Milke: Protectionist policies hurt both business and consumers

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“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public,” observed Adam Smith in The Wealth of Nations, adding “or in some contrivance to raise prices.”

Smith, a moral philosopher who pioneered modern economics was a gift of the Scottish Enlightenment and from his age to ours. A combination of moral and economic clarity, Smith was frank and accurate about how men actually behave as opposed to how one might wish them to act.

To wit, Smith, an advocate of free enterprise, yet understood that specific businesses would happily collude if it were in their interest to do so. The predictable effect on consumers — higher prices and inferior products and services.

Not much has changed in the 239 years since Smith wrote his tome. Consider a few examples which have the added government-created moat that protects some industries from full competition and in essence, from consumers and their choices.

Taxicab companies have long worked with each other and local politicians in every city to prevent new competitors in the local transportation market.

Provincially, with the exception of Alberta, governments that operate liquor stores and existing private liquor stores restrict new entrants into the marketplace — governments because of the pressure from government employees’ unions and private stores because they don’t want the extra competition.

Federally, Canadian-based airlines have long been cosseted. Instead of allowing for foreign airlines to pick up and drop off passengers within Canada, foreign airliners can only do one or the other. That means competition on domestic Canadian routes is severely restricted. That is in contrast to the competitive, pro-consumer reality in the European Union where any approved airline can pick up and drop off passengers in any country even if the airline is based in another.

Or another example: The dairy lobby in Canada extracts higher prices from consumers, thanks to the Byzantine command-and-control economics produced by the Orwellian-named, anti-competition, anti-consumer “supply management” policies. Those policies favour roughly 13,000 dairy farmers at the expense of more than 35 million Canadians who pay higher prices as a result.

So what is to be done? It is possible that some fair-minded politician might bravely suggest ending monopolies and cartels in their jurisdiction by upending laws and regulations which produce such ill effects.

That is, in fact, one point of government: to enforce laws and regulations that favour the general good, including the general welfare of consumers and not an individual sectoral or business interest. (That’s why, for example, neutrality among corporations with one tax rate makes sense while a taxpayer bailout of specific failing businesses does not).

 The other way to approach reform is to speak directly to the existing vested interests. Take the dairy industry as a useful case study. Their chokehold on Canadian consumers is counter-productive because it allows other countries to restrict Canadian exports of milk, infant formula, cheese and other products, on the basis that if Canada won’t open its market to foreign competition, why should other countries?

That means Canadian dairy farmers miss out on massive potential exports to China, as one example, where consumers distrust Chinese-based companies on just such products, in part because of past scandals of tainted baby formula. But because Canadian dairy farmers are overly focused on the now captive 35 million-person market in Canada, they are missing out on the much larger Chinese markets of 1.3 billion people.

Back to Smith: All such conspiracies against the public are not only bad for consumers. In some cases, they are also short-sighted strategies for the very industries that demand rampant protection at home. In so doing, they sacrifice much more substantial markets abroad.

Mark Milke is a Calgary columnist and author.