October 16 , 2007
Kamloops Daily News

Now that the loonie has soared above the U.S. dollar,
Canadians are asking why they still pay more for goods than
Americans.

There are numerous examples. Vehicles purchased in Canada
can cost $10,000 or more than in the U.S. It's doesn't
matter if the vehicle made here. A Canadian-made
Bombardier ATV costs $3,000 more in Canada.

It's especially obvious on books and magazines where the
sticker clearly shows the price in both currencies. I pay
$36 for an annual subscription to a health newsletter while
Americans pay $28. That might have been justified in 2004
when our dollar was worth 78 cents, but not now.

There are some justifiable reasons why goods should cost
slightly more in Canada, even with our strong dollar. Taxes
are more in Canada, in part to support our public health
care system. Wages are greater because we don't fully
exploit cheap immigrant labour. Distribution costs are
greater because our population is spread over great
distances. A small retail market increases costs through
reduced volume sales. Also, retailers have to recover costs
of inventory bought when the Canadian dollar was lower.

But the current price difference seems beyond explanation.

Beyond explanation, until you realize that the marketplace
is a persistent illusion. One of the fundamentals of
capitalist societies is that the marketplace delivers goods
at the lowest price. We are told that the invisible hand of
the free market will deliver savings to our pocket and when
it doesn't, we are baffled.

This may come as a shock but companies are not in business
to deliver the lowest prices. The goal of business is to
make money. Sure, low prices are one market strategy but
not the only one. Low prices are designed to wipe out the
competition and monopolize the market.

Economists argue that such market monopolies are temporary;
some competitor will eventually erode monopolies. But we
have never seen such global giants as Wal-Mart before.
Total domination of this magnitude may more durable.

A lesser known business strategy is to establish a
government-granted monopoly. These are cozy arrangements
between governments and corporations are largely unnoticed.

Canada has more government-granted monopolies than the U.S.
says Professor Tom Velk, Director of North American studies
at McGill University.

Government-granted monopolies are not necessarily bad but,
over time, they can outlive their usefulness.

Without them, we could not have developed large capital
projects like telephone service, power distribution, and
railways. Canada has a long history of government-granted
monopolies starting with the Hudson's Bay Company.
Certainly, they served our young country well - - without
them, the infrastructure of our massive geography would not
have been built.

These cozy arrangements place conservative governments in a
quandary. On one hand, ideology dictates that they
deregulate government-granted monopolies in order to
increase completion in the marketplace. Yet, in doing so
they could cut off the very financial and ideological
sources of support that they rely on. If governments
practice what they preach, they would bite the hand that
feeds them. The message from the corporate establishment is
conservative: don't rock the boat.

Professor Velk suggests that monopolies could be broken by a
process called arbitrage. In economics, arbitrage is the
practice of exploiting market differences in two countries.
Quite simply, it means buying goods in a low-price market
and selling in the high-price market at a slight profit.

If you wanted to use arbitrage to bypass the auto monopoly
you could have a friend in Seattle buy a car at the U.S.
price and deliver it to you at a profit. Of course, auto
manufacturers construct barriers to arbitrage by refusing to
sell outside the dealer's immediate territory and by not
honouring warrantees when cars enter Canada.

But as long as monopolies have power, consumer's trust in
the marketplace is a convenient illusion. The normal state
of affairs remains unnoticed; profits flow uphill and wealth
has a convenient pact with government. Until the sleeping
consumer is stirred, that is.

So far, the illusion has been convincing. It's part of what
philosopher Francis Bacon called "the idol of the tribe."
He defines an idol as a truth based on insufficient evidence
but maintained within a tribe of believers.

The failure of the marketplace to deliver the lowest price
is one of those rare occasions when the curtain is drawn
back and the tribe catches a glimpse of the reality behind
the accepted truth.

David Charbonneau is the owner of Trio Technical.
He can be reached at dcharbonneau13@shaw.ca

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