Improve standards of performance

Last week, I discussed the need for our next provincial government to devise an effective policy for the transportation problems facing the Lower Mainland since these have potential to reduce the province’s economic development significantly.

This week, I want to devote attention to the rising costs of government and the need to face this economic reality.

Regardless of which party (or parties) forms the next provincial government, the Cabinet will face the need to raise taxes. Why? The largest causal factor, which is beyond the control of any politician or bureaucrat, is called ‘Baumol’s disease’ named after William Bau-mol, one of the most influential economists of the last century.

Baumol explained that technological advances increase labour productivity naturally, pushing up wages because workers produce more goods at lower costs per unit; therefore their work is worth more. But similar increases in productivity do not apply for many labour-intensive activities, such as concert performances, medical diagnostic procedures, teaching or soccer matches.

He used the example of the playing of a string quartet in 1817 when musicians were each paid perhaps the equivalent of $600 per year. Paying them that amount today based on the rationale that it still takes the same number of people and amount of time to perform the music would not provide them a living wage.

So, even though their productivity has not improved, the income of the players has risen. This means their output, (the concert), becomes increasingly expensive compared to more efficiently manufactured goods.

As Baumol pointed out, there is no cure for this ‘disease,’ and the rising costs of labour-intensive services from health care to policing to education make them appear to be ever less affordable. And, Baumol concluded, if, because of these rising comparative cost differentials, expenditures on these services were cut back, then what he termed “the quality of life” would decline. He thought that healthcare costs were always going to rise and trying to reign them in by cutting funding would be a fool’s game leading to worsening overall healthcare.

Baumol’s disease provides a real challenge to the provincial government over the next decade. With the inevitability of rising costs in labour-intensive sectors from healthcare to education to justice to the provision of basic government services, what will be the impact upon government finances?

Reducing the number of staff to contain such expenditures is often not a viable solution. Cutbacks can and usually do come back to bite politicians. Reduction of the provincial staff examining dams resulted in some disasters and cutbacks in the Ministry for Children and Families had tragic results with rising levels of child deaths.

Moreover, imposing wage cuts or freezes in the public sector may encourage the best people to go elsewhere and discourage new recruits from joining the public service.

And, as the population increases, the increasing demand for government services will generate a requirement for more, not fewer, government employees and therefore a greater total wage bill.

As with the challenge of transportation within the Lower Mainland, this question goes right to the heart of managing and financing government in B.C. Raise the wrong taxes and economic growth could be constrained, if not snuffed out altogether. And misguided personnel policies could result in ballooning waste and unsatisfactory service delivery.

Traditionally, management of government — that is evaluating and improving the efficiency and effectiveness of government services — has not been a prime concern of politicians or senior government officials. I know because I was one in years gone by.

Now, the management of government will be a critical factor in trying to ensure continued prosperity for the province. The standards of performance for both politicians and officials will become more stringent and the public will demand accountability. The big challenge will be to meet these new standards.

The time for vacuous slogans and evasive answers is long past. Taxpayers want results.

David Bond is an author and retired bank economist. Contact him by email at: curmudgeon@harumpf.com. This column generally appears Mondays.