A popular target for modernizers is political interference in the proper management of government agencies and businesses. In the name of economically rational policy-making and scientific management think tanks propose changes to enhance the independence of public agencies, commercial and not-for-profit government assets. This perspective is influential in places as far apart as western Europe, China and Ontario, Canada.
They hope that greater institutional independence will make government smarter. A good example of this point of view was presented by economist Arthur Sweetman in a paper for the Mowat Centre’s task force on Employment Insurance (EI) reform in Canada.
“The government's actions [freezing premiums], though correct, point to a larger problem with how EI premiums are set. Right now, despite the creation of the new Canada Employment Insurance Financing Board (CEIFB), the setting of rates is still vulnerable to political and partisan influence. Canada should remove politicians and partisan politics from the rate-setting process entirely and grant the CEIFB the same independence to set EI premiums as the Bank of Canada enjoys with respect to interest rates.”
Read more: http://www.nationalpost.com/Take+politics+Employment+Insurance/4129480/story.html#ixzz1BrTNS9yO
Economic experience and democratic instincts would surely not go along with this without a fight. In politics and business “independence” alone is not a virtue and taken too seriously for too long is a vice.
Comparing the idea of a government agency being free to set premiums—a payroll tax on employees and firms—and a central bank’s freedom to set interest rates is shaky. A central bank has no different or additional interest than the interests of the people at large. Its decisions—whether popular or not—provide no separate or distinct benefit to the bank and its professionals. And in any event, the policy independence of central banks was a last resort, a necessary evil in a democratic society that we bear but should not easily imitate.
Of course, governance arrangements that put greater distance between the imperatives of good management and the preoccupations of political strife and patronage are good things. However, giving organizations the unfettered power to raise the price of their services is dangerous.
Price setting in the public sector is exactly the same as it is in business: organizations that are not disciplined by competition or political oversight end up charging too much. They raise money to do what they want to do, rather than do what the market will bear.
In Ontario, electricity rates were once set by Ontario Hydro, an independent self-regulating public monopoly, and they ended up financing an electricity system that was overbuilt and uncompetitive. About ten years ago, the Government of Canada granted the Greater Toronto Airports Authority the power to set its landing fees. Toronto’s magnificent international airport now has roughly the highest charges in the developed world.
Elected governments are often attracted to the case for greater independence by their agencies. Governments don’t like making tough decisions either. However, the powers agencies and pubic monopolies wield are created by government and, ultimately, government must own what they do.