This week, Ontario Premier Dalton McGuinty gave a rather extraordinary speech.
A few too many observers got caught up in McGuinty's fluent bilingualism, political skills, and the presence of Interim Liberal Leader Bob Rae. Reportage out of the event tended to ask the hypothetical question of a potential run for leader of the Liberal Party of Canada, rather than focusing on the content.
This is unfortunate, because the content is the first recent glimpse into the Premier's thinking on the daunting fiscal crisis looming before all governments. The poetry of electioneering retreating for the prose of government, McGuinty was quite forthcoming about how he will handle the challenge.
Five principles will guide the government's approach:
1. We will protect health care and education as the most important public services – there will be reforms but we won't compromise on quality.
This principle has two impacts. For one, it means that ever file outside of health and education is under severe pressure, because they will have to make up the difference in lessening the burden on those two major policy areas. Finance Minister Dwight Duncan said that holding education to 1 per cent and health to 3 per cent will mean cuts of up to 33 per cent in other departments.
Second, it means reforms in those two areas will likely have to come from reducing the overall cost of compensation to public-sector employees while maintaining service levels, a tough but not impossible task.
2. We reject across-the-board reductions because these would mean deep cuts to health care and education and we'd have to catch up later – Ontarians have seen that movie, and we're not making a sequel.
This is a very sophisticated argument and one that deserves some unpacking. McGuinty makes the point that short-term arbitrary cuts simply push off costs until down the road. There is considerable evidence that this was the case in the 1990s. Spending under Mike Harris was essentially flat for his first three years, and then exploded in his last three and into Ernie Eves's time in office. I call these "trampoline cuts" because – while spending goes down for a short period – it comes back with a vengeance.
McGuinty is arguing that short-term cuts are just a shell game to allow revenues to catch up in a booming recovery. Since we clearly don't have a booming economy thanks to sluggish US growth, something more fundamental is required. That means actually getting out of doing activities completely, or to fundamentally transform the way a service is provided that lowers the cost demands permanently.
3. Any reforms we adopt must help us get better value for money through improved efficiencies and greater productivity.
This is by far the most interesting of the five principles.
Productivity is a word you rarely hear in discussions of fiscal crises, so this is refreshing. When you "cut" a program, there is a complex series of actions that flow from that. Most of the cost of programs is staff, be it clerks or meat inspectors or porters in hospitals. So "cuts" usually means having fewer people doing the same thing, and thus a direct reduction in the amount of service available to the public. Productivity is about getting more service out of the same number of people.
It can be done with technology: having doctors call to follow up rather than have a face-to-face meeting that costs more and takes time out of everyone's day. It can be done with process improvements: organizing inspectors into geographic territories that have them inspecting more and driving less. It can be done with changes in work rules: greater flexibility in how shifts are scheduled means needing fewer people to deliver the same service levels.
Ontario will see a mass exodus from the public sector over the next five years driven by demographics. The staff hired in the public-sector boom of the late 1970s and early 1980s Bill Davis era are reaching retirement age. All those jail guards and policy advisors and nurses are going to head off into the sunset. Devising ways that improved productivity and selective rehiring can leave a smaller civil service delivering the same or better services is the unique opportunity here.
4. We will not consider an increase in taxes or the privatization of public health care.
This principle is about narrowing the range of options. On the one hand, the NDP has been calling for an end to the reduction in the provincial corporate tax from 14 per cent to 10 per cent in 2013. There are competitiveness arguments for reducing the tax, and the revenue increase of a tax hike is relatively scant: about $900-million this year, barely denting the $15-billion deficit. McGuinty is drawing a line in the sand on taxes for the NDP's benefit.
On the other hand, any discussion of fiscal pressure leads immediately to the chimera of co-payments for health care and the privatization of health care delivery. These shibboleths of the right are not particularly effective methods of lowering costs, considering the US has both and its resulted in the highest health care bill in the world. But taking them off the table now serves both to shield the Liberals from attacks on the left, and poke the PC Party on an area of vulnerability.
5. We won't pursue austerity measures that harm our economy.
There is a school of thought led by Paul Krugman that the rapid return to austerity after the stimulus of 2009 led to the current malaise.
There is some very strong persuasiveness in this argument, and it lends some iron to McGuinty's plan. An immediate across the board cut is possible, but creating a "public sector recession" through Mike Harris-style arbitrary budget cuts could trigger another private sector recession. As such, the responsible course of action is to selectively ramp down spending and focus on step number three: productivity improvements.
The challenges Rob Ford is encountering at Toronto City Hall have tested the credibility of anyone who claims the ability to do more for less.
Certainly, achieving significant productivity improvements is not easy. But it can be done.
Bill Clinton's administration had significant success in " reinventing government."
The New Labour government in Britain was able to fundamentally overhaul service delivery by creating both top-down goal setting and bottom-up feedback.
People tend to focus on the "cuts" of the Chretien Liberals, but the reinvention of service delivery, particularly in Transport and Industry, was revolutionary. This included the elimination of the Crow Rate and the privatization of CNR, previously inconceivable policy decisions.
The speech this week shows that McGuinty is committed to following in this direction, rather than the austerity and across-the-board cuts of the Thatcher-Harris types.
While it will still mean protests and political landmines, this course is very different – and hopefully more sustainable – that the "trampoline cuts" of the 1990s.