Council overstepping role

Should the City of Penticton go into the banking business and offer homeowners loans to upgrade their homes?

Should the City of Penticton go into the banking business and offer homeowners loans to upgrade their homes? This issue is currently before the city council.

Indeed, the city, pursuant to a consultant’s advice, is on the verge of providing such loans in the presumed interest of helping homeowners to save energy by means of ‘green’ upgrades to their homes.

My concern, as an economist who thinks deeply about the implications of governmental action and inaction and voter complacency, is whether such an intervention, however worthy its intention, meets the standard for government’s role in a mixed economy such as Canada’s.

Quite simply, our economy optimally relies, in the first instance, upon an allocation mechanism in which the private sector produces economic goods in accordance with a pricing mechanism that relies on market value and the desire of private individuals to make a profit.  In that process useful goods are created and individuals receive employment in producing them.

To the extent the private sector fails to provide employment or to provide useful goods, it is the role of the government, in the second instance, to step in and either provide welfare support or to produce  goods and services itself.

To flesh this out in the current context, one must ask the questions: Will not the private sector, left to its own devices, provide loans, within the private banking system, for energy system upgrades?  If not, is it the proper role for government to intervene to provide such loans?   I am concerned that the mayor and council are not asking these questions or even thinking about them.

The implication of this decision is that ultimately tax money will be utilized to support government funding of selected taxpayers who may choose to utilize such assistance.   While the voters support government provision of health care out of tax money, which gives a comparative advantage to Canada’s  industry vis a vis the United States, would they greet with such alacrity the provision of special benefit to a mere few out of tax money that all must pay?

At the very least, if the council does decide to pursue this scheme, should not the voters be told why private sector banks and credit unions will not facilitate such credit, and why the government accordingly must step in? This is a very important and elemental question in a mixed economy such as Canada’s.

A few years ago, I had the opportunity, along with research colleagues from Sweden, to discuss with the mayors of Penticton, Summerland, Kelowna and Vernon the need for comparative research relating the municipality’s role of Sweden to those of British Columbia.  The object of this research would have been to increase understanding of the allocation mechanism and its faults (including taxation systems) insofar as it might enhance or hamper sustainable economic development and employment in regional economies such as that of the Okanagan.

The object of this discussion was to encourage a focus, based on the experience and thinking of other mixed economies, upon the proper roles for government and its municipalities versus the private sector in a ‘mixed economy’.  I should remind my reader that the private sector and the government sector each has areas of responsibility, and each must consider the proper role of the other.

What then is the proper role of the government?  The government, which is elected by the people, is accountable to the people for its own behaviour as well as for the behaviour of the private sector.  Furthermore, the government, by virtue of its judicial function, in effect monitors itself to assure that it does not overstep its proper bounds.

Since economic production and employment are primarily the responsibility of the private sector, what is the role of government and its municipalities in a limited geographical area such as Penticton, in the economy, and should the private sector be the initial source for green loans?

I ask this only so as to further the discussion of the proper role for a municipality in the broader realms of economic development, taxation and authority in the Okanagan regional area.  Perhaps even Victoria or Ottawa would be overstepping their proper role by intervening in such a manner.

Unless the government and its municipal councils know what their roles are in a mixed economic system, we will all, as voters,  fail, as government in effect, and make no mistake about it, is the final arbiter of our fate (with all due apology to the Lord).

Kell Petersen