published in the NZ Herald on 3 August as "Allowing Parallel Imports: is it really deregulatory?"
Parallel Imports, Protection and Consumer Sovereignty
Keith Rankin, 9 July 1998
Dr. Gareth Morgan's interesting piece on the benefits to consumers of parallel imports ("Parallel importing: A victory for the consumer", Herald 7 July) drew my attention to a similar but more controversial issue that was played out 110 years ago.
Morgan states that "permitting parallel importing" represents "the clearest example of deregulatory advance this year". He goes on to say that "the change treads on the corns of those sole agencies built around the privilege of monopolistic distribution arrangements".
I would argue that this is an example of regulation rather than deregulation; albeit "light-handed regulation", to use the latest jargon.
The monopolistic distribution arrangements that Morgan objects to represent the reality of unregulated commerce; of an international economy, without a referee, regulated, de facto, by the senior players. (A bit like Sean Fitzpatrick refereeing the Bledisloe Cup.) Transnational copyrighted producers seek to maximise the return to their intellectual property through the use of monopolistic distributional practices.
In the debates prior to the introduction of protective tariffs in 1888, one of the major arguments against free trade was the problem of the monopolistic distribution of imported goods. The argument was that protective tariffs would enable local manufacturers to compete with the importers who, when faced with competition, pursued pricing policies similar to those of today's established oil companies.
The debate represented a clash between the Chambers of Commerce, who represented the importers, and the Manufacturers' Associations. The more enlightened supporters of the tariff were seeking what might be called "light-handed protection". Examples were cited to show how, after the introduction of tariffs elsewhere, the resulting increase in competition caused prices to fall. Indeed, New Zealand and world prices halved from the 1870s to 1900, despite an increased adoption of protective tariffs in the 1880s in all of the developed world except for Great Britain.
Parliament in 1888 had one of its moments of glory. The legislation to introduce protective tariffs was proposed and supported by a centre-right government in the face of opposition from its back bench. The bill was passed with the wholehearted support of the centre-left Opposition. In New Zealand then, the free traders - the government's "B-team" - represented the landed interests that made up what William Pember Reeves called "the Oligarchy". As with the Confederacy in the United States, support for free trade in New Zealand was about privilege rather than principle.
Many of the people who introduced protection to New Zealand in the 1880s had impeccable credentials as economic liberals. One Cambridge professor of political economy who was well known for lecturing colonists on the merits of free trade (Henry Fawcett) noted in 1885 that: "many of those who profess strong adherence to these principles [of free trade] hold them by so slender a thread that when they settle in the colonies ... they become in numerous instances ardent protectionists".
Reeves, one of New Zealand's best known Liberals, as an MP and through his newspaper (The Lyttelton Times) was, in the 1880s, an outspoken supporter of protective tariffs in New Zealand. Later, in an 1899 article in the Economic Journal, Reeves defended New Zealand protectionism as having represented an authentically liberal (ie pro-competition) stance.
Having represented New Zealand in London from 1896, in 1908 he was appointed as Director of the London School of Economics (LSE). He got the job because, unlike the alternative candidates, he was known as a supporter of free trade. The protectionist movement in Britain that he opposed was Conservative; an attempt to shelter uncompetitive British manufacturers from American and European imports.
Similarly, protection through import licensing - the predominant form of protection in New Zealand from 1939 until the Muldoon years - was anticompetitive. Licensing was an attempt to boost New Zealand industry by shutting out competition. It was Sir Robert Muldoon who first acted to phase out import quotas in an attempt to make New Zealand manufacturing more competitive.
Economic history shows that regulation and protection can be used both to counter monopoly power and to facilitate it; it all depends on the specific situation. The neoliberal bumper sticker approach which claims that protection is always anti-competitive is inapplicable to the complex issues involved. Indeed, when policies are driven by ideologies that demonise words such as "regulation" and "protection", we too easily miss opportunities to provide good consensual legislation. Instead, we produce rushed legislation that all too often makes ill-diagnosed problems worse rather than better.
In the case of parallel importing, the present policy, in principle, is fine. But it should not be represented as a deregulation. And some heavy-handed regulation - such as the "guilty until proven innocent" strategy suggested by Morgan - may be required to combat theft of intellectual property.
As an economic philosophy, liberalism is not only about the consumer sovereignty that is dear to Morgan. It is also about property rights.
If, in a self-regulating competitive market economy, some people are overpaid and pay too little for the resources they profit from, those people, as consumers, get a second bite at the cherry. Consumer sovereignty only works as a genuinely liberal ideal in a society with some degree of equality between consumers; in a society in which everyone has disposable income. That need for equality as well as efficiency was the central conundrum faced by Alfred Marshall, the dominant liberal economist at the turn of the last century.
The other form of sovereignty that is often lost sight of is the sovereignty of the Crown, representing the property rights of the owners of public assets. The shareholders of public property have sovereign rights (eg the right to enjoy social wage goods) which match the right of Morgan to pay just $20 for a pair of Spice Girl shoes.
While I have seen considerable effort by recent governments to protect the interests of affluent consumers, I have not seen much effort to protect my sovereign rights as an owner of Auckland's airport, the Auckland Regional Services Trust, and the Electricity Corporation of New Zealand. My property has been treated in a very cavalier fashion.
I would like to see some social wage initiatives in addition to narrowly-focussed microeconomic reforms, of which parallel importing is but one. Liberalism is a broad church.
Rankin File | 1998 titles