May 2008: Now Let's Review the Private Sector

More waste can be found in corporate than gov’t offices
May 1, 2008

I recently served on a special panel reviewing the financial problems at the City of Toronto. We were seeking a more stable long-run match between the city’s revenues and expenses. In the end, I think, our final report (released in March) provided a reasonably balanced grab-bag of ideas: some operational efficiencies here, some new taxes there. Above all, we sounded a clarion call to adequately fund our cities, so they can fulfill their crucial economic and social role.

Throughout the whole exercise, however, I personally felt a gnawing unease. Why are public sector activities subject to thorough-going and high-profile scrutiny (such as our panel), but private sector performance is taken for granted? Our panel turned over every rock at City Hall in search of waste, inefficiency, or unexploited revenue opportunities. And everyone I met had free advice on the subject. I think that most governments receive similar scrutiny – from opposition critics, journalists, and cranky taxpayers alike.

Yet public sector operations account for just 22% of Canada’s GDP. What about the other 78%? Who’s reviewing the private sector?

Just down the street from Toronto’s City Hall is that temple of fiscal debauchery known as Bay Street. I can assure you there’s more waste, corruption, and self-serving opulence there than in Toronto’s chronically broke government (or any other government, for that matter). Never mind the destruction that Bay Street’s wild mood-swings wreak on the macroeconomic level. Just the massive resources directly consumed there every trading day are galling enough. Most of this waste occurs behind closed doors, so you don’t actually see it (whereas the work effort of city maintenance workers is monitored personally by every taxpayer who walks by). But it’s there.

Here’s one relatively trivial, but telling, example. Our fiscal panel held several sessions in an executive boardroom at Toronto’s City Hall. That clamshell-shaped building may be an icon of modernist architecture, but inside it’s downright humble, verging on shabby.

The boardroom has bare concrete walls, decorated with fading city maps. No windows. A simple, pock-marked table. Stackable chairs. Ratty coffee, in styrofoam cups. Officials (including, at times, the mayor) made their presentations using a noisy portable projector, aimed at a pull-down screen.

By coincidence, just before we released our fiscal report, I participated in a lunch-time economic seminar at one of Bay Street’s top legal firms (a company specializing in mergers and acquisitions). The firm takes up four entire floors of what is probably downtown’s priciest tower. And it felt more like a five-star hotel than a place of productive, frugal work.

First-class furnishings. Fine original art – with plaques identifying artists and titles. Complimentary wireless Internet and glossy reading materials. Black leather swivel chairs for the whole audience. In-house video-conferencing and production. A gourmet buffet, served on fine china. As I started my presentation, the spectacular view was temporarily shaded by automated blinds, and a built-in projector and screen descended from the ceiling.

The millions spent on tax-deductible luxury every year in that office can’t possibly represent an economically rational investment. Yes, it may impress the hell out of the firm’s well-heeled clients. But there’s nothing efficient about it. Similarly, the claim that this waste occurs in the private sector, and hence is none of our business, is equally false. We pay for it, one way or another (through the prices charged by the law firm’s clients, the mark-up on our mortgage payments, or through any number of other indirect channels).

We didn’t find too much waste in Toronto’s municipal services. Operationally, most programs are well-run. Workers make less than their private-sector counterparts. And the leader of Canada’s sixth-largest government works at a boardroom table that would embarrass any second-rate derivatives trader.

So while we continue to demand full value for our tax dollars, let’s also cast a baleful, penny-pinching gaze over at the wasteful excesses of private enterprise. Directly or indirectly, that’s our money they’re throwing around – and one way or another, we’ll be stuck with the bill at the end of the day.

We need a special Fiscal Review Committee to inquire into the self-dealing, pocket-lining, and Ponzi-scheming of the brokers, bankers, and private equity magnates who lecture governments non-stop about “fiscal responsibility.” I would volunteer to be the first member of such a review committee – but I’m not holding my breath.

(Jim Stanford, an economist with the CAW and a CCPA Research Associate, was one of six members of the Toronto Mayor’s Fiscal Review Panel.)