Free-for-all, free for none: Campaign financing in Newfoundland and Labrador

The past year has shaken Newfoundland and Labrador’s political parties significantly. Former Premier Kathy Dunderdale’s resignation prompted the Progressive Conservative Party to begin searching for its new leader; the Liberal Party elected its new leader following a long and expensive campaign; and infighting forced the New Democratic Party to perform a leadership review, scheduled for this May.

Chaos at the top of Newfoundland and Labrador’s three major political parties happened to spark debate about provincial campaign financing rules. In the Liberal leadership race, candidates could accept donations of any amount from individuals, corporations, and unions, had no spending limits, and did not have to disclose the origin of donations made to them. Election rules are similarly scant. There are no donation limits, although there are spending limits: candidates can spend roughly $4.30 per elector in each district.

In a democracy, candidates must convince voters why they are suited to govern and campaigning allows the former to provide the latter with information necessary to make a decision at the ballot box. Winning requires candidates to compete with each other and persuade voters in their direction, whether by connecting with them through advertisements, lawn signs, websites, phone calls, or knocking on doors. Politicians need money to make these connections, though, which is why strong financial support is a primary determinant of candidate success.

Unlimited campaign contributions harm Newfoundland and Labrador’s democracy. They allow candidates to rely on a few large donors for support and, in some instances, permit those donors to fund their own campaigns. In many ways, small groups have more influence over policymakers than do individual voters. Reciprocity, however, is instinctual, and even if it was not, politicians must keep their donors happy if they depend on them for re-election. Moreover, unlimited campaign financing allows affluent candidates to use their personal wealth as an electoral advantage.

The lack of rules governing leadership races is of even bigger concern. In the most recent provincial by-election, candidates were permitted to spend $42,278. This is a large sum of money, but it is not insurmountable for candidates with some of their own money, a respectable donor base, and party support. But the “capital requirement” of a leadership bid is prohibitive for all but the wealthy. In the Liberal Party of Newfoundland and Labrador’s 2013 leadership race, for instance, two candidates spent over $400,000. Much of this came from their own pockets.

Only candidates willing to spend large sums of their own money, or those with donors willing to fund their campaigns, stand a chance to lead one of the province’s main parties, which gives wealthier individuals an advantage or holds leadership accountable to large donors. (Moreover, leadership candidates do not have to disclose their donor lists, exacerbating the situation.) Until the situation ceases, parties will not have an incentive to reduce their own spending or contribution limits to reasonable levels.

The problem is not, strictly speaking, that wealthy people have too much power in politics. Even if corporations, unions, and individuals represented the interests of those without their own wealth to spend on campaigns, their ability to almost singlehandedly fund campaigns makes politicians more accountable to a few voices than to many. Without contribution limits, groups representing people control elections rather than people themselves. This weakens the connections between voters and democracy’s outcomes.

The Government of Newfoundland and Labrador should, therefore, institute a campaign financing regime, similar that of the federal government. It should cap contribution limits, extend its financing laws to leadership elections, and ban corporate and union donations. Taking these steps would make democracy in the province less accountable to money and more accountable to voters.

Michael Sullivan is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute


Against farm subsidies

Many countries, especially those in the West, support their farmers with generous agricultural subsidies. In 2011, for example, Canada spent $6.9 billion on them. These programmes, however, create inefficiency and lead to morally questionable outcomes.

Farm subsidies artificially reduce the cost of farming. In other words, farmers produce more in jurisdictions with subsidies than those without, i.e. subsidized farmers produce more than what would otherwise be profitable under purely competitive market conditions.

For instance, consider a developed country without farm subsidies. Farmers would use land that allows them to earn as much, or more, money than they could by renting it to the highest bidder. If this country introduced agricultural subsidies, farmers would purchase or rent additional land, since it would increase their revenue from the additional land above its market price (which, all things equal, was uneconomical before subsidization). Under competitive conditions, farmers would not utilize the additional land, whereas providing subsidies encourages them to do so.

Now, imagine a farmer who plans to purchase land in one of two countries. He must choose between Country A, which has extremely fertile land, and Country B, which has only passable land. If the cost of doing business and renting land were equal in both countries, he would likely choose Country A. However, if Country B offered subsidies that compensate him for utilizing less productive land, then he may opt to operate there, instead. In other words, agricultural subsidies are inefficient, in that they encourage farming on land that could be useful for building shopping malls, restaurants, or movie theatres. Moreover, subsidies create inefficiencies between countries with different agricultural policies.

These subsidies are more pervasive in the developed world than in its developing counterpart. Farmers in poorer countries are unable to compete with farmers in richer countries that offer artificially low factor prices resulting from lavish subsidies. As a result, these subsidies encouraging production in areas that are not especially suitable for agriculture, while discouraging production in areas that are suitable for farming. It is in the interest of developing countries to end agricultural subsidies, as it would allow them to expand their agricultural industries, which currently underperform due to subsidies in rich countries, and would alleviate rural poverty by boosting production and prices. Currently, however, richer countries “dump” their subsidized products in poorer countries, not only deteriorating their ability to generate economic activity, but also creating a dependency trap. From the perspective of richer countries that provide billions in annual subsidies, it is more efficient to stop transferring wealth to their agricultural industry and, instead, purchase foodstuffs from abroad.

Agricultural subsidies additionally affect wealth distribution at the domestic level. Policymakers fund the subsidies using tax revenue, which they transfer to farmers and landowners that tend to be wealthier than most; in 2011, the average income of a farm family was $93,426. That is, they redistribute wealth from the general population to a small group of wealthy individuals and firms. Indeed, contemporary “farming” is much different from its predecessor: most “farmers” are wealthier individuals and many farm operations involve large firms that use factories.

Farm subsidies also have a tendency to remain politically relevant–the special interest group behind farm subsidies is very powerful. It is politically expedient for governments to stay these benefits, as they require little funding per capita, yet, provide massive benefits to a small group. In other words, the cost of fighting these subsidies exceeds to cost of providing them in the first place. Moreover, when subsidies increase, this group begins to sense that they can generate more profit by lobbying the government than by actually producing foodstuffs or agricultural commodities.

Lastly, the farming lobby provides a massive obstacle to potential trade deals. In 2007, for instance, American and European governments’ objected to limiting their agricultural subsidies, which threatened the World Trade Organization’s Doha talks. India and Brazil, the countries proposing that western farm subsidies recede, in turn, refused to open their markets.

Proponents of agricultural subsidies typically defend their position by arguing that they benefit farmers and increase food security. However, in world of institutionalized trade relationships, there is little reason why any country should strive for food autarky at the expense of efficiency. Additionally, the age of rural poverty in rich countries is essentially over: farmers whom subsidies support tend to be quite wealthy. For these reasons, and those mentioned above, all states would be wise to stop subsidizing agriculture.

Michael Sullivan is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

The economic and moral benefits of ending Canada’s postal monopoly

Currently, Canada Post holds a monopoly on the delivery of first-class mail in Canada. The Canada Post Corporation Act affords it the “sole and exclusive privilege of collecting, transmitting, and delivering letters” within the country. Exceptions to this rule are limited.

There are several economic reasons for liberalizing postage in Canada by ending the Crown corporation’s monopoly. Since they are sheltered from market competition, for instance, monopolists can raise prices higher than firms in a competitive market could. The firm’s additional revenue stemming from its unique ability to participate in its market is termed monopoly rents. These rents reflect the difference between the firm’s prices and opportunity costs, which tend to converge in competitive markets as companies undercut each other until the process becomes unprofitable.

Sensing this advantage–that is, the ability to extract additional rents via monopoly status–unions typically bargain for some portion of these rents in the form of higher wages, favourable working conditions, and so forth. Nevertheless, this increases the firm’s costs.

Canada Post faces a difficult financial position because it allowed unions to absorb these rents. However, the emergence of newer, more efficient technologies eroded its ability to sustain higher levels of worker compensation. It manages these hardships by reducing costs by diminishing services, which has the counterproductive effect of exacerbating declining demand for its product. For instance, it announced plans to end mail delivery to urban homeowners and it has increased its stamp prices to offset its financial difficulties.

Importantly, though, Canada Post has the ability to impose these reforms only because consumers do not have a viable alternative for first-class mail delivery and other essential postal services.

By opening the postage market to competition, firms would need either to offer services closer to cost or offer better service than their competitors. Theory suggests, and empirics confirm, that liberal reforms in would reduce prices and increase the amount of options available to consumers, which, in the case of Austria, the Netherlands, and Germany–countries that liberalized their postal markets–is true.

Proponents of Canada Post’s monopoly suggest that it provides equal rates across the country, which allows the outfit to provide “affordable mail service” to rural Canadians. Yet, it is not entirely certain that competing firms could not offer cheaper rates in these areas than Canada Post. Furthermore, it is not necessarily clear why the postage industry has an obligation to equalize rural and urban Canada in the first place.

The monopoly on mail service in Canada also adversely affects free speech. In early March 2014, Canada Post apologized for delivering offensive pamphlets prepared by the People’s Gospel Hour to thousands of Labradorians. The mail-outs quoted the Bible in an attack against homosexuality. These situations raise an ethical dilemma about Canada Post’s ability to act as both a conduit of Canadian values and a service-provider.

Canada Post is a crown corporation chartered by the Canadian government, which promotes certain values and, therefore, it cannot sensibly deliver mail that is questionable in content. Conversely, it is the only firm permitted to deliver certain documents and packages and it cannot refuse certain mailing orders without violating freedom of speech (at least theoretically).

Ending the mail monopoly, and thereby allowing private individuals and firms to deliver letters, would solve this quandary – neither Ottawa, nor Canada Post, would have to implicitly support the dispersion of bigoted materials in order to safeguard freedom of speech and censored groups could seek alternative options for delivering said material. In other words, Canada Post employees would not be the ultimate arbiters of what is “acceptable” for delivery.

In any case, Canada Post’s monopoly is both uneconomical and ethically challenged, and allowing competitive forces to govern the Canadian postal market is a viable alternative. Unlike the current structure, for instance, private competition could allow for better quality and more affordable service, not to mention that, most importantly, it would quash concerns about the government’s role in deciding between decency and free speech.

Michael Sullivan is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute