Montreal, January 15, 2012 • No 296


Harry Valentine is a
free-marketeer living in Eastern Ontario.



Government as a Customer


by Harry Valentine


          Every week, homes across the nation receive advertising fliers from local businesses advising of weekly specials. Both customer and seller benefit from the price-reduced items. For the customer, it’s time to stock up, while the business gains important feedback from the market about actual demand for certain goods. That feedback reduces waste and allows the business to provide enough products to meet market demand. It results in store shelves being sufficiently stocked while minimizing an excess of perishable goods in the stockrooms.


          Most businesses test market demand by regularly fluctuating prices while other businesses may acquaint themselves with customers to assess their ability to pay and to establish prices for their goods and/or services. Private businesses and entrepreneurs, who depend on the market to buy their goods and services, can be tough customers who will drive a hard bargain when they are in the role of the purchaser. They may negotiate to reduce the purchase price from competing suppliers and pass some savings on to their customers who will also naturally be seeking competitive prices among competing retail outlets. Financial institutions that make business loans scrutinize potential commercial customers prior to making loans to ensure their future ability to repay those loans.

The Same But Different

          The dynamic of business negotiations changes significantly when the customer is a public sector enterprise or government department seeking to purchase items that may involve massive expenditures. Government auditors have uncovered evidence of some departments spending 10 times the price that a private consumer would pay at a local hardware store for a bolt made of stainless steel.

          A savvy entrepreneur would assess large-scale customers to determine what price level to charge them for goods or services, then haggle with the customer until they agreed on a price. The same entrepreneur doing business with a public sector entity would need to use very different criteria by which to assess the price level to charge for large-scale goods and services. This is especially true if the custom goods and services are unavailable on the open market.

          Public sector entities receive revenue from the treasury departments that in turn depend on the tax department that acquires its revenue through force of law. Commercial sales personnel are aware that high-profile public sector departments such as public health usually have big budgets. They may employ lobbyists to continually encourage government officials to look favourably on their products and even indirectly create a market that wouldn’t exist otherwise.

          The result may be “free” vaccines or behaviour-modification prescription medications for school-aged children, paid for by the taxpayer. The teenaged shooters at Columbine High School were on state-approved prescription anti-depressants. With government as the monopoly customer, the price for such medications may skyrocket while state officials expand the market. The state governors of California and Texas signed bills into law requiring the compulsory vaccination of girls against the sexually transmitted human papillomavirus (HPV) independently of parental consent. These laws result from successful lobbying efforts by the people who are employed to market such products.

"Libertarians and other free-market enthusiasts support the idea of limited government that keeps intrusion into the lives of peaceful citizens to a strict minimum. Industry lobbyists prefer big, powerful and omnipotent governments that are only too happy to intrude into the lives of citizens 'for their own and the greater good!'"

          The mission of such lobbyists is to encourage governments to be the customer for a wide range of products and services that governments may compel the general population to use. The addition of fluoride to municipal drinking water is an example of state-enforced medication. Successful lobbying of government officials has led to a proliferation of GMO soy and GMO corn being used as animal feed and for human consumption.

          Likewise, the state-approved prolific use of antibiotics in livestock and in hospitals has resulted in the emergence of virulent strains of antibiotic-resistant bacteria that can infect animals and people. Such is the result of the government control of public health and government-regulated agricultural and food sector. Skilled lobbyists have learned to exploit state economic regulation to the advantage of their clients, that is, to have the state encourage the expanded use of their products.

Who Regulates the Regulators?

          It has long been known to free-market economists that industry insiders “capture” the regulatory system of a particular segment of the economy and manipulate it to their advantage. The regulatory agencies of several sectors of the economy, including public health and agriculture, are being “captured” by the lobbyists of industries that supply products to these sectors. Some companies may gain a legal monopoly to supply certain products to government entities at grossly inflated prices.

          The economic downturn has impacted several companies that do business with government agencies. State funding is declining for high-priced solar and wind power, with the result that several providers of solar power technology have closed their doors while some makers of windmill technology are laying off workers. The economic downturn has also affected companies that supply medications such as fluoride (fluorosilicate) to public sector clients to put into the water supply. Several cash-strapped municipalities in the USA are ending the practice of adding fluoride to drinking water, advising that most of the water is used for a variety of purposes other than drinking.

          Libertarians and other free-market enthusiasts support the idea of limited government that keeps intrusion into the lives of peaceful citizens to a strict minimum. Industry lobbyists prefer big, powerful and omnipotent governments that are only too happy to intrude into the lives of citizens “for their own and the greater good!” For such industries, government is the customer, and governments that reduce of the size of their public services while providing for greater market freedom would ultimately undermine their earnings. The present economic downturn may compel many governments to go this route whether they like it or not.