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Steve Lafleur: Does everything feel broken? Canada’s messy federalism is a big part of the problem

Commentary

You might think subsidiarity is too dry a topic to care about. You’re wrong. It affects everything. 

The concept is simple: responsibility for policy issues should rest with the lowest level of government practical. In other words, if municipal governments are well-placed to address an issue, they should. If they’re not, the provinces should do it. Failing that, the federal government. It’s an approach that I generally support, but it’s often challenging in practice. 

This might seem like a stale, academic concern. Far from it. Canada is an unusually decentralized country. Canada’s federal government has controlled roughly 30 to 40 percent of government expenditures (net of transfers) for the last three decades. By contrast, the U.S. federal government controls around two-thirds of government spending. With more than 60 percent of spending by sub-national governments, we have an unusually large stake in ensuring that they’re well placed to undertake those responsibilities. 

A lot of things aren’t working in Canada right now. While I don’t subscribe to the idea that Canada is broken, there are signs of stress everywhere. We’re dealing with a nationwide housing crisis, decaying infrastructure, and a health-care system that feels like it’s on the brink of collapse. It’s understandable that people are frustrated, or even angry.

Part of the problem is our messy style of federalism often allows governments to pass the buck. Another is that subnational governments are often burdened with issues they don’t have the capacity to manage effectively—or, more perniciously, that they have no incentive to fix. Either way, we often let things corrode until they reach a breaking point.

But before we get too deep into my critique, some history. From the onset of the First World War until the 1990s, the federal government nearly always dominated total spending, peaking at 90 percent during WWII. Between the end of WWII and the creation of the modern welfare state, spending shifted towards provincial governments. For twenty years starting in 1970, federal expenditures hovered between roughly 40 and 45 percent of spending. Then came the 1990s and ensuing budgetary crises. One way that governments dealt with newfound fiscal pressures was downloading. In addition to privatizing large swaths of the economy, the feds downloaded many spending responsibilities to the provinces, for instance by cutting federal transfers. Provincial governments followed a similar path, in many cases pushing responsibilities for functions like social housing down to the municipal level.In many respects, this decentralization was beneficial. For one thing, it was part of an unprecedented fiscal correction by the Chretien government—probably the most successful fiscal undertaking in the history of Canada. But it also rationalized Canadian governance by more closely aligning spending with the principle of subsidiarity.

But there are three barriers that often get in the way of effective subsidiarity. 

First, responsibility rests with the wrong level of government. Take land-use planning, for example. It has been a truism for a very long time that zoning ought to be the purview of municipal governments. But their incentives are all wrong. They only answer to voters currently residing within specific boundaries, and primarily to homeowners. This means that prospective and future residents are not considered. In theory, this problem could be self-correcting. NIMBY cities could simply lose population to more dynamic cities. In practice, there is a strong economic pull towards a small number of economic centres.

Even in the post-COVID world, location matters. A home in North Bay isn’t a substitute for a home within commuting range of Toronto. Given the strong pull towards a few large cities, there are provincial and national implications from zoning restrictions. City halls in the GTA in particular have acted as a brake on Canada’s economy for a very long time while the federal government, which has traditionally had the smallest role in housing of any order of government, takes the biggest share of the blame

Second, the boundaries of a jurisdiction can be too large or small. Context matters a lot. Take Toronto, for instance. When the Government of Ontario smashed together six municipalities to create the new Toronto megacity, it was meant to create efficiencies. Not only did those efficiencies not materialize, but it means that responsibility is now too diffuse. 

The idea of subsidiarity is to ensure that the people best positioned to make decisions are empowered to do so. Ironically, the megacity has meant that people in the old city of Toronto have very little control over their communities. Getting anything done in there requires consent from five other municipalities that have wildly different priorities.Anyone who has been to a family dinner knows it’s not easy to get everyone on the same page. Some people don’t like mashed potatoes, some have food allergies, and others are just allergic to joy. If the whole family tree got an equal vote on what to eat, it would be a catastrophe. In other words, it would be like a Toronto City Council meeting.

Third, responsibility might be an illusion. Take health care, for example. Health care is a provincial responsibility—in theory. In practice, provincial governments need to follow the letter of the Canada Health Act (CHA). That isn’t a legal requirement, but a practical one. Failure to do so would lead the federal government to withhold Canada Health Transfer funding. While there is much to like about the CHA—such as the requirement for portability (so people changing provinces don’t lose coverage) —there are other parts that might well be counterproductive, like the “public administration” requirement or the prohibition on user fees. Whether or not one supports the CHA in its entirety (and as currently interpreted), it’s clear that provincial governments don’t have full control over health-care policy in Canada. 

Fortunately, we’re seeing some rebalancing. The highest profile example is in housing policy. 

It started with former Conservative Party leader Erin O’Toole. His platform included a provocative idea: the federal government should withhold infrastructure funding to municipalities that don’t build enough housing. This made sense not only because housing was becoming a national crisis, but because if the federal government is going to fund infrastructure projects that are justified based on population growth, the population proximate to those projects should grow. Otherwise, they don’t make sense. The term common sense gets tossed around a lot, but this was a pretty common sense idea. 

The next big move came from the Ford government. Under enormous pressure to get housing built, the province started to directly intervene in local land-use policy. While the moves look modest in light of recent developments, they eliminated the taboo against upper levels of government getting involved in land-use policy. 

Then came the big one: the Carrot Stick. The federal government started to really feel the pressure from rising housing prices this year, particularly as interest rates increased. The Trudeau government decided that they wanted to “work with” municipalities, in contrast to the Conservatives who wanted to impose conditions. In other words, carrots, not sticks. Then along came Sean Fraser. He was having none of this. 

Fraser realized, as I’d hoped when the program was announced, that the carrot could be used like a stick. There’s no reason why the minister needs to sit back and hope that municipalities volunteer to do more on housing. Instead, he’s used the bully pulpit to badger municipalities into strengthening their applications. For the most part, it’s worked. Cities across the country are moving to allow four units per lot, which seemed unthinkable eighteen months ago. The idea of provincial, let alone federal governments being involved in housing policy was contentious up until very recently. But it’s a necessary corrective, albeit late. 

Another high-priority example comes from Toronto. The city has been grappling with what to do with the Gardiner Expressway for years. It’s in the middle of a massive refurbishment project putting enormous pressure on the city budget. Toronto has tried to deal with this by imposing tolls, but the province said no. Given that it serves the whole region and isn’t especially popular with locals who were being forced to fund the rebuild themselves, uploading it to the provincial government to fund through provincial taxes only made sense. Another necessary rebalance.

Subsidiarity is a good principle in the abstract, but a hard one to implement in practice. As a decentralized federation, Canada is grappling with the challenges of dispersed responsibilities. Happily, we seem to be correcting some of our missteps. Decentralization done wrong can be worse than centralization. Principles are a good starting point, but we need to sweat the details. 

Sean Speer: Reform is coming for entitled universities—one way or another

Commentary

Over the weekend, Penn University president, Liz Magill, resigned due to the fallout from her high-profile congressional testimony about anti-semitism on campus. The two other presidents, Claudine Gay of Harvard and Sally Kornbluth of M.I.T., who appeared alongside her, are facing similar backlashes but as of now remain in their posts.

Their refusal to state unequivocally that calls for the genocide of the Jews wouldn’t be tolerated on their campuses provoked such a strong reaction for three chief reasons: (1) the inherent double standard in the application of free speech protections, (2) a lack of a recognizable moral framework on the part of the university leadership, and (3) the growing monopoly that radical ideas now seemingly hold over post-secondary institutions.

One gets the sense that the personal consequences for the three presidents won’t be the end of this story. Their disastrous testimonies have been characterized as a “tipping point moment” in which new questions are being asked about the mission, purpose, and state of modern university education.

By coincidence, I recently wrote for The Hub about these same questions in the Canadian context, including whether we ought to eliminate tuition subsidies for domestic university students. The article received more reaction in general and more criticism in particular than my typical writing. 

Some of the criticism has been constructive. One reader, for instance, noted that possible changes to tuition subsidies would require more careful thinking about the treatment between undergraduate and graduate education, the effects on different universities and the potential for rationalization and even consolidation within the sector, and the risks to Canada’s standing in the global competition for talent. 

Others, however, seem to have mostly reacted to my conclusions without seriously engaging with the essay’s arguments. The case for rethinking tuition subsidies was dismissed as elitist or an emotional reaction to recent evidence of campus radicalism. 

Yet the article wasn’t an act of provocation. It wasn’t written as “clickbait.” It was instead a first-principles attempt to reckon with whether our pre-existing assumptions about tuition subsidies for university students can still withstand policy scrutiny. My conclusion was that the case is weaker than most people—including evidently those in and around the university sector itself—seem to take for granted. 

It doesn’t mean of course that any major policy reforms to the status quo wouldn’t be complicated or involve tradeoffs, or even that public funding for post-secondary education and research ought to be eliminated altogether. But the inability of many university voices to substantively respond to wonky policy arguments strikes me as evidence of an entitlement mentality and a bad sign for the sector’s capacity to defend itself in the face of a less hospitable political environment.  

In the essay, I set out three arguments in favour of revisiting the current policy of subsidized tuition rates. It’s worth restating them and responding to the criticisms here. 

  1. Subsidized tuition rates are regressive 

Subsidized tuition fees for every university student regardless of his or her financial circumstances are an inefficient means to achieve the egalitarian goal of broad-based university access. It would be more efficient and equitable to permit tuition fees to rise in order to better reflect the true cost of university education and then subsidize low-income students with enriched means-tested grants. 

Post-secondary policy expert Alex Usher has previously made similar arguments in favour of the better targeting of direct university subsidies. There’s a logic to adopting the same policy treatment of the indirect subsidies embedded in tuition rates for everyone—particularly since, as I outlined in my essay, they may in some cases exceed current tuition rates themselves. 

It’s worth observing that the approach proposed here conflicts with the Ford government’s policy decision to cut and cap tuition rates in Ontario which has had the effect of increasing indirect subsidies to students. Most university voices were rightly critical of the government’s decision at the time. Many of the same arguments apply to the regressive subsidies reflected in ongoing tuition rates across the country. 

Following the same advice here would manifestly lead to higher tuition rates for some students. But it wouldn’t necessarily harm the system’s overall progressivity—in fact, if the tuition hikes were matched by an increase in means-tested grants, it could actually have progressive effects. 

A separate yet related outcome is that it would in theory encourage students to have a much greater stake in the cost and quality of their university education. They would be more intentional about their own educational choices and experiences. They would also presumably be more prepared to hold university administrations accountable for superfluous spending (such as growing DEI bureaucracies) that drives up costs but fails to improve the student experience. The net result might be that lowering or eliminating tuition subsidies could have anti-inflationary effects on the university sector’s inherent growth bias. 

2. Individual benefits versus broad-based ones 

The assumption that university education produces positive externalities underestimates the individual gains for university graduates and overestimates the broader societal benefits. The point here of course isn’t that universities fail to produce positive outcomes. It’s that they’re really quite good for individual graduates who generally receive a significant earnings premium but the evidence that they produce positive spillovers for the broader society is a bit more complicated. 

There’s competing research on the subject and even then the scholarship tends to study universities as a whole rather than distinguish between programs or fields of study. Disaggregating different types of university education and research would presumably show that certain programs produce positive spillovers and others produce fewer or none at all. 

An alternative to eliminating tuition subsidies altogether therefore might be to estimate the externalities of different programs and set tuition subsidies accordingly. Taxpayers could subsidize programs that produce broad benefits and students would be required to pay the full cost of programs that do not. 

Although such a policy reform would undoubtedly be controversial, the first-principles argument is reasonably strong. It would better root public subsidies in a rationally-connected policy principle and create a market mechanism for the kinds of education and research that may interest individuals but produce no demonstrable benefits in the broad public interest.

3. Democratic accountability for universities 

The thorniest issue is the growing disconnect between the ideas and languages of universities and the rest of society. The rise of decolonialization, intersectionality, and other critical theories has led a lot of university education and research in increasingly narrow, radical, and unrepresentative directions. 

Critics dismissed these concerns as nothing more than a “handful of ‘outrageous’ examples” or a small issue “happening at a half-dozen universities.” This strikes me as a serious lack of introspection and self-awareness on the part of the sector and its proponents. The rise of campus radicalism has been well-documented across the Anglosphere, including by Canadian-British scholar Eric Kaufmann who recently left the University of London College because of these trends. 

One just needs to survey the academic job postings over the past several years. There’s been a clear tilt in the direction of highly-politicized campuses. The problem isn’t just that the universities are monolithically left wing. It’s the disproportionate influence that radical ideas have assumed over admissions, hiring, grant funding, and journal publications.

We’ve directly witnessed the consequences over the past several weeks here in Canada in the form of acts of intimidation and protests on campus that have selectively targeted Israel for opprobrium and sought to justify or rationalize Hamas’s horrific attacks. Universities have been at the epicenter of antisemitism across the country.

It’s reminder that we shouldn’t be too smug about last week’s congressional testimonies by Gay, Kornbluth, and Magill. Their refusal to say that calling for the genocide of Jews contravenes their schools’ codes of conduct is outrageous and certainly worthy of the criticism that they’ve faced. But as private institutions that rely primarily on non-public funding, the responsibility for what happens on campus ultimately lies with those who pay for and run these institutions within the context of the law. 

What distinguishes the experience in Canada is that universities are heavily subsidized by taxpayers. Governments dedicate roughly $20 billion to university education and research each year. This isn’t an insignificant amount. It’s nearly the same level of public expenditure as national defence. 

The key difference here is that private universities are subject to certain market mechanisms. Board members, donors, faculty, and students can opt out of particular institutions or even the private system altogether if they believe that the culture, pedagogy, or ideas are unhealthy and bad. We don’t have that option in a publicly funded system. Canadian taxpayers are expected to subsidize public universities without any voice over the education and research that’s carried out using their resources and in their name.

Herein lies the tension: university administrators and faculty members want it both ways—they want taxpayer funding but they don’t want taxpayers to have a say about what happens on campus. As I outlined in my essay, one cannot help but think that this is no longer a sustainable arrangement. 

What taxpayers have witnessed over the past several weeks is bound to lead to growing demands for greater democratic accountability. Something will likely need to give. Universities may have to accept a greater democratic role in their administration and allocation of resources or move to a more market-based model in which tuition fees and other own-source revenues come to represent a larger share of their budgets. An expectation of ongoing public funding with no strings attached is no longer a safe bet for university leaders. 

Opening up universities to greater democratic accountability comes with legitimate problems as University of British Columbia law professor Camden Hutchison set out in his essay for The Hub. The alternative therefore to reduce the extent to which universities are dependent on taxpayers represents a better option. It could enhance progressivity within the system, better align the benefits and costs of university education, and solve the growing tension between academic freedom and democratic accountability. 

Even if critics disagree, they’d be prudent to take these issues far more seriously. In light of long-term fiscal sustainability challenges facing several provinces, public spending on universities was already bound to face greater scrutiny in the coming years. The public’s exposure to campus radicalism over the past several weeks is likely to only reinforce such questions.

A response of derision and entitlement isn’t in the interests of Canada’s universities. All it will do is hasten their inevitable confrontation with politics. And, as Gay, Kornbluth, and Magill learned, they probably won’t like the outcome.