Let’s Uberize the rest of Canada’s economy
In a recent article in The Walrus, Jonathan Kay wrote:
“If upper-class Canadians thought their livelihoods as, say, lawyers or doctors were being undermined by completely uncredentialed competitors, they’d cry bloody murder. (In both cases, in fact, insiders already have guilds whose only function is to restrict entry to the professions.) Needless to say, it takes a lot more training to become a doctor or lawyer than a taxi driver. But in all cases, there is a massive upfront investment, whether in education or money. Just a few years ago, Toronto cab drivers were paying $340,000 for a licence. In 2015, the figure dropped to about a third that much.”
Kay is the editor of The Walrus and has been writing about Uber, usually positively. But here, he argues that it’s unfair for competition from Uber to undercut the taxicab monopoly. He could have gone two ways: (1) advocate banning Uber or using tax money to compensate taxi monopolists whose monopoly power is weakened by Uber or (2) say that even if doctors and lawyers scream bloody murder, they’re wrong because they, just like taxi cab monopolists, don’t deserve a monopoly.
Unfortunately, he chose (1).
Kay does make a good point and it’s one that the late public choice economist Gordon Tullock made in a famous article titled “The Transitional Gains Trap.” Tullock pointed out that although many economists can agree that it’s inefficient (and, I would add, wrong) to give monopolies or subsidies to various industries, after those monopolies and subsidies have been around for a while, many of the “gainers” are people who paid for their gains.
Take taxis. If the government limits licences, the original gainers are those who had the licences at the start of the process. But some of those gainers will sell their licences. The buyers will pay a price for the licence approximately equal to the present value of the net income stream that having the licence generates. On that licence they make a normal competitive rate of return, not a high rate of return. Take away their monopoly and you have caused them to suffer a capital loss, with no offsetting gain. The capital losses to license holders will occur because the prices they receive will decline, which will reduce the discounted values of their income streams associated with holding licenses.
So what to do?
Here’s an idea. Let’s get rid of all such government-granted monopolies. Let’s allow people to compete with lawyers and, as Milton Friedman argued in his 1962 classic, Capitalism and Freedom, even doctors.
Let’s let private certifiers judge people in professions rather than having government do it.
Let’s get rid of farm subsidies and “supply management.”
Remember Jonathan Kay’s cogent point above that the “only function” or, certainly, the major function, of guilds is to restrict entry into the profession to those who meet mandated standards. Then prices of doctor services, lawyer services, and the services of all the other deregulated professions and industries would drop.
So, whereas a doctor would lose income due to competition from newly practicing doctors, he would gain real income because his money would go further in Uber rides, lawyer services, milk, etc.
Would everyone gain?
No. But the overall gains to Canadians from the more-efficient economy would be huge and the losses to those who lose would be less than if their industry alone were singled out for competition.