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Opinion Wynne government has no business meddling in markets

Reasonable people can argue about what part governments should play in the workings of a modern economy.

Should they run deficits and go into debt so that they can spend money on roads, bridges and social programs, or should they focus on keeping taxes low and budgets balanced? Should they help some companies succeed, or is picking favourites a mistake? Should they protect industries from overseas competition, or tear down the dikes and let them sink or swim on their own? Should they raise taxes for the rich and transfer the wealth to the poor and the middle class, or should they lower taxes on the rich to attract investment?

All of these things are up for discussion. But, by the year 2017, there should be general agreement on three things that governments should not do under almost any peacetime circumstance.

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One is decide what people in the private economy should charge for things. Setting prices by government decree inevitably distorts the economy, as decades of experience with price controls and subsidies around the world has shown. The second is to decide what people should be paid for their work. In a market economy, it's far better for governments to stay clear of that. The third is to run companies, especially companies that simply sell things to people, rather than deliver a service. Government officials make lousy merchants.

In the past few months, Ontario Premier Kathleen Wynne has managed to do all three. In a lurch to the left in the run-up to the election scheduled for next June, she has, in turn: expanded rent controls, involving government more deeply in determining what private owners can charge for private rental housing; announced a dramatic and sudden rise in the minimum wage, in effect dictating what many companies pay their workers; and, finally declared this month that Ontario would be setting up a chain of government-run retail stores to sell marijuana when it becomes legal next year.

Taken together, these measures amount to a clumsy intervention in the economic life of the province, with effects that will be felt most in its biggest city, Toronto. Taken one by one, they are just bad policy, bound to hurt the very people they are meant to aid.

Consider rent control first. Ms. Wynne announced in April that the government was extending controls to all rental housing, ending an exemption on apartments built after 1991. That means landlords face a hard cap on how much they can raise rents for their existing tenants, regardless of how much the landlord's costs go up.

The result of rent control has been the same wherever it has been tried, which is why many economists consider it pure poison for cities. First, landlords skimp on maintenance and the quality of rental stock declines. You can see the rot in hundreds of rental buildings around Toronto that have been under rent control for decades.

Second, developers don't build new rental housing because they can't be sure of making a buck. "We economists don't know much," the American Nobel Prize winner Milton Friedman once said, "but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage."

The new controls are likely to stifle a small boom in rental construction just as it is getting started. That is bad news for a city struggling with a shortage of affordable housing.

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Now consider the minimum-wage hike. Ms. Wynne plans to gradually boost the minimum to $15 an hour by 2019, up from $11.40 at present. That is a 32-per-cent rise in 18 months. Businesses from farms to restaurants, from grocery stores to Tim Hortons, are saying it will hit them hard, forcing them to cut jobs, raise prices or both.

But don't take it from them. Ontario's Financial Accountability Office, a sober-sided official watchdog, says the minimum-wage hike could result in a net loss of 50,000 jobs, maybe more considering how sharply the minimum will rise. Prices at the cash register could increase 0.5 per cent.

And for what? The agency says most of the benefit of a higher minimum wage won't go to those it is meant to help: the poor. "Just 27 per cent of the total gain in labour income … would be expected to benefit low-income families." Another third would go to families in the low-income to median-income range. Fully 40 per cent would go to households that have incomes above the median.

"Raising the minimum wage would be an inefficient policy tool for reducing overall poverty," the agency concludes. In fact, many of those whose jobs will disappear because of a quickly escalating minimum wage are struggling recent immigrants getting their first work in a new country. Toronto has many thousands of them.

Last but not least comes comes the masterstroke of interventionism: government pot stores. Ms. Wynne's government announced plans to open 80 stand-alone stores by July 1, 2019, rising to 150 by 2020. (Smokers will be able to buy online, too).

Why the government of Ontario needs to be in the pot-retailing trade is a mystery. It would have been far cheaper and easier to hand the job to the network of dispensaries and pot shops that have been popping up in advance of legalization. They know the product. Some of them are downright passionate about it.

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Now, instead, the government will have to train its clerks to understand the difference between Sour Diesel and Granddaddy Purple. It will have to set prices, making sure they are not so cheap as to cut into its profit or so expensive that black marketers rush in to undersell the official stores. It will have to decide where to put its shops and how many it will really need once sales become established.

All of this would have been better left to the market to sort out. If there is one thing that market systems do exceedingly well, it is to put things on shelves in the right quantities and places – no cumbersome bureaucracy needed.

If the point of government pot stores is to control the safety of the product and to determine who can buy it, remember that convenience stores already sell tobacco and supermarkets, finally, sell beer in Ontario. They check for ID. Inspectors check cigarettes and booze for quality and safety, too.

The same goes for most things people buy at a store. The government doesn't run grocery stores, but food and the places that sell it undergo inspection. The government doesn't run its own pharmacies, but prescription drugs go through all sort of checks.

It just isn't necessary for the government to sell pot. It can tax and regulate sales without building and running stores of its own, just as it could tax and regulate alcohol sales if it caught up with the rest of the world and got out of that retail business.

Governments can perform many useful tasks in an open economy: Referee markets, redistribute income, enforce laws, protect the environment. But there are some things they should never do. The leader of a 21st-century government should know that.

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