A reminder of our 3 Premises:
1. Whenever there is a vacuum, someone will rush to fill it.
2. The best way to treat a political problem is to ignore it; usually it goes away.
3. The decision not to act is actually a decision.
We discovered last week that controlling the number of big city cabs by restricting the number of licenses resulted in a black market of licenses, with the prices for each cab approaching a million dollars. This left a huge vacuum in the area of reasonably priced transportation that Uber was quite happy to fill, and which municipal governments were belatedly rushing to control.
How About Those Agricultural Marketing Boards?
Extreme socialism creates more problems than it solves. The marketing boards, similar to the civic taxi regulators mentioned last week, sell quotas. It now costs about $35,000 to buy a license to keep one milk cow (No idea what it costs per chicken. How about the goose that lays the golden egg?) The argument is that this allows our producers the stability to do their job properly. Well, I guess it does. But if your investment is $2,000 per cow, you can sell your milk pretty cheaply. If the cost is artificially inflated to $32,000 per cow, then the cost of milk must go way up so the farmer can service his debt. And who gets the money? The bank, I suppose. Remember our premise. Whoever fills the void also fills his pockets, and I guarantee it isn’t the farmer.
Joining the International Free Trade Club
There is no place for growth in the Canadian system. The huge vacuum in dairy sales is international, and the only way to benefit is to make free trade deals with the markets that are growing. Which our marketing boards excludes us from. Nobody wants to make deals with cheaters. Our marketing boards are the opposite of real markets. A more appropriate name might be Market Meddling Boards: MMBs for short.
So other countries, notably the US, New Zealand, and Australia, are happily filling the void (and their pockets), leaving us with our government-protected farmers charging obnoxious prices for essential foods, which we all pay for. (In many countries, governments pay huge subsidies to farmers, sometimes for not planting crops. Our system does the same thing, but the cost is paid directly by the consumer, and government seems to have clean hands. Sometimes these politicians aren’t so stupid. But you never heard me say that.)
A Quick Aside Into the Logging Business
It may be instructive to note what happened to North American logging companies once free trade took over. Canadian companies were no longer allowed to hide behind the protection of our superior social system and our huge resource of publicly owned forests. We were competing head-to-head with American companies who had to include full health insurance in their workers’ paychecks, and who had to buy all their wood from private landowners. Hence the Americans were allowed to charge import duties on our lumber to protect their mills from those cheating Canadians.
Add to this the American penchant for using the courts to solve all their problems, and Canadian lumber producers got the short end of the board. Less efficient operations closed. Survivors improved. Canadian lumber companies became the most productive in the world. Meanwhile, protected by their huge surplus of lawyers, American companies waxed fat and sloppy.
Then came the recession. Housing markets and lumber sales plummeted. Losers fell like flies. Efficient Canadian companies rebounded first and are now reaching into the States and snapping up failing American prospects that are ripe for the picking.
The lesson? Protectionism creates poor economic risks.
Apply This to Agriculture
If Canada wants to join the world and reap some of the profits out there, the MMBs gotta go. The reality of modern “free” markets dooms the MMBs to the same historical dung pile as their Soviet precursors.
But how do we exit from the situation? You have a dairy farm with 400 cows. They want to abandon the MMB system. What do they pay you? Well, at today’s prices your licenses are worth…let me see…400 “production units” at $35,000? $14 million. A family could retire on that. And since there are around 66,000 units licensed in Canada, the total damage would be about $23 billion. Which might put a small dent in Stephen Harper’s dubious $1 billion-or-less budget surplus this year.
So there isn’t much heart in any political party to start this ball rolling, especially in an election year, and especially in the governing Conservatives, who are in the strange position of endorsing a socialist policy because it shores up one of their supporting industries. Politics and strange bedfellows and all that.
So the best guess is that the MMBs will continue to benefit the few, and the government will continue to ignore the situation, hoping it will go away, which it won’t.
The only ray of hope we have is that our negotiators will, with true Canadian passive-aggressiveness, continue to hammer away at potential trade partners and finally manipulate a compromise that allows us to keep protecting our dairy and poultry farmers but have access to the markets of those who don’t protect their own.
But doing nothing is a choice in itself, and often a bad one. Remember what happened to the protected American sawmills.
Conclusion: Government Needs Balance
The way government functions is to maintain balance. At one end of the spectrum is the socialist control-everything-until-it’s-all-fouled up system. At the other end is the business-friendly do-nothing-until-everything-crashes model. Too much of either runs us afoul of the premises listed above.
Put it another way. The only thing worse than doing too much is doing too much of nothing. As every sailor knows, a light touch at the helm is what makes the boat go fastest. The ship of state is no exception.