When the Hammurabi Code imposed – 4.000 years ago – a tight system for the control of prices and salaries in Babylon it caused a sharp drop in the economic and commercial activity during his and his successors’ reign.
The Roman Emperor Diocletian enacted his Edict on Price Ceilings in year 301. The first two thirds of the Edict doubled the value of copper and bronze coins and established the death penalty against speculators, whom he blamed for inflation and compared them with the barbarians that threatened the empire. It was forbidden for the merchants to bring their products into other markets in which they could sell them with higher prices, and the transportation cost could not be used as an “excuse” to increase the final price of the goods.
The Edict did not achieve its aim to stop inflation, the mass production of coins of low metal value continued devaluating currency and increasing prices.
The merchants selected either to stop commercializing some goods or to sell them illegally or to use barter exchanges. The Edict altered the exchange of goods and trade. Entire cities stopped commercializing among them. Likewise, and due to the fact that the Edict also fixed the salaries, many persons who had fixed salaries and especially the soldiers, found out that their money had less and less purchasing power since the artificial cheapness of prices did not reflect the actual costs. Some authors identify the Edict as one of the economic causes of the fall of the Western Roman Empire.[1]
I could quote only two precedents from hundreds of examples, which prove not only the ineffectiveness but the damage to the community – that stories intend to protect – caused by the imposition of price ceilings.
The history of humanity – including Hitler’s Germany, and that of the Soviet Russia and, of course, the history of our increasingly poor Argentine Republic – proves that the “price ceilings” discourage the production of goods whose prices cannot cover their manufacturing cost, generating thus, almost immediately, an artificial shortage of said goods; the bankruptcy of businessmen in the short to medium term, who are obligated to sell at a loss and – even more so – the impoverishment of the citizens of the countries where said price ceilings are applied.
The experiences of price massive controls in human history (including ancient Rome and the Revolutionary France), have finally generated, always, a negative result for the economies concerned[2]
By ignoring the experience of at least 4,000 years of complete failures[3], the Resolution issued by the Secretariat of Domestic Trade 281/2021, dated 3/30/21 (published in the Official Gazette on 3/31/2021), extended again, now up to May 15, 2021, inclusive, for stores, markets, self-service shops, supermarkets and hypermarkets, retailers that sell massive consumption products which have showrooms, producers, distributors and marketers, price ceilings for certain “food products”, “beverages”, “cleaning products” and “pet products” set forth by its similar Resolution N° 100/2020, dated 3/19/20.
Even though Resolution 281 does not provide, as some of its predecessors- except for Resolution 118/2021- that the freezing thereof could be extended beyond 5/15/21, on the basis of the evolution of the epidemiological situation of COVID-19, it shall not prevent the issuance of new resolutions setting new extensions.
The Resolution, in its section 2nd, as all its predecessors, decides to ignore the difficulties and higher costs imposed by the pandemic, and again, in spite of the fact that the freezing of prices was decided more than twelve months ago as well as the brutal inflation of the period, warns the companies that make-up the chain of production, distribution and commercialization of the products reached by its regulations to increase their production at their full installed capacity and to take measures to ensure their transportation and provision during its validity.
Although the possibility to review price ceilings during the new freezing period is still in force, according to the provisions of section 5th of Resolution 100/2020, it has become known in the media that no new increases would be authorized.
We recall on this issue that, echoing multiple claims for the increase of the price ceilings fixed by Resolution 100/2020, which now has been extended again, the Secretariat of Domestic Trade, by means of Resolution 199/2020 (dated June 30, 2020 and published in the Official Gazette on July 1st, 2020), included as a second paragraph of section 5th of Resolution SCI 100/2020, the chance that the price ceilings fixed to the levels in force on 3/6/20, may be reviewed if variations in the structures of costs, after March 6, 2020 are proved, and substantially affect the financial-economic situation of the subjects reached by the regulation.
In these cases, the Undersecretariat of Actions for the Defense of Consumers (Subsecretaría de Acciones para la Defensa de las y los Consumidores) may establish new price ceilings, subject to the conditions set forth by it.
The lack of objective guidelines to define the “substantial impact of the economic-financial situation” of the companies reached by the regulation and the level of the costs variations that would cause it, a requirement for the authorization of a new price, unfortunately leaves a wide scope for the discretion of the officers who must authorize increases, what may cause arbitrariness.
We may add to the foregoing the lack of political will to do it, in view of the “need” of the government in office to obtain a good result in the legislative elections to be carried out on next October.
The points of sale obligation to display a list of the prices of each product subject to price ceilings is still in force, and said list must contain the price in force as at March 6, 2020, the price in force as at July 15, 2020, pursuant to the application of the increase percentage authorized in each case by Provision 13/2020 and the price in force as at October 8, 2020, with the increases authorized by Provision 14/2020.
The lists shall specifically correspond to the point of sale and must not be a general list in the case of chains of shops.
Non-performance by businessmen of the price ceiling regime may be punished with – very serious – penalties:
(i) Provided by Act 20,680, that sets forth, for example, the closure of the shops for a maximum term of ninety (90) days, the confiscation of the infringing goods and the imposition of fines; penalties which, in addition, may be imposed either independently or jointly, “depending on the circumstances of the case [4]
and
(ii) Provided by the Emergency Decree 274/2019[5] (of Fair Commercial Practices), that sets forth, in case of violation of its regulations, among other penalties, a fine for an amount equivalent to one (1) and ten million (10,000,000) of Mobile Units (section 57, subsection b). The Resolution of the Secretariat of Domestic Trade 151/2021 (published in the Official Gazette on 2/22/21), sets forth in its section 1st, the new value of the Mobile Unit of subsection b) of section 57, in force since 2/22/2021, in the amount of AR$ 55,29. Consequently, the minimum value of the fine set forth by section 57 of the Fair Commercial Practices Regime amounts to AR$ 55,29 (Pesos Fifty-five with twenty-nine cents) and the maximum value of AR$ 552,900,000,-(Five hundred and fifty-two million nine hundred thousand Pesos).
The new value of the Mobile Unit – in force throughout year 2021 – arises from adjusting the Mobile Unit in force for year 2020 with the variation of the National Consumer Price Index, prepared by the National Institute of Statistics and Census (Instituto Nacional de Estadística y Censos), taking as the basic index number the one of December 2019 and as a final index number the one of December 2020, as set forth by section 85 of Act 27,442.
In my opinion, poor country.
Buenos Aires, April 1st, 2021.
[1] https://es.wikipedia.org/wiki/Edicto_sobre_Precios_M%C3%A1ximos
[2] https://es.wikipedia.org/wiki/Control_de_precios
[3] At this point a phrase that I consider appropriate is attributed to the distinguished Jorge Luis Borges. It says that a certain day a Young man helped him to cross a Street of his beloved Buenos Aires and when he recognized him he “confessed” apologizing himself, that he was Peronist, so the wonderful writer would have answered: “Don’t mind man, I am also blind “.
[4] The Supply Act provides for the imposition of the following penalties:
SECTION 5TH — The parties that incur in the acts or omissions set forth in section 4th, shall be subject to the following penalties:
a) A fine ranging from five hundred pesos (AR$ 500) to ten million pesos (AR$ 10,000,000). The last limit may be increased up to three times the income obtained in infringement
b) Closure of the establishment for a term of up to ninety (90) days. During closure, and for another equal period, neither the going concern nor the affected assets may be transferred;
c) Disqualification of up to two (2) years for the use or renewal of credits granted by the public entities subject to Act 21,526 of Financial Entities and amendments thereof;
d) Confiscation of the goods and products subject matter of the infringement;
e) Special disqualification of up to five (5) years to engage in commerce and exercise public offices;
f) Suspension of up to five (5) years in the registries of the Government’s suppliers;
g) Loss of concessions, privileges, tax regimes or special credit regimes enjoyed by it. The penalties provided for in this section may be imposed independently or jointly, depending on the circumstances of the case. (Section substituted by section 4th of Act N° 26,991 published in the Official Gazette on 09/19/2014).
SECTION 6TH — In case of recidivism the maximum limits of the amounts of subsection a) of section 5th and the terms of its subsections b), c), e) and f) may be raised up to two times the original penalty.
[5] SECTION 57.- The human or legal persons that fail to comply with the provisions of this Decree and the regulations thereof, shall be subject to the following penalties:
a) Warning.
b) Fine for an amount equivalent to ONE (1) and TEN MILLION (10,000,000) of Mobile Units.
For the purposes of this Decree, “Mobile Unit” is defined as unit of account. The initial value of the mobile unit is set forth in Act N° 27,442 and shall be adjusted automatically every ONE (1) year by using the variation of the Consumer Price Index (IPC) published by the NATIONAL INSTITUTE OF STATISTICS AND CENSUS (INDEC), or the official inflation indicator replacing it in the future.
The adjustment shall be carried out on the last working day of every year and shall be in force as from its publication by the National Authority of Competition of said Act in its web page.
c) Suspension from the National Registry of the Government Suppliers (Registro Nacional de Proveedores del Estado) for the maximum term of FIVE (5) years.
d) Loss of concessions, privileges, tax regimes or special credit regimes enjoyed by it.
e) Closure of the establishment for a term of up to THIRTY (30) days.
The penalties provided for in this section may be imposed independently or jointly, depending on the circumstances of the case.
Notwithstanding the foregoing, and regarding the suspension of announcements, the administrative penalty for the rectification of advertising may be imposed upon the infringer that, through the information or advertising would have incurred in misleading or abusive practices.
The regulations shall set the guidelines of the advertising rectification to remove the effects of infringement, which shall be disclosed by the Enforcement Authority or the responsible party, at the latter’s expense, in the same manner, frequency and extent, and preferably by the same media, place, space and time.
In the event of non-fulfillment of the penalty for the rectification of advertising, within the terms set forth in the resolution imposing it, the supplier shall be subject to an additional fine of up to FIFTY PERCENT (50%) of the original fine, notwithstanding the obligation to reimburse the expenses incurred by the Enforcement Authority if it makes the publication at the supplier’s cost.
SECTION 58.- Adjustment of penalties. The Enforcement Authority shall adjust the penalties based on the seriousness of the infringement; the damage caused to all the persons affected by the forbidden activity; the benefit obtained by all the persons involved in the forbidden activity; the discouraging effect; the value of the assets involved at the time the violation was committed; the intentionality; the duration; the participation of the infringer in the market; the size of the affected market; the duration of the practice and the background information of the responsible party, as well as its financial capacity. The cooperation with the Enforcement Authority in the knowledge or in the investigation of the behavior may be considered a mitigating factor in the adjustment of the penalty.
SECTION 59.- Recidivism. Recidivism shall be considered an aggravating circumstance; therefore, the applicable penalty should not be lower than the preceding one. The parties that after having been punished by an infringement they incur in another one of the same kind within the term of THREE (3) years shall be considered recidivists.
SECTION 60.- Penalties. In cases of recidivism, as well as multiple infringements, or disobedience to a suspension order, the penalty to be imposed shall be aggravated, and cannot exceed the maximum limit set forth herein.