Dealing with Losers, the Political Economy of Policy Transitions
by Michael Trebilcock OUP USA

Michael Trebilcock, Professor of Law at the University of Toronto, has now published his 29th book (I may be one or two out) “Dealing with Losers”.  Michael, a most distinguished academic lawyer/political economist has since his first book in 1997, influenced significantly the way that we think about public policy and law and their interaction with economics. He is a scholar and to those who know him, a complete gentleman. I have had the honor of teaching with him.

The “losers” in this book are those made worse off by some change in public/government policy. The cases he considers run the gamut:

  •  public pensions (think of raising the minimum age required in order to address deficits);
  • mortgage deductibility in the USA ;
  • trade liberalization;
  • agricultural supply management (think of the impact on dairy  farmers of removing the quota system);
  • immigration policy (think of the impact of ending family preferences or “temporary workers” in Canada) ;
  • climate change; 

These 6 chapters are bookended by two introductory chapters on framing the issues and two concluding chapters on general conclusions and his preferred general policy: incrementalism, compromise and explicit transition policies usually involving compensation.

As I was reading the book, the Globe and Mail on Saturday August 2 in the column The Lunch, had a discussion with Richard Doyle, executive director of the Dairy Farmers of Canada. This sector is in Trebilcock’s Chapter 6 on Agriculture Supply Management.   Michael states on page 83 that ‘the average value of quota for the milk production of one cow was $28,000 up from only $16,000 only 10 years before. Significantly, these agriculture schemes which limit production and imports prevent or retard Canada from negotiating free trade pacts with other nations or groups of nations. How do a relatively few dairy farmers (12,000 dairy farms in Canada) which cost Canadians $276 a year or $26 billion over the last decade (CD Howe Institute) deter liberalization? Why can’t we, the many, end this subsidy to the few dairy farmers? Mr. Doyle in his interview gives some answers:   the 12,000 dairy farmers fund their Association with $75 million a year, a lot of money to lobby. When in 2012, the Canadian Council of Chief Executives urged the Prime Minister to abandon the dairy industry in order to succeed in trade pact talks; Mr. Doyle wrote to the CEOs of Canadian banks and said that “the billions of dollars tied up in loans to dairy farmers” were at risk. The Banks defended the dairy industry.

Liberalizing dairy, eggs, chicken farming would create losers – farmers and those who hold their debt. Now if all dairy farmers were the original farmer families who acquired the quotas, given for free by the government decades ago, liberalization would be simple- remove the quotas as those farmers have earned excess economic profits, capitalized at $28,000 a cow in 2009. But the public policy conundrum is what to do about that farmer who paid $28,000 per dairy cow in 2009 to enter the milk industry? Ending quotas is unfair to him and the bank holding the loan on that cow will also have losses.

So, losers are all those originally made better off by public policy/regulation : people who bought million dollar houses in the USA because of mortgage interest tax deductibility, chicken farmers, firms dependent on temporary foreign workers,  cab drivers facing Uber. So what do we do?

Professor Trebilcock begins by describing the academic literature which is quite large. The issue of how to change revolves on one’s concept of social justice, one’s views of the nature of political decision making and one’s articulation of institutional design. These chapters are not easy reading for those never having tested these waters before. In addition the six chapters differ in their readability, several (trade liberalization, climate change) being more academically dense than others.  Still, the journey is worth it. 

Michael’s initial chapters bring in new behavioral economics and his two concluding chapters lay waste to some academic woods: the extremes. At one extreme lie academics who think we can do little as all government actions create winners and losers. At the other extreme are those who say we should do nothing as dairy farmers for example face all kinds of risks- weather, etc. and the end of the quota system is but one such risk. But doing nothing as Professor Trebilcock points out, leaves the status quo and no change will occur.

His review of theory and the six detailed examples proves to him (and most readers) that there is no easy way out. One cannot as the Canadian Council of Chief Executives urged, end dairy quotas in one fell swoop. First, the public with a sense of equity won’t go along. While each family overpays for milk, its annual burden is small and its sense of social justice (even if they knew and believed the facts) are barriers to change. In addition with an average Canadian dairy farm being worth $2 million and likely mortgaged, the losers will really lose. So, a pragmatic approach is best. Professor Trebilcock’s policy on dairy quotas is as follows: sign new trade agreements and simultaneously announce a 10 year phase out of dairy quotas, with an immediate phase out to anyone who has had a quota since the 1970s (half of farmers). Compensate other farmers for their losses at the end of the period for an audited decrease in book value or at any time over the ten year period on a sale. This explicit subsidy is paid for with a 10 per cent dairy product tax and a modest 10 per cent export tax on expanded sales from the trade liberalization.

In other chapters, Michael tempers the academic arguments with such pragmatic policies, such as described for the dairy sector, adding other policies including grandfathering current rights but liberalizing all new entry.

This book is a very useful primer for anyone wanting to understand how we appear to get trapped by policies which benefit the few at the expense of the majority. It is also clear on the remedy – we need in most cases to indemnify the losers.  There is one other big lesson – governments need to think deeply before offering some tax incentive, some restriction on entry, some favor (lower spectrum prices for new entrants). Public policies create winners and losers; it is the winners who can hold up rationalization down the road, requiring direct monetary payments to offset the losses incurred on the benefits they initially received!    Governments beware!

* Dr. Waverman is a world-renowned expert in international telecommunications and global resource economics. He earned his B. Comm. and MA from the University of Toronto and his PhD in economics from MIT. He has been a professor of economics at the University of Toronto and the London Business School and Dean of the Haskayne School of Business as well as professor of strategy at the University of Calgary. He is currently Dean of the DeGroote School of Business.

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