DAVID STAPLES,
Government should not even think about investing in private business ventures
In his annual state of the city address, Mayor Don Iveson focused like never before on the need for business to flourish. That was excellent.
But both what Iveson said and what he failed to say should set off alarm bells.
Iveson talked at length Thursday about himself and the city leading the way to build up business, including creating an investment fund to finance startup companies. He stressed the fund would be privately managed by business experts, not run by the city, but said taxpayer dollars might go into it.
“I wouldn’t rule out that the city could invest in it, but that’s not a forgone conclusion, that would be a decision of council. It’s a very different risk tolerance than we’ve traditionally adopted as an investor. So I don’t know what council’s appetite for that would be.”
Council’s appetite for this particular kind of investment should be zero. Not one penny. Zilch.
You don’t have to look to distant countries to see how government investment can cost taxpayers billions. It happened here in Alberta. In the 1970s, another extremely bright and progressive Alberta politician, Peter Lougheed, thought investing taxpayer money in private business was a nifty idea, but it ended up costing at least $2.2 billion in losses, as companies such as NovAtel, Gainers and the Swan Hills waste treatment plant failed.
As former Progressive Conservative cabinet minister Ted Morton and writer Meredith McDonald noted in a University of Calgary paper, The Siren Song of Economic Diversification: Alberta’s Legacy of Loss, this kind of government investment, known as “forced growth,” has a dismal track record both in Alberta and around the world. Such projects tend to fail because they are motivated more by politics than economic viability: “There is a tendency for governments to take most of the risks, provide most of the capital and receive little of the profits, when there are any.”
Of course, a supporter of the proposed city investment fund would reasonably argue that Iveson’s plan calls for it to be
There is a tendency for governments to take most of the risks, provide most of the capital and receive little of the profits.
run by private business leaders, not city council. But Morton and McDonald are also skeptical of this approach: “Even when decisions are delegated to a nonpartisan, independent board or committee, those appointed tend to come from the local business community; are part of the ‘old boy network’; and/or are ‘drumbeating promoters’ with ties to either the governing party, key ministers or both. For all of the above reasons, forced-growth projects often attract privatesector partners without proven track records and/or lacking in integrity, competence or financial sustainability.”
As for what Iveson failed to say in his speech, there was no focus on the need to cut red tape and stop raising business taxes, and no emphasis on freeing up business. These issues have been dubbed the Edmonton Disadvantage, with Ward 11 Coun. Mike Nickel decrying council’s “socialist” approach to the economy.
Nickel isn’t a one-man negative band here.
“What we need is a really competitive tax and regulatory environment in order for business to succeed,” Chamber of Commerce president Janet Riopel told reporters after Iveson’s speech.
Riopel applauded Iveson’s suggestion that Edmontonians need to aggressively pursue business opportunities, but she also said the public sector needs to look more closely at its operational spending, “Because it continues to escalate at alarming rates.”
All orders of government are piling on with new levies, taxes, fees and standards, Riopel says.
“As those things just keep piling up ... we see that it’s more difficult for businesses every single day,” she said. “You can’t charge more for your product. You can’t find new markets. What are you going to do? You’ve done everything you can to tighten up and let people go if you had to, to really strengthen your organization, and the economy is not lifting the way we had hoped it would.”
Of course, along with creating a tax-competitive jurisdiction, Edmonton needs first-class public infrastructure for business to thrive. The city has had a few major failures in this regard, but it has also done some excellent work, and that includes Iveson’s focus on bringing in bike lanes, pedestrian-friendly streets and mass transit, even with some well-known hiccups on those projects.
This is the mayor’s and city council’s knitting, this difficult and ongoing struggle to produce high-quality and sometimes innovative and controversial public infrastructure on time and on budget. I suggest city government stick to that knitting.
Investing in private business isn’t the city’s job.