Tuesday 28 / July / 2026
Have you ever wondered why a product that begins its journey at one Omani Rial finally reaches the consumer at fifteen Omani Rials? Where did the remaining fourteen rials go? Did the product suddenly become more valuable, or did something else happen along the way?
This question leads us to one of the least discussed yet most influential concepts in economics: economic friction. Unlike inflation, taxation, or interest rates, economic friction is rarely mentioned in everyday conversation. Yet it quietly accompanies almost every product we buy and every service we consume. We pay for it, but we seldom notice it.
Economic friction refers to all the obstacles, delays, costs, inefficiencies, and mark-ups that slow or complicate the movement of goods, services, information, and money through an economy. In a perfectly competitive market, resources would move smoothly from producers to consumers with minimal waste. Reality, however, is very different. Every additional layer in the supply chain introduces another cost, another commission, another approval, another delay, or another profit margin. Individually these additions may appear reasonable, but collectively they can transform a product worth one rial into one that costs fifteen.
The economist Ronald Coase argued that markets are not free from costs. Searching for information, negotiating contracts, monitoring quality, and enforcing agreements all create what economists call transaction costs. These costs are a major source of economic friction. Similarly, Nobel laureate Douglass North explained that institutions—the formal and informal rules governing economic activity—can either reduce or increase these frictions. Efficient institutions encourage trade and investment, while inefficient ones create barriers that slow economic growth.
Imagine a simple agricultural product. A farmer harvests tomatoes and sells them for OMR 1. The wholesaler adds transport costs and a profit margin. The distributor adds storage expenses. Another company packages the product. A retailer adds rent, electricity, staff salaries, and another profit margin. Marketing costs are added. Import or municipal fees may also appear. Finally, the customer pays OMR 5 or even OMR 10 for what originally left the farm for only OMR 1. Each participant may have created genuine value, but not every increase reflects value creation. Sometimes it simply reflects friction.
This phenomenon is not limited to agriculture. Consider the housing market. A family wishes to purchase a modest home. Before they receive the keys, they may encounter brokerage commissions, legal fees, valuation charges, bank processing fees, insurance premiums, registration expenses, and financing costs. None of these items is the house itself, yet together they can substantially increase the final price. The buyer pays them all, often without recognising that many are forms of economic friction.
The same applies to banking. Suppose a customer applies for a small business loan. Multiple forms, repeated documentation, long approval processes, and several administrative stages delay the release of funds. During this waiting period, the entrepreneur loses opportunities, projects are postponed, and employment may never materialise. The money has not disappeared; it has simply become trapped in friction.
Modern economists increasingly recognise that reducing friction can generate more prosperity than merely increasing production. Technology companies understand this well. Online banking, digital signatures, electronic payments, and automated approvals do not necessarily create new products; rather, they remove unnecessary obstacles between buyers and sellers. Their greatest innovation is often not the product itself but the elimination of friction.
Economic friction also affects the ordinary citizen in less visible ways. A young graduate searching for employment may possess the required education but lack access to professional networks. A small entrepreneur may have an excellent business idea but struggle to obtain financing because procedures are too complex. A talented craftsman may produce exceptional products yet remain invisible because he lacks access to digital markets. In each case, the obstacle is not a lack of ability or ambition but the presence of friction that prevents opportunity from flowing freely.
Perhaps the greatest irony is that free markets are often discussed as though they operate without obstacles. In reality, no market is entirely free. Every unnecessary regulation, every bureaucratic delay, every information gap, every monopoly, and every excessive intermediary acts like sand inside the gears of an economic machine. The engine still runs, but more slowly, less efficiently, and at a higher cost.
This does not mean that every intermediary or regulation is harmful.
Transport companies, retailers, banks, insurers, auditors, and regulators all perform essential economic functions. They reduce risks, improve quality, and facilitate exchange. The challenge is distinguishing between value-creating costs and friction-creating costs. The former enhance the economy; the latter merely slow it down.
As consumers, we often focus only on the price we pay. Perhaps we should instead ask a different question: How much of this price represents genuine value, and how much represents economic friction? That single question may reveal more about the health of an economy than many pages of statistical reports.
An economy does not become stronger simply because goods become more expensive. It becomes stronger when ideas, goods, services, and opportunities move with greater speed, lower cost, and higher trust.
