We have an inflation problem. Being that most Bahrainis live on low wages (see Bahraini salaries), this is creating quite a stirr in Bahrain. Parliament of course jumped on the wagon and suggested really dumb solutions, so the government decided to establish a "committee" to find a way out.
So far so good. Now someone please explain to me why the Ministry of Commerce & Industry is in charge of this committee? It doesn't take a genius to realize that this is an economic policy issue. That ministry does not even have an economic analysis section! As far as I know, it also has zero economists! Still, that didn't stop it from announcing conclusions and suggesting remedies. It announced that we should increase government subsidies and subsidizing new commodities (e.g. rice, sugar, and cooking oil)
OK. First of all, as an economist, I can pretty much say that our subsidization policy is illogical. We are giving blanket-subsidies to commodities like meat and chicken. Really what this means is that our government is spending most of subsidies financing consumption of the wealthy, the biggest consumers of those products. If we had any sense, we would be replacing those with targeted assistance directed only to the poor, rather than artificially lowering prices. Second, nowhere in this bright plan do I see the word competition.
I mean, come on!! A company like the Al-Arabiya Mawashi company is still the only importer of livestock.. and we're still rolling our eyes as to why the price of meat is increasing? Dude, it's a monopoly! By the way, do you know that Bahrain is one of the few countries in the civilized world with no competition law? Even Saudi has one. It's actually not that hard. All you need is a basic antitrust law and an agency to oversee competition in the market! The UN even issued a "model competition law" for retarded nations like ourselves who are too lazy to write their own laws.
We really have no other way, whether the entrenched big family business interests like it or not. As Dr. Jassem Hussein finally spoke out, the government's options are limited. We can't fix prices because that'll just kill any prospect of a real market economy and it'll just be too random anyway. Monetary policy options are out, since our currency is fixed against the $US and we're following US interest rate trends. In terms of fiscal policy, the best bet is to manipulate taxation but we don't have taxes in Bahrain so it's out. Increasing government purchases and transfer payment should also be a good fiscal tool, except, as my main man Jassem Hussein said, "our government just hates to spend." In 2005, it set aside BD 503 million for development projects, then spent only around 53% and ended up with a surplus.
And no, increasing wages will not help either. It will actually raise inflation even more. Besides, I wish I can tell parliamentarians who asked for "raising the minimum wage" is that WE DON'T HAVE A MINIMUM WAGE! There is a minimum salary in government civil service and they can raise that, but this will just widen the gap between public and private sector salaries-- something that labor market reforms are trying to fix. They can also INTRODUCE a minimum wage, but again they will have to battle the labor reforms that rest on the concept of market-based wages.
Now I hate to disturb anyone's sleep, but I think one important task for the Central Informatics Organization (CIO) is to revise the basket of goods used to determine the inflation rate and reach a more accurate measurement. Another important task is to sit and come up with a reliable "poverty line" measure (not the cut-and-paste one we have now). Using those two, some good government economists should decide upon the targeted inflation rate and implement targeted subsidies for families at or below the poverty line, while other economic-policy makers should be working on the competition law issue. Is that too much to ask?!