You'll never win at Monopoly

by John Hood, John Locke Foundation and NC SPIN panelist, December 20, 2013.

During the holiday season, Hoods play board games.

Different families have different traditions. Some go caroling. Some go on trips. Hoods would rather buy Park Place, conquer Middle Earth, or wipe out zombie infestations. Hey, now — don’t judge our New Year’s Eve gaming marathon unless you’ve tried it.

While the play is all in good fun, our games are competitive. In fact, the thrill of competition is a key reason why playing games is so much fun. Competition breeds excellence and innovation. It drives self-improvement. And it challenges us to learn to win gratefully and lose graciously.

Competition works its magic far away from a “Game of Thrones” board. It makes sporting events more exciting, consumer products more useful, workers more productive, cars more luxurious, and groceries more affordable.

The same principle applies to the public sector. Although governments enjoy monopolies over particular geographic areas, they still face competition. People can choose where they want to live, invest, or open a business based upon the mix of government services and costs they prefer — although there can be a high “transaction cost” to making such a choice, in the form of relocation expenses or risk premiums.

Moreover, just because governments enjoy monopoly power to tax or regulate within a given jurisdiction doesn’t mean competition must be excluded from the provision of services. Most governments solicit competing bids to construct buildings, install software, acquire supplies, or widen roads. States such as North Carolina have also long fostered competition in educational services by including both public and private providers in their preschool programs and by offering financial aid to students regardless of whether they choose public or private colleges.

In 2013, the North Carolina General Assembly expanded the scope of educational competition by offering thousands of low-income students an opportunity scholarship to attend private schools if they wish. Lawmakers also had an opportunity to expand competition in health care, by loosening the state’s “certificate-of-need” laws to allow more competition among hospitals, but unfortunately they chose not to do so.

During a previous session, the state legislature actually went in the opposite direction by attempting to limit competition among firms providing training to bail bondsmen. In a unanimous decision, the North Carolina Court of Appeals just struck down the provision as unconstitutional. In Section 34 of its Declaration of Rights, the North Carolina Constitution declares that “perpetuities and monopolies are contrary to the genius of a free state and shall not be allowed.” Once the state set up a process for allowing bail bondsmen to become certified to offer their services to North Carolinians, the court found, it could not then create a monopoly in preparing would-be bondsmen for certification.

I’d like to see the General Assembly adopt a more consistent approach to fostering competition. Lawmakers should eliminate regulatory barriers that exclude new entrants to markets for medical care, education, transportation, and personal services. They should further limit the use of no-bid contracts in government and further expand the use of performance pay to encourage higher productivity among public employees. They should rethink the awarding of exclusive utility franchises. And they should always welcome proposals from potential vendors or purchasers of public assets if they can make a good case for how they will generate better outcomes, higher returns for taxpayers, or both.

Monopolists rarely give up their favored position without a fight. For example, the North Carolina Association of Educators, the state affiliate of the nation’s largest teacher union, has filed a lawsuit in an attempt to keep low-income families from escaping the public-school monopoly. Hospitals that dominate particular regions will continue to block competitors from entering their markets. These are understandable reactions to potential competition, although hardly praiseworthy ones.

But policymakers should remember that their job is to maximize value for the general public, not to serve the interests of incumbent firms or vested interests. Competition can be messy. It can be scary. It can lead to dramatic change. Without it, however, sustained progress is simply impossible.