The Passing of the Old Guard

Commentary, Frontier Centre, Public Sector, Uncategorized

As Manitobans dance in the New Year, many will stick to old, safe steps calibrated to fool our aging bodies. Boomers under the influence will gyrate as before, and look sillier all the time. In a similar sense, our province’s dominant public policies no longer serve the new age. Our carefully constructed minuets deny the energy bubbling just outside the door. It’s time to consider different moves.

In November, the University of Winnipeg’s Allen Mills incisively described the complacency of our policy establishment as a “perfect calm.” The maladies he outlined – a do-nothing political culture, a sleepy media, Manitoba’s massively subsidized public sector – apply substantially to the whole country.

The Economist magazine recently slammed Paul Martin for “pumping ever more money” into healthcare without fixing it. Canada needs more investment and enterprise to combat lagging productivity, the magazine observed, but that it is hard going when “old-school NDP socialists” hold the balance of power.

In Manitoba, the ancien régime props up unsustainable policy with rising federal transfers. In 2005, transfers accounted for over one in three dollars of the province’s budget. Awash in cash, the feds increased Manitoba’s equalization subsidy by 12 percent (from $1.43 to $1.6 billion) and its health transfer by a staggering 30 percent (from $805 million to $1.045 billion). During a time of little inflation, total provincial spending here will go up 7 percent this year.

One unintended consequence, like a side-ache from dancing the Twist, is that the largesse simply enervates our body politic and delays inevitable reforms. In a relatively slow-growing economy where government spending accounts for about half the total, more cash for old models prolongs the mediocrity of Mills’s “perfect calm.”

Three themes dominate the dated dance music:

  • Governments can produce cheaper services. The reality of vibrant markets demolishes this, the mouldiest of the tenets. Almost no one believes that governments should run supermarkets to provide cheaper food, or that politicians and bureaucrats can outperform Wal-Mart. Only primitive government accounting systems, which fail to measure real costs, preserve the illusion. Can Manitoba Health deliver cheaper MRIs than the Maples clinic? Only when you treat equipment purchases as a free good, underpay their operators and make the public wait for needed scans. Ditto for many services now delivered by our sprawling public sector, including liquor, car insurance, social services and education.
  • Government price controls can outguess markets. Two examples, from many. The latest statistics on Manitoba’s rent-control tragedy show higher rents in Winnipeg than in Regina or Saskatoon—both decontrolled in 1992—and a lower quality and quantity of apartments. The collateral damage: little or no residential construction in Winnipeg’s downtown, a huge missed opportunity. For more stupidity, consider the Doer government’s shenanigans with energy pricing, where clean, renewable hydro-electricity subsidizes the consumption of non-renewable natural gas. Massive equalization payments allow us to charge below-market rates for electricity and cross-subsidize energy consumption. The result: one of the world’s most energy-inefficient economies.
  • Governments can plan for the future. Politicians tend to look backwards, protecting old methods and catering to favoured interests. Consider, for instance, the tiresome debate about transit. More people now “telecommute” by working from their homes than ride transit. Yet the establishment still seeks to pump hundreds of millions of dollars into a system that moves people downtown to fewer and fewer jobs. Ten years ago, few had heard of the Internet, which has revolutionized work, play and shopping. Yet we use yesterday’s assumptions to project ridership decades from now and waste money on outmoded forms.
  • A “perfect storm” is about to sweep away the “perfect calm” and obliterate such myths. Even the dimmest of politicians are slowly understanding that unreformed healthcare is unsustainable. The main paymasters, Alberta and Ontario, are losing patience with a dysfunctional equalization system. The latter, Canada’s manufacturing heartland, is caught between the pincer of huge competitive pressures from China and rising energy costs. The Institute for Competitiveness and Prosperity, a think–tank funded by the Ontario government, recently criticized equalization’s focus on increased consumption in low-productivity provinces. To boost Canada’s investment and economic performance, it proposes tax cuts instead of “no-strings-attached” subsidies to have-not provinces.

    In Alberta, a rising tide of separatist sentiment makes the threat of Québec secession look tame. In the immediate term, Alberta’s vast oil revenues foreshadow a scenario which eliminates income taxes and makes the old guard’s policy feet dance faster as investment floods in. Consider the likelihood that our most dynamic province finds itself shut out again, were eastern voters to elect another Ontario-centric minority Liberal government propped up by a Toronto-centric NDP. Alberta’s riches mean it has little need for Canada and more equalization grabs for the old guard could break up the country.

    On the bright side, this pressure could tear Canada out of its Rip van Winkle policy mode. Without easy cash, a confident young guard will find room for new ideas that maximize policy outcomes instead of catering to tired special interests. This emerging entrepreneurial culture will bring forth economically literate and performance-oriented public policy.

    It will dismantle public sector monopolies, and use modern systems that accurately measure costs and outputs to buy services from competing public and private providers. Health and education will transform themselves into major export services and creators of high-value jobs that compete with service excellence and quality. Technology will facilitate online services delivered 24/7 that provide discerning consumers with performance data on schools, hospitals and local government services. It will also disperse economic activity and enable rural communities to provide techno-literate workers with the highest quality of life.

    Finally, the new guard will move aggressively to capitalize on Manitoba’s energy wealth. It will convert the one-billion dollar “power at cost” subsidy into major efficiency upgrades for consumers before turning the new revenues into massive tax cuts and economic growth.

    Out with the old, in with the new—not a bad thing. Get ready to welcome the new dancers and their energy to the floor. Happy New Year, old guard and new.