The crux of the matter, as Planning Minister Kurt Tibbetts put it in a statement in the Legislative Assembly last week, is that local gas prices seem to go “up like a rocket, and down like a feather” in response to fluctuations in international oil prices. When international prices rise, the perception is that prices at the pumps in Cayman rise very quickly. Yet when prices fall overseas, it sometimes takes months for the prices to make similar drops here.
With the high cost of living an issue affecting a large segment of the voting population, politicians such as Mr. Tibbetts are always trying to find ways of addressing the hot-button issues. That’s what they’re elected to do.
Regarding current gasoline pricing fluctuations, the first thing the legislators plan to do is to present a Public Utilities Commission Bill to the House in September. If enacted, this legislation would create a commission – yes, yet another body of political appointees – to regulate all of the local utility industries, including electric, telecommunications and water. Gasoline, which is typically traded as a commodity, will get lumped in with the utilities as part of the bill, which will then require local petrol distributors to reveal what they pay for bulk fuel shipped to the Cayman Islands and their markup to local retailers.
If the markup is deemed unfair or that Cayman’s current two fuel distributors aren’t actually in true competition with each other, then Mr. Tibbetts suggests the next step would be “outright market price regulation.”
This is where we say “Whoa. Stop right there.”
Price controls in a free-market society are a very dangerous step toward a government-controlled society that ignores basic free-market economic principles. This would be a major step – and a misstep – for the Cayman Islands.
Mr. Tibbetts is assuming that the problem lies with the distributors, but, by his own admission, he doesn’t know what their markups are. In other words, he might be wrong. What if the problem really lies with the profit margins of the retailers? Would the government be so bold as to institute price controls – or, more precisely, profit controls – on members of the voting public?
Certainly no one wants to pay more than they should for gasoline, but ultimately Cayman is a free-market society, and people are free to choose to pay the going rate – or not – just as they are free to choose to own gas-guzzling trucks and SUVs, or not.
That’s not to say there aren’t remedies for the government to address the high gasoline prices while still adhering to free-market concepts. Government could, for example, license additional distributors who are hungry for market share and will reduce their profit margins to achieve it. Or government could reduce further the amount of import duty they charge on fuel and make up the lost revenue in a less-regressive way that does not affect as many lower- and middle-class workers.
If they find that there is price collusion occurring between the fuel distributors, they could enact legislation similar to other countries, making that practice illegal.
But what the government should not be doing is setting prices of commodities. It should let the market and the economic principles of supply and demand determine the prices, and create a fair, competitive environment that encourages fair profit margins.