Obamanopoly: Gov't. Tentacles Choking Consumers

Intro: A few years ago, while vacationing in New Hampshire, I stopped in one of its state-owned liquor stores to buy kosher wine for the upcoming Jewish holidays. I could not find any. But right across the state line, a privately owned Massachusetts liquor store that served the same communities had lots of choices.

Are the people who run the New Hampshire liquor stores prejudiced? No. They are bureaucrats. The difference between a bureaucrat and a retailer is profound: Retailers maximize profit by giving people better value for the money. A McKinsey Global Institute study credited retailing with 34% of the 1995-99 surge in U.S. labor productivity and for much of its growth through 2002. Consider the retailing innovations of convenient outlets such as eBay, Amazon, and Netflix, or the availability of inexpensive, stylish goods from the likes of Ikea and Target. U.S. retailers offer more than 170,000 book titles, 211 car models, and countless custom-designed PCs.

But maximizing consumers' choices and lowering prices are not among the incentives of the government employees who run state-owned liquor stores. Despite the power of monopoly retailers to extract volume discounts from wholesalers, researchers found no difference in prices between state and private liquor stores. Consumers were also slighted by the state stores' shorter operating hours, inconvenient locations, limited product availability, and restricted advertising. Some who wished to see lower rates of alcohol consumption had claimed that state ownership would achieve that, but it has not. Consumers instead adjusted their shopping habits, which meant they paid higher prices in the form of lost time and fewer alternatives.

In short, state-run stores don't work very well. So why do almost all the current plans to reform health care include a monopoly health-insurance store operated by the federal or state governments?

Conclusion: The government's proper role in health insurance is to help subsidize those who cannot afford it, to ensure transparency so that people can shop intelligently, and to prosecute fraud, abuse, and anti-competitive behavior. But the government should not create a state-run market that inevitably will limit competition, inflate costs, and prevent innovation. As in the rest of the economy, the American public should shop for itself.

~"Obamanopoly, by Regina Herzlinger, professor of business at Harvard University, in the National Review

Thanks to Tom Hemphill.

Originally posted at Carpe Diem.