Rethinking the state’s price control role amid liberalisation – 1
By Anna Tibaijuka
Whenever the price of coffee falls, farmers expect government to intervene. When fuel prices rise, motorists demand action. When bus fares increase, passengers look to regulators for protection.
More recently, butchers in Bukoba reportedly appealed to government to support higher meat prices after a local rancher began selling beef more cheaply than they were charging.
These examples have one thing in common. They all reflect a deeply rooted belief that government should determine prices whenever markets produce uncomfortable outcomes.
That expectation is understandable. It is a legacy of Tanzania’s economic history.
For nearly two decades after the Arusha Declaration of 1967, government occupied the commanding heights of the economy.
It owned major industries, controlled agricultural marketing, regulated trade and fixed many producer and consumer prices.
Citizens naturally came to view the state not merely as a regulator but as the principal economic actor responsible for determining what producers would receive and what consumers would pay.
The economic reforms introduced from the mid-1980s marked a fundamental turning point. They followed a period of intense national debate over structural adjustment programmes promoted by the International Monetary Fund and the World Bank. Mwalimu Julius Nyerere was among their strongest critics, warning that externally-driven reforms could impose heavy social costs and reduce national policy autonomy. Nevertheless, under the new administration, Tanzania gradually embraced market liberalisation, private enterprise and competition as the principal means of allocating resources.
The reforms changed not only economic policy but also the relationship between government and the market.
Yet, almost 40 years later, one important question remains unresolved: What exactly is the role of government in a liberalised economy?
Many of today’s policy debates suggest that while our institutions have changed, our expectations have not. Whenever producer prices fall, farmers ask government to raise them. Whenever consumer prices rise, the public expects government to reduce them. Whenever competition creates winners and losers, businesses often seek official intervention to protect their commercial interests.
The greatest misunderstanding about liberalisation is that it reduced the role of government. It did not. It changed the role of government—from setting prices to ensuring that markets function fairly, competitively and in the public interest.
This distinction is important because a liberal economy does not mean an economy without government. Nor does it mean that markets should always be left entirely alone. Equally, it does not justify government fixing prices whenever markets become politically uncomfortable.
Before intervening in any market, policymakers should ask three simple questions.
First, is the market failing? Markets sometimes fail because of monopolies, cartels, collusion or inadequate competition. In such circumstances, government has a legitimate responsibility to act. But not every price increase or decrease represents market failure. International commodity prices, weather conditions and changes in supply and demand also influence prices.
Second, who ultimately bears the cost? Government may announce higher producer prices or lower consumer prices, but if those prices do not reflect the true cost of production, someone must absorb the difference. If transport fares are held below operating costs, services eventually deteriorate. If producer prices are fixed above market realities, marketing institutions incur losses. Economic policy cannot eliminate costs; it merely determines who pays them.
Third, will intervention strengthen or weaken the market? Good policy encourages investment, productivity and competition. Poor policy often weakens incentives, discourages efficiency and reduces innovation. The objective should not simply be to change prices but to improve the way markets function.
Governments possess many instruments besides fixing prices. They can invest in infrastructure, improve storage facilities, strengthen market information systems, reduce unnecessary taxes and levies, promote competition, enforce consumer protection laws and regulate monopolies. In many cases, these measures produce more sustainable results than administrative price controls.
It is also important to distinguish between price determination and price regulation. Competitive markets determine prices through transactions between buyers and sellers. Regulators, on the other hand, oversee markets where competition is naturally limited or where consumers require protection. The two functions are complementary, not contradictory.
The remaining articles in this series will examine how these principles apply to Tanzania’s producer prices and consumer prices.
The next article asks whether, after four decades of liberalisation, agricultural marketing has fully embraced competition. We shall examine producer prices, AMCOS, the Warehouse Receipt System (Stakabadhi Ghalani), indicative prices and the continuing restrictions on farm-gate buying. The discussion is not about returning to the past or abandoning liberalisation. It is about ensuring that government intervention strengthens markets rather than substitutes for them as we implement Vision 2050.
After four decades of experience, Tanzania’s challenge is no longer choosing between state control and free markets. It is defining the proper role of government in building competitive, efficient and fair markets that serve both producers and consumers.
Prof Anna Kajumulo Tibaijuka is a former Tanzanian Cabinet minister and former United Nations Under-Secretary-General and Executive Director of UN-HABITAT
