The costly impact of government meddling with markets: Why competition is good and regulation bad

First Published: 2014-10-31

On my recent second trip to Finland this year my observations and discussions with the locals drew my attention to the value of competition and its effect on prices, through the comparison of Finland and Canada. On the first glance, one would think that Canada’s markets are freer and competition thus more intense, given its location next to the United States which is widely (although mistakenly) perceived as a free market. In some industries, such as consumer electronics, the markets are freer in Canada than in Finland and consumer prices therefore lower. A typical Nordic welfare state struggling with high public expenses, Finland can hardly be considered a free market haven. However, three significant markets are freer in Finland than in Canada, resulting in more competition and lower prices for consumers: air travel, wireless telephone service, and health care. Let’s discuss each to find out why Finns are paying less than Canadians in these three markets.

Unlike most countries where cabotage is banned, being a member of the European Union means that foreign airlines can operate domestic flights within Finland. This has increased competition in the airline industry in Europe in general, which means inexpensive flights for Finns not only within their own country but within Europe as well. In contrast, as Mark Milke showed in a recent column, Canadians pay about twice as much per kilometer both in domestic and foreign flights as Europeans do. This is thanks to the Canadian government that prevents foreign airlines originating flights in Canada.

Canadians pay some of the highest prices in the world for cell phone service—four to five times as much as the Finns, according to one study. The federal government determines who gets what wireless spectrum and at what price, and it also decides the “ideal” number of competitors (at the moment considered to be four, one more than the existing three players), and manipulates roaming rates so as to favor new entrants. (See Terence Corcoran’s analysis in the National Post here). In comparison, in Finland government stays out of the wireless market, and several providers compete for customers with various plans and prepaid services. Consumers can buy unlocked phones separately and find the most competitive service rates from any carrier, or they can buy a locked phone (at a lower price) tied to a mobile phone service plan. Like with airfares, the Finnish cell phone service consumers are better off than their Canadian counterparts, due to freer markets and more intense competition—the result of the government keeping its “hands off” of these markets.

Health care is the final example of higher costs to Canadians. Many Canadians think that they are lucky because their country has “free” health care, as per the Canada Health Act of 1984 which bans charging for health care services, thus barring private operators. But health care in Canada is not free. While consumers don’t pay directly for their own health care, they do pay for it through taxation and also through longer wait times for essential services such as knee and hip replacements or cancer surgery—and through longer suffering from pain that sometimes leads to death while waiting for treatment. According to the OECD, the total health care expenditures in Canada in 2013 were USD 4,045 per capita. Finland, which allows private health care alongside its public system, spent 70% of the Canadian figure: USD 2,870 per capita, with equally high quality of care and shorter wait times. (See Toronto physician Brett Belchetz’s analysis of health care economics here). Again, while the Finnish health care system is by no means ideal and faces increasing costs as the population ages, by allowing private services it introduces competition and thus lower prices for patients.

The conclusion? If we want to enjoy lower prices and better quality products and services, whether in air travel, cell phone service, health care, or anything else, the solution is to stop the government from trying to manage markets and to make them free instead, thus increasing competition. More innovation, more choices, and lower prices would result. To achieve that, Canadians, and the victims of the nanny state anywhere, must protest every interventionist measure their governments attempt to introduce and advocate free markets across all industries. If many of us make a lot of noise, the governments will listen.

First published at How to be Profitable and Moral: A Rational Egoist Approach to Business and posted here with the kind permission of the author.

Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada. Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.

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