A nation of lobbyists
Lobby in gdoesn’ t come cheap, either for those directly involved or for Canadians as a whole. The Dairy Farmers of Canada, for example, spends millions of dollars each year to influence governments and public opinion. For them, it’s money well spent to maintain Canada’s restrictive “supplymanagement” system that increases prices and transfers roughly $2.5 billion from consumers to producers, according to OECD calculations.
Though individually rational, lobbying is a negative- sum game for society as a whole. It not only leads to costly economic distortions but the time, energy, and money spent on lobbying is of no productive value itself. It’s like the modernday equivalent of a potlatch, where First Nations chiefs vied for power and influence by destroying ever- greater quantities of goods.
Economists call such action “rent seeking,” and it’s not constrained to industry. Look closely and you can find governments engaged in the pernicious activity too. Consider two recent examples.
First are petrochemical subsidies in Alberta. The provincial government recently announced it will provide $ 500 million in public funds over three years to two firms hoping to set up shop in the province. This is not unlike the incentives Ontario provides to auto manufacturers or that Quebec provides to Bombardier. The justification is typically that, since foreign governments support their industries, so must we. It’s rent seeking, with governments using real resources to compete with other governments for scarce investment dollars.
To be sure, there are potential gains from providing subsidies — if no other jurisdiction respond sin kind. But when we all compete through ever- greater subsidies, we all lose. In a recent study, University of Chicago economist Ralph Ossa found that a full subsidy war between U.S. states to attract manufacturers would lower overall manufacturing income by nearly four per cent. With manufacturing GDP of over US$ 2 trillion, that’s equivalent to well over US$ 80 billion. Observed subsidies aren’t so bad, but still potentially lead to nearly US$1 billion in U.S. economic losses.
Next, consider Calgary’s potential bid for the 2026 Winter Games. In recent discussion around the city’s “The Route Ahead” strat- egy, Calgary’s mayor Naheed Nenshi noted that the 2026 Winter Games might allow the city to accelerate plans for a light-rail connection to the airport. This is concerning for at least two reasons. First, the games risk wasteful spending. If a transit- expansion project makes sense on its own merits, then we should fund it; if it doesn’t, then we shouldn’t. In striving to win the bid, and meet tight deadlines, questionable projects might get the green light.
Second, t he Olympics don’t change the costs or benefits of a project, but are instead a mechanism to extract additional funding from a higher level of government. This is where rent seeking comes in. If a transit project creates $1 billion in benefits but costs $ 2 billion to construct, then it shouldn’t be built. A transfer of $1.5 billion from some higher level of government might make the local costbenefit calculus look much better, but it won’t make the project any less of a mistake. Throwing a party to pull in dollars from above makes little sense — no matter how fun the party may be.
It’s possible we should be spending more on infrastructure. The federal government certainly thinks so, as does Alberta’s new provincial government. But whether this is true or not, or whether cities have adequate funding in general, is an entirely separate issue from an Olympics bid. And even if those dollars would have eventually flowed to Calgary, delivering the funds too soon effectively increases the cost — after all, a dollar today is worth more than one tomorrow. The Games risk too much infrastructure, in the wrong place, at the wrong time.
This lesson extends beyond the Olympics. As governments regularly compete with each other over funding from above, the resulting allocation of investments becomes less efficient and the competition itself is wasteful. To combat this, the federal government has an important role to play. It should look past narrow parochial interests of individual cities or provinces and focus on the broader public good. This will be especially important as Canada scales up its new national infrastructure bank — an arm’s- length entity designed to couple privatewith public- sector dollars to increase infrastructure investments. Ensuring the bank is not driven by parochial rent- seeking pressures will be critical. On the one hand, moving the decisions further from government may insulate it from political calculations. But on the other hand, the new entity may be susceptible to capture by special interests.
In any case, while industry lobbying government is broadly viewed with suspicion by most people, we tend to give governments lobbying other governments a pass. We shouldn’t. Although it’s understandable for a local mayor or provincial government to try and gain at the expense of others, we (as Canadians) should be wary.
CANADA’S LIKE A BIGGER VERSION OF A POTLATCH, WHERE CHIEFS VIED FOR INFLUENCE BY DESTROYING MORE AND MORE GOODS.