Howard Baetjer, Jr. at Fee (Foundation for Economic Education) Tuesday, August 02, 2016
Monopolies provide poor quality at high cost. Everybody knows this. A monopolist does not have to keep improving the quality of the good or service it produces or keep its price down, because its customers have nowhere else to go. When a monopoly is a monopoly by law – and those are the only kinds of monopolies that last – customers have nowhere else to go because no other enterprise is legally permitted to offer the good or service in question.
Why do we let monopolies provide the service of assuring product quality and safety?The more important a good or service is to the public well-being, the more we should want it to be provided competitively, so competition can force providers to keep improving quality and containing cost.
So why do we let monopolies provide the service of assuring product quality and safety?
Among the most important services in society is assuring the quality and safety of goods and services. We want assurance, for example, that our taxi drivers are competent and their cars are safe, that our banks have adequate capital, that our medicines are safe and effective, and that our schools teach our children well.
And yet the government agencies that regulate the quality and safety of these are legal monopolies. Those they regulate are required to abide by the government agencies’ decisions; the regulated enterprises have no freedom to choose different quality-assurance services from some competing entity instead. Government regulatory agencies are thus not regulated by market forces and, accordingly, they are not directly accountable to the public they are supposed to serve. (See my previous piece in this series, “Government Regulators are Unregulated.”) They are indirectly accountable to the public through the political process, but that process puts so much distance between the public and the government regulator that regulators are effectively left unregulated.
So, government regulators are unregulated monopolies.
Consider some examples:
- Taxicab service is regulated by public service commissions (PSCs). Taxicab and limousine companies may not decline to follow the standards set by the PSCs and sign on instead with alternative enterprises with different standards of quality and different methods of quality assurance; the PSCs face no competition as they impose their standards, be they sensible or silly, cost-effective or wasteful. The PSCs have a monopoly on the service of assuring the quality and safety of taxicabs and limousines. … read more here
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