May 20, 2004
Ruth Richardson in Wonderland
On the eve of a federal election where pundits are already musing about an “issueless” campaign, a deer farmer from the south island of New Zealand blew into Winnipeg last week like a gust of fresh air. Ruth Richardson was the finance minister for that country from 1990 to 1993, and she is brimming with ideas that could transform Canada into a more prosperous place.
The New Zealand story is worth retelling. A tired, conservative government in a stagnant, near-bankrupt country is kicked out of office. Energized by a financial crisis, the new labour government bites the bullet and begins an unprecedented wave of market-based policy reform. They sell off government telephone and insurance companies, banks and forestry holdings to chop debt; they deregulate telecoms, transportation, broadcasting and agriculture; they slash taxes, tariffs and subsidies. The public sector is exposed to competition wherever possible, and private sector hiring and accounting practices transform a sleepy bureaucracy into a results-based dynamo. There is performance pay and no more seniority. The size of government is cut in half.
Despite these aggressive heresies, the labour government is re-elected with an increased majority. But when the reformers move to bring in a flat tax, and a guaranteed annual income plan that would displace armies of bureaucrats, the labour coalition of reformers and traditionalists breaks apart. A reinvigorated conservative party, no longer able to sell the failed bromides of government ownership, high taxes and regulation, ditches its old thinking and sweeps into power. As its finance minister, Ruth Richardson drives a second wave of reform, by eliminating compulsory unionism, abolishing school boards and introducing path-breaking legislation to guarantee “fiscal responsibility”.
The tune-up means that some lose out, but there are many more winners. New Zealand’s economy thrives, and its debts are slashed while it achieves the world’s fastest job creation rate. Eleven years later, now a consultant to the leaders in policy-challenged places like Paraguay, Brazil and Russia, and still a part-time farmer, Ruth Richardson spent two days in Winnipeg. In a whirlwind of meetings, media spots and speeches, she realized that she was in the midst of the long-dead, Old Zealand model.
If it were a film, imagine a mix between Woody Allen’s Sleeper and Fellini’s La Strada: a time-warped dream world or a dreary fantasy, depending on the century in which you frame your worldview. The government still dominates the commanding heights of the economy. Electric power is subsidized so consumption is the highest in the world. There are government liquor stores and even a car insurance monopoly that does a lot of advertising. Healthcare and education are sleepy government monopolies with little connection to their customers. Hospital waiting lists lengthen as health funding passes 42% of the provincial budget. Gnomes in the public school system continue to water down performance measurement by moving away from testing students. Equalization subsidies underwrite these dysfunctional policy models, in exchange for an uncompetitive tax regime.
Then there is the labour tempest around the floodway expansion -- where an entire industry finds itself on the verge of unwanted, back-door unionization. With characteristic clarity, she reflected that every dollar extra that the government has to spend to widen Duff’s Ditch is a dollar lost to a hospital or a public school.
Her advice for Manitoba was blunt. Stop the embarrassing talk of being a “have-not” province and modernize before you are overtaken by what is happening in other parts of the world. China, Russia, Brazil, and India, among other places, are posting high rates of economic growth and will leave behind places that waste resources with outdated and politicized policy models of the type found in the rich “G7” countries. “Rich countries can afford to be stupid,” Richardson says, but they will get run over in the rush if they don’t get fundamentals of modern policy right.
To confront this competitive juggernaut, first sell government businesses so that they stop wasting resources and have a chance to grow. Next, bring private capital into hard infrastructure like roads and water systems. Expose all public services to competition by shifting the state’s role from being a provider of services to a purchaser. Then the hard stuff. Open the public service heartland, now dominated by sleepy monopolies, to competition by funding the consumers of services instead of producers. This means funding education through parental tax credits or vouchers. It also means transferring health resources to families, who purchase their needs with health passports. The reward for healthy lifestyles is that the family accumulates unspent funds. All of this can be funded by a simple flat tax, with strict constitutional controls that limit total government expenditure to 30% of the economy.
Some might argue with the details or even the bulk of Ruth Richardson’s advice, but they cannot deny the sweep of the ideas and principles that inform it. As our political parties sleepwalk towards a federal election and skate around real issues, they should make some popcorn and forget about esoteric art house movies. Rent a John Wayne video, instead – True Grit.
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."