🚀 go-pugleaf

klassen@sol.UVic.CA (Melvin Klassen) writes:

>> Corporations are not an open source of cash that will passively endure 
>> increased taxation - they pass everything back to the consumer eventually.  
>>
>This is the thinking that the corporate leaders want you to adopt.

I'm not some helpless absorber of the propaganda of large corporate 
interests - I know what they are all about.  Having lived in Alberta I've
seen the biggest and badest of these dinosaurs up close - oil companies.  But
regardless of what any of us thinks of them (to quote Sonny Crocket:  "[They]
didn't come here to make friends"), I don't think that it is the business of
government to interfere in their affairs.  This statement of course excludes
regulating practises that endanger humans.

But I think I was unclear.  I did not mean, "they pass everything back to the
consumer eventually" as some sort of profit sharing thing.  I meant it as a
statement of what they will inevitably do with new costs that are placed upon
them (taxation).  My original point was, since they will transfer costs
anyway, why not save all the hassle and tax consumers directly.  That way at
least consumers will really know what things cost.  Plus your companies
become more globally competitive - hell, they might even have some cash for
capital investment.

>For example, a statement that Raymond Cyr (BCE chairman and chief executive
>of BCE Canadian Telecom Group) gave yesterday, at BCE's annual general meeting,
>reported by the _Financial Post_ (4/29/92, page 12):
> 
>  "For every $100 million [of long-distance revenue] we make $66 million
>   profit.  If we eventually lost $1 billion a year to Unitel [a proposed
>   competitor in the long-distance telephone market], the [local] rates
>   would have to go up by $666 million."
>         !!!!
>         !!!! <- my emphasis.

If anything this is just another fine example of why governments should 
stay out of things.  The fact is that over the past decades telecos have
overcharged on long distance rates (especially with the advent of fibre
optics) and undercharged on subscriptions.  Most long distance calls were
made by business (this is changing), so business was in fact subsidising
private customers.  You will note that rates have always been much higher
during the day when the vast majority of business calls are made.  This
arrangement was established due to government influence.  Airlines do
something similar.  They sell vacations seats that are bought far in advance
very cheaply, and they sell last minute seats bought by business travellers
at a premium.

So Cyr is simply stating that if they lose their long distance profits, they
will have to start charging subscribers the real cost of their service.  Make
it so.  I can certainly afford to pay more than $12 for such a wonderful
service, and I would certainly like to be able to call long distance cheaper -
something that will become inevitable if competition is allowed.  As the
world opens up, and families spread apart, more and more people will want the
costs to shift this way.  In fact, the current cost arrangement is *slowing
down* the opening up of the planet.  As users of computer networks we must
certainly all think that this is bad, bad.

>A classic case of the "inelastic demand" style of thinking, i.e., BCE
>**must** record the same amount of profits, even if it is necessary
>to "price-gouge" a smaller base of customers.

The point I was originally trying to make was exactly this, that BCE will
always try to maintain their profits - of course they will!  It's their
obligation to their stock holders.  They are not price-gouging, they are
just seeking proper reimbursement.  The only gouging going on is the new
"Provinicial Social Services Tax" that has been added to phone bills.

Inelastic demand can only be taken advantage of when a monopoly exists
(or cartels).  One more reason to get the government the hell out of the
phone business.  Now obviously it would be highly problematic not to have
monopolies exist in local phone service (subscriptions), but long distance
competition can easily occur.  To allow this however, subscription rates
will have to go up - just like Cyr says.  But here is what happens:

Presently:

Subscriptions - inefficient semi-crown monopoly, cheap.
Long Distance - inefficient semi-crown monopoly, really expensive.

Future:

Subscriptions - inefficient semi-crown monopoly, relatively fair rates.
Long Distance - efficient competition, cheap.

Any problems with that?

Ken Buckland
kenb@ee.ubc.ca