Conferencing on the border: nice people working the status quo

The myth of Alexander the Great slashing the Gordian knot has inspired few bold solutions to other seemingly intractable human problems. Northern Italians turned that tight bundle of rope into an exquisite gold broach. Canadian constitutionalists treat it as a question: is the knot a federal or provincial responsibility? This week, in Windsor and in Detroit, some 250 Canadians and Americans are conferencing on how to live in harmony with the knot—the border that runs across the middle of our continent.

The Great Lakes-St. Lawrence Region Summit is supported by two national governments, ten sub-national governments, two think tanks, many active and retired border watchers, and a big proposition: As one region, the economy around the Great Lakes and the St Lawrence River would be the fourth-largest economy in the world.

They gather with the support of a discussion paper containing specific ideas that could drive further “collaboration” across the region’s border. Click on: http://greatlakessummit.org/

They even created an acronym—GLSLR for Great Lakes-St. Lawrence Region—to help excite their thinking.

Representing public institutions and businesses that already benefit from the way things are, there is every reason to expect that their deliberations will be constructive, that they will see that thinking positively is half the battle. That is exactly the problem.

Their deliberations are based on a passive and blinkered view of our circumstances. Matthew Mendelsohn of the Mowat Center and John Austin of the Brookings Institute danced around the issue in an introductory piece in the National Post:

“Regions will be just as important as nation-states in ensuring the wellbeing of communities in the coming decades. The Great Lakes-St. Lawrence region - made up of the eight states and two provinces (Quebec and Ontario) that surround these great waters - has everything necessary to succeed in this new world.”

And later:

“One obstacle to this vision materializing is an inability to imagine our shared future. Other cross-border regions are beginning to act and think collectively, transcending national boundaries to address shared problems, manage shared resources and take advantage of new economic opportunity.”

Click on: http://www.nationalpost.com/todays-paper/best+investment+world/4935095/story.html

There’s no question that North American economic regions will determine our future security and prosperity. However, on this continent, a “cross-border region” is largely a word game, a shadow of the integrated economic regions we face in the European Union and within the great powers of Asia.

The GLSLR is today primarily a watershed, not a community of some 100 million people striving in the same boat to recover past glory and then lead globally.

Imagining a shared future within the status quo is neither a new nor a very ambitious idea. Indeed, trying to imagine a way around the great artificial problems we’ve inherited from nationalists and protectionists only delays the emergence of genuine continental community-building.

A comprehensive agenda for a Great Lakes-St. Lawrence Region would address (1) the absence of collective political accountability, (2) the drag on trade, investment, and people caused by two floating currencies, (3) the nuisance of the passport requirement, and (4) the continuing obligation on elected governments to think of their neighbors as foreigners, not fellow citizens with votes.

In politics, “collaboration” outside your national jurisdiction is practiced and praised but isn’t a primary activity. For nearly two decades, public figures have talked about building another bridge across the Detroit River. Yet, its best chance now rests on a Canadian offer of $550 million and a promise to the legislators of Michigan that it won’t cost them a penny.

The central and West Coast economic clusters of North America will largely determine the future health of this continent. Their prospects would be improved significantly if they could shed the “cross-border” caveat.

What’s so good about being independent?

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.

Two Ontario think tanks differ on the problem

Few people on the outside watch Ontario politics the way they watch Quebec. The heart of confederation can’t separate. So, historically, Ontarians have modestly exercised their political weight by deciding who should govern Canada—to the tolerable satisfaction of every region. This rather laid-back style was, of course, supported by electoral bulk and great-and-growing wealth. Those conditions have shrunk—on average, Ontario incomes haven’t been rising and now hover at the national average, and (electorally) Ontario’s national voice is divided.

Consequently, the Government of Ontario and local elites have been getting busy studying policy from an Ontario perspective and supporting conferences and seminars to raise awareness of Ontario’s unique commercial and demographic interests. Recently, two vigorous Ontario think tanks have weighed in on the issues and, with very different perspectives, have set the menu for the debates ahead.

The Mowat Centre for Policy Innovation says: let’s negotiate. The Task Force on Competiveness, Productivity & Economic Progress says: let’s grow. The former would have us politic like poorer Canadians; the latter would have us prosper in the North American economy.

Matthew Mendelsohn, director of the Mowat Centre, is preoccupied by one public statistic: “Canada is no longer a country of a prosperous ‘centre’ and a needy ‘periphery.’ Yet Ontarians still contribute about $20-billion more than they get back in federal transfers and services for purposes of redistribution to other parts of the country.” Click on: http://www.nationalpost.com/related/topics/fair+Ontario/3846367/story.html

Roger Martin’s Competitiveness task force hammers away at the gap in Ontario’s overall economic performance that began almost two decades ago: “For the last several years, Ontario’s rank has shifted between fourteenth and fifteenth place out of sixteen North American peer jurisdictions . . . In 2009, the [GDP per capita] gap below the medium of these peers was $6,900.” Click on: http://www.competeprosper.ca/index.php/work/annual_reports/annual_report_todays_innovation_tomorrows_prosperity/

These two numbers are not mutually exclusive, but one didn’t cause the other and can’t fix the other’s problem.

Renewing Ontario’s prosperity will not be found in simply getting the money back from Ottawa or having Ottawa spend another $20 billion in Ontario rather than in poorer provinces. The wealth gap with the other leading North American jurisdictions adds up to over $90 billion per year. Roughly, that gap is more than four times greater than the gap in federal cash flows. But, more importantly, no federal government has moved a major Canadian region ahead through direct spending anyway.

A society can’t effectively mobilize around two ideas at the same time. So, leadership in Ontario must choose—will it be the politics of fair shares or the politics of engagement with North America and other opportunities to prosper?

Engagement is more consistent with Ontario’s winning traditions. It would mean more attention to education, innovation, tax design, and infrastructure, including the decrepit state of Ontario’s links to the United States. It would leave those who like to negotiate with Ottawa with much to do. But it would not count on a redesigned Canadian social safety net to fix Ontario’s promising and perilous economic circumstances.