Economic Policy Review ISSN 1313 - 0544

The State of the Bans

Author: Svetla Kostadinova / 09.04.2009
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The review of last week's papers could lead to a strong negative sensation of helplessness compared to the efforts of the state to define more and more how, what, how much, who and where to do business. Putting a ban is more and more the approach to regulate, which a free thinking person, who believes in the entrepreneur and the initiative could not accept happily.

Putting a ban on the pharmacies

During the last few years the attempts by the State to say what must be sold in a pharmacy, who could work there, how many pharmacies one must have, how to determine the prices, how much should be the profit, etc. are on the verge of sincere insolence.  The last "extra" for all owners of pharmacies is the recently passed change in the Bill for the medications, according to which the pharmacies would not any longer be allowed to sell children's food and adopted milks.  It is unlikely that anybody made the effort, when the changes in the bill were discussed, to find out that almost half of the market for children's food is held by the pharmacies, for various reasons related mainly to the possibility that the pharmacists provide professional advice and consultations. It is unlikely that anybody has made the effort to calculate:

  1. the costs to the users, which already waist more time and funds in order to have access to children's food
  2. the costs for the merchants who sell such foods
  3. the loses of the pharmacies from stopping the sale of children's food
  4. the probability pharmacies to close, combined with the appearance of all related to that effects, such as limiting the access to medication to all customers
  5. the effects on the prices on the children's food etc.

Briefly the conclusion is, that the mindless logic, that some MP or an expert think that "it is not right" leads to significant negative effects, and we are still waiting to hear about the positives.

Putting a ban of the energy market

It is not likely that the market for electric energy would be liberalized from April 2009, even though there are recommendations by the European Commission. The reason claimed is the necessity to modify the energy bill, according to the chairman of the State Commission for Energy and Water Regulation. Actually for every sensible person this is not the reason!! The fact that someone did not do his job could not be a sensible explanation about the current situation, where:

  1. the electricity producers sell to the National Electric Company (NEC) at a fixed price and as a result there is no market and free competition.
  2. not all companies have equal access to the electric grid, i.e. the bill gives advantages of one subject over others, and
  3. the consumers could not choose their supplier, i.e. they are "tied" to one company which has the power to determine the rules.

An analysis of the energy market in the EU shows that the most profitable energy companies are those, which operate on the least free markets in Central and Eastern Europe. The average profit margin for them is over 15%, which is way above the profit margin in Great Britain, where it is around 10%. The data indicates that the main factor which determines how profitable are the companies in the energy sector in not their market share, but the business environment in which they operate and the presence of free market forces, which lead the entrepreneur when making business decisions.

Practically, in order to protect certain companies, the state defers the situation when it is very likely to have an opportunity for choice, better quality, and lower prices for electric energy in the long run for all consumers. And naturally less power in the hands of the State. This is the real reason and not "the missing change in the bill".

Putting a ban on the garages to become shops

One more classic for the week is the idea to put a ban on converting the garages into shops, with a very important elaboration that the ban would not apply for the status quo. The main problem with this ban is that it is attempting to solve one problem with an approach which simply would not bring the desired result. The ban is the classic example of how the State sees a problem, explains to itself the presence of the problem with erroneous arguments and naturally takes the erroneous measures to resolve the problem.

The problem apparently is the lack of parking space, about which may be given a lot of reasons. Actually the main reason is the great increase of vehicles in the cities, and the secondary is the fewer parking spaces, which by itself is due to the conversion of the garages and the lack of public/private parking's. For that reason in order to solve the problem one must act upon the original cause, i.e. an alternative is to introduce tax for entering the central section of the city, paid parking's etc.

What everybody should understand is that you could not ask for parking places and not to pay for them. The parking places are limited resource, particularly in the large cities and that means either tax for entering the center, or higher price of the real estate which includes a garage, or use of the public transport.  There is no other alternative, where someone somewhere builds parking's; they are free of charge to use and every year with the increase of the number of cars new one are build. Simple it does not happen that way.

With respect to the fact, that as a result of the ban it would not be possible to have new shops, that automatically means

  1. rise of the rent of the existing small shops, since they would now be very valuable as a place, and from here
  2. increase of the prices of goods,
  3. limitation of the competition (on your street other shops would not appear),
  4. limitation of the choice of the consumers, etc.

At the end of the day we all are going to lose - the merchants, the consumers, the municipality and the budget.

Putting a ban on new private hospitals

It came out that the Government would attempt to limit the "epidemic" increase of the number of private hospitals which work with the health fund. The Ministry of Health is proposing a change to the Bill for the health establishments, according to which the future hospitals could be set up after the agreement of the Minister, if their activity would be financed by the national Health Fund or with money from the budget. The reason for the proposed change is "the already large number of hospitals in our country - 400, while the aim is better planning of the financing of the hospital care with public funds,

I would attempt to translate the above proposal to a more understandable language - since the health fund is absolutely ineffective and unable to carry out effectively the process of financing the hospital care from the budget, it is better to stop establishing new hospitals (which we expect that they would be providing certainly better health care services) in order that the fund could plan its activities more calmly.

The proposal is so absurd that I would not even comment all negative effects and would quote Bastiat and his Petition of the manufacturers of candles, suppositories, lamps, sticks, street lamps, pincers for cleaning and putting out of candles, extinguishers and from the producers of suet, oil, tar, spirit and everything related to lightning in which they ask the Chamber of representatives to pass "a bill, which would require the closing of all windows, dormers, skylights, external and internal shutters, curtains, casements, round windows, window shutters and blinds - in short, all openings, holes, cracks and slits through which the sun light has the habit to enter into the houses and to the detriment of our good industries, with which we are proud to say, we have given as a gift to our country, one country which could not forget its gratitude towards us and to leave us out in such one sided battle, without betraying us." The complete wording of the Petition could be red here:  

http://www.easibulgaria.org/bg/personalities/frederic-bastiat/peticiya-ot-proizvoditelite-na-sveshti/)