June 3, 2011
Winnipeg Bounces Back - Deja Vu from 2000
The return of the NHL boosts a city's morale but challenges remain
A little deja vu. This column, published in the National Post eleven years ago, provides some context for this week's burst of NHL euphoria in Winnipeg. Back then a proud city dragged down by politics and bad policy - many of the fundamental challenges remain. Reprinted from the National Post, January 8, 2000.
Winnipeg, the grande dame of Canada’s West, is thriving despite a persistently negative and frequently uninformed profile in the national media. A case in point is the CBC’s The National, which on Wednesday tied Winnipeg’s arson problem to high unemployment and poverty.
In fact, thanks to the booming U.S. economy, Manitoba’s capital city is on the upswing after a long downturn. It now has one of Canada’s strongest economies, with a burgeoning and sophisticated manufacturing sector. “Help wanted” signs are everywhere, and employers complain of a lack of skilled workers. Buyers snap up expensive houses outside the city’s core as soon as they appear in the listings. Top-quality office space is scarce everywhere, including downtown. The new Canwest Ballpark draws enthusiastic throngs of sports fans back to the core. Real estate developers, betting that downtown will regain its cachet, are putting cash down to revive old heritage buildings.
But half a century of bad public policy and bad politics has left Winnipeg diminished. How did this city of 700,000, once Canada’s third-largest, fall in rank to the country’s ninth-largest centre?
At the end of the Second World War, Winnipeg was the West’s trading and commercial centre, boasting many corporate headquarters. When the federal government granted the Canadian Wheat Board a permanent wheat marketing monopoly in 1943, it effectively shut down the city’s vibrant grain exchange, the then world’s largest. A critical entrepreneurial element, the spark of a dynamic economy, all but disappeared. The board’s absolute control over exports, together with freight subsidies for grain transport and the 1970s introduction of dairy and poultry marketing boards, suffocated the food processing industry. Minneapolis, once Winnipeg’s size, zoomed ahead by leaving well enough alone.
In 1949, politics found the federal government moving Air Canada’s (Trans-Canada Airways’) headquarters from Winnipeg Montreal, followed by the company’s maintenance operating in 1959. In 1986, Brian Mulroney switched the CF-18 maintenance contract, first won by Winnipeg’s Bristol Aerospace, to Montreal’s Bombardier. (Ironically, this helped spark the Reform party’s birth, eventually driving the Tories into the political wilderness.)
Manitoba swung into the left in 1969 with the election of the New Democrats under Ed Schreyer, a charismatic young academic. His government brought a triumphal interventionist tilt to public policy that was just as destructive as the federal government’s. A mix of higher taxes (including a new payroll levy), tighter labour laws and increased government ownership induced a major exodus of corporate headquarters and talent.
These policies had a predictable effect on the demographics of Manitoba’s capital. The entrepreneurial class dispersed as the incentives for risk-taking and enterprise shifted elsewhere. After the war, for example, Winnipeg’s Jewish community numbered about 25,000, many of them important wealth creators. Today, that figure has fallen by almost 50%, and those remaining make up North America’s most elderly Jewish community.
An increase in federal transfer payments disguised Winnipeg’s slipping vitality, but the transfer payments did little more than expand the public sector in the face of a stagnating private economy. Today, the top employers are mainly government organizations, beset with low productivity and limited accountability. Federal cash, which accounts for almost 25% of Manitoba’s budget, props up his sector and delays the streamlining it needs, while keeping demand for public expenditure high. A succession of governments, including the recently defeated Filmon administration, has been unwilling to implement a more sustainable mode. Health-care spending, in particular, is spiralling out of control despite massive overinvestment.
Winnipeg’s recent, widely publicized arson wave has less to do with this overall policy of proactive stagnation than with one particularly destructive measure. Manitoba is the only province still stuck with full –blown rent control. Winnipeg landlords, prevented from recovering their costs, have walked away from their investments rather than subsidize tenants, and the city ends up taking ownership in lieu of unpaid property taxes. These abandoned smaller, city-owned structures have been the main target in the rash of arsons. Instead of addressing the cause of the problem directly by pressuring the province to eliminate rent control, the city has created a special arson task force.
Rent control has also had the unintended effect of depressing property values and eroding the assessment base. Since investments that don’t make money have little or no value, property-tax revenues have fallen. This , in turn, has dumped the burden onto other residential and commercial property owners. Not surprising, the core has hollowed out as lower rates lured residents to bedroom communities outside the perimeter.
Out-of-control school board spending and municipal amalgamation have created damagingly high property taxes. Amalgamating 13 smaller cities into the “Unicity” in 1972 was expected to foster efficiency and economies of scale. It never did. The economies of scale went to the city’s workforce, which found itself organized as a single powerful bargaining unit. It also entrenched management and promoted a confusion of roles between elected officials and administrators that encouraged the former to meddle in operations and the later to set policy. Under the 1972 formula, communities and neighbourhoods have been disenfranchised and the dominance of monopoly service providers perpetuated. Amalgamation was the vessel that fermented the city’s lethal brew of high taxes.
Gary Doer’s new NDP government has a golden opportunity to maintain Winnipeg’s current good times by reducing the city’s exposure to bad public policy. The new economy and the need to be tax-competitive with the world will force a rapid reduction in the size of government in Manitoba. Mr. Doer should adopt – rather than resist – aggressive policies such as the immediate end of rent control and a drastic overhaul (or reversal) of the Unicity. Technology and free trade will allow major expansions of the food processing industry as the monopolies of the Wheat Board and supply-managed marketing boards fall away.
The NDP, therefore, should move past its outdated romance with the family farm and orderly marketing. Finally, to accelerate Winnipeg’s transformation to a more vibrant and prosperous economy, it should recognize the long-term benefit of phasing out stifling federal transfer payments.
Winnipeg offers us a lesson: Politics and the economy don’t mix. The city can achieve its formidable potential if our governments have the sense and the guts to admit that the policies of the past have no place in the future.
is the founding President of the Frontier Centre for Public Policy, an award-winning western Canadian based public policy think tank. Since its founding in 1997, Frontier has brought a distinctive and influential Prairie voice to regional and national debates over public policy in areas such as core public sector reform, housing, poverty, aboriginals, consumer-focused health care performance, equalization, rural policy and much more. Of the nearly 100 recognized think tanks in Canada, Frontier is one of only 5 to make the 2008 global "Go-To Think Tanks" list published by the Think Tanks and Civil Societies Program of the Foreign Policy Research Institute in Philadelphia. Mr. Holle has worked extensively with public sector reform and has provided advisory services to various governments across Canada and the United States. His publications have appeared in various newspapers and journals including dozens of newspapers, the National Post and the Wall Street Journal. He has a Masters of Business Administration from the University of Wisconsin at Madison. He is a member of various organizations including the Mont Pelerin Society, an international organization of classical liberals.