The thing is, Pierre Poilievre has a point about the “gatekeepers.” Only it’s about much more than just a few blinkered municipal bureaucrats standing in the way of needed housing development.
If he were serious, and not just test-driving applause lines, he’d broaden the discussion out to the other gatekeepers at work in other areas of the economy. As with housing, their function is to protect the interests of those already in the market at the expense of those who would like to enter it. Or, as the economists Assar Lindbeck and Dennis Snower have put it, of insiders over outsiders.
The two first developed their theory with regard to the labour market. They observed how labour and management collude in setting wages above the market-clearing level – that is, above the level that would lead to full employment. The interests of current employees in this arrangement is obvious. But management often finds it equally in its interests to pay more, as a way of reducing strikes and turnover. Whose interests are not represented at the bargaining table? The unemployed, who are thereby prevented from “pricing themselves into work.”
So what, you might say: That’s between the firm and its workers. Except that it isn’t only the internal dynamics of the firm that enter into these calculations. A raft of government policies also serve to alter the balance in favour of insiders over outsiders. Minimum-wage laws, layoff-notice requirements, mandated employee benefits: All of these may make life better for those with jobs, but at the cost of reducing employment prospects for those without jobs.
The same phenomenon can be seen in other markets across the economy. Outsiders – startups, imports, immigrants and others – routinely find themselves locked out of the market, legally prevented from competing, not by any deficiencies on their own part, but by government policy. Sometimes this is by means of interventions that keep the price above market levels – tariffs, for example – and therefore prevent willing sellers from reaching willing buyers.
Others involve attempts to suppress prices below market levels – rent controls are one example; subsidized daycare is another – or indeed extinguish prices altogether. In the ensuing shortages, some consumers surely benefit: the insiders. But low rents are no help to those who can’t find an apartment, nor does the promise of $10-a-day child care do much for the parent who can’t place their child in care.
Worse, the insiders, perversely, are often better off to begin with. For when prices are not permitted to allocate resources, other factors do: social networks, education, language proficiency, or simply the ability to take time away from work, all conspire to put the middle and upper classes at the front of the line, ahead of those without such advantages.
A variant of this is the well-known tendency of policy to favour the interests of producers over consumers. Here, the insider-outsider dynamic is primarily political. The benefits of free trade, great though they may be in total, are dispersed across consumers at large: Each benefits only a small amount, and will little know or care about the issue one way or the other. Whereas the costs of free trade are concentrated on a few protected sectors, who have much to lose and every incentive to fight it.
Want to know why Canadian consumers pay two or three times the market price of milk, eggs and other supply-managed products? Why our domestic airline fares are among the highest in the world? Or our wireless telephone fees, ditto? Or the service charges we pay our banks? That’s why. In every case, the industry in question is protected from competition, foreign or domestic, if not formally organized as a government-sponsored cartel. And virtually no one in politics – including Mr. Poilievre – wants to change it.
Producers over consumers. Insiders over outsiders. Again and again, the same picture emerges. This makes no sense, from a number of perspectives.
As a matter of equity, it is a well-known axiom of social justice that policy should look first to improving the lot of the worst off in society – the outsiders – before anyone else.
As a matter of efficiency, new entrants bring competition, dynamism and innovation to what would otherwise be ossified oligopolies.
And as a matter of both, the consumer interest should plainly come before that of producers. The whole point of production, after all, is to make goods and services for consumers. As they sift through competing offerings in the marketplace, consumers perform the vital role of separating the more efficient producers from the less efficient – crucial to driving productivity gains and raising living standards.
Away with the gatekeepers, then, by all means. Only let’s get serious about it.
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Andrew Coyne