Posts Tagged ‘bc’

Homework: ICBC Should Stay Public

Tuesday, February 16th, 2010

If ICBC were a private-sector monopolist, we would expect to see high prices and high profits. But ICBC is a public entity with no profit mandate and we observe the lowest prices for primary insurance for any province. What can explain these low prices?

A monopoly supplier is a larger organization than a set of competitive suppliers. Large organizations benefit from economies of scale. Monopolists of low-elasticity goods do not need to spend money on marketing. Competitive firms sometimes engage in price wars outside of price equilibria, which is a waste of resources when the war ends in a stalemate.

Private-sector firms are required by their owners or shareholders to “skim” profit off the difference between sales and costs. From the consumer’s point of view, this profit is an inefficiency (it would be cheaper to buy the firm’s inputs directly). Since ICBC has no profit motive, they should be able to provide their product for a slightly lower price. If ICBC suffers a shortfall in revenue, it will be covered by the taxpayers of BC.

Since primary insurance is legally required, the government would likely regulate a competitive market. This regulation, possibly in the form of a commission office, adds an additional cost to BC taxpayers. ICBC currently regulates itself, so essentially it may be impossible to privatize this function.

Insurers’ costs go down when the number and severity of accidents goes down. As a public entity, ICBC can directly offer policy advice on safety, for example the recent ban on cell phone use, to cabinet. A private insurer has more options for reducing costs and even an industry association does not have the lobbying power of a Crown corporation. BC should have less accidents with a public insurance agency than a competitive market, but it is difficult to calculate this benefit.

Car insurance provides opportunity for insider fraud. Despite recent high-profile cases, it may be easier to control corruption with public sector values than private-sector monitoring. Public servants believe that the social cost of fraud is higher than private employees. Lower fraud results in lower costs.

Homework: ICBC should be Privatized

Friday, February 12th, 2010

There are some reasons why BC should consider privatizing ICBC and opening the primary insurance market to competition:

ICBC has a legislated monopoly on a low-elasticity good: primary insurance is legally required and few consumers are willing to go without a car. If ICBC were a private sector company, they would increase the price of primary insurance to maximize profits. Since ICBC does not have a mandate to profit, they do not maximize the price but they also do not minimize it. A primary insurance market with competition should result in lower prices.

Since ICBC is not collecting a profit from the non-minimal prices, where else is the money going? It is being passed along to their suppliers. ICBC’s bigger supplier, by far, is their employees. Employees in monopolies engage in “rent seeking”: earning a higher wage by virtue of their position in the market. A market with competition of employers should result in lower wages (the savings passed on to consumers).

ICBC’s employees also have no incentives to work smarter: there’s no competition attacking their market share and, as public sector employees, their pay is not linked to company performance. Competition in a market increases productivity. Existing firms invest and innovate to increase their competitiveness and new firms grab a share of the market through innovation. Higher productivity results in lower cost.

As the sole supplier, ICBC has less incentive and opportunity to innovate. For example, many economists advocate pay-as-you-drive insurance rates. But ICBC has no reason to implement changes without political will. A competitive market would produce more innovative services.

Recent scandals at ICBC demonstrate a sense of entitlement. Employees of a monopolist feel that they “own” the market. Being a Crown corporation under control of a Minister opens the door to political meddling. Consumers would receive higher quality from independent organizations.

No Comment on Local Government Election Reform

Friday, February 5th, 2010

All provincial and federal public servants are supposed to be non-partisan during work hours. Most of them are free to do partisan activity in their free time. We’ve come a long way since 1960 when Dave Barrett had to get special permission to run, and even longer since 1899 when public servants weren’t allowed to vote in BC. I happen to be in one of the few positions that has a higher burden of non-partisanship (although that hasn’t been tested in court, as far as I know): I am expected to remain non-partisan in my private life.

The members of the Local Government Elections Task Force were all appointed by Cabinet. Apparently some people[who?] consider the Task Force to have a partisan slant. To maintain my squeaky-clean image, my employer asked me to remove my personal opinions from my post on the Task Force.

The impact of social media on the political status of public servants is an active area of research. Requests for interviews with me can be left in the comments.

Local Government Election Reform

Friday, January 29th, 2010

BC local government is made up of municipalities, regional districts, the Islands Trust, the Vancouver Park Board and school districts (the UBC Endowment Lands committees are advisory, not governing; First Nations governments represent off-reserve members so they’re not considered local).

[Redacted]

The Local Government Elections Task Force is developing a new model [for local government elections] and started soliticing feedback today.

[Redacted]

Want to Buy: Fitted Cowichan Sweater

Monday, November 30th, 2009

I’d like a Cowichan Sweater. But the ones available in thrift and tourist stores have, for historical or practical reasons, very unflattering cuts.

There’s a Richmond (Coast Salish land) company called Granted that is producing what they call “Cowichan-inspired” sweaters with local (read: Asian immigrant) knitters. Both CBC 3 and The Straight have featured them without questioning their bona fides.

Four Horsemen menswear store in Victoria contracted Granted to produce custom sweaters which are being sold as “Cowichans”. The owner of Four Horsemen said something about Granted being a subsidiary of a traditional Cowichan company, but I can’t find any information about that online.

The question is whether Granted sweaters count as cultural appropriation? If not, buying one of those sweaters is stealing the Cowichan people’s intellectual property and depriving them of one of their few economic niches (see also: HBC’s Olympic sweaters).

What is BC Ferries?

Thursday, November 5th, 2009

BC Ferries is one of the key pieces of infrastructure in BC. It used to be a Crown corporation. Now it’s…something else. “Independently-operated public corporation”, let’s say.

I think very few people know how BC Ferries is structured despite the importance of the service. I had the opportunity to do an assignment on BC Ferries so now I can explain it to you:

BC Ferries Structure

BC Ferry Services Inc (BCFS) owns the ferries, leases the terminals (from the province) and employs the unionized workers that run them. BCFS has a contract with the Ministry of Transportation that includes subsidies for some of the routes. BCFS has issued some bonds that are mostly held by national banks – as far as I can tell, there are no covenants on those bonds that give the holders control of BCFS.

Ferry ticket prices are set by the BC Ferry Commission, which is an independent statutory office appointed by the Legislative Assembly. (So if you think prices are too high, write your MLA.)

The board of BCFS is mostly members of the BC Ferry Authority (BCFA), which is a public partnership. The BCFA is appointed as follows:

  • 4 by coastal regional districts
  • 2 by Cabinet
  • 1 by the BC Ferry & Marine Workers’ Union
  • 2 by the previous directors of the BCFA

I think the point of having the two-layer BCFA-BCFS board is to prevent political meddling and accountability but mostly to make BCFS independent enough to secure its own bonds. The other value of independence is that the only constraints on BC Ferries is the contract. (If you don’t like the terms of the contract, write the Minister of Transportation.)

The two big questions I have are:

  • What principles is the BCFS board operating under? Maximizing shareholder value doesn’t make sense.
  • How do the banks and the markets see the reality of this whole thing? How would you create a model for the value of the bonds?

The Victoria Symphony Debates Arts Funding

Wednesday, September 9th, 2009

I am not permitted to share my opinion on arts funding in BC, but I am enjoying this exchange in the Times Colonist:

Marcus Handman was executive director of the Victoria Symphony until 2008, when he jumped ship to the film industry. Handman says arts organizations should suck it up and increase efficiency. Mitchell Krieger has a background in opera and was managing an American playhouse until he replaced Handman at the Symphony. Krieger says the government shouldn’t cut funding.

I’d like to expand on Krieger’s historical references, though:

  • Ancient Greek plays were mostly exhibited in religious festivals. Since Athens was a theocracy this could be considered government funding.
  • In Mozart’s early career he was a court musician but he is famous for not having a patron: his prime source of income was public ticket sales, which proved insufficient for his lifestyle.
  • Beethoven’s patron was Cardinal Rudolf.
  • Shakespeare’s patrons were aristocrats, effectively the government in feudal times.
  • Almost all Michelangelo’s commissions were of the Church but he also produced art for upper-middle class individuals. David was, ironically, commissioned by a textile business association.

Why You Didn’t Vote

Wednesday, September 2nd, 2009

After the last provincial election, which had a turnout just above 50%, Elections BC commissioned a voter engagement survey. The most interesting data is about people who didn’t vote, although of course their responses can’t be trusted:

54% of non-voters believe their vote “matters” compared to 84% of voters. 43% of non-voters believe the outcome of the election had a “direct effect” on them compared to 70% of voters. 96% of voters believe it is important that people vote, but 76% of non-voters agree, 52% strongly.

Some highlights from non-voter responses:

Why didn’t you vote?

  • 35% personal circumstances
    • 18% busy
    • 6% out of town but not out of province (BC has the most flexible absentee voting system in Canada, but not everyone knows that)
  • 29% disengaged
    • 7% sceptical of politics
    • 7% didn’t like candidates
    • 7% wasn’t interested
    • 5% didn’t like parties
  • 16% lack of knowledge
    • 9% didn’t know enough about platforms
  • 7% pessimistic (the best reason not to vote)
    • 5% voting doesn’t matter
    • 2% outcome certain
  • 6% forgot

What’s the #1 thing that could be improved?

  • 26% education (no agency in BC has a mandate for voter education – Elections BC does it for the lolz)
    • 3% information about candidates & platforms
    • 1% more opportunity to meet candidates
  • 16% voting process
    • 9% compulsory voting
    • 2% electronic voting
    • 2% online voting
  • 7% change electoral system

What would make you more likely to vote?

  • 34% different political parties
  • 13% more campaign information
  • 2% different candidates, platforms or issues
  • 2% different political system
  • 2% online voting