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Finding the right price

Thursday, December 7, 2017

On Monday, a number of transportation hubs across the country increased the prices of their route services.

In typical Trinbagonian fashion, there was the perfunctory grumble and fuss about the price change. Understandably, no one enjoys having to pay more for anything.

In fact, many members of the commuting public viewed the collective actions of transport service providers as excessive (in some cases, fares increased by 25 per cent), even unpatriotic, given the current economic environment and the other financial challenges many are facing.

Try as they might to justify their fare increases (often citing higher diesel prices as the main factor) “maxi-taxi math”, in this circumstance, simply doesn’t add up in the minds of scores of commuters. That said, whenever prices move (mostly up) for certain items, there are always some moments worthy of reflection.

One of the interesting things about responses to price movements is that there usually seems to be a skewed assessment of the environment within which prices shift.

Few individuals take time to understand the driving forces that obligate price shifts from time to time.

Greed of gain is typically the imputed motive and, frankly speaking, is a reality in some instances.

Price gouging is a real thing.

Naturally, however, those who operate in the world of free enterprise seem to understand these scenarios better than the average Trinidadian—profits, which keep people employed and the wheels of commerce turning, in part depend on finding the right price at which to operate.

Viewed from a holistic perspective, though, whenever prices shift to reflect more of a market-based reality, this is actually a good thing. Markets work best when they are allowed to efficiently optimise resources through a properly functioning pricing mechanism.

In T&T, a number of broken markets exist that show the downside of interference with this mechanism.

Two in particular stand out: the market for foreign exchange and the labour market (make-work programmes have distorted the pricing mechanism—the price of labour being wages—and engendered some of the resulting productivity issues currently gripping the country).

There is another interesting dynamic at play here as well: as a country, have we grown so accustomed to the idea of subsidised living that we sometimes think immovable prices are owed to us?

Needless to say, this is a complex issues that cuts to the core of some cultural and societal challenges that exist in T&T. The public often demands better service from many of our public and quasi-public institutions but are we truly prepared to pay for such improved service? The clamour for change is oftentimes unmatched by the willingness to do so.

Companies such as WASA, T&TEC, and TTPOST have for years kept prices so artificially low that this has, in no small measure, hurt both the company and the customer.

In essence, an argument can be made that we get the level of service for which we are currently paying (and in some instances not paying). As a historical side note, the genesis of the Red House fire in 1903 was because of an ordinance passed to increase the price of water.

WASA and T&TEC, for example, have not increased rates since 1993 and 2006 respectively; surely their operating environment would have changed significantly since then.

Further, because of the heavily subsidised (and regulated) prices, wanton wastage has taken place.

Part of the beauty of the market mechanism is that it forces people to think more carefully about how they utilise their resources.

Cheap (subsidised) electricity, for example, has led to a massive misuse of the resource in T&T, with ripple effects for other industries—gas being one of them (T&TEC owes NGC over $3 billion).

Additionally—and by a significant margin—T&T enjoys some of the lowest rates in the western hemisphere for the commodities mentioned above; though seen from a business-owners perspective this may be just compensation for underproductive labour and highly bureaucratic structures.

To be fair, there are genuine social implications that must be weighed when considering price movements. Ensuring that the most vulnerable in society are not further disenfranchised should be carefully contemplated and, thus, some level of regulation will always be necessary.

In spite of that, given the constrained public purse, and relatively low levels of inflation, now is perhaps the best time for citizens to get acclimated with the idea of paying more for goods and services.
Will such a shift be easy? Absolutely not. However, the economic future of our country depends on finding the right price at which to operate.

Andre Worrell