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On final exams I always try to challenge students by including one or two questions that require them to apply what they have learned in new and different contexts. I had two such questions in this year’s public management class. The first began with Industry Canada’s recent termination of the Community Access Program that provided funding for rural Internet access. A small town that had benefited from the program must decide if it should attempt to keep the public use computer room at the local library open using its own resources. The second imagined that one of Canada’s chartered banks had “bet the bank” on Spanish Euro-denominated bonds and, as a result of a fictitious Spanish decision to leave the Euro zone and resume using the peseta, the bank would have to write down more than half of its capital base, and could no longer meet its reserve requirements.

The first question dealt specifically with a township in Ontario cottage country. The township was funding a public access computer room in the local library with a $60,000 grant from CAP and $20,000 in user fees, assessed at $ 1 per hour. The township’s year-round residents have income and education levels below the Ontario average, while its cottagers are much wealthier and more highly educated. The $60,000 grant represented less than 1 percent of the township’s budget. The alternative to library-based Internet is relatively expense satellite-based service, provided by either Rogers or Bell. The student is to imagine him/herself as a recent MPA graduate who works as township manager, and is asked to do a policy analysis for township council as well as design a public consultation process.

My first question of the students was what the objective of the program should be. A limited objective – essentially that of the CAP program – would be to provide Internet service for rural residents who have no other broadband access. The existence of satellite service would justify the township confirming Industry Canada’s decision by not replacing CAP with its own resources. A more ambitious objective would be to contribute to the quality of life in the township by ensuring that it maintained broadband Internet access. The latter objective is comparable to the justification some larger cities have given for putting in place infrastructure making the entire city a wi-fi zone. The essential point is that how you envisage the goals of public policy will influence your solution.

While some students were explicit in setting out the more ambitious objective, almost all the students chose to try to keep the computer room open with municipal resources. The facts of the case made that relatively easy. One alternative would be to pay for it with a small increase in property taxes. Because cottage properties are major contributors to the tax base, cottagers as well as locals would be paying for the computer room. A second alternative would be by increasing user fees. That could be done through a form of price discrimination, for instance selling low-price annual or seasonal passes (say $ 50 for the year) and increasing the single visit fee from $1 per hour. A third approach would be to look for a private sector partner who might be willing to pay some of the cost in return for the marketing opportunity.

The consultation question mentioned that the township manager’s report would be discussed and recommendation voted on at the township council meeting, but left open other forms of consultation, making clear that cottagers, as property owners, had the right to vote in municipal elections. I was disappointed that most of my social media-savvy students didn’t suggest posting the report on the township website well in advance of the meeting, encouraging online discussion, or facilitating an online town hall meeting.

The financial crisis question assumed that the Spanish government made a dramatic announcement of the currency conversion on New Year’s Eve, which happened to fall on a Friday. It froze all Euro deposits in Spanish banks and would convert them to pesetas when business reopened the following Tuesday. It also suspended payment of interest on Euro-denominated Spanish bonds and intended that, when the bonds were converted to pesetas and payment resumed, bondholders would take a 75 per cent haircut. The one Canadian chartered bank that had invested so heavily in Spanish bonds was National Bank, which has traditionally had a stronger regional Quebec focus than the others. The facts of the case were presented in a New Year’s Eve phone call from Bank of Canada Governor Mark Carney to Prime Minister Harper. The student, cast as an adviser to the Prime Minister, was asked whom the Prime Minister should consult in formulating a response and posed three options: extending massive loans to keep National Bank afloat, temporarily nationalizing it, or trying to find another chartered bank to take it over. Finally, the student adviser was asked to outline how a decision would be announced and write the first paragraph of the speech or media release.

I expected that the Prime Minister would initiate secret but widespread consultation with the Government’s economic advisers (Bank of Canada, Department of Finance, Superintendant of Financial Institutions); with the banking industry and with National Bank itself; with knowledgeable sources on the ground in Spain, say the Canadian ambassador; and, given National Bank’s profile in Quebec, with the premier or Finance Minister of Quebec.

All the options are unpleasant. Bailing out the bank will be very expensive, even if the Bank of Canada monetizes the debt. Clearly, the management of this bank has made some major mistakes and deserves to be replaced or closely watched. Micro-management of business is not something that would appeal to the Harper Government, whether exercised as part of a temporary nationalization effected through purchase of equity or as conditions for a loan. A merger raises the question of which other bank would want to merge with the now-crippled National Bank. It might well be that the only way a merger could be achieved is if the federal government assumed the toxic assets. A merger also poses the problem of reducing competition as well as eliminating a Quebec-based financial institution, which the Government of Quebec would oppose. In effect, National Bank’s bet on Spanish bonds has given the Canadian financial system a gift of a huge lump of burning coal that, one way or another, will come to rest in the federal government’s lap. From the Harper Government’s viewpoint, a loan with numerous conditions attached is probably the least bad alternative.

Given the consequences major investments by Canadian banks in toxic overseas assets would have for the Canadian financial system and indeed Canadian society, one wonders about the Bank of Canada’s ongoing closed-door consultations with, and moral suasion upon, the banking system.

Because the matter is not yet a national crisis, an announcement would best come from the Government’s high profile financial spokesmen, Finance Minister Flaherty and Bank of Canada Governor Mark Carney. It would have to be made on Monday, before markets open on Tuesday. The media would undoubtedly have questions, so a press conference would be preferable to a press release. Finally, the statement should begin with the context and then move to the course of action the Government has decided upon.

To some extent, the question is posed in what economists would call partial equilibrium rather than general equilibrium. Spain’ sudden exit from the Euro zone would have consequences for the viability of the Euro itself and for the European economies as well. Better to reserve the Prime Minister for a response to the next phase of the financial crisis.

As the Chinese say, we live in “interesting times.” Surely, public management exams should be no less interesting.

In recent months, there have been two similar, but not identical, ads attacking Liberal Party leader Bob Rae. The Conservative Party’s ad (“Bob Rae wants to be prime minister”) has been broadcast, especially during sports events, and is still available on YouTube. I don’t know if the National Citizens’ Coalition’s ad (“Bob Rae is back”) has ever been broadcast, but it too is available on YouTube.

The shared message is that Bob Rae was a failure as premier of Ontario. Both zero in on Ontario’s economic performance (job losses) and Rae’s policies (income increases and large deficits). The Conservatives conclusion: “If he couldn’t run a province, why does he think he can run Canada?” The Coalition’s: “If he gets the chance, he will do for Canada what he did for Ontario.”

The Coalition’s message is shriller, in both content and tone. The Conservatives refer to “the most job losses since the great depression,” while the Coalition is more explicit in its claim about causality: “he was the job-killing NDP premier who threw Ontario into the worst recession since the dirty thirties.” Its ad is also more detailed in its recital of tax increases, including gasoline, car tires, parking meters, insurance premiums, and photo radar; it would appear that the NCC is appealing to the same constituency that Rob Ford targeted in his pledge to end the war against the car. Finally, there is a marked difference in tone. The Conservatives’ ad is ironic and humorous – Bob Rae prime minister, funniest thing I ever heard. The NCC’s ad is urgent and alarmist – Bob Rae prime minister, scariest thing I ever heard.

It is widely believed that the Conservatives’ attack ads on Michael Ignatieff were very effective. The assertion that “he didn’t come back for you” ads created a narrative that contrasted enormous personal ambition (Ignatieff’s return to Canada after thirty years away solely because of his desire to be prime minister) with a ruinous public policy of tax increases under an Ignatieff Government. The Rae attack ads have the same narrative structure, but will they be equally effective? Viewers might remember that Rae was premier long ago and that, during that time, all of North America was in a recession that, the NCC’s claims to the contrary, Rae did not cause. While Ignatieff’s ambition was portrayed as over-reaching, Rae’s is the natural, and appropriate, ambition of the leader of an opposition party. Finally, there is the matter of intentions. Why was Bob Rae raising taxes? Even the NCC wouldn’t claim it was for his personal enrichment.

One perhaps unintended consequence of the Conservatives’ attack ad is that the Liberals launched an immediate appeal to party members for funds to counter the ads, and very quickly raised over $ 250,000 in donations from 4000 members.

After the launch of the NCC’s ads but before the launch of the Conservatives’ ads, the CBC’s George Strombolopolous interviewed Bob Rae about the attack ads. Rae made several thoughtful points. Consistent with the political maxim, “if he says you’re fat, you say he’s bald,” Rae reminded us that there are clips and transcripts available of Stephen Harper’s speeches and articles when he was director of the National Citizens’ Coalition: Canada is a northern European welfare state, people are unemployed only because they want to be, build a firewall around Alberta.

Rae presented a somewhat mixed message in the interview. On one hand, he said that “one of the biggest mistakes we make in politics is allowing other people to define us and then letting that stand” and that “there are a lot of things I did as premier that frankly I’m very proud of.” But then he said that he didn’t think “if he says you’re fat, you say he’s bald” politics is very productive.

So this leaves open the question of what to do in response to political attacks or, more concretely, how the Liberals should spend the $ 250,000 they just raised.

The Liberals could use the money to attack Harper, not for what he said and wrote in the past, but for what he is doing now – gutting the environmental review process or knowingly downplaying the cost of the F-35 fighter aircraft.

Rae could also expand on his statement about the things he did as premier that he is proud of, and doing so could create a teachable moment. (Unfortunately, the Liberal Party website, in its profile of Bob Rae says only that he was premier of Ontario between 1990 and 1995, perhaps not wanting to remind readers of his change in affiliation.) Rae’s 1996 memoir “From Protest to Power: Personal Reflections on a Life in Politics” does go into some detail about the accomplishments of his government, particularly in terms of helping some firms (Algoma Steel, Spruce Falls Pulp and Paper, De Havilland Aircraft) survive the recession and using the government’s capital budget to maintain employment.

Looking back over the last two decades, there are several comparisons that could be drawn between the Rae and Harper governments’ economic policies. Rae took office just as a recession hit North America. If any one Canadian was to blame for the 1990 recession, it would have to be Bank of Canada Governor John Crowe for his high interest rate policies. Rae no more caused the recession of 1990 than Stephen Harper caused the financial crisis of 2008.

The responses of the Rae and Harper governments to the recession were quite similar. Both bailed out major employers that were near bankruptcy. Both used capital spending to maintain employment. (Economic Action Plan meet Jobs Ontario.) Both oversaw major deficit increases. Both restrained public sector salaries, though the Rae Government preferred salary restraint to layoffs, while the Harper Government is delivering both. The Rae Government increased taxes, in part in response to its critics in the business community, while the Harper Government has kept taxes constant or cut them slightly in the last few years.

If Bob Rae wanted to remind people of recent political-economic history, he might also say a few words about Mike Harris and the Common Sense Revolution. Harris defeated Rae on a promise of tax cuts and spending cuts. He delivered the cuts, but also brought Ontario a deterioration in the quality of public services, public sector labour unrest, alternative service delivery by unqualified private sector agents (the cause of the E coli outbreak in Walkerton), and costly privatization (Highway 407). Criticism of the Harris Government is also a criticism of its ministers, three of whom – John Baird, Tony Clement, and Jim Flaherty – now occupy .senior portfolios in Harper’s Government. Flaherty often would like the electorate to forget that he was a particularly avid Common Sense Revolutionary.

Bob Rae’s current hesitation in engaging with his political past might be the result of his uncertain political status as interim leader. If he were no longer the leader, he would be free of expectations; if he were the leader, he would have to engage with it, because his political past would continue to be the focal point of Conservative attacks.

I think it would constitute a teachable moment for Canadians if Bob Rae were to explain what his record reveals about the pressures all governments face in economic crises, and the similarities of many of their responses, regardless of political ideology. And it would be a good thing of public discourse about economic policy was conducted on a higher level than the over-simplifications of 30 second Conservative attack ads. Perhaps Rae will still seize the teachable moment.

To prepare a briefing for my public management students about the federal and Ontario budgets, I diligently scrolled through both. Two similarities became apparent.

First, both led off with good news. The federal government used the rubric of Jobs, Growth, and Long Term Prosperity, and is continuing to use the Economic Action Plan brand, over three years after it was introduced as the response to the 2008-09 financial crash and recession. Indeed, most of the document was about the government’s new spending initiatives and only in the last third are budget cuts discussed. Its spending initiatives over the next two years will total approximately $ 2 billion. We can consider them as being funded by the $ 5 billion in cuts to be achieved over the next three fiscal years. This is in keeping with my co-author Allan Blakeney’s approach of “putting government through the wringer” at the start of a new mandate so that the savings can be redeployed to new priorities.

The Ontario Budget, more ambiguously titled, “Strong Action for Ontario,” is dealing with a more challenging fiscal situation. Nonetheless, the budget led off with an affirmation that the government would not reverse its signature initiatives, such as full-day kindergarten, a reduction in class sizes in elementary school, and the 30 % tuition reduction for college and university students.

In discussing restraint, the federal government is being vague to the point of being disingenuous. Little detail is provided about many department’s cuts, and in many instances the government is claiming that they can be achieved through back-office economies, such as consolidation of support systems and improvements in IT. The implication of this claim is that standards of service to the public will not deteriorate.

The Ontario government is also somewhat vague in places, for example about how modernizing the Ontario Lotteries and Gaming Corporation and optimizing the revenue potential of the LCBO will lead to its expected revenue increases, or about how it will ratchet down the annual rate of increase in its health budget to a mere 2.1 %.

In the federal government, concerns have been raised that combining a major budget cut of $295 million for the Correctional Service of Canada and a commitment to build no new prisons with get-tough-on-crime legislation will lead to more crowding and more violence inside the prisons. Cuts to training and counseling programs inside the prisons will likely lead to increased recidivism. In two other areas facing major cuts, the CBC and External Affairs, it has become clear that there will be considerable deterioration in the nature of the outputs delivered.

Let me be clear. I am not arguing that the federal government should not be making cuts. I am rather arguing that it should not be disingenuous in claiming that all the cuts can readily be handled through the elimination of slack and increasing back-office efficiency. Some of the cuts will result in reductions in front-office service and programs, and the government should have been more transparent about that. Mr. Flaherty delivered the good news on budget day, but the bad news will be trickling out for months and even years to come.

The Harper government’s credibility in this budget is not being helped by the Auditor General’s report on the procurement of F35 fighter aircraft, in particular the implication that ministers have been knowingly using costing that is grossly underestimated.

The second similarity between the federal and Ontario budgets is that both governments will be relying on their public servants to deliver the savings. While some instruments of government, most notably communications, rely primarily upon politicians, the budget involves program delivery, and that is primarily the work of public servants. Reducing spending while maintaining capacity will depend on the public service’s sense of professionalism, willingness to go the extra mile, and capacity to innovate.

Finally, a word about the budget politics of Ontario’s minority government. The Conservatives, by staking out their position of clear and vigorous opposition to the budget, have foregone any influence over it. Their eyes are on the next election, in which they hope to position themselves as the one party unequivocally in favour of economic growth as defined by their support for reducing the corporate income tax rate, and will label the Liberals and NDP as two peas in a tax-and-spend socialist pod. The NDP doesn’t want an election, but wants to be able to tell its supporters that it improved the budget. The McGuinty Government would like to accommodate the NDP as long as it can maintain a credible fiscal framework of gradually eliminating the deficit. My expectation is that all three parties will get something from the budget debate: the Liberals and NDP a wanted deal that averts an election, and the Conservatives a platform for the next election.