Even a sweetly-behaved maple syrup cartel is a big policy error
What Saudi Arabia has been doing in the oil market, Quebec is about to do in the maple syrup market—increase output with a mind to crushing its competitors.
In both markets, the result will be lower prices for consumers. Oil being crucial to the world economy, the Saudis’ decision is globally helpful. Maple syrup is crucial to the Canadian identity, but beyond that the world probably doesn’t much care.
Mind you, the motivations are different. The Saudis have this spat going with Iran, while Quebec seems mainly to be responding to domestic pressures, especially from a subset of its maple syrup producers who are rankling under restrictive quotas and supervision.
The institutions are different, too. The Saudi government basically runs the country’s oil industry, deciding output levels directly. By contrast, the Quebec government runs the maple syrup industry indirectly, via its support for a legalized cartel. Yes, believe it or not, in the early years of the 21st century—after Thatcher, after Reagan, after the neoliberal revolution, after the collapse of communism, after the discrediting of socialism—a modern, western government authorized a legal cartel in a popular consumer product.
The effects of the cartel have been predictable: higher prices, which are good for producers, bad for consumers; excess supplies that have had to be stockpiled; and greater competition from alternate suppliers, mainly in the northeastern United States, which has increased its share of the world market by 10 percentage points since the cartel came in. (Quebec produces 72 per cent of the world’s output, much more than Saudi Arabia’s 13 per cent share of world oil production.)
Now, according to a story by Jan Skerritt in the National Post, the cartel is about to strike back. To discourage the Americans and also to reduce black market sales, which have become more common with higher prices and the rigid output controls required by supply management, it’s going to increase authorized output by 12 per cent, just as Saudi Arabia has been pumping oil hard in part to discourage the growth of fracking.
Higher quotas will mollify both maple syrup producers who feel constrained by existing quotas and consumers who don’t like the higher prices. But a more reasonable cartel is still a cartel. A spokesman for the growers’ federation told the Post: “the majority of maple syrup producers in Quebec have voted to work collectively and have voted to put these marketing tools in place.”
Well, fine. Democracy is grand. But in market economies we generally don’t let producers vote on whether they’d like to all get together, restrict supply and put the screws to consumers. And a good thing, too. What industry wouldn’t vote to do that?
Yes, there are well-known theorems in international markets that if a country has market power in a good, as we do in maple syrup, it can increase national welfare by restricting supply and raising prices. Exports fall, which is bad, but export prices rise, which is good. And the rise in price may offset the fall in sales, leading to greater national income.
That may well be true. But larger considerations are in play. It’s common sense, an article of liberal faith, and the lesson of abundant experience that competition is good both for individual industries and for the economy and society that houses them. The need for innovation is a mantra among policymakers these days. How innovative is an industry likely to be when individual producers are subject to strict limits on output and are closely policed, with the force of law, by their industry association? Are individuals carrying the innovation gene likely to be attracted to such industries? And how are we to be sure cartelization only occurs where international trade theory justifies it? Allow it in any industry and producers will start lobbying for it in all other industries. Will governments be able to resist such concerted pressure?
Between a nice, reasonable cartel that sweetly behaves itself and a bad cartel that arrogantly exploits its monopoly power, I much prefer the bad cartel. The devil that shows its horns can be a formidable adversary but is easier to rally opposition against.
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