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October 8, 2004
Political and Economic Freedom in Afghanistan
Afghanistan may be heading in the right direction in terms of political freedom as their first elections are set for tomorrow. Yet political freedom is only half the picture. Economic freedom is the other half, and without it a higher level of prosperity will be impossible.
In the international section of the WSJ, Philip Shishkin has an article: "Afghans Are Free, Market Isn't". The article begins:
Kabul, Afghanistan -- SOAKED IN SWEAT and squinting from smoke in his soot-covered shop, Abdul Ahad was having a normal day until Nizar Habibi emerged from the bazaar crowd and fined him $20 -- almost twice the average Afghan weekly wage. The baker's crime: charging slightly more for bread than the price set by the government....
...Every month -- after browsing markets to check how much vendors pay for raw materials -- Mr. Habibi invites industry representatives for an exercise in central planning. Loud arguments are common as businessmen plead to be allowed to charge more. When the prices are set, the inspectors print 7,000 price lists for distribution to vendors. On the bottom of the form, which must be visibly posted, is Mr. Habibi's telephone number for customer complaints.
Habibi stresses throughout the article that while free markets are a great idea, "we aren't ready for a completely free market yet." But as economics will tell you, and history has demonstrated, price controls have disastrous effects. If the price by the government is set too low then shortages will exist.
The situation in Afghanistan is astonishingly similar to the situation in the areas of post-war Germany under Allied control. Luckily, Germany's minister of economic affairs, Ludwig Erhard, defied his U.S. commanders and lifted all price controls. This despite their protests that Germany was not ready for the free market. Accordingly, the German economy boomed despite its other shortcomings. Watch the 4 minute clip of this story from PBS with a broadband or dial-up connection.
Posted by Peter Mork at October 8, 2004 5:59 PM
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