|Montreal, February 15, 2003 / No 119|
by Harry Valentine
The concept of market regulation is based on the age-old premise that a free-market system is inherently flawed. One such perceived flaw would involve the concept of imperfect competition, which the state tries to rectify through market regulation and by creating marketing boards or tribunals. A small group of people, some appointed by the state and some who may even be elected by market participants, oversee the operation of an entire market sector. Government regulation begins when the state intrudes into the market, mainly to ensure the viability of certain businesses.
As an example, let's say government tries to protect retail businesses
struggling with the onslaught of unrestrained competition. State officials
decide that the retail market system was flawed because of the wide range
of sizes of retail businesses in any given geographic region. To rectify
this perceived flaw, a marketing tribunal is created. The state appoints
five members to the tribunal, with the remaining ten being voted into office
by fellow retailers. Each retail operation is given one vote, regardless
of size. A one-person retail outlet has one vote as does a local department
store located in the same region. Together, the combined votes of every
little retail store in the region would out-number the votes of a few department
Government bureaucrats will claim that by allowing each business one vote regardless of the size of their operation, the essence of democracy would be ensured in the market place. The marketing tribunal can create a system whereby it alone acts as the wholesaler, buying directly from manufacturers and importers. All retailers would be compelled to buy the same merchandise from the tribunal, at the same price levels. They would be required to sell to customers at the same retail price level and all pay their employees the same wage rates. State officials would then claim that by having undertaken such action, they would have corrected a very fundamental inherent flaw of the free market economic system. This type of compulsory market control regime (zwangswirtschaft) was once enforced on the private sector in Nazi Germany, under the slogan that the commonwealth ranks above private profit (Gemeinnutz geht vor Eigennutz).
In a free-market retail regime, the more efficient players will sell larger quantities of lower priced merchandise to larger numbers of customers. In almost any geographic region, a large and efficient department store like Wal-Mart may sell more merchandise to more customers, in one day, than the combined total of all other smaller competing retailers in the same area. A supermarket may also sell more goods to more customers in a single day than the combined totals of all the other smaller competitors in the same region.
Voting with our dollar
The essence of democracy in the marketplace is that the buying public votes every business day with their dollar bills, rewarding the more efficient producers for having provided the goods that customers want, at the competitive prices they are willing to pay. Small retail outlets exist at the present day because innovative entrepreneurs learned long ago to identify viable market niches in which they could succeed. Many such smaller businesses do succeed over the long term, despite facing competition from large department chain stores and supermarkets. In the free-market retail industry, winning customer support enables efficient producers to increase the size and scope of their operations. This phenomena is repeated in many other sectors of the economy.
Over time, efficient producers gain market shares over their less efficient competitors. Governments have historically stepped in to help large numbers of less efficient producers by introducing and enforcing market regulation to protect their interests at the expense of their more efficient competitors. In Canada, numerous agricultural products are subject to market regulation, to guarantee certain price levels for farmers. Under such a regime, the more efficient farmers are penalized and harassed by state officials if they try to operate independently. A case in point is the Canadian Wheat Board, which recently gained public attention for its practices in Western Canada.
The bulk of Canadian wheat is grown in Western Canada, where 80% of the grain is grown by 20% of the farmers. Under the wheat board regime, each grain (wheat) farmer who owns at least a 40-acre farm is entitled to one vote. A farmer who owns a 10,000-acre farm also has one vote, as does a farmer who owns a 20,000-acre farm. A small farmer can lease out most of his land to another farmer, keeping perhaps 10-acres (out of 40) for his wheat production and retaining the wheat board vote. This federally sanctioned marketing regime enables large numbers of small producers to benefit economically, by empowering them to set policy for relatively fewer large and efficient producers. In Western Canada, 80% of the wheat board vote produces 20% of the wheat. A large number of small producers want the wheat board's mandate extended to include a wider range of grains and related produce, such as canola.
A market regulatory regime that allows 20% of the production to have 80% of the vote, ensures that the commonwealth ranks above private profit. If the retail industry were subject to a similar market regulation system, consumers would pay higher prices for most department store and supermarket items. That the number of buying customers by far exceeds the number of businesses selling or producing the goods has no relevance to state regulatory officials. There are far more people purchasing wheat and grain products than who actually produce the wheat. State enforced market regulation on agricultural food products, aiming to maintain higher prices for (less efficient) producers, is one of the reasons why a segment of the population known as "the working poor" have to supplement their supply of groceries from food banks. State market regulation in this regard has become detrimental and harmful to the interests of consumers.
Sell, then buy back, then sell
On February 24, a group of Western farmers will be appearing in court in Regina, for having exported wheat to the USA without a wheat export licence. They were charged by Canada Customs for not having obtained an export licence as well as for retaining ownership and use of their vehicles. These farmers had delivered their wheat to their American customers and upon their return, Canada Customs seized their vehicles. However, Canada Customs had no space in which to store the large number of vehicles that had crossed the border, delivering wheat, and the vehicles were to remain impounded under order of seizure on the farmers' properties. To obtain a wheat export licence, Western farmers are required to first sell their wheat to the wheat board, then buy it back under a "buyback" practice. Wheat farmers in Eastern Canada are exempt from the buyback.
Evidence has since surfaced to suggest that there may be no basis in federal law allowing the Wheat Board to engage in the "buyback" practice. Some Western Canadian farmers who had previously been charged with having exported their wheat without Wheat Board export licences apparently admitted before judges that they did not do the buyback. All the legal parties in the court room at these trials apparently assumed that the buyback actually had some valid basis in federal law. Now evidence is emerging from trial transcripts from Western Canadian courts suggesting that the buyback practice actually exists in Western Canada, despite federal denials to the contrary.
Federal officials have routinely denied all knowledge of the Wheat Board engaging in a buyback practice, claiming that such a practice does not even exist in Canada. New evidence now suggests that western farmers are almost routinely denied Wheat Board export licences, while eastern Canadian farmers are routinely given their wheat export licences. The federal government even absorbs the administrative cost for processing the export-licence application forms for eastern wheat farmers, but not for western wheat farmers. In previous articles, I had suggested that this practice of treating western wheat farmers differently than eastern wheat farmers contravened the constitution of Canada (equality before and under the law for all citizens), the nation's supreme law (see CANADA IMPRISONS PRO-FREE-MARKET FARMERS, le QL, no 114, and ZWANGSWIRTSCHAFT POLICIES IN CANADA, le QL, no 117).
When a group of Alberta farmers were imprisoned in early November, 2002, for having exported wheat to the USA without export licences, including one farmer who donated wheat to a Montana 4-H club, the Alberta government advised that they may launch Supreme Court challenge against the Wheat Board, on constitutional grounds. If this is more than a trial balloon and actually happens, I suggested that the federal government's lawyers would argue in favour of the government's right to use the notwithstanding clause, allowing for statutes written in the Charter to be overridden (see JOHN RAWL'S INFLUENCE ON CANADIAN GOVERNANCE, le QL, no 115). In essence, they would have to directly or indirectly argue the case that the commonwealth ranks above private profit (Gemeinnutz geht vor Eigennutz) and defend economic principles that would be consistent with the foundation principles underlying the economic philosophy of the Third Reich. Such a defense for the Wheat Board's monopoly may further justify the cause of Western Independence.
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