The government’s pro-consumer policies: What makes sense and what doesn’t

Mike Moffatt shares his scorecard

by Mike Moffatt

As predicted by many, the Speech from the Throne had a distinct focus on issues of importance to consumers. The government laid out eight broad policy themes to protect consumer interests. They are combination of good ideas, populist pandering and a whole lot of questions marks. Here’s my scorecard:

Item 1: “Our Government will take steps to reduce roaming costs on networks within Canada”

Verdict: Too early to tell. Does the government plan on having market prices fall through increased competition? Opening up additional wireless spectrum? Or will prices fall via regulatory fiat? The devil is in the details and so far we have few details.

Item 2: “Our Government believes Canadian families should be able to choose the combination of television channels they want.”

Verdict: Idea has some merit. This is an issue that is receiving far too much attention, but Canadians do enjoy their television. Although this proposal reeks of cheap populism, I believe most policy wonks are dismissing the idea too quickly. The television market features high barriers to entry and extensive regulation, so it is far from a perfect market. By creating an additional regulation requiring more options for consumers we may be making the industry more, not less, efficient, an idea formulated in the economic concept of the theory of the second best. In response to a regulation requiring à la carte pricing the industry will, of course, alter the prices of their existing bundles to operate in this new world, so a consumer could end up paying more for the same service they are getting now. I suspect, though, that despite potentially higher prices consumers will prefer the change and industry players will adjust their pricing so there will be little negative impact on overall profits. The big losers in à la carte price offerings may be less popular channels that will see their revenues drop if consumers go from purchasing bundles to purchasing individual channels. The existing bundle-only packages may be providing a cross-subsidy from more popular to less popular channels, so by reducing this cross-subsidy the market may better reflect consumer preferences.

Item 3: “Our Government will continue enhancing high-speed broadband networks for rural Canadians.”

Verdict: If done cost-effectively, a good idea. These types of programs are prone to expensive boondoggles, but there are real benefits in hooking up rural and remote communities to broadband networks. Internet access increases productivity and provides access to larger markets for small businesses, which is particularly valuable for farmers.

Item 4: “End ‘pay to pay’ policies, so customers won’t pay extra to receive paper bills”

Verdict: Terrible policy. This may be popular with some voters, but it is an abysmal idea to regulate prices in this manner. Companies may be able to simply get around these rules by charging more for the overall product and “discounting” people who receive e-bills — unless the government is going to ban those discounts as well and force identical prices. If so, this price mechanism subsidies consumers who take the more expensive paper bills at the expense of those who do not. Shipping physical paper instead of transmitting bits makes little sense in 2013 and is not an activity the government should be promoting. The only winner here is the agency that delivers paper bills; we may as well call this proposal the Canada Post Relief Act.

Item 5: “Expand no-cost basic banking services”

Verdict: Done correctly, can assist low income Canadians. Here too, the devil is in the details, of course, but ensuring low-income Canadians have access to banking services is not a bad way to reduce inequality. It does come at the expense of bank profits but big Canadian banks receive increased profits by being sheltered from foreign competition; this is not a bad way of distributing those economic rents. The potential for unintended consequences here is quite high, however, so policy makers must tread carefully.

Item 6: “Work with the provinces and territories to crack down on predatory payday lenders”

Verdict: May be a good way of reducing inequality, but need to ensure low-income Canadians have access to credit. Like the previous proposal, the potential for unintended consequences is high. Canadians use expensive payday lending services because they lack other sources of credit, so reducing their last resort for accessing the funds they need may make them substantially worse off. There is a government role to ensure low income Canadians are treated fairly, however, particularly those with low financial literacy. And if there are companies that are violating the usury provisions of the criminal code, it is hard to object to increased enforcement.

Item 7: “Empower consumers by requiring disclosure of the cost of different payment methods”

Verdict: Good idea. The catch is that we need to ensure the regulatory burden placed on companies from this rule does not outweigh the value of the extra information to consumers. Furthermore, burying consumers in data may make them worse, not better, off. However, markets work best when both parties to a transaction have the information they need to make an informed decision.

Item 8: Take further action to end geographic price discrimination against Canadians.

Verdict: I don’t know what the government has in mind, but there are reasons to be very concerned. Policies here could be anything from further tariff reductions (a good idea) to Zap! You’re Frozen! (a very bad idea). How does the government plan to ensure that prices fall to U.S. levels? Furthermore, the government needs to realize that, thanks to the Bank of Canada’s mandate, average retail prices can’t fall in response to the government’s policies, though those policies may impact consumer incomes or the exchange rate.

There is little information in these proposals, and it will take a lot of work to fill in the blanks. Either the government will have to tone down this agenda, or the Finance Committee will be putting in a lot of overtime. Given the potential for large and unpleasant unintended consequences from badly designed policies, let’s hope the government takes the time to conduct the necessary due diligence before these ideas become law.




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The government’s pro-consumer policies: What makes sense and what doesn’t

  1. #1 thing they could do to empower consumers would be to subsidize Canada Post to the same level as the USPS.

    • Actually, this is point worth considering, though I’m not all that in favour of us subsidizing the Postal Service, there are some substantial inequalities that make it harder for Canadian businesses.

      An real life example: A local manufacturer in Halifax ships it’s products to an e-retailer in Oregon. That e-retailer can ship a unit to PEI for about $3.50. It costs an e-retailer in Halifax $7.50 to do the same thing.

      • Yeah, I hate the idea of subsidizing it, but we have to compete, especially with e-commerce always on the rise — just to keep Canadian companies competitive *internally, to say nothing of exports.

  2. I’m not very hopeful that this government will take “the time to conduct the necessary due diligence before these ideas become law.” This is a government who takes whatever ideas that seem appealing to the voters and throws them around without thinking them through.

  3. Professor Moffatt, I must disagree with your take on Item 4. This is about basic fairness. Companies are presumably already saving money by mailing out fewer bills, yet they are gouging people who want to pay the old-fashioned way on top of that. Whatever happened to grandfather clauses? It is true that a ban will be difficult to implement, but some kind of government action is warranted here.

    • On the other hand, charging people for paper bills falls neatly into the polluter pays idea… and it’s hardly gouging to ask people to pay for the cost of the service…. ?

      • I don’t dislike the idea of paperless billing but the reward “discount” system seams fairer to the consumer.

        If I’m not mistaken, various governments have been passing the buck on paper documentation themselves for awhile.

      • Fair comment. But isn’t the polluter here the company sending the bill? Maybe the companies should have simply increased their prices rather than sought to extract revenue from a targeted fee.

        • Fair comment? Irony falls on deaf ears. I must have left the chevrons off.

          It’s a fuzzy wavy uncertain line of linkage and causality and labels isn’t it? We can blue box recycle our paper here. So it isn’t really pollution anymore. However it is connected because the last person to use it makes it trash. So, it’s pollution then isn’t it? The first person to use it is communicating important information in what was the only method available. So why is it the companies problem?

          I’m pretty fed up with arguments about direct linkage causality and responsibly.

  4. I look forward to hearing the Orwellian name Harper will choose for his new agency for price controls.

  5. Item #3

    Just buy farmers and their brethren in the boonies discounted/surplus Blackberries. Fred Ziffel may resist giving up his Samsung Galaxy, but Arnold just watches Hogs Gone Wild on it, anyway.

    National icon saved. World opened. Fledgling rural wireless network goosed.

    Problems solved.

  6. It all makes sense because it’s not actually about doing anything necessarily. How is that tough on crime agenda coming, for example? It’s more rhetoric than implementation.

    The real goal is convincing the voter that the Conservatives are giving them what they want. This is most directly giving them populist stuff – it has little to do with governance, is small fry, probably won’t come to fruition and isn’t really worth too much thought.

    Check out the book “Shopping for Votes” for more insight.

  7. It is particularly galling that the Conservative government is being portrayed in the media as making “pro-consumer” commitments.

    Until it tosses Supply Management into the trash, this federal government is clearly ANTI-consumer. Fiddling with smart phone rates and cable bundling does little for low-income families.

    Canadians have paid double and triple what Americans have, for generations, to raise our children on necessities like milk and eggs. Every family is punished and pounded by artificially high prices on butter, eggs and chicken, all valuable dietary items.

    As for whining cheese producers and their lobbyists, your REAL problem is simple price resistance. Your products are over-priced to the point where many Canadians leave them on the shelves.

    The only cheeses our cheese-loving family ever buys are south of the 49th parallel, at about $4.50 CDN per pound.

    • I see Margaret Wente has joined us. Remind us now of how you did years of research for a thesis in economics that shows how supply management is a disaster and “free” trade is the bee’s knees. You must have used those amazing arithmetic skills that led you to conclude that the savings from your cross-border shopping would not have been eaten up by the time and money spent making the trip.

  8. As they say; the devil will be in the details.

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