Wednesday, April 12, 2000
Halifax Chronicle Herald
Time for politicians to hang up magic wand
By Brian Lee Crowley
IT IS NOT very often that I get to say this, so I’m going to savour it: Most of the governments in Atlantic Canada actually got something right. Not only did they get it right, but they got it impressively right in the face of considerable voter disquiet, consumer pain and demagogic agitation by a few irresponsible politicians.
The issue? How to respond to the recent rapid and substantial rises in gasoline prices. There was certainly no shortage of people out there still convinced, in spite of all the evidence to the contrary, that governments possess a magic wand. Put enough pressure on politicians, and they’ll bring out the wand, wave it, and make unpleasant realities disappear. Poof!
We’ve seen an awful lot of magic wand waving around here over the years. We wanted all kinds of public services, but weren’t willing to bear the taxes to pay for them? Poof! Governments borrowed hundreds of millions of dollars a year and supplied the services anyway. Coal miners wanted to keep their jobs in spite of low productivity and poor quality coal? Poof! Governments forced the coal on local power utilities, and passed the cost along to ratepayers. The public demanded a scapegoat to blame for the decline of our fish stocks? Poof! Swashbuckling Ottawa engaged in an act of piracy on the high seas and laid a Spanish trawler at our feet.
Each of these refusals to live in the real world made everybody feel good. But each one also exacted a long-term price greater than the immediate benefit. The difference was that the magic wand obscured the costs while the benefits were warm, fuzzy and highly public.
Gasoline prices offered our politicians another such trap. It would have been so easy to respond to anguished consumer cries to “do something” by bringing in price regulation. The short-term benefits are easy to spot. Just imagine the headlines: Politicians face down multinational oil companies, impose “fair” consumer prices. Poof!
Instead, ministers in Nova Scotia, New Brunswick and Newfoundland held steady and refused to give in to such demands, even though neighbouring P.E.I. has long had price controls. Why? Because they’ve actually learned something from experience – our own and others’ – about how such regulations harm consumers over time.
The only reason to regulate would have been to lower prices for consumers. Certainly, P.E.I.’s regulated prices have not risen as quickly as others, as OPEC tightened its grip on oil supplies. So why can’t we have those lower prices here? The answer: Because those lower prices are an illusion, and a dangerous one to boot. A former minister of natural resources in New Brunswick checked out the idea and announced, “We have examined several types of price regulation, and have concluded that they do not provide consumers with lower prices.” How can that be, when anybody who drives over to the Island can see the lower prices staring them in the face?
The key is to think long-term, not short-term. For average prices, what consumers pay in total over the long haul, are higher in P.E.I. than in deregulated provinces. With the brief exception of the Gulf War period, Prince Edward Islanders consistently paid higher gasoline prices (net of taxes) than consumers in comparable places in Atlantic Canada between 1991 and mid-1998.
An independent study of 19 gasoline markets in Canada by Michael J. Ervin and Associates of Calgary concluded that “Charlottetown has perhaps the consistently highest ex-tax pump price of any urban market in Canada.” Regulated prices are less sensitive to real market conditions, conditions that sometimes drive prices down, sometimes up. Today’s experience, where the lethargy of regulation briefly appears to benefit consumers, should be seen for what it is: the exception that proves the rule.
The experience under regulation was the same in Nova Scotia. And when that province deregulated in 1991, prices fell in line with the lower averages in comparable cities, and have remained there ever since.
One of the key reasons why the magic wand wasn’t dusted off this time is that there seemed to be little public confidence in the old incantations. Instead, the community took charge. Newspapers published the lowest prices in their areas, and consumers responded. Prices followed.
So, politicians and the public outgrow the old belief in magic and start believing in facing reality and in the power of their own hard work and initiative to make things better. A radical idea? Sometimes they’re the best kind.
Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a public policy think-tank in Halifax.