Regulating business with competition

Generally we try to protect ourselves from the excesses of capitalism with regulations.  An alternative method may be to increase competition.

Capitalism is known for its disregard for health and safety concerns and for its excessive profits.  To deal with these problems we impose regulations on firms.  As people are good at getting around regulations the natural reaction is to increase the regulations.

An alternative approach would be to increase competition.

One of the myths of our economy is to equate competition and capitalism.  The reality is that capitalism depends upon governments passing legislation which limits competition.  Most economic legislation, while labeled as consumer protection, works to restrict competition.  For example, many manufactured items are subject to strict regulations as a safety thing. .  But these regulations tend to be set so that only large producers can comply.  This means that specialty manufacturers cannot afford to get started as the extra costs have to charged to a small production run.

Health and safety regulations, copyright and patent legislation and licensing requirements all work to limit competition.

Here in Canada we have a strong commitment to separation of church and state.  The result is that the provision of spiritual and religious services comes closer than anything else to the perfect competition model.  When people move into a new area they often go church shopping, even among churches of the same denomination. 

Churches are also the least regulated institutions in the country as their members look after that either by asking their ministers to leave or by leaving themselves.  (Ministers get fired for one of two reasons – they get into relationships their congregations consider inappropriate or they over stay their welcome.)    When the United Church of Canada decided to ordain and marry gays and lesbians a lot of people switched denominations.

This blogger figures  increasing competition in most if not all industries would do a lot to resolve the excesses of capitalism and reduce the need for regulations.

One of the requirements of perfect competition is that all participants have perfect knowledge.  Therefore the only regulation needed is that firms be required to publish all the information customers need to make good decisions.  This would require us to take responsibility for our own lives rather than expecting the government to look after us.

I realize this suggestion is a political can of worms as people don’t like to reveal secrets.  However with internet and smart phone technology more and more information will be easily available.  Rather than trying to increase regulations we should demand that this information be made generally available so that we as consumers can become the regulators – just like church goers.

 

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Uber, the sharing economy and competition

This guy probably should not write about Uber and the taxi business.  I don’t own a smart phone;  I live 15 miles into the country from a one-taxi town and I can recall using a taxi twice in the last 15 years.  However, taking the risk, here are some observations. The first is that the “sharing means economy”  competition.  We sometimes distort the meanings of words to hide realities and the reality here is that we are introducing more competition into our economy.  This guy lived for four years on a British Columbia coastal Indian reserve where the sharing economy meant that fishermen shared their catches or when  somebody faced a medical emergency they would get a fundraising dinner.  (This was very important where most emergencies meant an expensive plane trip to the big city.)   The sharing features of their economy were probably inherited from pre-white contact times. Our society gives lip service to the market economy and competition but when we get to the details our commitment varies according to the color of the hat we are wearing.  It is not surprising consumers of taxi services are quite fond of Uber but the owners of taxis and their drivers are feeling threatened by the increased competition. Traditionally the taxi industry has dealt with competition by convincing local governments to license their cars.  By limiting the number of cars they can limit competition and keep prices up.  If customers have to wait that is irrelevant. A second observation is that providing transportation to others is low paid work and probably always will be regardless of Uber promises to prospective drivers.  A Google of “taxi driver earnings” shows that a few drivers earn less than minimum wage and most are only a little better.  One has to anticipate that once Uber has changed the industry this will continue to apply.   As with many low-paid occupations there are opportunities to exploit workers.  It may be that Uber with its computerized collection of data will be more transparent and less exploitative. One of those who appear to have been deceived by the term “sharing economy” is Janice Stein, director of the Munk School of Global Affairs in Toronto.  In this essay she writes as if the sharing economy is a new reality based on “disruptive technologies.”  (The internal combustion engine was once a disruptive technology.) One of her criticisms of the sharing economy  is that  “The best available evidence shows that many people who seem to be stringing together part-time work in “sharing” enterprises are at or below the poverty line, with no employment benefits and a social safety net that only the state provides.”  Neither increased competition or disruptive technologies should be blamed for current economic problems. Another criticism is that people providing services are not regulated, avoid safety inspections and don’t pay taxes.  We must be careful here because regulations including safety inspections can be an excuse to limit competition.  As I understand it the new technology makes it easy for customers to provide evaluations and regulation.  A driver with and unsafe car would be quickly be called on it. Uber has been criticized for its “surge” pricing.  This is the same as time of day pricing which some power utilities are or will be introducing.  Prices should be determined by supply and demand.  One of the problems with the regular taxi business is that does not meet changes in demand throughout the day. One last concern must be privacy.  We should assume anything that happens with a computer is probably being stored and is probably available to advertisers and government agents.  Most people appear to be not worried about the amount of advertising to which they are exposed.  The risk from government is that people don’t like to be criticized.   Computerized data make it easy for government agents to decide who are the enemies of the state, anyone who disagrees with their personal beliefs, and to track them. I find that frightening. The sharing economy is making some industries more competitive which is good for consumers and maybe not so good for producers.  Its downside is the potential for social control which goes with the extensive use of computers. 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

The downside of falling oil prices

One would expect lower oil prices to be great economic news.  However there are a couple of problems which could make them the worst possible news  –  our economy does not cope well with deflation and this could indicate the start of a major economic decline.

Oil is such an important part of our economy that lower prices should stimulate economic activity to the point we would easily achieve full employment and all our economic problems would be solved.  Life may be a little more complicated. Most news reports suggest the problem is increased supply from U.S. fracking but there could also a decreased demand for oil.

The first complication is that our economy does  not cope well with deflation.  We can probably cope with falling prices but falling wages are a different matter.  Very few people would willingly take a cut in income.  A further and more serious complication is that most of our money supply is based on debt and it is likely the owners of this debt would want  to be repaid in full in deflated money.  Instead of having economic utopia we could have economic chaos.

The second concern about falling oil prices is with what is happening in the real side of the economy.  Too often we evaluate economics only in financial  terms.  Sometimes this hides problems.

Probably the most serious economic problem is that we have used up the most easily accessible energy and mineral resources.  There are lots of these left on the earth’s surface but they are so difficult  and expensive to extract that it is no longer viable to do so.  This is bound  to have a profound effect on our economy, reduce the potential for economic growth and maybe force us into negative growth.  It could be that high prices for energy and mineral resources have messed up the economy so that we can no longer produce as many goods and services as we  were.   It may be the recent high costs of oil has contributed to its own reduced demand.

If this scenario is correct or even nearly correct then we are in for some serious economic problems.  It could be that falling oil prices are a leading indicator of a crisis.

This has been a difficult post to write because one does not want to witness the human suffering that will come with a prolonged economic downturn.

One further observation: Although headlines show the price of oil has been falling the news has been slow to reach the owner of our local gas bar.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

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