In a market economy, prices form the market. Customers go where they are offered cheaper and better quality goods. If the government interferes in business with administrative measures retail chains, it is a sign that something is seriously wrong in the country.
The announcement by the President of Serbia, Aleksandar Vučić, that the profit margin of trade chains will be limited and that the prices of "thousands of products" will be reduced by up to 20 percent are interpreted by economists as a legitimate way in which the state tries to help its citizens, but also as Vučić's interference in matters for which he is not competent according to the Constitution.
Interviewees of "Vremen" also warn that due to such a move by the state, traders could seek satisfaction before the Constitutional Court, but also that there is no effective enough way to prevent traders from compensating for the loss of margin in another way.
Vučić is incompetent again
"Limiting any margin in anyone's business according to the Constitution and the Law is not within the competence of the President of the Republic of Serbia. Let's remember that every company aims to maximize the profit it creates in the long term in accordance with the laws of the country in which it operates," Dejan Šoškić, professor at the Faculty of Economics in Belgrade and former governor of the National Bank of Serbia, told Vreme.
There is also the question of the legal mechanism of attempts to regulate such a state measure, i.e. whether it would be carried out by a government decree or by changes to a law.
"In any case, any interference by state authorities in the free operation of legal entities that takes place in accordance with the laws and principles of the market economy, by its essence, can easily turn into a violation of the freedom of market economy, and that would not be good for the international reputation of our country, nor for encouraging investments and economic development," warns Šoškić.
The situation will not change significantly
Economist Ljubodrag Savić points out that it is the legitimate right of every government to fight for consumers, that it is supported by the majority of citizens, that it is not the first time that this government has fought in this way and that previous governments have done it, but the question is how much effect this measure can achieve.
"There is a lot of room for retailers to lower their margins considerably and still earn very well, and for prices, especially of food products, to be significantly lower. But most retailers do not want that. In the case of some products, large retailers will agree to lower margins and that will improve the situation, but not to the extent expected," Savić told "Vreme".
He points out that consumer power in Serbia is "practically non-existent", and that consumer associations do not have the same place as they do in the West.
"In addition, most retail chains were brought in by the state, and it benefits from them, as do consumers, because the market supply is good, but anything beyond that is highly debatable, because it is a blow to merchants who will find it very difficult to give up the high margins for which they came to Serbia," Savić points out.
Traders know how to adapt.
Speaking about what the traders' response could be if the margin is limited, Savić points out that "when traders want to avoid something and adapt, there is always a way to do it".
"The state can prescribe that the margin be halved from 20 percent to 10 percent. For example, something that cost 100 dinars had costs of 80 dinars and a margin of 20 dinars. However, the state cannot prescribe the costs of traders. If the state also halves the margin to 10 percent, who says that traders will not correct the costs of that product to 90 dinars?" says Savić.
He points out that some retail chains depend to a large extent on the state, which gives them considerable help, and that all those who came to Serbia "had significant subsidies, so the state could react in that sense."
A number of permitted measures are not used
On the other hand, Dejan Šoškić warns that the response of traders could be different.
"I would not be surprised if such thoughts and actions of state authorities end up before the Constitutional Court. It is surprising, however, why a number of possible and permissible measures are not used to have a positive impact on lowering the prices of food and other items, such as: quality and intelligent policy of subsidies in agricultural production, much more active and efficient work of the Commission for the Protection of Competition to prevent monopoly and oligopoly structures not only in retail, but also in wholesale, distribution, storage and import," says Šoškić.
He also wonders what happens to commodity reserves and their role in price stabilization and why competition among retail chains does not increase, including bringing in new suppliers.
Who should care about consumers?
Asked to comment on Vučić's assessment that he is "against large retail chains being too rich" and that retail chains "don't care about citizens", Šoškić and Savić agree that it is primarily the task of the state, not the retail chains, to care for their citizens.
"The task of the state is to create the conditions for a normal life through high-quality laws, by-laws, the rule of law and the functioning of system institutions, the fight against corruption and the distortion of competition. In the last ten years, social differences in our country have grown further. In a country where ignorance is promoted at all levels and the will of the ignorant is imposed, where state institutions are dissolved, state property is sold off and destroyed, and the long-term interests of the state and citizens are trivialized, in such a country, as a rule, nothing "is functioning as it should. Why should retail chains be an exception," concludes Šoškić.
Savić, on the other hand, points out that trade chains are far more complex than consumers in Serbia.
"That's why traders who came to Serbia and received privileges must give something in return, because there is no free lunch in the economy. However, we expect a lot from the state and from traders. In a market economy, there are no administrative restrictions and almost everything is allowed, and it is normal that traders want to earn as much as possible. We often do not behave as responsible consumers, which was seen by the boycott of trade chains, which was supported by only a symbolic number of citizens. Traders compete with each other, that is not a flower so that everyone picks as much as they need, and they fight for consumers, and the Serbian market is shallow. Despite everything, they find a common language more easily than consumers, and do not touch each other. That is why, when associations call on consumers to 'punish traders', a large number of people, especially the poor, should respond to that action," concludes Savić.
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