Tricky balance of spending and providing public goods

Most of us do not worry about public goods. In effect, we take them for granted. But, just imagine our city without them: no public sewer system, no water system, no public roads, no street lighting, no public schools, no traffic lights, no policing, no zoning, no snowplowing in the winter, no toll-free bridges. The list is virtually limitless.

In Canada, public goods include the provision of essential health care and basic pensions, as well as additional programs aimed at support for and education of children and support for people adversely impacted by economic recessions, disease, domestic violence, or the loss of parents of minor children. Most of us would not want it any other way.

Compared to what was available, say, at the beginning of the 20th century, public goods have expanded in scope and composition. A thoughtful Canadian citizen in 1900, looking at what is available as public goods in 2022, might well conclude that ours is a socialist system more akin to the thinking of Marx than the Liberal government of Sir Wilfred Laurier.

This transformation of our provision of public goods did not happen suddenly in a rush to meet needs of all sorts. Rather it developed gradually in a piecemeal fashion and under varying conditions. The provision of basic services such as sewers, water systems, fire protection, and roads came first. Governments were responding to a multitude of factors, including a realization that sewers and water distribution systems improve public health and road systems make the distribution of both goods and people much easier.

Further, the impact of these improvements was and is to increase the standard of living for all citizens.

A further big evolution in the provision of public goods occurred during the 20th century when governments started to address the need for a social safety net. Elements of this net were a public pension system, unemployment insurance, and the need for an institution to control monetary policy, i.e., a central bank.

All these improvements in public goods came at a cost and governments at all levels struggled to raise the needed revenue without alienating the voter/taxpayer. While the portion of Gross Domestic Product (the number we use to measure the size of the economy) grew, so did government spending.

The growth in government spending and the need to finance it with taxes or borrowing soon resulted in a growing portion of the public advocating for shutting down aspects of the social safety net as well as other forms of what they consider to be over-the-top government largess. These conservatives advocated for reduced taxes with less progression in marginal tax rates. They favoured more self-reliance rather than government programs. They perhaps were not too worried that people in the lowest deciles of income lacked the resources to survive economic downturns or old age. The important task was to reign in government expenditures and keep government small.

This battle concerning how extensive the provision of public goods should be is one of the central features of political life in Canada. Unfortunately, the majority of Canadians show little interest in this policy discussion on anything beyond the level of vague generalities – at least until they are the ones who can’t find a GP or whose elderly parents’ needs outstrip their pension income or whose kids can’t find affordable housing.

Government reaction to calls for reduced programming and lower taxes has, over time, disproportionately favoured those at the top of the earnings pyramid such that income inequality has dramatically increased (yes, even in Canada). That in and of itself is now making the decisions surrounding how much and what public goods governments should supply going forward more than a little fraught.

The fact is that international economic cooperation is experiencing a shift towards increased protectionism and, therefore, Canada’s prospects for future economic growth is not so rosy as in the fairly recent past. Finding solutions to the basic question of how much of how many public goods we can afford and how to finance them will be increasingly challenging in the next decade.