Tory policy needs to channel Milton Friedman
In a 13-minute video released by the Conservative party, Ryan Williams, the shadow minister for trade and competition, claims “Canada is made up of monopolies: banking, groceries, airlines, cellphones, home internet, even beer. Across almost every sector and industry, monopolies and oligopolies reign supreme.” He laments, correctly, that monopolies mean Canadians pay more and get less, and he advocates “competition, lower prices and better service.”
There is much to like about the video. Like earlier Conservative videos on debt and housing, this one provides serious policy discussion with real economic substance, very much unlike the mindless drivel we have come to expect from most politicians. Williams cites statistics, gives historical background on monopolies and competition in Canada, references empirical studies, properly identifies the benefits of competition and problems with monopolies, correctly blames government and overregulation for contributing to monopoly power, and even quotes Milton Friedman and Adam Smith.
On the other hand, in some places the video exaggerates. Monopolies and oligopolies do not “reign supreme” in “almost every sector.” Williams defines monopolies as “price makers who set the price of goods near the highest amounts consumers would pay for them and get away with it because there are no alternatives to go to.” But while some provinces do have literal government beer monopolies, none of the other industries he names (banking, groceries, airlines and so on) fits his definition.
According to Williams, we must fix the monopoly problem with more competition. Echoing Milton Friedman’s famous phrase, “Free to Choose,” Williams says the solution is the “freedom of choice, to be able to choose where to put your money. It’s freedom to start a business, to compete in a free market. And with freedom of choice, consumers always win with better products, better service, and better prices.” Bingo!
Unfortunately, while getting some things right, both Williams’s video and the Conservatives’ policies on competition also contain major errors. For example, Williams points out that five grocery companies control over 87 per cent of grocery stores in Canada and suggests this is a problem government should want to prevent. But here Williams is confusing industry concentration with monopoly power. There is no grocery store monopoly in Canada.
As Thomas Sowell explains in his book Intellectuals and Society, “If, at a given time, three-quarters of the consumers prefer to buy the Acme brand of widget to any other brand, then Acme Inc. will be said to ‘control’ three-quarters of the market, even though consumers control 100 per cent of the market, since they can switch to another brand of widgets tomorrow if someone else comes up with a better widget, or stop buying widgets altogether if a new product comes along that makes widgets obsolete.” Five companies may control over 87 per cent of grocery stores in Canada, but they control zero per cent of the market; 100 per cent of the market is controlled by grocery shoppers.
Williams could improve his understanding of monopolies, and improve the Conservatives’ competition policies, not only by reading Thomas Sowell, but also by rereading and re-listening to Milton Friedman. Last year the Conservatives supported reforming the Competition Act to remove the efficiencies defence, thus making it more difficult for companies to merge. But Friedman argued that “instead of promoting competition, antitrust laws tended to do exactly the opposite” and concluded they “do far more harm than good and that we would be better off if we didn’t have them at all, if we could get rid of them.” A Friedmanite approach to the Competition Act would eliminate it, not strengthen it.
Speaking about automobile industry consolidation in his famous interview with Phil Donahue in 1979, Friedman argued against government artificially propping up a company simply to be able to say there were more companies in operation. Asked if he was bothered by the possibility of one automobile company buying the factories of another, Friedman said, “As compared with what? As compared to (having) the government own the factories?”
Friedman was not troubled by mergers and acquisitions or by large and successful companies that served a big swath of the population, so long as they operated in a free market and without government privilege. His problem was with government overregulation and interference in the marketplace — including government interventions to artificially increase the number of companies in the market simply for the sake of having more companies.
What is Friedman’s solution to the monopoly problem? The most effective antitrust measure you could take, he said, is complete free trade. That’s not in the Conservative agenda today. So while the Conservatives have got a few things right and there is some good content in their video, they clearly need to re-read Milton Friedman.