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. Last Updated: 07/27/2016

Ethnicity the Key to Market Economics

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During a program broadcast on TV Center on Tuesday, Mayor Yury Luzhkov announced that the city was planning to reserve half the stall space in outdoor markets for domestic producers. The plan, Luzhkov said, would cut out the middleman between farmers and consumers in the city's 25 meat and produce markets, thus reducing prices.

The economic logic behind the plan sounds simple because it is; too simple in fact.

The chain between producers and consumers in any relatively developed economy includes these middlemen -- they are called wholesalers.

Wholesalers exist for the simple reason that, for most producers, the purchase and maintenance of vehicles and networks for getting products to market are high, and the smaller the producer, the higher the relative cost. When a single truck can handle the produce from 10 farms over a season, it makes little economic sense for each individual farm to have its own truck. Add to this the increase in efficiency that specialization in any sector offers, and the advantages offered by wholesalers and transportation companies become clearer.

It's hard to believe that City Hall does not understand this.

What is easier to believe is that Luzhkov understands and is appealing to attitudes held, unfortunately, by a large portion of the population: Food prices are high in Moscow, and the overwhelming majority of people selling meat and produce in food markets are not ethnic Russians. Most of the people who get the food to market are also of other ethnicities. The logical conclusion: The fact that your food is expensive is the fault of non-ethnic Russians.

Add the charges that a good part of the business activity of the non-ethnic Russians is criminal in nature, and you have pretty much summed up the argument that has been hammered home publicly by Russian officialdom over the past few weeks.

High food prices in Moscow are the result of a number of factors. The sorry state of an agricultural sector that has received little investment for almost a century and the long line of corruption stretching from the fields to the markets are just two of the biggest.

But these problems can only be eliminated over the long term and with a very concerted and complex effort. Explaining this to the public is not likely to earn City Hall any points.

So instead Luzhkov offers to set aside stall space for Russian farmers -- who are unlikely to be able to deliver enough produce to fill them -- and President Vladimir Putin calls on regional authorities to protect the interests of the "native population" in the country's markets. It is a populist message, telling ethnic Russians that the faces of the people from whom they buy their food will start to look more like their own.

Sadly, these policies pander to peoples' baser instincts -- and make no economic sense.