In the last post, I
discussed the importance of competition and the negative aspects of monopolies
and oligopolies (a limited number of sellers). Among other things, monopolies
can produce less efficiently, charge higher prices, pay lower wages and provide
products of lesser quality than would be the case in a competitive market. Consequently,
the government has a role to play in encouraging competition and, where that is
not possible, to regulate the monopolies. Nevertheless, monopoly power in the
market place is often sanctioned—or even exercised—by governments. In fact, Ronald Nash has claimed that
it "is impossible to point to any single monopoly that did not arise as a
result of special favours from government." [1] Now, as we saw in the last
post, public utilities—e.g. electricity, water, natural gas—that use public
land obviously require government cooperation. In this post, I draw attention
to some other government-permitted monopolies—e.g. occupational licensing, milk
marketing boards, taxis, labour unions, beer and wine monopolies—that are not necessary or are
being abused.
Licenses
Many businesses and
occupations e.g.doctors, teachers, auditors, etc. are licensed by the
government–at least initially--for the benefit of the consumer. Unlicensed–
untrained, unskilled--practitioners are prevented from exercising their trade.
While we would all recognize the benefit of not having an untrained doctor removing
our appendix, the other side of the coin is that the number of practitioners is
limited. Entrance requirements may be set so high that "Neighbours"
may be excluded from exercising their calling and the favourable impact of
competition is reduced. The current controversy concerning Uber is a case in
point. The innovative company uses modern smart-phone technology to allow
private drivers to offer ride-sharing in competition with the heavily regulated
taxi industry. The government regulated taxi industry has been able to significantly
restrict entry of new cabs and thus maintain prices . The large user demand for Uber illustrates
that Uber drivers can provide better service and (normally) lower prices[2];
the monopolistic regulated industry has been taking advantage of consumers!
Governments which approve and/or regulate
these occupations must remain vigilant to ensure that the requisite skills/training
and safety of consumers of the services are the only reasons for limiting
entry. Protection of current licensees
from competition should not be accepted.
Supply Management
Canada’s system of supply management in the dairy and poultry industries
provides another example of government-sanctioned monopolistic restrictions which permit producers
to “tax” consumers with prices higher than those that would have prevailed in a
more competitive market. The Canadian Dairy Commission, for example, has the authority to
establish milk quotas and set prices in a “market” protected from import
competition. The system set up to protect
the farmer has become a major barrier--preventing new farmers to enter the
industry! Moreover foreign completion has been excluded by law. By preventing
new competitors, existing farmers have managed to keep prices artificially high.
Not only do consumers of milk pay these higher prices directly but also
indirectly with purchases of milk-derived products such as butter, ice-cream,
cheese and pizza.
Unions
Although, so far, the
possibility of powerful companies misusing their dominant positions has
been discussed, it should be recognised that any form of coercion which causes
market transactions not to be voluntary, prevents the market from producing the
most desirable results. Thus, powerful unions
may create the same negative impacts as do monopolistic companies. Union power is explicitly granted by
government legislation which recognizes the right to organize, negotiate and
strike. In all of Canada and most U.S. states, they also receive the right to
exclude non-members from employment in a company, i.e. the “closed shop” with
union membership (or at least the payment of union dues) required as a
condition of employment.
Hay has noted that
unions with their "increasing influence" in the market economy have been
able to "protect their workers from technological change by insisting on
restrictive work practices" and "to pressure employers into the
concession of wage increases which cannot be justified on the basis of higher
output."[3]
Overly generous union concessions may
well come home to roost in less prosperous times. The last recession which led
to government bailouts of General Motors and Chrysler, is a case in point.
Unfunded, health and pension arrangements negotiated in better times
contributed to the default of these companies. Excessive union power almost led
to the demise of a large part of the North American auto industry. It would
seem natural that a government that seeks to apply biblical justice will have
to be concerned about the misuse of union powers just as much as that of
businesses--particularly where the government, through legislation, provides
the union coercive power in the first place (e.g. "closed shop"
arrangements and “right to strike” legislation).
On the other hand, it
must be recognized that employers who have a dominant position in the labour
market (e.g. “The only employer in town”) can also take advantage of their
employees. In the extreme, governments may have a role to play here in, for
example, providing information about job opportunities elsewhere, financial
incentives to move and relevant training. Only when employees are relatively
free to move to other alternatives, can the market provide a reasonably just
wage.
The Ontario Alcohol Monopoly
Non-Canadians may be
surprised to learn of another example of government sanctioned monopoly powers. In Ontario,[4]
the law provided that beer could only be
sold through a chain of “Beer Stores” owned by three large (now) foreign
brewers[5]
or through LCBO (Liquor Control Board of Ontario). The Beer Stores also control all wholesale
distribution in the province. While one might have thought that an up-date of
this law would lead to a competitive market as in Alberta and many foreign
jurisdictions, that is not the case. Now we are allowed to buy beer in grocery
stores—but only in a selected few, only in six packs (instead of by 12’s or
24’s) and only at the price set by the “Beer Store” monopoly. Some competition! These
limited changes do lead one to wonder what is behind it the lack of real change.
Can it be, as has been suggested[6],
that our government was influenced by campaign contributions by the companies
and unions involved?
The LCBO’s which
distribute and sell all alcohol products are pure monopolies. They are Ontario
government owned -- albeit operated as a crown corporation and thus a step
removed from political influence. The LCBO has even negotiated an agreement
with the beer monopolists that force us
to return the wine and spirit bottles, that they sold to us, to the Beer Stores
to recover our bottle deposits.
Now Christians might
sympathize with such monopolies if the “control” part in LCBO was really
essential. However, no data has been brought forward to suggest that in other
provinces, states and countries where beer and wine are freely available in
grocery stores, abuse of alcohol is more prevalent than in Ontario. Moreover, the LCBO seems to be in the business
of encouraging alcohol consumption since it regularly distributes door-to-door
a glossy sales catalogue! Since the government appears to be doing a reasonable
job of regulating the sale of tobacco in a wide variety of places, it seems
plausible that they could also regulate the sale of alcohol without actually
selling it. If it is necessary to have a returnable deposit on all alcohol
containers[7],
then both wine and beer should be permitted to be sold by all merchants who
will accept the “empties”.
Conclusion
We should generally
be supportive of government actions which seek to maintain and increase
competition. Concerning the monopolistic
practices mentioned above, government sanctioned restrictions on entry (e.g. educational requirements for certain
professions and trades) must be
continually reviewed to see that they meet the public interest. The power of unions should be reduced. Government run or sanctioned alcohol
monopolies should be abolished. Overall,
reducing monopoly power should be our goal both in the government and the
privates sector.
Readers are encouraged to comment either on the blog or directly to me
at johnboersema@rogers.com.
RELATED POSTS
Competition is Good; A Biblical/Economic Perspective http://johnmboersema.blogspot.ca/2016/01/competition-is-good-biblicaleconomic.html
[1]. See, e.g., Bernbaum,
John, Economic Justice and the State: A Debate between Ronald H. Nash and
Eric H. Beversluis, Christian College Coalition Study Guides, Baker, 1986,p.42
[2]. I do not mean to condone any
illegal activity—if it is that. If Uber is, illegal, the regulations should be
changed to put all drivers on an equal footing but permit consumer choice and
competition.
[4] Of the Canadian provinces only
Alberta and Quebec allows beer to be sold freely in grocery stores.
[5] In 2015, part ownership was also
offered to small Ontario breweries with Board representation. These small
brewers have also been offered free listing at the five Beer Stores closest to
their breweries. Control, however, appears to be firmly in the hands of the
three giants.
[6] Chris Selley: “ If Ontario banned corporate donations, would The Beer Store even exist?” National Post, Sept. 24,2o15, http://news.nationalpost.com/full-comment/chris-selley-if-ontario-banned-corporate-donations-would-the-beer-store-even-exist
[7]
We don’t have deposits on any other containers in Ontario; they are voluntarily
recycled through a “blue box” curb pickup with our regular garbage.
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