Ethiopia: After the Middlemen
EDITORIAL
My early readings on global economics involve writings by the renowned economic historian Niall Ferguson and the Nobel Laureate Joseph Stiglitz. Reading the works of these intellectuals, especially the unconventional thoughts of Stiglitz on markets, have helped me realise the dynamics of the global market place. At the base of the historical records of Ferguson as well as the ground breaking revelations of Stiglitz lays the fundamental theories of market information.
Unlike the claims by classical economic theories, market information exists and flows asymmetrically. It is this asymmetry of information that mediates the very act of transactions. Markets exist as mediums of hosting this transaction.
There is no way that a buyer and a seller could have the same information - in both quality and quantity - about a given good or service they want to transact. Certainly, one of them knows more about the service and hence fixes the price.
Often, it is the seller who knows more. Therefore, buyers exist as price receivers. When the market is a globalised one, then, the gap in information will be so huge that buyers would be considerably disadvantaged.
This very nature of the market creates new players - middlemen. These individuals strive to narrow the gap in information within the market place. They benefit by bringing buyers and sellers closer and more informed. There is indeed a purely economic reason for their existence.
But in our fair nation, there seems to be a gross hatred for middlemen. Everyone, from policymakers to ordinary citizens, attribute economic challenges on middlemen.
Blaming middlemen has become the latest trick of the Ethiopian ruling elite to sideline their own responsibility. Every failing market-related policy is attributed to middlemen.
But, I often wonder how a nation with poor market infrastructure, fragmented markets, hierarchical social structure and significant slack time in the flow of information could manage to live without these very individuals who could help it thrive through its problems. Avoiding them will obviously make markets so rigid and increasingly volatile.
I recently argued with a friend over the role of middlemen in defining the rental market in the country. He thinks that the middlemen are responsible for the ever-increasing rental price in Addis Abeba.
I asked him a simple question; how would you have known that there is a house to be let if there were no middlemen? How would you have defined the approximate rental price for a square meter of floor area, if there were none of these individuals?
His explanation was insufficient, to say the least. He speculated about possible structural solutions for such gaps in the market. But everything he could come up with was more costly, disorganised, uncertain and unpredictable as compared to middlemen.
Latest efforts by the policymakers to avoid middlemen (what they have actually done is regularise them) includes establishing the Ethiopian Commodity Exchange (ECX), regularising the cattle market in Addis Abeba, a new law that bars middlemen from the fruit markets, and implementing a receipt system in the national grain market. All of these efforts are intended to streamline the market chain, and with the goal of eliminating middlemen.
Ever since the implementation of these changes, however, the prices of the commodities have become too rigid to influence through government policy instruments. And the markets have become all the more inefficient.
Instead of streamlining the market, the efforts end up facilitating contraband trade. Black markets in these commodities are thriving. It all happened after policymakers legislated their misjudgement about the role of middlemen.
Amazingly, the ruling elite are trying to justify their acts by saying a long chain of middlemen would reduce the benefit that trickles down to producers. Their argument, however, fails to account for the inefficiency of a market without middlemen in helping the producers discover prices.
It is this complex nature of markets that one would understand in reading the books of both Ferguson and Stiglitz. No wonder, then, that Stiglitz received his Nobel Prize for indentifying the asymmetric nature of markets. If anything, the Ethiopian ruling elite is trying to defy fundamental economics.
No market could survive without middlemen. And no economy could manage to live under a gross hatred for the very agents making possible those market efficiencies.
Getachew T. Alemu Is the Op-Ed Editor for Fortune. He Can Be Contacted At Getachew@addisfortune.com.
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