Going Local: A New King of Short Termism?
by Brian Dijkema
John Leder's stimulating piece centres around four key propositions, two of which are more philosophical in nature and two of which attempt to move philosophical conclusions into the realm of policy. My response will try to tease out the potential gaps that remain in his move from philosophy to policy and suggest some alternative views. Ultimately, I argue that going local is a new kind of short-termism, which privileges narrow advantage over wider, long-term growth.
The first policy proposal is that we need to find appropriate ways of measuring the value local companies bring to their communities in order to avoid public short-termism. The second is that this value needs to be considered by political authorities when awarding contracts for public works.
Behind these suggestions are deeper philosophical propositions. First, to get at the real truth of what business is all about, we need to have a discussion of what economic activity is for. Second, any discussion about the purpose of economic activity needs to include more than the current measure of perfection—growth—which leads to economic policy and laws predicated on short-term gains.
The policy suggestion offered is a request for a multi-orbed accounting system. What is needed, he says, is a full-cost and full-benefit analysis. When political authorities (he cites municipal governments, but the argument can be extended to provincial or federal governments) make purchasing decisions, they should account for the benefits that local businesses provide to their communities. Decisions made on the basis of absolute cost lead to short-term policy making, which might lead to the withering of the very communities that governments are trying to protect.
I agree about the need for more robust tools for measuring social impact. Many of the current tools, including using GDP or quarterly growth, are ineffective at measuring the real vitality of an economy or business. This ineffectiveness is because these tools are prone to short-term manipulation at the expense of long-term vitality. On the other hand, it may just be possible that baseline cost as a policy tool is the best and most equitable way to measure social impact, on aggregate, over the long-term.
The argument, as framed, pits domestic against foreign companies, and questions the benefits and costs of trade across geographical boundaries. Proponents of trade suggest that taking the best bottom line price, even if it is from a company located outside of your geographical proximity, will be of greater aggregate benefit to the local community and the external community if practiced consistently. Taking the lowest cost allows the government to use tax revenue more efficiently, ensuring that corporate and personal resources stay in communities in the first place.
If you add the realities of globalization to the equation, it is a real possibility that the relationship will be with a business operating in a developing context. In this case, one could argue that over the long run, there will be a greater benefit to all parties involved including lifting people out of poverty, as those in the developing world benefit from market access. Thus, the argument in favour of allowing baseline cost to serve as the measure by which governments make procurement decisions might more accurately be described as a commitment to spreading benefit widely and over the long term, rather than narrowly and over the short term.
The risk with a go-local focus of economic activity is that city governments and others risk being bound by higher prices and lack of expertise. While many tradespeople and businesses are Alberta-bound, it's best for Alberta to not be bound by policies which hamstring competition.
But, of course, this argument doesn't get at the chief concern. The real concern is that what we perceive as the lowest cost (understood in terms of a dollar amount on a public bid) is not really the lowest cost. A true accounting of cost and benefit would show whether local communities actually cost less and give more than the foreign company. At the very least, we should have some tool with which we could measure that.
The notion of full-cost accounting comes up in policy discussions apart from the global/local question. It has typically been used by those in the environmental movement, and, far from being a simple fringe movement, has been adopted by some conservative heavyweights, including Preston Manning.
Advocates say that if you put a price tag on such things as the deterioration of, say, wetlands or woodlands, the market will be better equipped to make decisions on policies promoting certain types of business ventures. The impetus behind this method is that too often the costs of certain economic activities—oil production for instance—are socialized, while the benefits are privatized. Preston Manning's description is a nice succinct summary on the environmental front:
Let's adopt expanded accounting practices which explicitly recognize the environmental and social impacts of economic activities, identify the costs of avoiding or mitigating them, and gradually incorporate those costs into the prices of goods and services. Let's give as much attention to keeping the National Ecological Accounts and reducing the Gross National Waste as we do to the National Economic Accounts and increasing the Gross National Product. And to be equitable, and avoid creating another national unity crisis, full cost accounting needs to be applied to all energy sources, economic enterprises, and regions—not just to petroleum and companies based in western Canada.
This helps get at a fuller cost accounting, recognizing that economic activity does not take place in isolation from other activities. Economic activity takes place in a complex web of relationships, institutions, and individuals which, if ignored, will produce socially discordant and potentially unjust results.
Evidence of this can be found anywhere, but is seen most clearly in extreme cases. Witness, for instance, the massive environmental degradation or the serious concerns surrounding migrant labour in China which can be found alongside, and as a result of, a reductionist commitment to economic growth. Canada has its own history with similar problems.
The reality is that long-term economic vitality is dependent on a host of complex features including a healthy natural environment, respect for labour, a population willing to conceive and bear children, a culture of trust and mutual respect, and others. We ignore these things at our own peril.
That said, many questions remain.
One of the biggest questions is who gets to set the value of social or environmental inputs and outputs? Who, or what institution, is tasked with and best suited for setting the value of such things as a wetland or a neighbourhood? Is it government? Is it the corporation?
The proposal that governments should account for the "spinoffs" which result from local business while evaluating public purchasing suggests that it is the political authorities who are best suited to set this value.
The justification for this is that the government, charged as it is with the duty to pursue public justice, or, to use the Catholic term, to pursue the common good, has an obligation to consider the overall public implications of its purchasing decisions; decisions that will undermine local corporations, neighbourhoods, sports teams, and the like will be, in fact, unjust decisions.
In a very real sense, whether using baseline cost as a measure of justice is appropriate or not is a very difficult philosophical question. The particular type of justice pursued in going local, while not explicitly articulated, is what Jonathan Chaplin calls "distributive justice—just relations across different sectors of society."1
This understanding of justice points to the promises and limits of Mr. Leder's approach. Fully defined, justice:
affirms the indispensable importance of individual rights and duties, it also seeks to honour those of parents, families, churches, schools, corporations, unions, and many other social bodies, as well as to encompass the many diverse kinds of relationship among them, such as those constituting highly complex webs of interaction like "markets."2
Public purchasing is an economic interaction undertaken by a political authority on behalf of its citizens. Its decision must be guided by the norm for economic life, frugal stewardship, which is placed in service of the overarching norm of the state, public justice.
To be just, the state needs to recognize the unique structure of public purchasing. It is an economic transaction undertaken on behalf of a public trust by a political authority alongside for-profit enterprises, some of which are local and some of which are not.
The question, then, is which social institution or web of relationships is best suited to justly govern such interactions?
At Cardus "we believe markets to be the best way—no, the only sane way—to structure interactions in economic life."3
The rationale for this can be found in a review of the benefits suggested as possible measures for public tendering decisions. Leder states:
Doesn't that Calgary company pay Calgary taxes? And aren't its employees the same ones who offer their volunteer hours and charitable donations in the city? Don't they sit on volunteer boards, cheer for the Calgary Flames and send their children through our schools?
The answer to all of these questions is, of course, yes. It is certainly true that charities and other voluntary associations, sports teams, churches, schools, and a host of other institutions have important economic aspects to them and much work is being done to measure the impact that such institutions have on a healthy civil society.
However, in all of these cases, the economic aspects of churches, schools, sports teams, and the like are tertiary or secondary at best. Churches are not valued primarily because of their economic impact, nor are schools or volunteer associations. They're valued because they provide some other, different type of service to the community. Their worth to a society is found primarily in the work that they do as institutions in their own right. To place civic contributions which are not primarily of an economic nature, into an equation which is myopically economic is to demean them; a move which might cede the very ground that we wish to protect: the vitality of our communities.
Protecting the integrity of frugal stewardship in economic life is no small matter, nor by extension is the ability to freely bid on projects. It is important not only because it recognizes the character of the transaction, but because to include other factors is to commodify them into the economic process. Do we protect families because babies are good for GDP, or places of worship because municipalities download social services to them? This is what Gideon Strauss is after when he says "Market economy? Yes! Market Society? No!" Turning schools, sports teams, churches, and the like into economic commodities might be the first step from a market economy to a market society. We want the former, not the latter.
That said, there are important caveats. The first is that to be truly just, those bidding on the projects should be evaluated based on standards internal to the institutional character of business corporations. Thus, when people complain that certain companies are able to win public bids because, for instance, they violate labour law, or, as in the case of certain companies, violate the basic dignity of workers, they cry foul legitimately. It is extremely troublesome when international boundaries and corporate practice preclude, and at times occlude, this information.
The second, as Ha-Joon Chang notes in his book Bad Samaritans, is that states will often attempt to play both sides of the trading game. They will enact protectionist legislation within while taking advantage of the benefits of free trade around the globe, even pressuring states to enact legislation which will allow their companies access to new markets. There can be cause for a political community to cry foul over such practices, and a response in kind might also be required, even though this is unlikely to be productive in the long term.
Going local is a new kind of short-termism, and its advocates privilege local, short-term advantage over wide reaching, aggregate growth. But even more importantly, a local strategy which exaggerates the capacity of government to make market decisions, and further to make social decisions through an economic prism, runs a dangerous risk of compromising the integrity of both institutions. Market economy, yes. Market society, no.
1 Chaplin, Jonathan. "Defining ‘Public Justice' in a Pluralistic Society: Probing a Key Neo-Calvinist Insight". Pro Rege. 2004. Pg.2
2 Ibid. Pg. 3
Ray Pennings is Executive Vice President of Cardus, working out of our Calgary office, where he lives with his wife Kathy and son, Chris. Ray brings a host of skills to Cardus,...