Signs of division — and life — in liberal thinking?

Within the last week, retired Ontario Minister of Finance Dwight Duncan and retiring liberal champion and New York Mayor Michael Bloomberg openly abandoned hard liberal pieties on the political power of public sector unions and the wisdom of public ownership of giant public utilities.

Alongside the fine-grain speculation over the feelings of mad men on the right, is it not also interesting that liberals are starting to question the validity of core liberal policy in Canada and the United States?

It’s holiday season and we’re all worn down by scandal. Still, something big is happening: after years of dining out on conservative extremism, intelligent liberals are now questioning their loftiest sound bites. Bloomberg’s concerns about “a labor-electoral complex” may not, immediately, contaminate Hillary Clinton’s meticulous campaign for the Democratic presidential nomination in 2016. However, Dwight Duncan’s twitter below may seriously complicate Premier Kathleen Wynne’s plans — and prospects — in an Ontario election within the next 6 months:

“OPG [Ontario Power Generation] should be privatized. Market discipline will be much more effective at addressing the problems than political oversight.”

Brutes and nihilists are expected to complain about crown corporations. It’s news, however, when a leading liberal acknowledges aloud that these institutions will not always serve liberal ends.

Ontarians want to be interesting but never consciously vote for radicals. So, Liberals have told Ontarians for over decade that Ontario conservatives are radicals. You see: some 15 years ago, they actually tried to organize a competitive, private electricity industry. They ran out of luck — and nerve. But their intention at that time has been used to demonize them ever since.

It frays that liberal accusation — to say the least — to read that the former Liberal government’s illustrious minister of both Energy and Finance believes that OPG, one of the largest electricity generation companies in North America, should now operate and sell its power as a private company.

Raising Ontario’s taxes without being trusted

Trapped by bad timing and intolerable traffic congestion from one end of its political base to the other, Kathleen Wynne’s government is agonizing over how to sell higher fuel taxes to pay for infrastructure and to encourage greater use of public transit.

Doing something brave like this isn’t entirely out of the question.

The need to make expensive new transportation investments is accepted. Historically, Ontarians have accepted higher taxes and Ontario Liberals certainly have no woolly ideological objections to raising them. Indeed, serious people think it’s possible that a broad, visible tax increase by this particular government now could survive, if necessary, an election next spring.

A blue-ribbon report authored by policy entrepreneur Anne Golden has made the case for new revenues and has found, allegedly, a plausible way to make a substantial tax increase palatable. Taxpayers won’t actually have to trust their politicians with their money: presto, the extra hundreds of millions of dollars will flow obediently into a separate, pristine trust account.

The Globe and Mail editorial board isn’t easily excited. But, dedicated revenue streams arouse their support:

“A dedicated fund would manage these revenues. Without such a stand-alone fund, new money runs the risk of disappearing into general revenues, and being co-opted by other needs.”

The weird thing about Golden’s gambit is that it’s so business-as-usual.

The Wynne government is being pummelled by financial messes in stand-alone government authorities — in energy and in health delivery, especially. And now it's being advised to restore trust in creative government by creating another stand-alone pot of public monies to spend on another high-profile, virtuous public cause.

The government opposes any "privatization" of government assets or services and, of course, will campaign for positive government as a problem-solver. And, at the same time, it should promise to further distance its own Cabinet from the tax dollars it raises for its greatest new priority?   

Deputy ministers in line ministries, of course, dream of not having to fight for new resources or defend ministry expenditures in Cabinet meetings — in competition with other ministries and other priorities. But only exceptionally lucky crown agencies — like power authorities and airport operators, for instance — enjoy the privilege of pocketing directly special taxes (with businesslike names like rates, fees, and charges) that are rounded, by the full force of government legislation, for their exclusive purposes.

Consistent delegation and professional public service doesn’t require, let alone excuse, the "micro management" of program spending by the Premier’s office or by central agencies. Wynne won’t put the scandals of the past behind her government by promising to do everything herself.

However, turning tax-raising power over to another tax-spending public body will neither discourage petty politics nor prevent extravagant spending.

(Would former Premier Dalton McGuinty have pushed electricity authorities to waste over a $billion on two paper power plants if he’d known that he’d have to go into the legislature and raise the money directly?)

Before going down that path once again, the Wynne government would be better advised to: (1) reduce the cost of new investments by reducing its vast storehouse of old assets that no longer need to be owned by the government and (2) spell out how the Wynne Cabinet will better manage rather than delegate the deployment of any new monies.

Wynne has been quoted as saying that the latest agency in trouble — Ontario Power Generation — needs a new “culture.” This is, at worst, pure evasion, at best naïve.

Ontario Liberals have been in power too long to play the ingénue. The public needs evidence of a new culture of zealous accountability around the Cabinet table, not amongst distant technocrats, before being asked to pay higher taxes.

Follow up: debate on Hudak’s disruptive idea

A shrewd senior public administrator (not too revealing, I hope) gave me this explanation of why it’s so hard to have a productive discussion about change in electricity ownership in Ontario: “The experts who dare to talk about it are either mad or bought.”

On a grander scale, Fredrick Hayek anticipated this problem in “The Road to Serfdom.” Even in free societies, he warned, modern government could become too big for a vital democracy to function, that eventually there wouldn’t be enough informed people who’d feel truly free to speak their minds. Those who think there’s a better way of doing things would run the risk of looking a little mad.

In Ontario, over 80% of the electricity industry—an industry that effectively serves 100% of the province's households and competitive businesses—is entirely owned by the government. So, it’s tricky to propose changes that would significantly limit the power of that government and threaten those who most benefit from how that power is exercised.

The industry is supported by thousands articulate professionals and pensioners who owe their good fortunes to the status quo. They can fine-tune incremental change brilliantly. They know the immediate past inside out. Overwhelmingly, however, they’ll marshal their expertise and mountains of data to keep the future under control.

I say this simply to note—and admire the fact—that Hudak is playing with fire.

Hudak isn’t a mad idealist. His proposal to stage the sale of transmission and generation assets, while promising to subsidize industrial customers, is compromised and somewhat contradictory. He is not proposing to reduce government’s role as a regulator or, as a last resort, as a procurer of additional power. Clearly, he doesn’t want to scare Ontarians; he’d rather win votes than design a perfect policy paradigm. However, his privatization plan will be challenged by professionals, as well as demonized by his adversaries.  

Two concerns have already been raised.

Jim MacDougall commented on my last post:

“The point missing from the media coverage is that the goal of infusing private capital in this government owned electricity sector is a hope (founded?) that government will keep its paws off. That message needs to get out otherwise electricity privatization could be Hudak's "private school funding" downfall in the next election.”

Martin Regg Hohn of The Toronto Star worries about cash flows:

‘The new private shareholders would demand more profits as a return on their investment (pushing for higher electricity rates, which Hudak has pledged to forestall). Private ownership would also reduce the money turned over yearly to the provincial treasury in the form of profits and payments in lieu of taxes (the utilities would ultimately lose their tax-exempt status).”

Click on: www.thestar.com/news/canada/politics/article/1181323--cohn-playing-politics-with-your-hydro-bill-by-cooking-the-books

McDougall raises a key test: Will private sector operators have to pay a higher risk premium than government operators when financing new electricity investments?

There are at least two ways to respond in Hudak’s favor. Electrifying Ontario no longer needs the government’s credit rating or subsidies; it’s a mature industry. Further, the electricity investor has no valid reason to believe that investing in electricity in Ontario would be any more dangerous than investing other forms of energy or other essential services.

The Ontario Energy Board has provided comprehensive economic regulation of Ontario’s private natural gas business, another essential service. In setting consumer rates and in overseeing changes in the ownership of natural gas distributors, the Board has earned the trust of domestic and global capital markets. Regulated private utilities are a safe haven for investors everywhere.

The Ontario government and aspiring premiers, unfortunately, cannot credibly promise to keep their paws off any essential service, gas, electricity, nursing homes, and fresh milk, for that matter. However, as with other North American governments, Ontario has a sturdy record of respecting property and investor rights—while playing politics.

Regg Holn’s concern sounds like bookkeeping and, as such, will be used by many technicians who want to perpetuate government ownership.

Hudak needn’t be intimidated by numbers. If owning the business was more profitable to the treasurer of the province and its open economy, today the treasurer wouldn’t be holding $billions of stranded debt, accumulated by its public electricity assets. Logically, it would be championing permanent public ownership of other big industries—say, our troubled auto industry.

It’s inescapable. Ultimately, a profitable private Ontario electricity industry would have to pay taxes to Ottawa, not just pseudo taxes to the Ontario Government. However, there is ample historical evidence in Ontario and, for instance, in booming Alberta, to demonstrate that well-run competitive businesses paying something to Ottawa is much better than captive bureaucracies promising to give all of next years “surplus” to the provincial government.

Electricity reform: Ontario conservatives return to the fight

Ontario Hydro—when all its public assets were working—rivaled the Tennessee Valley Authority, Quebec Hydro, and Electricity de France. After more than 100 years of electrifying Ontario, the Ontario government is still its principal shareholder. Dalton McGuinty, the teacher premier of a service economy, is the principal operator of a gigantic, sprawling, technically proud, and politically powerful electricity industry.

Under his enthusiastic leadership, Ontario’s electricity industry has become only more complicated and, again, more expensive. In the name of innovation, he has bought the spin of mature public corporations worldwide: government leaders can be rigorously commercial as well as businesslike; government can secure more for the taxpayer, the consumer, and the environment by running the whole show as the sole proprietor.

This embrace of inertia over experience has guided his policies and stimulated numerous initiatives.

Conservatives who nearly broke the status quo a decade ago have been silent for a long time. Their reluctance to breathe another word about the alternative—privatization, with public regulation—has not been rewarded.

Timidity can work for a government, but isn’t much use in opposition.

Despite the predictable risks of offering significant policy ideas in a minority legislature, the leader of the Ontario Progressive Conservatives, Tim Hudak, has reopened the issue. In a white paper called "Paths to Prosperity, Affordable Energy,” Hudak insists that government is too involved in the energy business and that in order to be able to be less involved, it should, in steps, sell its operating assets to the private sector.

Click on: www.ontariopc.com/paths-to-prosperity/affordable-energy/

When conservatives stop thinking intelligently about economics, they’re usually branded as bigots. However, when they do start thinking out loud, they’re as freely labeled as “ideologues.”

The reactions to Hudak’s paper by the Liberal government and the New Democrats were identical.

McGuinty's latest Minister of Energy Chris Bentley scoffed: 

“Who has brought these ideas that didn’t work in 2002 … when the Tories tried them then? Who brought them back? Are the same people in charge? I guess the answer might be yes.”

New Democrat leader Andrea Horwath complained:

“But rehashing or bringing back the same old ideas that haven’t gotten us anywhere already is really not very helpful.”

Click on: www.thestar.com/news/canada/politics/article/1178232--ontario-power-tim-hudak-s-plan-to-sell-off-parts-of-hydro-one-ontario-power-generation-panned?bn=1

If anything in this exchange could be called “ideological”—in the most pejorative sense of being a mental invention—it’s the characterization of what Hudak is proposing as a failed experiment.

Ontario came no closer to privatizing its electricity sector in 2002 than North Korea came this year to successfully launching a nuclear missile.

What is truly ideological is Ontario liberalism’s reluctance to question a proposition that is neither liberal nor progressive: that once in public hands, giant state energy enterprises must remain in public hands.

The status quo in Ontario clings to a fixed idea: public ownership can beat the market in generating innovation, economic growth, and revenues to government. And it calls those who wonder whether that’s true “ideologues.”

The Ontario government promises growth and austerity. Hudak has put his political capital behind an idea that would both reduce the burden of government and help revive business activity in Ontario.

It is controversial, but he should persist. It’s big idea and it makes his opponents look small.

Drummond and his plan are human too

There is no shelter for skeptics.

We want to believe that if a decision is going to hurt, there is no sane alternative. Nevertheless, we have no right to assume that the author of unpleasant advice is automatically smarter, more objective, and has more integrity than others.

The massive restraint program proposed by Donald Drummond offers an obvious duty to the print media, the guardians of calm discussion. One institution that shouldn’t be stampeded is the centrist Globe and Mail.

Profiling the author of such a grand-sounding document as “Public Services for Ontarians: A Path to Sustainability and Excellence” makes journalistic sense. However, it’s hard to think critically about someone who is perfect!

Jeremy Torobin, Drummond’s Globe biographer, didn’t quite create a god, but he certainly made me feel small.

Here’s the profile’s headline: “Parsimony, with a side of courage”

Here’s the lede: “. . . the former Toronto-Dominion Bank chief economist strolls into a restaurant looking every bit a monument to the austere financial discipline he preaches.”

Here’s Drummond’s first passion: “Getting to the bottom of vexing public-policy issues.”

Click on: http://investdb4.theglobeandmail.com/servlet/story/GAM.20120218.RBLUNCHDRUMMONDATL/GIStory/

Drummond is provided an entire page to tell us who he thinks he is and about the challenge he’s had fixing the second-biggest government in Canada:

           “No government in the world has ever done this before," he says.

"I'm calling for a revolutionizing, a radicalization, of virtually everything a government does, to make it focus on efficiency, not just in one area at a time, but simultaneously in virtually everything they do. It'll take unbelievable courage and unbelievable intelligence, and it'll take an unbelievable capacity at both the political level, and the bureaucratic level."

Click on: www.globeinvestor.com/servlet/ArticleNews/story/GAM/20120218/RBLUNCHDRUMMONDATL

These words weren’t whispered in his ear by an obsequious flack from Premier McGuinty’s Office.

He acknowledges no compromises in his weighty report or any concern over the complexity of his 100-day assignment—essentially, doing to dozens of public organizations what Mitt Romney and his management consultants used to do for profit. He volunteers that even if Ontario revenues were high he’d still do 350 of his recommendations.

Only once does Drummond, the non-partisan analyst from Jean Chretien’s Camelot, patronize the locals. Referring to the problem of keeping up quality services, he asserts:

“. . . during the Mike Harris and Ernie Eves eras, Ontario's public service was rarely 'asked to flex its analytical muscles,' causing them to atrophy.

“As an aside, he warns a similar phenomenon is occurring in Stephen Harper's Ottawa and says the federal Conservatives would be wise to study Ontario's experience.

"The process of re-building that capacity is under way, but it is a long haul," he says.

Canada’s greatest political economist John Kenneth Galbraith once suggested that “no human being” can survive a career in banking. Drummond finally shatters that theory. After 10 years in banking and 23 years in the Department of Finance, with a public pension and a bank pension, Don Drummond is still boyish about Don Drummond.  

A boyish ego, however, doesn’t guarantee fresh thinking or the ability to stand outside the professionally cool opinions of the moment. Drummond’s report will make many losers angry. You may see courage in that. However, if you read it carefully you’ll also discover that it will make many powerful interests happy.

The sections on electricity services, for instance, suggest that 80 small municipal distributors be rationalized, presumably to save money. At the same time, Drummond concludes that the provincially owned electricity assets and agencies—85% of the electricity sector and the main drivers of future price increases—need, after years of presumably mediocre governance, a period of reflection.

“A degree of normalcy may very well be helpful for the sector to take stock and reflect on the status quo. Consequently, the Commission has a series of recommendations that are meant to balance the need for stability in the sector with the need to curb costs.”

Click on: www.fin.gov.on.ca/en/reformcommission/chapters/ch12.html#ch12-c

Torobin reports that Drummond didn’t sound like someone “eager to ride off into the sunset.” More likely, he’ll be a welcome and frequent presence as Ontario’s insiders manage this difficult decade.