Interests of producer take precedence

“Consumption is the sole end and purpose of all production,” Adam Smith wrote more than two centuries ago, “and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.” He added: “The maxim is so perfectly selfevident, that it would be absurd to attempt to prove it.”

Oh Adam, if only you were alive to see Canada today, where the maxim, far from self-evident, is everywhere turned on its head — where, as you wrote of the mercantilists of your day, “the interest of the consumer is almost constantly sacrificed to that of the producer.”

It plainly reflects the sincere belief of much of the Canadian business, media and political elites. The maxim guiding much of Canadian public policy is, quite literally, that the purpose of consumption is production — or at any rate, that it is the consumer’s duty to submit to the needs of producers.

Scratch beneath the surface of the current public spat over whether to admit Verizon to the Canadian wireless telephone market, and you find it is really about whether and how far consumers’ interests are to be taken into account. Only, this being Canada, it is a fight between two rival camps of mercantilists. They do not disagree that consumers should take a back seat to producers; their only disagreement is how far. The government, to be sure, at least presents itself as the consumer’s friend. Why, it even has a website called Consumers First, explaining why it is so keen to see Verizon come to Canada: more competition, lower prices and all that.

Of course, if the government really believed in putting consumers first, it wouldn’t confine itself to wireless telephony. It would also be opening the domestic market in airlines, in agriculture, in banking, all of which remain protected backwaters. For that matter, it wouldn’t just let in Verizon — it would open the market to all comers. Want to enter the wireless business in Canada? Fill your boots. Want to take over an existing carrier? Ditto. Want to get into broadcasting or cable, the better to offer customers a package of services? Come to Canada, where the Consumer Comes First.

But that’s not in fact what the government is doing. Granted, it is less hostile to consumers than the big three telcos, or their unions, whose panic at the prospect of competing with Verizon knows no bounds. Each day brings another addition to the list of biblical disas- ters prophesied to unfold: “thousands” of jobs lost, slower broadband service, your most intimate data handed over to U.S. security spooks. The publisher of the Toronto Star went so far as to accuse the prime minister of treason (“what do you call a man who betrays the interests of his country for a foreign power?”)

The government’s approach is far from putting consumers first. Dismissing the telcos’ claims, Industry Minister James Moore noted how reluctant other foreign carriers were to enter the Canadian market — in part, he said, because of “government policy.” Not only are foreigners forbidden from buying any telco with more than 10 per cent of the market — the broadcasting and cable industries are wholly off limits — but the industry is required to operate a vast scheme of redistribution on the government’s behalf, urban customers subsidizing their rural cousins out of the prices they pay.

As for relaxing the remaining restrictions on foreign ownership, that’s not on. “I just don’t think it would serve the Canadian industry,” he told the Huffington Post, saying it would upset the “balance” the government had achieved.

This is not just a matter of philosophical preference, though it would indeed seem self-evident that we produce things, not to give ourselves something to do, but to consume them. Rather, the “balancing” proposition assumes a conflict that isn’t there. Properly considered, the consumer interest is the producer interest.

That is, it is the interest of efficient producers — the kind consumers are likely to favour. The conflict that so concerns the minister, then, is not between producers and consumers, but between efficient and inefficient producers. By protecting the latter from competition, we are not merely despoiling consumers: we are harming the producers who might otherwise benefit from their custom.

Maybe “Canadians will save a few bucks a year on their phone bills” if Verizon is let in, the Star’s publisher sneers, but at the potential cost of “thousands of Canadian jobs.” Ergo, overcharge consumers those “few bucks a year” and all those jobs are saved.

But a few bucks a year times 30 million wireless subscribers adds up to a lot of dough: at $100 each, that’s $3 billion. That’s income that could have been spent on other things, spurring investment and job creation in other firms and other industries.

That’s why consumers come first. It is consumers who drive producers to be more efficient; as costs come down, living standards improve. The contrary proposition, that we grow rich by over-charging each other, is so self-evidently wrong, well, it would be absurd to try to prove it.