1010 Class 7: The General Model of Government Intervention

1. 1010 Class 7: The General Model of Government Intervention

2. Part 1: The Purpose of Government Intervention • To bring about a change or modification in the behavior of society or certain sectors of society. • It is indicative of the love and hate relationships between business and government. • It is how government induces change.

3. The Relationship Between Business and Government • Love Relationship • Lowering or eliminating taxes • Privatization • Deregulation • Providing redistributive policies of grants, loans and subsidies

4. The Relationship Between Business and Government • Hate Relationship • Regulate • Interfere • Intrude • Generally over involve themselves in how business behaves and their activities.

5. An Example of a General Model of Government Intervention • Traffic Congestion • Goal, to eliminate traffic congestion. • Government intervention • Ban all automobiles from entering the city during the work week.

6. As a Direct Government Intervention ACTION: Government action is to ban automobiles. RESULT: Government goal is satisfied. The intended result is achieved and a new state of equilibrium is the result.

7. As an Indirect Government Intervention GOAL: To eliminate traffic congestion INDIRECT INTERVENTION: To increase ridership on public transportation in the city.

8. Indirect Intervention • The problem is that there is often many cause and effect relationships before a change could be affected. • There will always be those, for example, who do not want to take advantage of public transportation.

9. Explanation of Indirect Intervention Example: Traffic • Was the goal satisfied of eliminating traffic congestion? • There was a modest 3-7% of people who boarded public transit. Most still choose to drive. • Was the intended result achieved? • There is traffic congestion at bus stops and subway stations. People are still stuck in traffic. • Was a new state of equilibrium achieved? • No, traffic congestion still exists.

10. How do we Determine Indirect from Direct? • Direct Intervention • Requires obedience • Is mandated • No choice • Indirect Intervention • Involves choice • Is not mandated.

11. Coercive Intervention • Automobiles entering the city during the ban will be subject to a $5000 fine. The automobile will be towed and impounded at the owners expense. The impound fee is $500.

12. Coercive Intervention • Associated with: • Fines • Penalties • Threats of Prosecution and incarceration. • License fees, renewals and suspensions. • THE OVERALL INTENT IS COMPLIANCE

13. Rule of Thumb • When a government intervention is direct, it is also cohesive. • Direct bans all drivers from entering the city. • Coercive subjects the drivers to a $5,000 fine, plus towing.

14. Rule of Thumb • If intervention is indirect, it will also be voluntary. • The government will ask you to do something, but may not force you to do something.

15. Indirect, Voluntary Dimension • Indirect intervention intended to increase ridership on public transportation in the city. • It is voluntary as it provides incentives for commuters to choose public transportation as a mode of transit. • Examples, lower fares, or a frequent rider contest.

16. Purely Reactive Intervention • Refers to a knee jerk response to a superficial problem without regard for the consequences or ramifications of the intervention. • With highly visible traffic congestion, the culprit is the automobile. • REACTION: Remove all automobiles from the road. Ban the cars.

17. Direct intervention bans all automobiles from entering the city during weekday rush hour effective immediately. Coercive element subjects the drivers who violate the ban to a $5,000 fine plus, towing impound expenses and fees. Indirect intervention is intended to increase ridership on public transportation in the city. It is voluntary as it provides incentives to commuters to choose public transportation as a mode of transit. Purely Reactive Intervention

18. Purely Strategic Intervention • Endeavors to address all consequences and the ramifications of government action. • In a liberal democratic society where the individual and choice are valued, a purely strategic intervention would require the government to make an array of decisions in the best interests of the majority of society. • This is a reflection of the utilitarian ideology.

19. Accuracy • The accuracy of an intervention is simply the degree to which the intended or stated goals are satisfied when all the effects and interactions are substantially complete or have reached a state of equilibrium.

20. Accuracy of an Intervention • Direct Coercive Intervention is more accurate. • The goal to eliminate traffic congestion is satisfied with causal relationships (for example, weather, road conditions, budgetary requirements, etc.)

21. Accuracy of an Intervention • Indirect Voluntary Intervention is less accurate. • Commuters will choose at which point they will decide to use public transportation

22. Precision • PRECISION is the degree to which the effect of the intervention is limited to only the intended goals. • Does the action result in unintended consequences?

23. Direct coercive intervention is less precise. The goal to eliminate traffic congestion is satisfied with the banning of automobiles. Indirect Voluntary intervention is more precise. There are requirements for the infrastructure of public transit and enticements to satisfy the goal of eliminating traffic congestion. Precision of an Intervention

24. Efficiency • Efficiency measures the differences or relationship between the resources, utilities, or capital gained versus those expended. • Simply was your expenditure a wise one?

25. Direct Coercive intervention is more efficient. With the elimination of automobiles, the city’s spending on roads will be reduced. Revenues will be collected from fines. There will be less traffic and a healthier population. Indirect Voluntary intervention is less efficient. There will be increased budgetary pressure for incentives to take public transit. Transfer and equalization payments will be required. Efficiency of an Intervention

26. Time Delay • Time delay is the period of time between the implementation of an intervention and the accomplishment of the desired goals.

27. Direct Coercive intervention takes less time. It is immediate. Indirect Voluntary intervention takes more time. Waiting for commuters to choose the ‘better way’ could take forever. Take the TTC as an example. Time Delay of an Intervention

28. ENVIRONMENTAL EFFECT ON THE PRIVATE SECTOR OF AN INTERVENTION • Accounts for who or which sector has government targeted for change and what will be the response. • Any change could be deleterious to the private sector.

29. Purely reactive intervention is more deleterious. The private sector is endeavoring to resolve the effects, impacts and influences of the consequences and ramifications that government did not consider. Purely Strategic intervention is less deleterious. Business thrives in an environment of predictable formal and informal relations with government. ENVIRONMENTAL EFFECT ON THE PRIVATE SECTOR OF AN INTERVENTION

30. Rule of Thumb • Identify whether the government intervention is Direct or Indirect • Identify whether the government intervention is Coercive or Voluntary

31. The Policy Evaluation Matrix

32. Readings • Case: in Between Public and Private: Readings and Cases on Canada's Mixed Economy: • (I) The Medical Centre on pp. 325 – 360. • (II) Commercialization of the Liquor Control Board of Ontario on pp. 443 – 452 • (III) Solid Waste Management in Toronto on pp. 453 – 470 • (IV) Privatization of Pearson International Airport on pp. 437 - 442.

33. Case: The Medical Centre • Shouldice Medical Centre • In 1940, hospital space and doctors were scarce, especially for this non-emergency surgery that normally took three weeks of hospitalization.

34. Case: The Medical Centre • Dr. Shouldice resolved to do what he could to alleviate the problem. Contributing his services at no fee, he performed an innovative method of surgery on seventy of these men, hastening their induction into the army.

35. Case: The Medical Centre • These delighted recruits soon made known their success stories and by the war's end, more than 200 civilians had contacted the doctor and were awaiting surgery. The scarcity of hospitals beds however, created a major problem. There was only one solution, Dr. Shouldice decided to open his own hospital.

36. The Medical Centre Interventions • 1931 creation of the Private Hospitals Act Allowing for the Creation of Private Hospitals • 1972 Act was amended to prevent new entrants. • 3P Model (Public Private Partnerships)

37. Application of the Model: Cases • The Privatization of Pearson International Airport.

38. Application of the Model: Cases 2. The Privatization of Highway 407

39. Privatization • The reasons that government undertake privatizations are as follows. • To improve efficiency • To reduce public sector borrowing requirements. • To reduce government involvement in decision making. • To ease problems of pay determination. • To widen share ownership. • To gain political advantage.

40. Case: Privatization of Pearson International Airport • Intent of the policy intervention: To build a new airport in Toronto with private money. • Why? Future passenger growth, desire not to use public funds, job creation. • 1,900 person years of employment during a period of recession in Canada. • The contract was eventually awarded to the Pearson Development Corporation.

41. Case: Privatization of Pearson International Airport • Following his election in 1993 new PM Jean Chrétien cancelled the contract at a cost of some $60m. No policy now existed. • Later the management and operation of Pearson was turned over to a not for profit private public partnership, the GTAA. • The GTAA is now developing a 4.4 billion dollar construction program at Pearson.

42. The Pearson Privatization To recap: The reasons that government undertake privatizations are as follows. • To improve efficiency (more capacity needed) • To reduce public sector borrowing requirements. (no cost, although, less revenue as well) • To reduce government involvement in decision making. (no longer responsible) • To ease problems of pay determination. • To widen share ownership. (public/private) • To gain political advantage. (Job Creation)

43. Case: The Privatization of Highway 407 Why was it done? Need to build a highway. • To build safe roads faster. (20 years ahead of schedule) • To reduce costs. (eventually sold for $3+ billion) • To protect the environment.

44. Case: The Privatization of Highway 407 4. To introduce new technologies and efficiencies. (innovative toll system). 5. Political. (to create jobs)

45. Quick Facts: FromHighway 407 ETR • 407 ETR runs east and west just north of Toronto — Canada's largest city. From QEW (in the west) to Highway 7 just east of Brock Road (in the east) for a total of 108 kilometers. • Connects with 6 interchanges on the 400 series highways: 401, 403, 410, 427, 400, and 404. • First day of tolling was October 14, 1997. • Over 710,000 transponders have been distributed as of February 2006. • Over 12,922,268,218 total vehicle kilometers traveled since opening 407 ETR in October 1997, as of January 30, 2006. • 108.081 kilometers is the total length of 407 ETR.

46. Case: Solid Waste Management in Toronto • Problem identified is that Toronto is overflowing with garbage and does not know what to do with it. The system is at capacity. • Landfills were the disposal method of choice in Toronto, however, in 2002 the Keel Valley Landfill closed, resulting in the vast majority of Toronto's trash being sent to Michigan. • Cost at Keele were $12 per tonne. Michigan is very costly at $52 per tonne.

47. How Might Toronto deal with this Stinky Problem? • Open the Adams Mine project thus creating a new landfill for Toronto. • Running a publicity campaign encouraging households to use backyard composters. • Bag limits. • Setting up an incinerator. • How would we characterize these interventions?

48. How Did Toronto deal with this Stinky Problem? • Purchased a new landfill in London • City council voted 26 to 12 in favor of purchasing the Green Lane landfill, a 130-hectare privately owned facility southwest of London.

49. Case: LCBO Privatization To recap: The reasons that government undertake privatizations are as follows. • To improve efficiency (more stores needed) • To reduce public sector borrowing requirements. (no cost, although, less revenue as well) • To reduce government involvement in decision making. (no longer responsible for liquor) • To ease problems of pay determination. (union jobs) • To widen share ownership. (public/private) • To gain political advantage. (possible job creation)

50. Case: The Commercialization of the LCBO Why was it done? Need to make LCBO more efficient. • To serve the public better. • More and bigger stores needed. • To make additional revenue. • To introduce new technologies and efficiencies. (Warehousing and POS). • Political. (to give it a chance to perform)