Tuesday, November 07, 2006

High speed insanity

According to Benjamin Franklin, the definition of insanity is doing the same thing over and over and expecting different results.

By this definition the provincial government, in the recent decision to pour $15m into a fiber optic link in conjunction with three private sector companies, is clearly insane.

In principle and in practice, the primal urge of any government to meddle in matters which clearly belong to the private sector is one that should be restrained. Every government thinks it's smarter and better able to judge this kind of action better than any government which proceeded it.

History shows that's nothing but unwarranted public administration and political hubris.

There are patterns to when governments decide to put public money into what would normally be private sector enterprises; I've come up with four obvious ones off the top of my head. I'm not sure which one of these possibilities is the case here but it's worthwhile looking at them:

1) To provide services or facilities otherwise unavailable or unaffordable.

Provincial ferries are a good example of that; we wouldn't have too many of them if we depended on profit-making companies alone to supply those services. The same applies to roads.

However, in this case, government is putting public money into a project with the express purpose of competing with a private sector company (Aliant).

Right now, fiber optic lines and services are available and affordable so clearly this project does not fall into providing services otherwise unavailable or unaffordable

2) To spur economic development out of frustration with slow private sector action.

Governments work on a four year timeline and are under pressure to show results by election time. So governments are often tempted to goose investment by offering inducements or enticements to hurry the process along.

This is a public policy mistake and history across provinces and governments of all stripes is littered with the skeletons of politically motivated development deals of one kind or another.

We are not unique - other provinces have been at it too. Bricklin in New Brunswick, for one and there's a very long list in Saskatchewan.

In this province, you only have to look at Smallwood's attempts at chocolate, rubber boot and orange juice manufacturing to see that. Never mind the Come-by-chance oil refinery, the biggest Canadian bankruptcy up to that time. That project would not have been built without direct government contributions and loan guarantees.

I can hear the chorus saying that it worked out in the end but the reality is that the people of the province lost millions of dollars on the deal and one of the main reasons it's viable now is because is went bankrupt with the province eating the loss.

3) To make unviable projects viable.

Government keeps referring to this $15m as an investment. If it's an investment (defined as money expended for a return), then why does government have to put up the money at all? Why is the private sector not jumping at this opportunity?

Government funding does not make unviable projects viable but merely brings unviable projects into existence. In the long run, the subsidized enterprise needs continued government support over the long run to keep going.

So government is faced with two choices as money starts to eventually bleed out. First, they can cut their losses, get out and cut the project loose to sink or swim on it's own. Since government is reluctant to admit error, generally government will take the second option of continuing to provide more money.

So either the project is a sensible one which can be handled by the private sector or it's an unreasonable one which should not be undertaken with public funds.

4) To reward friends/allies of any kind

I'll leave this possibility for discussion by others.

The fact is that this province has a horrible track record in putting public money into private enterprises of all kinds. Too much money for too long has been thrown away in one politically motivated vanity project after another. We only have too look at Sprung, a provincial embarrassment which brought down a government of 17 years, to see that.

I'm not arguing that there should be no money every put into infrastructure projects not should there be a blanket ban on public-private partnerships. There are times and places when those kinds of expenditures make sense.

But decisions on public contributions to private enterprise have to be held to higher and tougher standards than other public policy decisions. Public investment into the private sector represents a fundamental departure from standard government current best practices and should be very closely scrutinized for the particular effects on the industry involved, the larger effects on the economy and the general wisdom of allocating public funds in this way.

Our history shows that it's too easy to make bad decisions.

Part of the problem is the way government is selling this. The fact that Minister Taylor admits that this decision was put off until because of the political storm which would follow shows government can't find a sensible way to sell this. The fact that it was released under cover of, and as a putative response to, the Aliant fire which knocked out communications in the capital region shows they still haven't.

In the end, government's claims that this $15m will have anything to do with increased reliability of the provincial communication system or it have anything to do with a more reliable 911 service are false; these claims have been widely demonstrated as bogus or simple fear-mongering.

Additionally, one word that can fairly describe this project is cannibalism - there's already more than enough broadband capacity so now the costs of two separate systems will have to be spread over the name number of customers. I'm not sure how that will reduce costs for anyone.

More than a few observers have noted the opportunity cost in doing this. Every dollar spent on this is a dollar not spent on pharmacists, bridges, schools, etc and that's a political problem for government. You can't help but wonder if this government feels it has more money than it knows what to do with.

Any long-term observer of the local political scene will have to be dismayed at yet another government kicking money into dubious ventures expecting new and different results. What's particularly disappointing is that few would have expected this government to go down that well-trod path.

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