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The UAE government has agreed that the Union CoOperative Society will freeze the prices of 16 food items at 2007 levels. Will it help stabilize food prices across the board? That we'll have to wait and see.
Last year and this, caps have also applied to bring sanity to the spiralling rental market. Opinions are divided on their efficacy.
These are what might be called interventions.
So does that mean that the UAE is not really a free-market economy, the bare thread meaning of which is an economy where prices of goods and services are determined by the forces of demand and supply in a competitive environment with minimum interference from the government?
It boils down to the degree of that interference. Western economies, which are often thought of as free-market are by no means completely free, when for instance you consider the scale of the state's welfare provision and weight of regulatory control. Instead, they might still be viewed as 'mixed'. Recently the UK nationalised a bank. The European Union's budget is dominated by agricultural subsidies. The US tax code runs to thousands of pages, detailing variations and exemptions which are tantamount to creating distortion. These may be basic observations, but they make what is a basic point.
Here, the most obvious intervention in the UAE economy is actually its exchange-rate system, where essentially a price control operates.
Information
Another issue is information. Effective competition and freedom needs that essential ingredient as a transmission mechanism. In that regard, the official consumer price index in the UAE is not widely considered to be robust. Yet that matter is in hand. The government is working with various agencies, including the IMF, to have such an index measured quarterly later this year or early in 2009.
Meanwhile, cancelling certain monopoly agency arrangements is a measure towards competition, an intervention which works in favour of market disciplines.
Cutting customs duty on some imports is also market-friendly, even if taken to intervene on prices, although there is an element of distortion if duties are uneven across the item range. It is ironic, too, that a free market can be criticised for producing inequality, but itself needs a degree of equality to be well-functioning.
Like anywhere else, the government of the UAE has priorities it wants to deliver. And the economy is in transition, at rapid pace. That means planning is a necessity. In fact, an unplanned market economy would effectively be a jungle, which would not suit the purpose of society as a whole, even one dedicated to individual and market freedoms as a general norm.
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