Solving the Stagnation Puzzle

Commentary, Role of Government, Frontier Centre

Ideas have consequences, the saying goes, and it resonates with the many Manitobans who believe that our province’s vast potential won’t be realized without a fundamental change in thinking. The wag who stated that a working definition of insanity is to try the same things over and over and expect different results would feel at home in the keystone province.

Insane is too strong a word. But our traditional, orthodox approach of heavy political involvement in the economy through redistribution, subsidies, state-owned enterprises and monopolies persists despite relatively dismal results.

A few promising changes dot the electoral landscape, with a subtle subtext of tax reduction playing out in the Liberal, Conservative and even NDP platforms. The Tory property tax promise is a good start for overdue education reform. Jon Gerrard’s Liberals have the boldest platform, embracing broader tax cuts and clearly stating that the health system needs better policy, not more money. The NDP, unable to adopt a more dynamic policy model without severe internal ructions, is most comfortable with the status quo.

So our political parties agree on more things than not. The ideas of Gordon Tullock, one of the world’s greatest living economists, help explain why our political class’s intellectual moorings are so stuck in the expansive government mode of the 1970s. His insights underlie a school of economics known as “public choice”.

In a wide-ranging interview, Tullock defines “public choice” simply as economics applied to political matters. Politicians introduce policies because they want to win the next election. They buy votes by expanding state services. They never say “no” to the highly organized interest groups that drive public spending. Meanwhile the unorganized majority who don’t want more spending are dispersed. It’s a straightforward view that explains Manitoba’s high spending and taxes, relative lack of private investment and slow growth.

A simple analogy illustrates the conceptual limitations that restrain our future. When asked, for example, why we don’t organize grocery stores like health and education, with a large single supplier to eliminate overlap and duplication (see Harrison), Tullock replied: “Because most people like to eat. What would happen is not that you would starve, but you’d have a rather poor selection, of poor quality food at high costs.”

We’ve witnessed debacles like forced school board amalgamations, merged health authorities and early Unicity. What about the argument that larger government organizations are more efficient because they capture economies of scale? Tullock: “The total cost per unit of output will go up where there is no competition…large public monopolies allow government officials to not work quite so hard, get better pay….”

Why do politicians choose health-care reforms that give the monopoly more money instead of breaking it up and having competition? Tullock: “There is a bias to policies that increase the power of politicians … There are a lot of academics sold on the view that a large operation is more efficient that a small one.” Excepting the army, he thinks such economies are illusory.

What about Canada’s equalization system, which transfers resources from “have” provinces to “have-not” provinces? Tullock: “Over time, transfers would increase…” Would the resources flow to better services or higher costs? Tullock: “A safer prediction is that the money would end up in higher costs than more services.”

In a few remarks, Tullock distilled Manitoba’s challenge. Too many monopolies, a misplaced faith in larger bureaucratic structures whose budgets are inflated with easy outside transfers that forestall the need for self-generated economic growth. Taxes that are out of line with competing jurisdictions. The government grocery store model duplicated throughout key parts of the public sector, more bluntly, the most expensive healthcare and education systems in the country.

Tullock would control the modern tendency for government to expand infinitely by pushing services and power down the scale, closer to voters. He would break up the big public monopolies and pitch the thinking about larger service units and economies of scale into history’s waste bin, where it belongs. This would dramatically improve public services and free up billions for tax cuts to supercharge economic growth.

In the present sleepy Manitoba context, reforms of this sort would raise alarm bells in Gary Doer’s government. It’s no secret that the giant monopolies, which have prospered here as predicted by Tullock’s public choice theory, form the core of the NDP power base, the public sector unions. Neither the Conservatives nor Liberals carry that baggage, but as all political parties in Canada, they are ill-prepared to steer the intrinsically complex and bold changes required.

As others on the Left have learned – Britain’s Tony Blair, Ontario’s Bob Rae, and Roy Romanow’s former Finance Minister Janice MacKinnon among them – this is the key battle that remains to be engaged. The big rewards, better services at less cost, an economy that draws in people and capital, a sharply rising living standard, remain in the wings. In short, an end to our embarrassing “have not” paradigm.

To get there, we need what is lacking for our province – a big vision. Is it possible for Manitoba to have a population of 3 million people within our lifetimes?

You bet. Only different public choices will make it possible.