government is getting a lot of pressure to do something. Salah (the current president) and various other officials are clearly upset with the traders that are selling the wheat. The president even made the veiled threat that “We liberalized trade, but we can go back to the old way of doing things if we need to.” He then announced that the government will now start to compete with these several traders in the wheat market. Presumably, this will lower the price. Hold on a sec., Why couldn’t another company compete with the current traders and do the same thing that the government wants to do? They would also make quite a bit of money in the process. The reason of course is because the government has only licensed these 2 or 3 companies in the wheat trading business. Why you need a license to buy and sell wheat is beyond me. Well, the government gets a fee and/or other kickbacks I suppose, that’s always a given here. Anyway, this is the perfect example of people blaming the “free market” for unwanted effects when in fact it is the government that is screwing things up by limiting competition. Now that they are officially getting into the market, I expect even more problems…
Keep in mind that most of the countries in the world operate like this. Barry Weingast talks about this in his upcoming book, “A Conceptual Framework for Interpreting Human History.” I know, it sounds like a real page turner, but he does have some really important insights for growth economics. Most countries have a system where privileges are divvied up among a power base of elites. Of course, efficiency and competitivness never enter into the picture, so you get situations like we have here in Yemen. His idea is that these alliances are made mostly to avoid violence and armed conflict. I can certainly see that here, if favors were not granted to certain powerful people or tribes, they might fight back. I think that his insights go a long ways towards explaining how and why a leader would engage in economic practices that harm the country and why many countries can never get past their third world status, they do not want to go through any more violence…