A Society Waiting in Line for Mask Rations

The five-day mask distribution system went into effect on March 9. The government limited mask purchases to two per person per week. These public masks are distributed after the government forcibly procures 80% of the output produced by domestic mask manufacturers. Since the government has directly intervened in the circulation and distribution of goods, this is in effect a mask rationing system.

From the outset, the government responded to the mask shortage caused by COVID-19 in the wrong way. Declaring that it would punish hoarding and profiteering, it cast the market mechanism in a negative light. When demand surges and mask prices rise, suppliers have an incentive to increase production. The market is best at resolving shortages of scarce goods. Nevertheless, the government announced various interventionist and regulatory measures, rendering the functions of the market and prices ineffective.

The situation worsened further, and in the end the government reached the point of controlling and rationing mask distribution. In the process, some mask manufacturers were even notified that only about 50% of their production costs would be recognized, and some companies temporarily halted production in protest against the government’s mandatory delivery system. Those who had already entered into supply contracts could only be bewildered. The order of distribution had been dismantled by the government.

There is a saying: “Under socialism, people stand in line to buy bread, but under capitalism, bread stands in line to be sold to people.” It may sound like a joke, but it captures well the superiority of the market economy over a command economy. In socialism, where ownership rights to the means of production are not recognized, market prices for capital goods cannot be formed, and as a result economic calculation by entrepreneurs becomes impossible.

In such a situation, no matter how ingeniously entrepreneurs manage supply, they lose motivation because they do not receive incentives commensurate with their efforts. The government continues rationing essential goods in short supply, but it cannot solve the shortage. As the price of disabling the market is paid by the government, consumers remain trapped in hardship.

In a free market where property rights and freedom of contract are guaranteed, market functions operate properly, and in that process entrepreneurs supply high-quality, low-priced goods in order to satisfy consumers. Through their choices, consumers select firms that have contributed to them and drive out those that have not. But the five-day mask distribution system blocks the informational function of market prices that makes abundance possible, and therefore can only cause persistent shortages.

In an interview, Policy Director Sangjo Kim confessed that, while implementing the five-day mask distribution system, he had “honestly come to keenly realize why the planned economies of socialist countries found it so difficult to succeed.” Socialist policy experiments always end in failure.

As people stood in long lines to buy masks, they experienced firsthand the harmful effects of socialist policies. In the former Soviet Union, standing in line was once part of daily life. That misery disappeared when it shifted to a capitalist system. This mask crisis clearly shows why economic problems must be addressed with market-friendly solutions.

Sung-no Choi, President, Center for Free Enterprise (CFE)

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Original title: 마스크 배급 줄 서는 사회

Author: Sung-no Choi

Date: 2020-03-25

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=22&idx=22513