Former Ontario Premier Dalton McGuinty (pictured above) recently released his autobiography, Making a Difference. Despite its brevity, barely reaching 200 pages, the book provides valuable insights into how his government assessed the role of the private and public sectors in generating economic growth.

This series of blog posts provides a review of McGuinty’s new book, with a focus on what it tells us about the economic worldview of Ontario’s 24th premier. Part 1 examined McGuinty's neglect of the business sector. Part 2 looked at the recession and its aftermath. This post deals with the McGuinty government’s mistaken approach to outputs rather than inputs in the delivery of key public services.

Part 3: Public services—outputs and inputs

McGuinty strove to improve Ontario’s delivery of some public services by focusing on outputs and not inputs. It’s true that paying attention exclusively to inputs and not outcomes can lead to poor policy. However, shifting to a focus on output without reference to inputs loses sight of the fact that the relationship between inputs and outputs is important because it measures productivity. Spending huge amounts of public funds will alleviate many problems (although apparently not power generation in Ontario, which has been a black hole for public funds for decades), but this approach proves unsustainable as debt and taxes rise.

McGuinty’s autobiography fails to demonstrate an understanding of this relationship between inputs, outputs and outcomes. Nor is there any demonstrated recognition that it is ultimately the private sector that funds the public sector. Instead, both McGuinty’s book seems to reflect a belief that a high level of public spending will somehow spark a surge of private-sector investment and innovation, despite more than a decade of stagnant or falling business investment in Ontario.

The irony is that while saying the public sector should focus more on outcomes, McGuinty refuses to look at the end results of his policies for Ontario’s economic performance. This evasion is understandable, given Ontario’s woeful economic record since 2003. As outline in an article I wrote for the Fraser Institute last year, since 2003 Ontario government debt has mushroomed, its debt rating has been cut and the once-powerful Ontario economy has slipped into have-not status as its per capita income fell below the Canadian average for the first time on record. The HST shifted the tax burden to households in an effort to boost business investment, but firms have failed to respond because the overall business climate in Ontario remains decidedly hostile. Yet no one evaluates the outcome of adopting the HST.

McGuinty always blames outside forces for Ontario’s struggles over the decade he was in power. The federal government shortchanged the province; so-called “Dutch Disease” due to a rising exchange rate hobbled Ontario’s manufacturing sector; the global recession wrecked its public finances. Never does he seem to consider that his government’s basic model--more public-sector spending would spark faster growth—was fundamentally wrong.

McGuinty does not seem to seriously try to understand why every major economic indicator for Ontario lagged the Canadian average since 2003, including GDP, disposable income, business investment, the unemployment rate and even population flows. If he had, he would have incorporated variables that are widely-acknowledged to be crucial to economic growth into his view of how the economy works such as saving, business investment, entrepreneurship and risk-taking. An understanding of these variables would cultivate an appreciation that business cycle fluctuations are, in the words of  economic historian W. Arthur Lewis, “the price of economic growth; that if there were no slump there would be no boom; and if there were no boom capital formation would not proceed on the average as rapidly as it does.”

The reason for this lack of awareness is on full display in McGuinty’s autobiography: the private sector barely exists in the view from Queen’s Park. You would never know from reading McGuinty’s book that Toronto was the hub of leading Canadian industries such as finance and communications that are experiencing great upheaval as a result of technological change. Meanwhile, tech giants such as Nortel and Research In Motion (now called BlackBerry) take the stage and then exit with not one mention from a premier focused exclusively on an endless series of meetings and conferences about public-sector services.

It's no surprise that Ontario’s economic performance has faltered since the election of McGuinty’s Liberal government in 2003 with its emphasis on public services. In the words of legendary management guru Peter Drucker, the fundamental difference between the public and the private sectors is that “only business has economic performance as its specific mission.” For government, “economic considerations are a restraint.”

McGuinty’s former close advisor Gerald Butts has led the trek of a bevy of civil servants from Queen’s Park in Toronto to Parliament Hill in Ottawa to work for the new Trudeau government, which may augur poorly for the future of federal policymaking.

For more of Philip Cross’ blog series review of Dalton McGuinty’s autobiography, see Part 1 and Part 2.