Time for governments to boldly reduce government spending

Reducing the high cost of government spending would help reverse Canada’s economic growth crisis and improve living standards, but few politicians propose anything in the way of serious spending reductions. Fewer still enact such reductions when they get into power. Even politicians who promise to reduce spending usually make timid and general promises—slower spending growth (but not real reductions) in certain areas, unnamed “efficiencies” or reduced administration without affecting services.

However, to actually improve fiscal policy and deliver widespread benefits to Canadians, politicians should make significant spending reductions, including to government services. Looking for “efficiencies” is fine but in most cases a futile effort. Without the discipline of a competitive market and incentives through profits and losses, government services are doomed to be inefficient. The general rule of thumb is it costs government twice as much as a private company in a competitive environment to accomplish the same task.

So, the key to a more productive economy that raises living standards is to reduce or eliminate government services and programs, and leave things to the private sector. Privatizing Crown corporations is an obvious place to start. Canada Post, VIA Rail Canada, the CBC—and provincially, government liquor control boards and corporations, as examples. There’s nothing peculiar about letter delivery, trains, television and radio programs, or alcohol sales that justifies governmental operation. They should be turned over to private enterprise.

Government ministries, agencies and corporations set up for “economic development,” which undertake corporate and industry welfare initiatives under various forms, should also be eliminated. Canadians should not want “better” or “more efficient” corporate welfare; they should want none of it. Corporate welfare is inherently bad and inefficient because government planners who did not earn the money and to whom the money does not belong have neither the economic information nor the incentives of individuals in a free market to use resources wisely.

The federal government alone has seven regional economic development agencies (one for Atlantic Canada, one in Quebec, two in Ontario, one for the territories, one for British Columbia, and one for the Prairies), which combined disburse billions in corporate welfare annually. Provinces have their own economic development ministries, which do much the same. Yet other government programs provide special support to industry. For example, in Ontario, Agricorp provides production insurance and risk management to farm producers; in Alberta, the Canadian Energy Centre is a government-operated public relations outfit for the energy sector.

Another government service that could be eliminated—non-catastrophic medical insurance. Even if government is to provide medical insurance, there’s no reason it should cover non-catastrophic expenses. “In most areas,” said Milton Friedman, “we buy insurance only for catastrophic expenses. You don’t insure your house against the cost of having to mow your lawn. You don’t insure your car in such a way that if you buy gasoline, you get repaid by the insurance company.” Why then should government insurance pay the cost of visiting the doctor for a mild illness?

Many other examples abound of government services and programs that can be reduced or turned over to the private sector—municipal golf courses, automobile insurance in B.C., federal and provincial film subsidies and credits, and so on. Government services are doomed to be inefficient. Improving the economic environment by reducing their cost is therefore best achieved by—in the right places—doing away with government services instead of trying (and failing) to improve them.