Brian Lee Crowley

Big cities an antidote to poverty, except in Africa

Cities everywhere are perhaps the moist important drivers of prosperity, pulling millions out of poverty and putting them on the ladder of economic success. As I argued in my 28th April column for the Globe and Mail’s Report on Business, however, Africa remains something of an exception. It’s cities do not generate the same kind of economic progress that others do elsewhere, including in Asia and Latin America. Why not? My answer? You can read it yourself in the unedited column text below or you can read it online:

 

According to Harvard’s Edward Glaeser, “Cities are the best path we know out of poverty.” This is echoed by prominent economist Paul Romer who has made the richly documented case that humanity’s urbanisation over the last 10,000 years has been the main driver of human progress. He argues that the present century is the one where the urbanisation trend finally reaches into every corner of the globe, and the world’s population will stabilise at 10-11 billion people, with 70-80 percent of them living in cities.

But alas it is not sufficient to shepherd people in to growing urban areas for them to participate in the economic benefits of urbanisation. I was put in mind of this the other day when I read a piece by a journalist detailing the challenges he faced flying out of Kinshasa, the capital of Congo. Kinshasa is a city of some 12 million people and the third largest in Africa, so its challenges are emblematic of the obstacles to cities bringing widespread prosperity to that continent.

When I lived in Kinshasa over 30 years ago, hardly anyone flew out of the local airport. When I left I took the African Queen-like ferry across the Congo River to Brazzaville whence you could connect to French international flight networks.

Apparently it is slightly better now in Kin, as the locals call the city. Now there are 11 international flights a day. Still a paltry number for any self-respecting city of 12 million residents, for one of the ways cities create wealth for their inhabitants is through dense networks of connections with other cities. There are 1400 flights a day through Heathrow and 1100 through Pearson.

And it is not just airline schedules.

When I lived in Kinshasa almost no one had a telephone. Copper wire was so valuable that even if you could get a phone connection installed (in itself a minor miracle) the chances were that scavenging gangs would quickly rip out the connection. Making an international call was a hilarious undertaking. Since the country never paid its bills to the national telecom companies in other countries, international operators would never accept calls from Congo. You had to go down to the main telephone exchange  and bribe an operator to start calling every country in the world until they came across an operator that hadn’t got the memo that calls from Congo were verboten. Mobile telephony has surely improved things, but not nearly enough.

These tiny examples illuminate the larger principle about much African urbanisation, namely that unlike, say, China or Korea or even much of Latin America,  Africa is urbanising without globalising; Africans are getting only a tiny part of the benefit that growing cities might confer on them.

Fixing this will perhaps be the single most important thing that could be done to help pull Africa out of poverty and connect it with global opportunities. But that means focusing on the right problems and the right solutions.

The biggest obstacle African cities face to realising their full potential is the weakness of the institutions on which they are based. Yes, people come to cities because there are more jobs, higher levels of specialisation and therefore higher wages, educational opportunities, infrastructure and other advantages. But mostly they come because successful cities have rules of behaviour that protect the investment that companies and individuals make to improve their business and their lives.

If organised gangs can take what you have worked so hard to create, why invest in your education or your business? If the government can bulldoze your little shanty on a whim or ownership isn’t even available because slumlords backed by violence control vast slums, how can you build a stable life? If water, sewer and electricity hookups are a luxury available only to elites, how can you avoid epidemics or connect to the Internet?

What makes cities in the West such magnets for people from all over the world is that property rights are clearly defined and enforced, when your safety and security is threatened you can call the police and they will come and they won’t extort you, if you sign a contract it will be enforced pretty even-handedly on the parties. We have created the certainty needed for investment to be made in the provision of services such as water, sewers, electricity and data pipes, not to mention education, transport and health care.

Lagos, Kinshasa, Nairobi and other emerging African megacities show that the continent is getting the easy part right, with urban dwellers doubling every 20 years. But services and institutions are falling behind.  Institution-building will determine whether those cities can realise the promise of prosperity too.

Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

 

 

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Provincial “free trade” is anything but

In my 14th April column for the Globe’s ROB I lovingly debunk the notion put about by Ottawa and the provinces that the latter have somehow torn down the barriers to trade within Canada that they themselves have created. The unedited text I sent to the Globe read as follows:

2017 is a big year for Canada. The country was founded 150 years ago in an act of supreme statesmanship. It is the 100th anniversary of the battle of Vimy Ridge, where we came of age in a sustained act of courage, heroism and determination. Governments in Canada are now claiming that their recently announced Canada Free Trade Agreement (CFTA) deserves to keep such exalted company and will come into force on July 1st, Canada’s 150th birthday.

 

Does the CFTA deserve such hoopla? On the contrary. While it represents some modest incremental progress on creating a national market open to all Canadians on equal terms, this progress has much to be modest about. Moreover the sordid backroom horse-trading that gave rise to it, in which rent-seeking interests allied to various governments saw many of their unfair advantages maintained, was the very opposite of what the founders of Canada thought they were conferring on their posterity.

 

Yes, it’s very nice that every field of economic activity is now covered by CFTA, as opposed to the old dispensation where only those fields specifically included were covered. But the price the provinces exacted for this was well over 100 pages of exemptions and exceptions to the principle of free trade within Canada.

 

The really tough areas, such as liquor, financial services and regulatory harmonisation?  Well they have promised to study those some more. Don’t try and sell milk or eggs or any other “supply-managed” product across provincial boundaries. The barriers that forced Newfoundland and Labrador to sell their electricity to Quebec at a fraction of its value remain and nowhere I can find do the premiers promise to give up their latest fad: claiming the right to veto pipelines that cross their territory. Alberta is already considering creating a Crown corporation to handle government construction projects to escape the opening of government procurement they just agreed to.

 

Finally, on actually enforcing the rules of free trade our political leaders raised the monetary penalties for non-compliance. Again, very nice. But they’re hoping you won’t notice they have essentially maintained their Rube Goldberg mechanism in which the complaints of businesses and individuals about unfair actions or practices will be the subject of endless intergovernmental consultations and panels whose decisions will come long after the original business opportunity has died from neglect, starvation and exposure. God help you if you want to get the courts to intervene to make governments follow their own rules, because the governments have made it clear they don’t want those bolshie judges sticking their nose in the provinces’ business.

 

It didn’t have to be this way.

 

The very purpose of Confederation, we often forget, was in large part about freeing Canadians to carry on their profession or business across provincial boundaries. As George Brown famously described the vision its authors had of Confederation: “the proposal now before us is to throw down all barriers between the provinces — to make a citizen of one, citizen of the whole.” Such freedom was explicitly to be a matter of shared national citizenship.

 

Responsibility for achieving Brown’s vision was granted to the national government in a broader federalist arrangement. The essence of federalism is, after all, the creation of a unified national economic space while buttressing local identities, be they linguistic, cultural, ethnic or religious.

 

 

Matters of nation-building or common interest – such as the functioning of the national economy – were thus to be entrusted to the newly-created national government rather than provincial or parochial interests.  That’s why it got jurisdiction over peace, order and good government, trade and commerce and national infrastructure. That’s why there is a national open market clause (Section 121).

 

But that’s not what happened with the CFTA. There the federal government continued the appalling tradition of its predecessors in neutering federal power in order to appease the provinces and territories. The result is not only another bad deal for Canadian businesses, workers, and consumers, it’s a disavowal of Confederation itself.

 

The founders gave Ottawa responsibility for the national economy because they expected provincial governments to speak for provincial interests. That’s precisely what happened. Someone needed to speak for Canada.  Instead the silence was deafening.

 

The sheer number of CFTA exceptions is a by-product of how ill-suited the provinces and territories are to protect and strengthen the economic union. Provincial and territorial ministers naturally care more about the interests of Ontario wineries, Quebec funeral directors, Nova Scotia fur harvesters and PEI architects than about the national interest.

 

The CFTA is not evidence, as its authors claimed, that “Canada works.” On the contrary, it is eloquent evidence of Ottawa’s unwillingness to face down the provinces when the national interest requires it. Ottawa exists for a reason; that reason is not, as one former prime minister tartly observed, to be headwaiter to the provinces.

Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

 

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Think what you like of Kevin O’Leary—He is right to call for the restoration of Ottawa’s economic power

Writing in my fortnightly Globe column I make the case that commentators can harrumph all they want at Kevin O’Leary’s plan to discipline the provinces for damaging Canada’s national economic prospects. He is doing nothing the founders of Canada didn’t plan and allow for.  His rhetoric may be a little over the top, but he is not wrong to say that Ottawa has the tools to discipline provinces who act contrary to the national interest (including via withholding some transfers) and that they should be used when circumstances warrant.

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Provincial liquor monopolies: you can run but you cannot hide

Canada’s liquor control boards – the provincially run bodies that control the sale of alcohol to Canadians – have proven surprisingly adept at enduring through calls for lower prices and greater consumer choice.

But as I argue in a new commentary for MLI, that doesn’t make them immortal. The fact that they have survived so long is itself a tribute to their political advantages for provincial governments, even as their economic advantages are gradually eroding under the onslaught of the consumer power revolution. In this Commentary, based on a talk I gave to the Canadian Association of Liquor Jurisdictions, I lay out the strengths and the challenges liquor monopolies must manage if they are to survive and how their world is changing thanks, among other things, to increased judicial scrutiny of trade barriers as well as the traditional objections of consumers and taxpayers.

We live in a world driven by the power of the consumer, and regulatory obstacles to consumers getting what they want are falling all around us. That has bodies such as the provincial liquor boards, with their monopolies, lack of choice and high prices, swimming against the historical tide.

 

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What Uber and health care teach us about innovation

You might be of the view that Uber and Canadian health care have nothing in common. How wrong you would be!

They are both classic instances of how governments’ rhetorical support for “innovation” is belied by their shameless kowtowing to vested interests who are threatened by disruptive innovations. Here is a little foretaste of the argument:

In Canadian health care, which may soon represent nearly a fifth of the economy, innovation must go cap in hand and beg to be allowed to help patients. And in doing so it will be opposed by those in the system whose power and livelihood might be threatened, just like those taxi owners fighting Uber.

This is inevitable in a system where the amount of money available is determined in advance through government budgets. Every innovation accepted is a charge against a fixed pie, meaning established interests may be damaged to accommodate the innovation. And it is those established interests who are the system’s gatekeepers.

It is as if Henry Ford, in his drive to bring the automobile within reach of the average person, had to get his assembly line ideas approved by a government committee composed of buggy makers, stable operators, horse breeders and hay growers.

The full piece was published in the Economy Lab feature of the Globe’s Report on Business on 13th May 2016.

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Rebranding the minimum wage as a “living wage” triumph of marketing over reason

The latest marketing dodge by the Left is to start calling, not for higher minimum wages, but for a “living wage,” thereby cleverly evoking images of poor single mums struggling to feed themselves and their kids on low pay. No one should work for a wage they can’t live on is a pretty good battlecry. Except that there are lots of people, in fact the vast majority, who earn the minimum wage and don’t live on it at all. The bulk of minimum wage earners are secondary earners in families above the low-income cutoff (LICO). And how many single parents with dependents try to get by on a single minimum wage income? Just over 2% of all people earning the minimum wage.

In my Globe column for the ROB of April 1st, therefore, I try my own rebranding campaign for the minimum/living wage. Here are the three I thought best. To the extent it represents government forcing businesses to pay more for labour than the going price, it is a tax on jobs. To the extent it forces up prices  at providers of low-cost goods and services to the poor, it is higher prices. And finally to the extent that the minimum wage is actually the entry wage for young workers living at home looking for their first job, and therefore every hike in the minimum wage makes fewer such jobs available, it is a youth penalty.

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Premiers once again fail internal trade test. When will Ottawa step up?

As I argue in my March 26th column for the Ottawa Citizen and other Postmedia papers, the Liberals have chosen internal trade liberalisation as the one issue where they see eye to eye with the Tories in looking to the provinces to tear down those barriers. Yet the premiers’ own self-imposed deadline of mid-March for an extensive new deal has come and gone without a peep from any of them. The truth is that the provinces are too busy protecting local interest groups to protect Canadians’ rights in this area. Ottawa alone has the authority and legitimacy to do it, but not yet the will despite the fact that it is Canadians’ rights at stake. Bipartisanship in Ottawa deserves a more worthy standard-bearer than this.

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Reconciliation between Canadian Conservatives and Aboriginal Canada

In my latest screed for the Ottawa Citizen and other PostMedia dailies I make the case that the Tories have to change their image, as their UK cousins did, to escape being branded the “nasty party”. My suggested strategy is for them to embrace the rise and aspirations of Aboriginal Canada. Conservatives have a narrative about freedom, opportunity and the future that vibrates with the emerging younger generation of leaders and is a distinctive policy compared to the left’s preoccupation with the past and victimhood. And a side benefit would be that the Tories would be tackling directly and constructively the appalling conditions of many Aboriginal communities, helping to remove a stain on the conscience of Canada. Nor is this mere abstract theorising; the hundreds of deals that Aboriginal communities are striking today to develop natural resources on their lands are proof that Indigenous Canadians want real opportunity, not more empty rhetoric.

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The arguments why Canada should join TPP

In my February 5th column for the Globe’s Economy Lab feature I lay out what I think are two of the chief reasons to adopt the Trans-Pacific Partnership. The first is that it is a stealth modernisation of NAFTA and we cannot afford to let Mexico get these benefits while turning them down ourselves. Second, it puts tremendous pressure on China to play by the established trade rules.

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Anglosphere leadership on M&As offers lessons for Canada

We all get dazzled by the growth of Asian Tigers, China, etc., etc., particularly in terms of their trade performance (don’t get distracted by short term gyrations — I’m talking medium to long term…). Because they appear to be economies “on the way up” we all want to cosy up to them and sell them our goods and services. But as I point out in my latest column for the Globe’s Economy Lab feature in the ROB, that neglects an equally vital and perhaps even more important trading relationship between nations — the international market for quality corporate assets, otherwise known as Mergers and Acquisitions (M&A). And here it is not the Asian countries that lead the world, but the major industrialised economies, with the biggest relationship in the world being between the US and the UK. This increasingly tightly integrated trans-Atlantic business relationship is poised to lead the world. Don’t count out the Anglosphere yet! And Canada should be doing more to follow this lead….

 

 

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Brian Lee Crowley