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Invisibility of Invisible hand doesn’t lead to inefficiency of market economy in Afghanistan

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Invisibility of Invisible hand doesn’t lead to inefficiency of market economy in Afghanistan

argBy Najibullah Arshad

It is invisible always and in everywhere not only in Afghanistan.

Privatization and” Free Market” do not lead to or cause inefficiency and incompetence in Afghanistan, but mismanagement and absence(invisibility) of good governance is a hurdle in front of optimum utilization of finite productive resources for the sake of public interest.

In contemporary world, there is no empirical evidence of  an economy that is absolutely based on a free market system—that is controlled by the invisible hand(i.e. demand and supply),spontaneously arriving to an optimum equilibrium point(not on any equilibrium point), maintaining at that point, and providing jobs for all citizens(full employment), as Classics thought. Today, the dominant form of economic system at the global level is mixed economy, with different degree of government intervention.

Emphasizing on free market economy as the” first best” option in Afghanistan as underdeveloped and insecure country to ensure economic growth, price stability, job and employment, equitable distribution of income…… would not be a good idea.

In Afghanistan, most of economists, politicians and people claim that free market doesn’t work satisfactorily and properly. Most of economists prefer and prescribe mixed economy as a suitable and feasible form of economic system. I do agree with them.

Perhaps, condition and situation of Afghanistan are not consistent with a free market and doesn’t fit the country’s pre-requisites.

Nonetheless, we have to clarify and analyze the other side of the coin.

Today, economists and politicians focus and concentrate on quality of government intervention not quantity of government intervention. How and where to intervene, is more important and determinant than how much to intervene.

The International Monetary Fund (IMF) declared in 1996 that “promoting good governance in all its aspects, by ensuring the rule of law, improving the efficiency and accountability of the public sector, and tackling corruption, as essential elements of a framework within which economies can prosper. The IMF feels that corruption within economies is caused by the ineffective governance of the economy, either too much regulation or too little regulation.

Unfortunately, our government got stuck in corruption, unaccountability, embezzlement and nepotism and is not able to provide security for the citizens of the country which is the first and most prior duty of government, even in laissez-faire system and classic school of thought. Government itself paves the way for manipulation and economic anarchism in the country. Most of state-owned organizations are mismanaged and utilized by state-backed people. Similarly, many national and big private firms and institutions are owned by state- related people(of course not all of them). Probably, some of the private firms and producers smash and fail to sustain in the market due to corrupt governing system and lack of transparency (e.g. Kabul Bank scandal).

I reemphasize, changing the economic system, having state-owned economy is not the one and final solution for Afghanistan and does not solve the economic problems of the country. Government has to revise and improve its governing system and try to provide and develop situations and conditions in conformity with market forces, generate opportunity and necessary facilities for private organizations, firms and investors in order to achieve reliable and sustainable economic growth. None of the economic system works satisfactorily and appropriate without good governing system and transparency.

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  1. Masood Sattari
    Masood Sattari 17 February, 2013, 20:00

    Mr. Arshad,

    Thank you for writing this important article. There is a good book by Eric Reinert “How Rich Countries Got Rich and Why Poor Countries Stay Poor” that I would like to send to you.

    In the book, Reinert explains that rich counties got rich by protecting and nurturing their vulnerable and delicate industries. They did not throw them to the wolves of the “free market” where they would quickly be destroyed.

    Today the US and Europe do the same by subsidizing industries that they know will be able to stand up on their own in the future. BUT they promote the free market in poor countries because it will make it easier for their businesses to compete against them.

    The free market only works for businesses that are strong enough to compete on their own. Thank you for spreading this important message.

    Masood Sattari
    Skype: masood510

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