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June 2015 Economy and Policy

Published on: 2015-06-12 00:00:00     1253 times read    0  Comments
 
Some businessmen are likely to prey on the vulnerability of the affected, imposing higher prices. Such a state of price inflation is known as price gouging, the act of increasing the price in seemingly unfair circumstances.
 
--By Krishna Khanal
 
The 7.8 magnitude earthquake of April 25, with its epicentre lying approximately 85 miles east of Kathmandu, killed more than 8,600 people and destroyed half-a-million homes nationwide. Three weeks later, on May 12, the country was struck again by a 7.4 magnitude tremor that also claimed over a hundred lives. 
 
The recent powerful earthquakes that jolted the nation have adversely affected all the sectors, and business cannot remain an exception. It has triggered both serious challenges and opportunities in the business sector. At this chaotic situation, the business community needs to adhere to business ethics rather than taking advantage for their own benefit. 
 
In the aftermath of the earthquake, frequent aftershocks are natural and are still ongoing, and they can put lives at risk. First, business houses open at this time need to take care of both employees and customers. It is important that businesses should remain open so that people can buy essential goods and things. At the same time, safety of employees should be of prime concern at a time when around twenty percent of houses and buildings affected by the earthquake are not fit to live and work in. 
 
Secondly, prices tend to go up as goods are scarce, and demand is high. As a result, the price of essential goods and services can soar. For instance, there was a big inflation in the price of tents and zinc sheets immediately after the disaster. When supply chains are cut off, it is reasonable for some businesses to raise prices. The more goods are in short supply, the higher the demand. Some businessmen are likely to prey on the vulnerability of the affected, imposing higher prices. Such a state of price inflation is known as price gouging, the act of increasing the price in seemingly unfair circumstances. 
 
Let us take the case of construction materials when prices are not set as per ethical rules but by demand and supply rules. If construction companies sell, it will accelerate reconstruction works. The demand for construction materials becomes high, but the supply is low. Given the circumstance, should inflating construction material prices be ethical? To cope with the situation, some countries have anti-price gouging laws that put limits on just how much you can raise prices in the wake of a disaster. 
 
Thirdly, people are sending expired, substandard and adulterated goods and materials to the affected communities. Where do those supplies come from? They must come from business companies. What becomes apparent is that such companies have cleared their storage filled with expired goods trying to exploit high demand with the production of substandard materials. This disaster has become an opportunity for those companies to sell inferior goods taking advantage of the chaotic situation. 
 
For example, various foreign donor agencies have reportedly distributed outdated and unhygienic food and non-food items meant for quake victims in the affected areas. The rice provided by the World Food Program has crossed the expiry date. Consumption of such date expired food in the name of relief can worsen the situation, resulting epidemic diseases. 
 
Fourthly, business houses have also rushed in with relief materials as immediate response to the affected communities as part of their Corporate Social Responsibility (CSR). Although immediate relief works carried out in the name of CSR are also necessary to support the affected people, it is high time that they also involve themselves in impactful actions -- rehabilitation, recovery and reconstruction -- based on the community’s need through their active participation, which is essential for sustainable rehabilitation.    
 
Conclusion 
Some unscrupulous business and corporate communities are reportedly making a fast buck by selling essential commodities at inflated rates. It is not that the government has done nothing to curb such anomalies. The Department of Commerce and Supply Management (DoCSM), the government authority responsible for controlling market anomalies, has formed five market monitoring teams to inspect market activities soon after the catastrophe. The authority has also requested traders to open their shops in the aftermath of the earthquake. It also assured the stakeholders of strict action as per the existing laws against those traders overcharging consumers and selling substandard goods and materials. 
 
Millions of people in Nepal are in dire need of basic humanitarian assistance as the looming monsoon threatens their survival. In the current state of crisis triggered by the disaster, donations of cash and vital resources are now imperative for humanitarian relief. The role of the business and corporate community is essential to fulfill these needs. Their cooperation and support based on business ethics can also create a conducive environment for the donor and aid communities to invest and work in when it comes to supporting the affected areas.
 
Krishna Khanal teaches business ethics to MBA students at King's College and KUSOM
 

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