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Global Competition Policy

One of the most striking economic differences between the United States and Canada and the rest of the world is the extreme lack of competition in many local markets. U.S. and Canadian consumers have a plethora of department stores, specialty outlets, and discount retailers to choose among, while Asian consumers, for example, typically face severely limited shopping alternatives. Whereas U.S. and Canadian shoppers have access to a wide variety of domestic and imported goods and services, Asian consumers typically have only Asian-made products at their disposal. In fact, the typical Asian consumer is completely unaware of how the lack of competition in Asian retail trade restricts purchase options and raises prices. As a result, Asian consumers have never lobbied government trade officials for greater retail competition and for access to large retail stores that offer bargain prices.

Thanks to relentless pressure by foreign trade representatives, government officials in Japan and other countries have moved to free up anticompetitive trade laws. Before recent changes, mom-and-pop retail stores in Japan were able to delay the opening of any large chain or retail store for as long as 10 years. Since trade reforms instituted

When the SIRR > k, the marginal rate of return exceeds the marginal cost of capital. As in the case of programs with an SNPV > 0 and B/C ratio > 1, the acceptance of all investment programs with SIRR > k will lead public-sector managers to maximize net social benefits. In instances in which capital is scarce and only a limited number of desirable programs can be undertaken at one point in time, the SIRR can be used to derive a rank-ordering of programs from most desirable to least desirable. Like a rank-ordering of all SNPV > 0 programs from highest to lowest B/C ratios, a rank-ordering of potential investment programs from highest to lowest SIRRs allows public-sector managers to effectively employ scarce public funds.

Limitations of Benefit-Cost Analysis

Although the benefit-cost analysis is conceptually appealing, it has several limitations that must be considered. Primary among these is the fact that existing measurement techniques are sometimes inadequate for comparing diverse public programs. Without competitive markets for public goods and services, it is difficult to ascertain the social value placed on public programs. How much is it worth to society to provide food stamps and other financial support to poor parents and their children? Is this value reduced when the poor refuse minimum-wage employment opportunities or when government funds are used for unintended purposes (e.g., to buy alcohol, cigarettes, or illegal drugs)? How do you measure the social value of sophisticated new defense weapons, and how do you compare this value to the value of social programs? What is the social value of the agricultural milk-price support program?

Benefit-cost analysis requires public-sector managers to quantify all relevant factors in dollar terms. Where dollar-value estimation is not possible, qualitative factors must still be considered to prevent the omission of important indirect and intangible impacts. However, the inclusion of qualitative factors makes benefit-cost analysis more complex and its conclusions in the early 1990s, stores like U.S. retail giant Toys "R" Us are opening at a quicker pace.

Well-designed public policies have the effect of reducing barriers to competition and facilitating economic growth. Among the most important lessons learned during recent years are

• Stable money policies promote low inflation and modest interest rates.

• Low tax rates provide positive incentives for savings, investment, and economic growth.

• Open markets facilitate trade and the growth of both foreign and domestic markets.

Poorly designed policies stifle competition and delay economic betterment. The increasingly competitive global economy has already conferred significant benefits on consumers, but policy initiatives must be designed to maintain that momentum. Competitive markets work best when public policy creates an environment that allows efficient firms to win and lets inefficient firms lose.

See: Michael Williams, "Japan Will Muddle Through...Again," The Wall Street Journal Online, January 29, 2002 (http://online.wsj.com).

more ambiguous. At times, analytical results cannot be summarized in a single comparable ratio. Evaluation problems also occur when a nonefficiency objective, such as reducing the level of highway noise pollution around a schoolyard, must be considered alongside an efficiency objective, such as increasing business activity along a new highway corridor.

Despite these and other obvious problems, benefit-cost analysis enjoys well-documented success as a vital tool for public-sector decision making. At a minimum, benefit-cost analysis forces the itemization and computation of costs and benefits in a manner that is far more precise and useful than many other methods of public-sector decision making. As a result, benefit-cost analysis allows for a more thorough analysis of public policy alternatives than other more limited techniques.

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