Price control in Kenya

Abstract

Until a few years ago, very little research effort was being devoted to the study of price control as a tool of economic management. However, recent experimentation with price controls in many countries has caused economists to take the issue more seriously. This thesis is a response to price controls imposed in Kenya in late 1971 to control prices directly and curb profiteering. The first chapter merges traditional economlC theory with Leibenstein's X-efficiency thesis to show the possible consequences of price control imposed on various market structures. The argument is that, since the effects of price control largely depends on the market structure in which it is imposed, justification for the policy can only feel its way from case to case. Chapters two and three give the historical background to price control since it was first introduced In Kenya at the beginning of World War II in late 1939 to 1971. Apart from chapter 9 which gives a summarised account of how the policy has worked in other countries, the rest of the thesis is concerned with the operation of controls in Kenya since 1971. Aspects analysed include its effect on the cost of living, growth and distribution of income, collective bargaining, and the relationship between Government and business.

The concIusion is that, although price control promises more than it gives,there are cases where it can be beneficial e.g. with natural monopolies, to break 'inflationary mentality' when a country is threatened with a high rate of inflation, and in periods of commodity shortages as long as the shortages are not created by the policy itself. The conclusions are tentative because (a) the topic is one in which the theory does not provide unambiguous conclusions for all situations, and (b) there are no handy measures by which to gauge the effectiveness of controls in practice.