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Sean Speer: The best mandate for the CBC may be no mandate at all

Commentary

The news media in Canada is in crisis. Policy responses to date are failing to solve for the information that citizens need to make informed decisions about important issues and debates. The Future of News series brings together leading practitioners, scholars, and thinkers to imagine new business models, policy responses, and journalistic content that can support a dynamic future for news in Canada.

This week, Richard Stursberg, a former senior CBC executive, has written for The Hub in favour of a new mandate for the public broadcaster that clarifies its functions and purposes. How should it interact with the private sector? What’s the proper funding balance between its English and French arms? Should it rationalize or expand the communities in which it is present? “A mandate with teeth” as he puts it, would aim to answer these types of questions. 

He’s right to argue that successive governments have failed to articulate a clear vision for the CBC and its role in Canada’s broader news and entertainment marketplace. As a result, it’s sort of muddled by for the past couple of decades through the rise of the internet, a fluctuating public appropriation, and a more polarized media and political environment. A first-principles articulation of what the public broadcaster is (and ought to be) would presumably help. 

Yet the starting point for a review of the CBC must go further. It should test the basic idea of a public broadcaster itself by returning to the initial case for government intervention in news and entertainment and judging whether it’s still applicable. The most important question, in other words, shouldn’t be “What is the CBC?” but rather “Do we still need the CBC?” 

The initial policy rationale for the CBC was what economists refer to as a “market failure.” The basic idea was that the market alone wouldn’t bring radio and then television broadcasting to sparsely-populated parts of the country because a combination of market size and technological limits precluded the private sector from doing so profitably. The CBC stepped into the market gap and provided these services to Canadian households regardless of where they lived. This was a textbook case of the state correcting for a market failure and therefore a justifiable instance of government intervention even according to neoclassical economic thinking. 

Yet one of the biggest problems with this type of government intervention is that it’s rarely revisited. The initial conditions that justified such a policy action are assumed to remain static. New competitors or technologies are ignored away. Government policy seemingly takes on an inner logic that preferences self-perpetuation over evidence and facts. As Milton Friedman famously said, “Nothing is so permanent than a temporary government program.” 

But of course, the market is far from static. It’s highly dynamic even in sectors that start with high barriers to entry and low competition. Innovation and technology can have the effect of changing the economic fundamentals. 

The CBC is a good example. The internet wasn’t around for roughly the first 55 years of its existence. Yet over the past 30 years or so, it has fundamentally reshaped the market in which the public broadcaster operates. Improvements in broadband technology, the advent of digital streaming services, and new sources of news and information (including the rise of podcasts) have massively expanded the options for consumers including those living in places that the market couldn’t previously reach.  

One consequence of these developments is that the policy case for the CBC itself—particularly its current size, scope, and configuration—has diminished. Yet the public broadcaster has mostly escaped policy scrutiny and instead gone about its business as usual including even expanding into the digital streaming market. 

Today the CBC is, as regular Hub contributor Peter Menzies recently wrote, “a publicly funded commercial news and entertainment organization.” The best means to evaluate its ongoing policy justification is to assess whether there are still market failures across its different business lines. Going piece by piece can enable policymakers to judge what parts of the CBC are still rooted in its initial policy rationale and which ones have been superseded by broader market developments. 

Start with CBC Television which comprises fourteen owned-and-operated stations in English Canada. Not only is its market share (4.4 percent) falling (it was 7.6 percent in 2018) but it’s now even below the CBC’s own targets. Put differently: more than 95 percent of Canadian households aren’t tuning into the CBC’s English language prime-time programming. 

The CBC-Radio Canada building is seen Thursday, January 28, 2021 in Montreal. Ryan Remiorz/The Canadian Press.

This shouldn’t be a big surprise. CBC Television was created for an era of content scarcity. It’s the equivalent of eating war-time rations. We now live in a world of ubiquitous content including extraordinary original production at Netflix and the other streaming services. In this context, who’s choosing to watch Family Feud Canada or 22 Minutes? The answer is a small and declining share of the population which itself is a telling sign that CBC Television is no longer needed. 

CBC Radio’s market share (14.2 percent) is larger but the medium itself is in decline and the policy case for a public radio broadcaster is even weaker. Most of CBC Radio now effectively double as podcasts which are the most democratized part of the news and entertainment marketplace. Anyone with a cell phone and a voice can effectively have a podcast. We’re awash with them. What therefore is the public policy rationale to dedicate scarce public resources for the CBC to produce 142 separate podcasts? The short answer is there isn’t one. 

News and information would be in the minds of the CBC’s proponents the strongest case for an ongoing role for the public broadcaster. In a forthcoming episode of Hub Dialogues, Senator Paula Simons, for instance, argues that there’s a self-evident market failure in journalism that necessitates the CBC. The argument that she and others make is that at present there isn’t a market basis for the production of news at the local level—particularly in smaller markets. Simons distinguishes between Toronto which still has still multiple private news outlets and Edmonton which has seen significant market consolidation in newspapers and radio. 

There are two problems however with this line of argument. First, the CBC’s current footprint only extends to about 40 cities and communities which mostly includes provincial capitals and other key population centres. It’s not really solving for where the strongest case for a market failure exists in secondary and rural communities. Although last year’s addition of 14 journalists in communities like Cranbook, Lethbridge, and Kingston were nods in this direction, it would require a far more fundamental reconfiguration of the CBC’s staffing and operations to reposition the broadcaster as primarily focused on delivering news and information for smaller markets. 

Second, as I’ve previously written, the CBC’s local coverage isn’t the type of bread-and-butter journalism that’s arguably a public good. Instead, it’s primarily focused on niche issues and perspectives that may be interesting and even worthy of attention but don’t the fill informational void about town council debates, local sports events, or other basic civic developments. The major factor here is ostensibly the self-selection bias of the CBC’s journalists themselves. It’s not obvious therefore that a new mandate alone would be sufficient to change it. It would require a culture change that due to its institutional ethos and norms may ultimately prove impossible to achieve. 

The upshot: if a mandate review of the CBC starts from the premise that there must be a policy case for its ongoing presence in the market and then follows an evidence-based process to evaluate its various business lines against the test of a market failure, it should lead in the direction of something much different and far smaller than the status quo. 

Such an outcome would no doubt be controversial among the minority share of the population that still consumes CBC content or those who have an ideological attachment to the public broadcaster as part of a national identity. But public policy should follow evidence rather than emotion and scarce public dollars should go to public goods rather than subsidize podcasts. The right mandate for the CBC may therefore in fact be no mandate at all. 

The Future of News series is supported by The Hub’s foundation donors and Meta.

‘Shaping up to be a bumpy landing’: Trevor Tombe breaks down 2023’s inflation numbers

Commentary

Today Statistics Canada released inflation numbers for December 2023 that shows the inflation rate somewhat unexpectedly increased to 3.4 percent. We turned to The Hub’s resident economics expert Trevor Tombe to understand what these numbers mean. He breaks down the data and offers his perspective on whether or not—and to what extent—inflation will continue to grow in 2024. The upshot? We shouldn’t be too worried yet—the December inflation increase counterintuitively shows that inflation pressures are in fact easing, even if not as fast as some might hope.

SEAN SPEER: What should we make of the news that inflation actually increased from 3.1 percent in November to 3.4 percent in December? Is this a temporary blip that can be explained by contingent factors or is it a sign that inflation is stickier than we might have anticipated?

TREVOR TOMBE: This is a great question that highlights an important feature of inflation calculations that many don’t appreciate: they’re a year-over-year comparison. This means the December 3.4 percent rate is effectively the accumulation of twelve months of price changes since last December. Effectively, we drop last year’s December and add in this year’s to get the updated inflation numbers. Last year, there was an unusually large price drop and this year there was a relatively normal price drop. (Prices normally fall in December because of holiday sales.) So since last year’s unusually large drop was eliminated, that tended to make the 12-month total increase slightly.

The inflation rate of 3.4 percent for December 2023 was actually a sign that the average consumer price increase between November and December 2023 was relatively normal. It’s not necessarily a sign that things are going to get worse. And perhaps most interestingly of all, we’ll see this continue for several months. If everything from here on out proceeds normally (with monthly price changes aligned with a 2 percent annual inflation rate), then we’re not likely to see an actual drop in the headline inflation rate for the next several months, as I illustrate below. So, overall, December 2023’s number continues to show that inflation pressures are easing, even if not as fast as some might hope.

SEAN SPEER: There’s been a lot of talk about a so-called “soft landing” and the potential to bring inflation back to target without provoking a recession. What, if anything, do the December numbers tell us about that scenario? Are they a sign that we may need to see further tightening in the labour market and the economy more generally before inflation falls back to where it needs to be?

TREVOR TOMBE: Inflation has come down a lot from its 2022 highs, and much of this might be thanks to rising interest rates by the Bank of Canada. Not all, of course. Energy prices falling from their summer 2022 highs account for roughly 40 percent of the drop compared to December 2023. But if we look over the past year, the decline in inflation pressures is fairly broad-based. From groceries to communications to vehicles and more, most product categories are contributing less to inflation. Demand for many goods and services, especially those sensitive to interest rates, is showing particularly large drops in price pressures, as research by myself and my colleague Dr. Sonja Chen documented in a recent C.D. Howe paper.

The cost of this has been slower economic growth, however. Unemployment in June 2022, when inflation peaked, was less than 5 percent. Today, it’s nearly 6 percent. And overall economic growth has slowed to a crawl and is dramatically outpaced by population growth—meaning that on a per capita basis Canada’s economy is significantly smaller today than in recent years. Canada has avoided a central bank-induced recession so far, which some might consider a soft landing. I tend to view the data as showing a relatively successful reduction in inflation, but not one without costs. It seems to be shaping up to be a bumpy landing, but ultimately one we can walk away from without too many bruises. I’ll take it.

SEAN SPEER: There’s been some attention (including recently at The Hub) about wage inflation reflected for instance in the growth of wage settlements in 2023. Is there any concern in your mind that the persistence of wage increases (even as unemployment ticks up) may make it more difficult to bring inflation back down to target?

TREVOR TOMBE: Wage growth has indeed been rising over the past year. The latest data from the labour force survey shows average hourly wages are up 5.4 percent compared to a year earlier, and average weekly earnings are up 5.2 percent. That’s good news for individuals since that’s higher than inflation over the past year. So we’re slowly recovering our lost purchasing power. However, there is a valid concern that rising wages, which are a considerable cost to businesses, may wind up leading to further price increases as those businesses seek to cover those rising costs.

This isn’t a necessary outcome, though. If productivity growth rises, then rapid wage growth doesn’t actually increase business costs since each hour worked will produce more than before. So on a per-unit basis, labour costs don’t necessarily rise. The trouble is that Canada’s productivity performance has been pretty terrible over the past few years. Labour productivity growth has been negative for 12 of the past 13 quarters! This is my main concern. If productivity continues to fall while wages continue to rapidly rise, then something will have to give. Indeed, the Bank of Canada, for its part, highlights this as one of the key “upside risks” (that is, risks to inflation rising).

SEAN SPEER: What other factors are you following that could influence the Bank of Canada’s efforts to restore price stability?

TREVOR TOMBE: One of the biggest factors behind the current high rate of inflation is shelter. Much of that is housing costs. Average rents are rising at a rate of 10 percent over the past three months (on an annualized basis), property taxes are rising at 13 percent, home insurance at 11 percent, and, of course, mortgage interest costs are rising at an even more rapid 28 percent. Shelter is at the heart of the broader affordability challenge for many Canadians, especially in some of our largest cities. This is perhaps the single largest issue to keep an eye on.

Goods inflation has returned almost to relatively normal levels, including grocery price increases, which have essentially returned to normal (although price levels remain far, far above where they were). And excluding shelter costs, services inflation is also not a particularly large problem. It’s all coming down now to shelter costs, something The Hub has rightly highlighted as a challenge for quite some time. There are exceptions to this, of course. Restaurant prices are rising faster, for example, which might be related to wage pressures that we just talked about. But the biggest items, as I show below, are dominated by shelter-related items.

SEAN SPEER: How will December’s results influence the Bank of Canada’s thinking about interest rates? Do you think they may cause a delay in rate cuts this year?

TREVOR TOMBE: The main headline rate of inflation includes many volatile components that are a poor guide to monetary policy. The Bank needs to think about where Canada’s economy will be one to two years down the line. It does not react month-by-month to changes in the overall rate of inflation. Instead, it uses (along with many other pieces of inflation) measures of “core” inflation that strip out volatile components. It’s not that these volatile components aren’t important to individuals—all price changes can strain a family’s budget. But by stripping out the volatile components, the Bank gets a better indicator of where total inflation may be headed in the future. They’re better predictors, if you will. The December results, unfortunately, showed that three of the key core measures reversed the positive trend we were seeing. Over the past three months, those measures rose between 3.4 percent and 4.2 percent (on an annualized basis), which I plot below.

So for me, that probably means a modest delay in when we should expect rates to fall. I strongly suspect we won’t see a reduction in rates at the January 24 meeting. The one to watch will be March 6, and that might still be a coin flip. April and beyond may be when we see some changes. The Bank has been clear that it needs to see “further and sustained easing in core inflation” before it lowers rates. The December data shows we aren’t seeing that yet.