THE BLOG

If You're a Consumer (and You Are) the Government's Ignoring You

08/16/2013 12:15 EDT | Updated 10/16/2013 05:12 EDT

The ongoing debate over the three Canadian telecommunications giants and the possibility of U.S-based Verizon entering the Canadian market has once again brought consumer issues to the fore.

I shall beg off addressing that particular issue -- it has been covered in detail by others, but the fact so many have passionate views is a reminder that consumer issues matter. This is unsurprising, given that almost everyone outside of some fellow in a remote cabin in North Korea is a consumer. Almost everyone then has an interest in such pocketbook issues.

Regrettably, when it comes to government policy, the interests of consumers are often neglected. I'll address several consumer issues shortly, but first, some context for how governments should formulate consumer policy in general.

Government policy is often set not with an eye to what is best for consumers but in response to pressure from existing interests. Thus, for example, federal policy on airline competition forbids "foreign" airlines from picking up and dropping off passengers within Canada, a policy known as cabotage. That protects domestic airlines from competition; it means airfares are higher in Canada than they would be with full competition, such as exists in the European Union.

Or consider dairy and agricultural marketing boards. Existing dairy and poultry producers are protected behind a wall of high tariffs on imports that range from 202 per cent on skim milk to 298 per cent on butter with cheese, yogurt, ice cream and regular milk within that range.

Then there is automobile insurance. There, contrary to myth, the rule is that private sector provinces have cheaper premiums than do provinces with government monopolies. (The exception is Ontario, and the reason for the exception is important: higher claims costs per vehicle which drives costs up, not because the private sector operates in that province.)

In each case, when governments restrict competition, or outlaw it entirely, they do so at the behest of existing interests/producers.

Thus, politicians protect "domestic" airlines at the expense of travellers; governments give 12,965 dairy farmers protection and pricing power over 35 million shoppers; where competition in basic automobile insurance is banned, provincial governments protect their own Crown corporations at a cost to drivers.

If governments are interested in what's best for consumers, here's a simple suggestion: stop favouring existing producers and players, be they government-owned corporations or private sector corporations. For competition to flourish, it doesn't take a reinvention of the competitive wheel.

Instead, some straightforward principles can be applied that open up markets and allow consumers to purchase goods and services based on what's important to them, be it budget, desired quality, convenience, or some other personal priority.

First, ensure there are no government-induced policy barriers to entry into a marketplace, (this because no one can possibly know the "right" number of firms that will compete for consumers). When the federal government prevents a foreign airline such as Lufthansa from picking up and dropping off passengers in Canada, that's a barrier to entry; it should be scrapped.

Second, stop assuming a monopoly provider, including in the public sector, somehow leads to lower prices. In some cases, government Crowns might charge less than a private provider in some other province. They can accomplish this only by neglecting investments in needed infrastructure and/or by allowing Crown debt to build up.

In other cases, such as in government-owned insurance companies, cross-subsidization of certain cohorts can take place at the expense of others and lead to the illusion of lower prices. In reality, there is no downward pressure on average prices because of tough competition since such competition is by law, absent. In general, if governments were so sure their Crowns were the most efficient providers, they'd open up the market to completion.

The benefit of favouring consumers over producers is not theoretical. One can observe how competition works every day. Grocery stores compete on many items and adjust their pricing daily to reflect what the "other guy" is up to.

In the European Union, on air travel, the European Commission-Mobility and Transport, the agency tasked with overseeing transportation, has long noted that wide open airline competition has resulted in prices that "have fallen dramatically, in particular on the most popular routes."

The benefits have been widespread: "Consumers, airlines, airports and employees have all benefited," notes the European Union, "as this policy has led to more activity, new routes and airports, greater choice, low prices and an increased overall quality of service."

Back in Canada, if governments wish to actually favour the average consumer, they must abandon their habit of protecting existing cartels, producers and vested status quo interests, over the more invisible but most important interest: the consumer.

Canadians' Favourite And Least Favourite Cellphone Companies