The last few weeks has seen the death of two economists – James Buchanan and Albert O. Hirschman - whose work has influenced my intellectual development and thinking over the years. Their thoughts combined with tomorrow’s “political action” by Ontario teachers against the soon to expire McGuinty government has caused me to think about what forces are at work here. To be human is to see patterns (I can’t remember who came up with that line but I’m sure it was not me) and the dispute with Ontario teachers can certainly be framed in my mind by the concepts of Leviathan, exit and voice.
Nobel Laureate James Buchanan (1919-2013) is associated with public choice theory but he also wrote the classic American Economic Review Article in 1950 – “Federalism and Fiscal Equity” which made the theoretical case for interregional fiscal transfers - equalization payments – which I think makes him along with Charles Tiebout one of the founders of the field of fiscal federalism. Another contribution Buchanan made was in work with Geoffrey Brennan on government as a tax revenue maximizing “Leviathan”. The Leviathan Hypothesis that was put forward by Brennan and Buchanan in The Power to Tax: Analytical Foundations of a Fiscal Constitution argued government was a revenue-maximizing Leviathan operating subject to constitutional fiscal constraints. The size of government and the centralization of power were positively related and therefore as they wrote: “Total government intrusion into the economy should be smaller, ceteris paribus, the greater the extent to which taxes and expenditures are decentralized.”
Albert O. Hirschman (1915-2012) was an economist who wrote on a wide variety of topics including economic development but what I was chiefly influenced by was his work on how people deal with events and environments that are unpleasant. His views were presented in a book titled Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States. Briefly, when faced with a situation whose outcome you disagree with, what do you do? Do you persist out of loyalty? Voice criticism in the hope of changing the outcome? Or simply decide to exit the situation? What option you select I suppose is ultimately a function of benefits and costs.
So, this brings me to Ontario and the acrimonious situation with its public school teachers. The government of Ontario has been a tax revenue-maximizing Leviathan over the last decade and has used those revenues to pursue its agenda – which of course has included a lot of spending on education. Indeed, based on the most recent edition of the Federal Fiscal Reference Tables, between 2002-03 and 2011-12, Ontario’s total provincial government spending grew by 64 percent while its revenues grew only 46 percent suggesting that when it comes to pursuing its objectives, the Ontario government has not been all that fiscally constrained.
Fiscal reality has finally entered the picture and the government is also reining in its teachers. So how can the teachers respond to what they see as a fairly unpleasant situation? I suspect the government anticipated the response would be one of “loyalty” after years of generous funding to the education system and that teachers would accept the restraint. This has not been the case. For the teachers as it is for most members of the human species, its not what you’ve done for me but what you can do for me. How about exit? Well, those teachers that can either retire or feel strongly enough to find another job no doubt have done so but for the most part – they are not exiting. Indeed, for most teachers, exit is not an option given that they actually do like their jobs, which are meaningful and stimulating, along with good pay and benefits. This leads to the final strategy left – voice. The teachers are voicing their dissatisfaction and hoping to change the outcome. Will they be successful? Not likely.
Leviathan is not just a revenue and expenditure maximizer, it is also a vote maximizer and the teachers have delivered Leviathan an excellent gift. In this case, the public school teachers might have been better off in the long run if they had simply accepted the restraint package out of “loyalty” – as the Catholic teachers have done – and embraced the old adage, of “he who fights and runs away, lives to fight another day”. For the Ontario government, the fight with the teachers is a political gift. It makes the public school teachers a lightening rod for public dissatisfaction and diverts the general public’s attention away yet again from the proroguing of the legislature, the province’s debt, the very expensive wind and solar energy policy, rising hydro rates, the eHealth scandal, the Ontario Lottery and Gaming scandal, the situation at ORNGE, the power plant scandal during the most recent election, etc. Leviathan is quite happy to see the teachers subjected to vociferous public criticism for the next few weeks until the cleansing ceremony of selecting a new leader is concluded. Having the public focus their anger on teachers followed by a new leader, new options and the expectation of a fresh start is not a bad strategy for the incumbent government in the run up to the next election. It might even work. Leviathan has been cynical but brilliant. I wonder who is advising the teachers?