Smarter government needed

As the lead-into the 2015 federal election campaign, the Harper government is counting on next year’s budget and its array of goodies in the hope that we’ll show our gratitude by re-electing Conservative MPs.

As the lead-into the 2015 federal election campaign, the Harper government is counting on next year’s budget and its array of goodies in the hope that we’ll show our gratitude by re-electing Conservative MPs.

But next year’s budget surplus is only possible because of current and past constraints in federal spending, with the Harper government choosing less growth and more unemployment now to have a surplus for an election-year budget.

The consequence of this decision is a slower recovery from recession and weak job-creation this year. But this has not deterred Finance Minister Joe Oliver.

In response to a C.D. Howe Institute paper urging a three-year delay in balancing the budget to boost growth and more jobs now, Oliver snapped back, “our government will not open the taps on reckless spending.” This is disingenuous since those calling for continued stimulus are not urging “reckless” spending but needed investments such as infrastructure.

Next year’s election is an opportunity, of course, to hold the Harper government to account. But it will also be an opportunity to challenge the Conservative long-term goal of small and diminished government.

In a recent profile of Oliver in Maclean’s magazine, the finance minister is quoted as telling a Conservative fundraiser that the election budget will “reduce taxes for hard-working, middle-class Canadians” but there will be “no reckless spending spree.” As Oliver put it, “you’re better off making decisions about your money — where you spend it, where you save it, than some social engineer or bureaucrat in Ottawa.”

Oliver appears to view spending on public goods as somehow inferior, by definition, to spending on private goods, forgetting that in an advanced economy, like Canada, the private economy cannot prosper without public goods, just as the public sector needs a successful private sector.

Businesses need public investment in education, research and infrastructure. There would be no Internet or smart phone but for public investment in early, high-risk research.

As societies grow richer, their appetite for public goods — from education, health care, infrastructure and social equity to job training, a clean environment and research and development — increases. According to the OECD, the richest countries have the highest share of GDP allocated to government spending — just over 50 per cent in Sweden and 39 per cent in Canada, but only 20 per cent in Mexico and 19 per cent in China.

The concept of public goods goes back to Adam Smith and his great work, The Wealth of Nations, published in 1776. Smith distinguished between private goods, which are supplied by companies or individuals, and public goods, which are supplied by governments. He laid out three essential duties for government, all of which entailed the provision of public goods for the proper functioning of the economy and a stable society.

First, government should facilitate commerce since it was through commerce that the wealth was created that would improve living standards. Spending on defence and justice, along with institutions and infrastructure, were all necessary public goods.

Second, the role of government was to uphold the rule of law as an essential public good. This was the basis for a free society and essential for a market economy since this not only protects citizens from arbitrary action by the state but also enforces contracts and protects private property, enabling a market system to function.

The third duty of government, Smith said, was “erecting or maintaining those public institutions and those public works, which, although they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could not repay the expense to any individual or small number of individuals, and which it cannot be expected that any individual or small number of individuals should erect or maintain.”

In other words, the market cannot meet all of our needs.

Canada cannot sustain itself as an advanced economy without major investments in public goods, from education, health, social insurance, research and development, and infrastructure to job training, public safety, clean water and air and a stable financial system.

All are essential for a prosperous private sector, an equitable society and environmental sustainability.

Without public goods, our market economy would not deliver prosperity, our society would be less stable and safe, our environment would be dirtier, and our level of knowledge and skills would be lower and our health poorer. This is something every finance minister should understand. We need smarter government, not smaller government.

Economist David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com.

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