Decentralization’s downside

It is a matter of faith among conservatives, going back at least to Edmund Burke, that political power should be as decentralized as possible. So it should be reassuring that Canada has the most decentralized federal structure among the G7 nations, ensuring the “union without fusion” (in the words of George-étienne Cartier) needed to keep our diverse country together. But Canada’s experience also demonstrates the downside of decentralization, including lower-quality civil servants, less accountability and the capture of governments by motivated minorities.

Delegating power to lower levels of government prevents its concentration in the hands of the federal government and encourages more policy experimentation. Roosevelt-era U.S. Supreme Court Justice Louis Brandeis famously called state governments “laboratories of democracy” that allow governments to experiment with different policies and learn from each other. This is even more true for Canada, where provincial governments carry out the bulk of service delivery, notably for health and education. (Former Bank of Canada Governor John Crow once called the federal government “a gigantic cheque-writing machine.”) Some academic studies suggest competition among provinces helps limit government spending because the higher taxes to support it reduce a province’s competitiveness. Milton Friedman also claimed “the smaller the unit of government … the less likely it is that its actions will reflect special interests rather than the general interest.”

Decentralization involves trade-offs, however. With more powers devolved to sub-federal governments, there is less public scrutiny of regulation and favouritism. Rent-seeking flourishes in the shadows, where narrow interest groups have advantages in organizing and wielding influence. Economists Brink Lindsey and Steven Teles conclude that “when policies are crafted in obscure or insular settings that discourage monitoring and participation by outsiders, it becomes all the more likely that policy-making will be captured by insiders” — the exact opposite of Friedman’s prediction.

The quality of the civil service is also lower farther down the government food chain. The most ambitious and talented civil servants gravitate to Ottawa, which pays more and still wields extensive power in fiscal and monetary policy, external affairs, immigration, defence, justice and other areas. As far back as 1864, a delegate to the Charlottetown Conference worried that “local legislatures would not have the necessary stature to attract high-quality candidates, since the leading members of each bar would turn to the more interesting employment opportunities offered by the federal government.” A 2018 study by public policy professor Ken Rasmussen came to much the same conclusion: “Structurally and intellectually, the federal public service has had greater autonomy from the government, has been more non-partisan and professional, was able to recruit stronger talent, and dealt with a much more sophisticated level of policy-making than the provinces.”

In justifying a pay hike for Ontario MPPS in 2006, the provincial Integrity Commissioner cited the need to ensure the provincial legislature not become a “farm team” for Ottawa and its higher salaries. Unfortunately for Canada, that is exactly what happened: Liberal staffers left Toronto in 2015 and implemented the same bad big-government, big-deficit and green-energy policies while leading the Trudeau government.

The inferior quality of provincial and local officials makes it easier for special interest groups to manipulate them to serve their interests. Some provincial officials are just not very smart. Gérard Veilleux, former federal finance official, has recounted how one provincial finance minister insisted the federal government provide assistance until all provinces posted “a higher economic growth rate than the national average.” John Crow observed that when Ontario’s government stoked its already overheated economy with spending, other provinces called on the Bank of Canada to compensate with a bizarre proposal for regional monetary policy rather than pressure Ontario to restrain itself — “an instance of peer protection rather than peer pressure.” This is hardly the study of best practices envisaged by Brandeis.

Decentralization becomes inefficient and messy when the lines of responsibility between governments blur. Unless one level of government is clearly responsible for a program, delays or failures degenerate into finger-pointing and buck-passing with no level accepting responsibility. Who do you call with complaints about health care, transportation infrastructure or housing? Not knowing which level of government is to blame is an invitation to policy paralysis and cost overruns.

Probably the worst problem with decentralization is that lower voter turnout in elections for lower levels of government makes it easier for small groups of activists to band together and elect officials that are not representative. This was evident in recent elections in Edmonton and Montreal, in both of which an abysmal 38 per cent of potential voters elected left-wing mayors.

There is no ideal amount of decentralization. Its upside is that it can discourage the misuse of power by a remote and detached federal government and encourage experimenting with different policies. But it also fosters rent-seeking and cronyism, attracts a less qualified civil service, lowers accountability, raises costs and invites capture by motivated special interest groups. The only effective solution to the conundrum posed by decentralization is to limit the size of government at all levels.