Central planning strangling Ontario’s economy
Last week, Ontario’s Financial Accountability Office issued a report spotlighting the Wynne government’s decision to temporarily reduce electricity costs by taking on additional debt.
According to the report, paying interest on this additional debt will cost taxpayers billions and increase electricity bills for future ratepayers who will shoulder the cost of today’s high electricity prices until 2045.
Of course, today’s high prices are largely the result of provincial policy choices including big subsidies for green energy producers under the 2009 Green Energy Act.
Sadly, a young Ontarian entering the workforce today will pay for these choices her entire working life, as she will near retirement by 2045.
The whole sad story shows how ambitious government plans to remake the economy can backfire. Specifically, the government’s desire to “green” Ontario’s electricity sector has helped spur the painful run-up in electricity bills for households and businesses.
There are lessons to be learned from this disaster. But these lessons appear to be lost on Premier Wynne’s government, which is pressing ahead with centrally planned schemes to make the economy work the way the government wants it to.
Consider the plan to control the rental housing market. Instead of allowing prices to respond to market forces, the government will determine the rate rents can increase, regardless of changes in the market price, the demand for housing or the supply of housing.
Research shows this policy will discourage investment in new rental housing. That means fewer and lower quality rental units will be built, making it harder for market newcomers (think young people starting out in life) to find a home. In the end, the policy will make things worse for the very people the government says it wants to help.
On labour law, just yesterday the government announced a new plan to micromanage workplaces. Reports state the package will increase the minimum wage, further regulate the terms surrounding part-time and contract employment, and expand minimum annual vacation time.
Again, the government’s penchant for central planning will likely prove harmful. The evidence consistently shows higher minimum wages make it harder for inexperienced workers to find employment while other restrictive labour laws will further raise the cost of adding employees, stunting job-creation.
Since 2004, when Dalton McGuinty’s government began the ongoing run-up in the province’s minimum wage, Ontario’s unemployment rate for young people aged 15-24 has hovered well above the national rate—averaging 15.1 per cent since 2004, compared to a national rate of 13.3 per cent during the same period.
Even on energy policy, where previous failures are front-page news, Premier Wynne’s government continues with a central planning-based approach. The government’s climate change strategy rejects the advice of economists—to avoid regulation and industry-specific subsidies—and embraces several such measures to achieve specific outcomes.
This means some of the cap-and-trade dollars sucked out of the Ontario economy will be spent funding pet projects including “initiatives to support cycling and walking” and subsidies for electric vehicles.
Government efforts to centrally plan the economy often fail because the systems they seek to control are more complicated than any one person, or any one government, can fully understand. So large-scale government actions can provoke large-scale unintended consequences, often with unpleasant results.
This is the lesson of Ontario’s electricity system debacle. Unfortunately, it’s one Premier Wynne’s government seems determined to ignore.
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