Andrew Coyne’s blindspot: public goods, market failure and the CBC

Andrew Coyne, a reliably astute commentator on most issues of Canadian public policy, has an unfortunate blindspot when it comes to the CBC/Radio-Canada.

He apparently thinks that the notion of public service broadcasting has outlived its usefulness, and that if we are to preserve any remnant of what was once a great national enterprise, it ought to be relegated to the digital netherland of the TV specialty channel. That way those of us who want to watch the service could pony up for it through monthly subscription fees.

Here’s what he had to say in his column Saturday:

As I’ve noted on other occasions, whatever once may have been true, the case for public broadcasting has collapsed, along with the rest of the broadcast regulatory apparatus. The spectrum scarcity and other technical limitations that in the past made broadcasting a textbook example of market failure have disappeared, as in time will much of what we now know as broadcasting. It serves no one’s interests — viewers, taxpayers, or the CBC itself — to carry on as before.

I’ve addressed the impossibility of supporting the public broadcaster through subscription fees elsewhere; here I’d like to challenge Coyne’s assertion that public service broadcasting was built to solve a particular “market failure” caused by “spectrum scarcity and other technical limitations,” and that these limitations have now been eliminated by technological change.

The phrase “market failure” as Coyne uses it is an idea linked to another topic in classical economic theory—the notion of a “public good.” A public good is a good or service that has clear public benefits—like public education or national defense—that, however, can’t be provided in adequate quantity by private business because the costs of producing it are greater than any expected returns.

The reason broadcasting falls (or fell) into this category is that when a program is being broadcast over the air it’s impossible to limit its audience or to charge for its consumption. But the cost of producing the program remains.

In the early days of radio, this quirk of the technology made it difficult to imagine how anyone could make money from a broadcasting business. How would programming be funded?

The answer hit upon in the United States was to convert radio (and later television) from a purely public service into a service provided to advertisers, to enable them to reach large audiences. Advertising revenue was used to fund programming.

In the U.K and throughout Europe, a different solution was found: the public good provided by broadcasting was paid for through a tax on radio and television sets—money that was handed over directly to the public service broadcaster or PSB. Under this model, broadcasting, as it is undertaken by PSBs, has remained an unalloyed public service catering to the needs of citizens as opposed to advertisers and consumers.

In solving the initial market failure of an inability to charge consumers for programming, American media created another one. By relying on advertisers for their revenue, they effectively committed themselves to serving the sponsors first, and the public only secondarily, as a means to an end. Their concept of program quality necessarily focused on success in pleasing advertisers (by assembling desirable audiences) rather than on more objective criteria such as a television critic or a parent or an educator might employ.

Media consumers have diverse interests and tastes which ought to be served in an optimal system through production of a wide range of program genres. And in each of those genres, an optimal system will provide the highest attainable quality. The American model fails to do this, because to optimize diversity and quality beyond the point where profit is maximized is seen (sensibly, from a commercial perspective) as a waste of money.

The market thus is incapable of delivering enough quality and diversity to meet demand—by definition a market failure. And, oh yes, the market fails to deliver on another strong audience preference; an absence of annoying commercials.

Classically, where market failures exist, government is justified in stepping in to solve the problem. In the case of broadcasting, governments do this by providing publicly-funded alternatives to commercial outlets—in Britain the BBC; in Australia the ABC; in Canada the CBC.

In Canada, unfortunately, the PSB solution has proved to be less than satisfactory, because CBC is expected to support its operations in part through advertising, just like the commercial broadcasters. And this has, predictably, led to the identical market failure where quality and diversity in programming are concerned.

Given that, in poll after poll, Canadians have expressed the view that the CBC/Radio-Canada is a public good that is both desirable and necessary, the solution to the market failure ought to be obvious: it is to provide the money necessary for the CBC to do its job of educating, informing and entertaining Canadians to the highest achievable standards of quality.

To do that will mean eliminating advertising on all CBC services, and boosting the public subsidy from the current, paltry, $33 per capita to something closer to the OECD average of $82 per capita.

Copyright Wade Rowland