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I was asked by iPolitics.ca to put myself in Premier McGuinty’s shoes to think about priorities and problems at the start of his new mandate. While the iPolitics article, with contributions from a variety of pundits, will be coming out early in January, here are my un-media-ted views now.

The leadership of the federal Liberals is McGuinty’s for the asking. While leading the third party in opposition is always a hard grind, after this overview, the conclusion might be that it is preferable to governing Ontario now.

The province is running a substantial deficit in an economy that is not rebounding as quickly as anticipated a few months ago, and the debt ratings agencies are watching carefully, with the possibility of a downgrade looming. In addition, the generosity of the federal government, for example in constantly increasing transfers for health care, can no longer be taken for granted. It has its own fiscal concerns.

The province has little, if any room, for tax increases as a way to achieving fiscal balance. Economically, higher taxes decrease growth. Politically, higher taxes would confirm the “taxman” image the Conservatives, with at least some success, stuck on McGuinty. The alternative – spending cuts – militates against two key components of McGuinty’s style and substance of government.

First, he has taken pride in improvements in the quality of public service, for example decreases in hospital waiting times, reduction in class sizes, and better student performance in province-wide tests. All of these have required increases in spending. Second, after the public sector turmoil of both the Rae and Harris governments, McGuinty has brought a measure of stability and cordiality to the public sector, achieved through generosity in labour settlements, within both the OPS and the broader public sector. In addition, the McGuinty government has directed considerable spending towards key priorities, such as green energy. Spending cuts will make it very difficult to extend all these components of an activist agenda into the next mandate.

The McGuinty government may face two microeconomic challenges, the worsening situation at RIM and a possible collapse of the high-rise condo market in Toronto. RIM’s troubles may be the result of better strategizing and implementation by its competitors. Or they may be the consequence of co-CEO’s who, instead of sticking to their kitting, were attempting in one case to emulate Albert Einstein and in the other Larry Tannenbaum. A turnaround seems increasingly unlikely, so the best-case scenario would be takeover by a competitor and the worst-case bankruptcy. RIM has spawned an agglomeration of technological and entrepreneurial expertise in the Waterloo-area, and losing it would be very damaging to the Ontario economy. Just as the McGuinty Government intervened to prop up the auto industry in 2008, it can be expected to intervene to ensure a transition that maintains Waterloo’s technological and intellectual capital.

If Toronto’s high-rise condo market collapses, one implication will be major layoffs in the construction industry. The collapse of Toronto’s housing market in the early Nineties is a precedent, as the slack was taken up by the construction of Highway 407. The debt rating agencies were cooperative, agreeing not to add spending on the highway to the Rae government’s debt because of the prospect of cost recovery through tolling. The expansion of the Toronto subway system may play a similar role now, though the financial model and the likely reaction of the rating agencies would be different this time.

Politically, while McGuinty no longer has a majority, the Liberals have the advantage of straddling the political centre, making it hard for the Conservatives and NDP to find common cause and bring down the government. Furthermore, McGuinty has an advantage over the Conservatives in that leader Tim Hudak still chooses to wear the mantle of Mike Harris’s common sense revolution. McGuinty’s response would be that, if austerity is inevitable, it would be better to have it delivered by a leader who will do his best to mitigate the damage than by a leader who relishes it.

Ultimately McGuinty’s challenge will be to find some way to both recast himself and maintain continuity with a self-definition that has worked.

This will be my last post of the calendar year. I wish my readers a relaxing holiday season and healthy and happy new year.

At the end of “Wall Street and Vine,” his essay published in 2005 attempting to explain why he feels Hollywood is critical of business, University of Illinois law professor Larry Ribstein concludes that “the best way to counteract [Hollywood] films’ misleading message about business is to let business speak for itself.” The Acton Institute, a Michigan-based think tank that attempts to enlist the religious community in support of a free market agenda, has done just that in its 2007 documentary The Call of the Entrepreneur.

In this post, I point out some gaps and contradictions in the Acton Institute’s documentary and also show how Prof. Ribstein’s equally warm embrace of free market principles leads him to a dubious hypothesis about the motivations of the creators of films. Thus, this post will be a critique of two defenders of the free market faith.

The Call of the Entrepreneur is a documentary that blends profiles of three entrepreneurs with pontification by a variety of faith-based free market advocates, including Acton Institute president Rev. Robert Sirico, George Gilder, and Michael Novak. The three entrepreneurs are Brad Morgan, a Michigan dairy farmer who has built a business on high-quality compost; Frank Hanna III CEO of Hanna Capital, a privately-held financial services firm; and Jimmy Lai, a Hong Kong-based clothing and media mogul. All three, as far as I can tell from the movie as well as from online searches, have built companies that have prospered. But there are aspects of Hanna’s and Lai’s stories that set off alarms.

Frank Hanna described the essence of his entrepreneurship as the use of financial engineering to pool, minimize, and transfer risk. Even though he didn’t use the term, it is clear from the description that his firm was creating collateralized debt obligations (CDOs) such as mortgage-backed securities (MBS’s). Of course, it was these instruments that blew up during the financial crisis of 2008, when it turned out that the bursting of the housing bubble meant that virtually all the mortgages in a typical MBS tanked at the same time. The film was made in 2007, before the financial crisis. The Hanna Capital website even today tells us only that the value of its portfolio at the end of 2007 exceeded $ 4 billion. The unanswered question is what happened since then. Quite likely $4 billion was Hanna Capital’s high-water mark.

In The Call of the Entrepreneur, Hanna triumphantly proclaims, “but for financial engineering the US would not be what it is today.” Post-financial crisis, we can say exactly the same words but, ironically, with an entirely different meaning.

Jimmy Lai tells us about how he escaped from Guangdong Province in Communist China in 1960 to make his fortune in Hong Kong. At the age of 12, he immediately went to work in a factory from 7 am to 10 pm. The obvious question is whether Hong Kong had any child labor laws at the time. Either it had no such laws or it did and Lai’s employer was violating them. Rev. Sirico interprets Lai’s story with the comment that the wealthiest places on earth have the least regulation and the least taxation. Does the absence of regulation include either openly permitting or failing to detect and prosecute child labor?

Lai moved from clothing to the media out of anger at the brutal Chinese suppression of the Tiananmen Square protests in 1999. While that is an entirely appropriate reaction, and while I admire the determination and imagination that characterize Lai’s story, I would feel a bit more comfortable with his role as press baron if he had some formal education.

The talking heads in the movie go far beyond the three entrepreneurial stories to proselytize for the minimalist state advocated by von Hayek. While city-states with minimalist government have grown rapidly, there have been more than a few economic success stories of nations with more interventionist government (the four Nordic countries, Australia, Canada, and Germany, for example).

Perhaps the most amusing bit of commentary was by Rev. Sirico arguing, with an orchestra playing the Jupiter movement of Holst’s The Planets, that entrepreneurs, like impresarios [sic], coordinate the creativity of others so that they produce pleasing melody rather than cacophony. While the linguistic roots of the term (“carry between”) are consistent with that idea, the true creator in Rev. Sirico’s example is the composer. This leads to the much more complicated issue of the encouragement and protection of intellectual property, something that requires a state that is more than minimalist. Indeed, the minimalist states that Rev. Sirico praises have often permitted the piracy of intellectual property.

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Prof. Ribstein made the unusual argument that Hollywood’s creative class is anti-capitalist because of intrinsic nature of the film enterprise. Film production requires large pools of capital and films are made with an intention of earning a return on that capital. This means catering to audience tastes. Thus constraints are placed on the creatives (screenwriters, producers, directors) and it is these constraints that they face in their working life that have made them resentful of capitalists and capitalism.

An alternative explanation might of course be that capitalism is a flawed economic system and that at least some films give voice to a critique of capitalism. Another alternative explanation is that narrative requires conflict and that one of the dominant fables of conflict in social realism is between heroic individuals and large institutions. In this fable the large institutions could be located in either the public or private sectors.

On reading Ribstein it becomes clear that he idealizes capitalism. Thus he writes “Firms have powerful incentives to build reputations as good corporate citizens in order to encourage people to buy their products” (p. 64, online version), “real firms will not invite, and in fact try to prevent, the unethical or irresponsible corporate behavior films portray,” (p. 65), “the capital markets thrive on truth, and would have no interest in cover-ups,” (p. 66), “Markets penalize the antisocial and the bigoted,” (p. 66), “competitive firms are great social levelers that bypass entrenched classes, castes, and ranks,” (p. 66), “firms create wealth in the long run by inventing and selling better products rather than by chance,” (p. 68), and “the stock markets, far from the perverse gods of film fiction, fairly accurate reflect firms’ value,” (p. 68). In short, if capitalism is the best of all possible economic systems, then the film-makers’ criticism must be a result of their perverse experience with that system, rather than its failings.

Ribstein never seems to imagine a counter-narrative in which people who have done very well in the capitalist system could nonetheless be critical of its failings. The most prominent examples that come to mind are George Soros, Warren Buffet, and Bill Gates (the latter in the sense of using his wealth through his foundation to solve social problems the free market has ignored).

The most recent example of Ribstein’s thinking about the capitalist system is a 2009 paper, “How Movies Created the Financial Crisis,” published in the Michigan State Law Review. Ribstein argues that there are a variety of narratives explaining – that is, finding fault for – the financial crisis. These include no one’s fault, government’s fault, speculators’ fault, the banks’ fault, capitalists’ fault, and the fault of financiers who created CDOs and CDSs.

Ribstein speculates about which of these narratives will ultimately be incorporated into films about the financial crisis. Ribstein prefers a film with a heroic narrative about the contrarian investors who had the foresight to anticipate the crisis and made large and winning bets by shorting CDOs and buying CDSs. This would demonstrate that “competitive markets ultimately reward anybody with a good idea, industry incumbents often attempt to ally with government to squelch the innovator, free markets triumph in the end against all odds, and this outcome helps everybody.” However, because “films are less about the actual evils of capitalism than about filmmakers’ resentment of capitalists,” he predicts we are not likely to get such a film.

Michael Lewis’s book The Big Short told the story Ribstein wanted to see in the cinema, but without the free market triumphalism he was hoping for. Ribstein quotes one of the shorts, James Chanos, who urged Oliver Stone in making Wall Street 2 not to focus on the hedge fund managers – advice Stone rejected – and instead focus on the banking system. Chanos had it right, however.

In his documentary Inside Job, producer-director-writer-interviewer Charles Ferguson (whose IT-based fortune enabled him to escape budget constraints on realizing his vision), told a much more complicated and nuanced story about the financial crisis, apportioning blame broadly across the financial sector, its academic apologists, and its public sector regulators. I found Ferguson’s story, while difficult to summarize in a sound-bite or a tweet, much more compelling than Ribstein’s free market fundamentalism.

When the true believers in the idealized free market – Ribstein as critic of Hollywood’s supposed bias and the Acton Institute using the stories of three entrepreneurs as the point of departure for proselytizing – do have their say, I find much to challenge in the stories they tell.

I’m sure readers are familiar with IBM’s “Let’s Build a Smarter Planet” advertising campaign. It touts the virtues of IBM systems integration solutions that allow people to solve public problems in ways that reduce the use of financial, energy, and environmental resources. One well-known example of this is IBM’s software and integration work for road tolling systems in London and Stockholm (personal disclosure: on a business trip to Stockholm in 2005 I received a presentation about IBM’s road tolling work there).

Road tolling has three important virtues. By increasing the cost of road trips it drives out those on which travelers put a low value, with the consequence that higher-value trips move faster. Second, it raises funds that can be used to improve the public transit system. Third, it reduces total automobile emissions, thereby improving the urban environment.

A few days ago, former North York councilor Gordon Chong, who was chosen by Mayor Ford to investigate how to pay for the expansion of the Sheppard subway line, raised the possibility of road tolls. That was immediately dismissed by Mayor Ford, who said, “It’s nonsense. I don’t support road tolls and there’s no road tolls going in.” (quoted in Elizabeth Church, “Rob Ford calls toll road idea ‘nonsense’, Globe and Mail, May 30, 2011). End of subject.

Undoubtedly, Ford sees road tolls as part of the “war on the car.” The first step in Ford’s counter-attack was abolishing the city’s $ 60 auto registration fee. Closing down the bike lanes on Jarvis appears likely. The Mayor killed the Transit City plan because it included ground-level LRT lines that would conflict with cars, and favours much more expensive underground subway lines that don’t conflict with cars. Of course, the greater cost per kilometer means that fewer kilometers of public transit can be built.

But if the Mayor wants to make Toronto a car-friendly city, there are several more ambitious things he could do. Why not finish the Spadina expressway, linking it up to the Gardiner Expressway as had originally been planned. Let’s make downtown more friendly to cars by creating more parking spaces. Let’s turn some of our parks into car-parks, starting with Queen’s Park. Let’s offer the University of Toronto, which owns Queen’s Park, royalties for converting the green portion into a vast parking lot. Allan Gardens is another possibility; after all, it’s used mainly by street people and winos. Parking fees are too high and parking enforcement officers too aggressive, so let’s lower fees and direct the officers to permit a grace period, liberally defined. Also, there are too few service stations downtown, so let’s legislate against the conversion of any existing ones and have the city assemble land for a few new ones. Finally, let’s look to places like Los Angeles, Dallas, and Atlanta, as models of car-friendly cities.

So the only question is how far the Mayor will take his war in favor of the car. The farther he takes it, the more we will see slower car travel in the downtown core, deterioration of public transit because funding goes to the road system, and more pollution of the urban environment due to increasing auto emissions.

There is an old political adage, “if your opponent says you’re fat, you say he’s bald.” There is no question that Rob Ford is fat. I’m not interested in what sits on top of his skull, but rather what is inside. The more I watch, the more I see a person who is dogmatically committed to his preferred solutions, and not even willing to think about alternatives. Successful politicians are both thoughtful and willing to jettison their own dogmas when the facts dictate moving in a different direction. Begin, Nixon, and Harper are all examples from the political right.

The University of Toronto a few years ago ran a billion dollar development campaign with the slogan “great minds for a great university.” Observing Mayor Ford’s discussion of road tolls, the phrase that comes to mind is “a stupid mayor for a stupid city.”

The tributes that have been paid Allan Blakeney have focused on his achievements as minister of health when the Douglas Government introduced comprehensive public health insurance and as premier of Saskatchewan from 1971 to 1982. Blakeney, however, had three careers, first as a public servant; then as a politician, serving as minister, MLA, Opposition Leader, Premier, and again as Opposition leader; and for the last two decades of his life as teacher and writer. The third career received the least attention in the Canadian Press obituary, only a short concluding paragraph. Since my relationship with Allan Blakeney was entirely within that third period, I will focus on it.

Blakeney and I met when he came to Osgoode Hall Law School at York University, and wanted to teach a public administration course. I was already doing that at the Faculty of Administrative Studies (now Schulich School of Business), and we decided to combine our efforts. From our first conversations, it was clear to me that he had thought deeply about statecraft, the practice of government, at both the political and public service levels. In our preparations for each class, I would provide a set of questions and he would take them away, and come back with well-thought-out answers, written in clear, flowing hand writing – a marker of his generation – on a yellow legal pad.

I thought it was essential to preserve his ideas, and he came to agree, and so we had the classes taped and transcribed. This was the origin of our book Political Management in Canada. In it, Blakeney did something unique at the time, recounting how he managed his government and why he did it that way. Thus he took us inside the cabinet room, not to recount particular decisions, but to explain how his cabinet made decisions. In the years since our book, Jean Chretien, in My Years as Prime Minister (2008), and Eddie Goldenberg, in The Way it Works: Inside Ottawa (2006) have, to an extent, applied Blakeney’s approach to the Chretien Government. Students of government will benefit if other ministers and first ministers follow Blakeney’s lead.

I recently donated the audio tapes of our classes to the Saskatchewan Archives. The better to preserve Blakeney’s voice, I hope the Saskatchewan Archieves will digitize them.

The middle of a federal election campaign is an appropriate time to revisit Blakeney’s views on politics and policy. He titled his political memoirs An Honourable Calling because he believed politics IS an honourable calling. In this view, politicians regard one another as people of principle and integrity who differ over policy and base their campaigns on these differences in policy.

Discussing his electoral defeats in Political Management in Canada (p. 237), he wrote “Ideally an election defeat would be regarded as a rejection of one group of policies in favour of another, and there should be little sense of personal rejection. But if this was ever true, it isn’t now in today’s climate of personalized politics. … [the media] regard politics as a contest of salesmanship rather than a comparison of products. [Elections] are increasingly becoming contests of personalities rather than policies. Canadian politics is poorer for this.”

Blakeney was a strong advocate of public enterprise and critic of the privatization of the potash and uranium industries in Saskatchewan. He saw Crown corporations as making a social as well as economic contribution to the province. Thus, he supported SaskPower keeping its rates down for local curling rinks during the winter because “they were almost always the heart of village life in January” (Political Management in Canada, p. 138). This was a classic example of reducing the cost of living in rural areas.

Blakeney warned that if Crown corporations were privatized, the head office would de facto move outside Saskatchewan and senior management would be paid as private sector executives rather than as public servants.

And his view of public enterprise was part of a broader commitment to equality, a belief that society as a whole would be better off if the state helped those most in need and reallocated some of the wealth the economy produced.

At the end of An Honourable Calling (p. 250), he wrote: “Our challenge in the future will not be primarily to produce more goods, but rather to distribute the goods more fairly. … When governments have intervened to distribute education, health, and many other services at low or reduced cost, society has been better for it. .. A look around the world tells me that where able and active governments (and there are many) intervene on behalf of people with special needs or lower incomes, society works best.”

Blakeney’s views on political campaign, Crown corporations, and the distribution of income are certainly contested, and likely he was in the minority in all three areas. But Blakeney did not despair, and maintained to the very end both an optimism and willingness to advocate for his vision of Canada. Thus his advocacy after leaving office is just as much part of his legacy as the decisions he made while in power.

I have been thinking about energy policy – a field in which I claim no expertise – as the ongoing catastrophe unfolds at the Fukushima nuclear reactor. The quandary is that, as Jeff Sommer argues in an article in the New York Times on Sunday March 20 entitled “A Crisis that Markets Can’t Grasp,” markets have not succeeded in putting a price on the long-run costs associated with disposing of nuclear waste (the best case) or of dealing with nuclear disasters (the worst).

It is clear to me that the nuclear industry has underestimated the risks and, as a consequence, failed to invest sufficiently in risk mitigation. What would nuclear energy cost in Japan if its plants were built to a standard secure enough to resist a magnitude 9 earthquake and resulting tsunami? If plants had to be built to that standard, would Japan have invested very much, or even anything, in nuclear energy?

Similarly, the Times article referred to the $ 6 billion nuclear power plant built at Shoreham, Long Island, and decommissioned in 1989 before ever going into operation. The key argument in public opposition was the impossibility of evacuating populated areas of Long Island in the event of a nuclear disaster.

To make intelligent energy policy decisions, we need to compare alternative energy sources in terms of their capital cost, operating cost, ongoing environmental impact, and potential for, and impact of, catastrophes. Nuclear energy now looks much worse in terms of either the latter factor or the cost of mitigating it. The immediate reactions of newspaper columnists – the predictable first draft of history – do not in any quantitative sense deal with those complexities. As the Fukushima story plays out – and it will certainly be a long-running story – we’ll begin to get a sense of more realistic costs and tradeoffs than have been estimated in the past.

A personal note on the Japanese story. An article in the New York Times assessing the role of the Japanese government in reacting to the crisis quoted Masahiro Horie, a former senior government official who is now a dean at Japan’s National Graduate Institute for Policy Studies. The name seemed familiar, and indeed it turned out that I had interviewed Mr. Horie – then a budget examiner in the Ministry of Finance – twenty five years ago for an article I wrote about public management in Japan (“Management of the public sector in Japan: are there lessons to be learned,” in Canadian Public Administration, summer 1986, pp. 175-96). Mr. Horie was particularly forthcoming and helpful with my research then, and I vaguely recall not only an interview in his office, but also a restaurant lunch.

He and I re-established contact by email. In his view, the “strong social cohesion, solidarity, and mutual assistance” of the Japanese people will enable them to “overcome these difficult times and stand up again.” I certainly hope he’s right.