Is Mr. Ford's idea of privatizing the TCHC a good idea?

While some things, like national defense, courts, police and public safety are usually best done by government, most other economic activities are better served by the private sector which includes both for profit and nonprofit organizations. The resources needed to produce goods and services for consumers are scarce. The same scarce land, labor and capital used to produce one thing cannot be used to produce another.

Adam Smith’s metaphor of an unseen, or invisible, hand that guides participants in a free market to use resources efficiently and produce what consumers want is an apt one. Producers who produce what consumers want are rewarded with profits while those who miscalculate and produce things that consumers don’t want are punished with financial losses and ultimately bankruptcy. Trial an error is at work here but error is limited by the fact that too many errors and the organization is out of business.

Correctly judging and then producing what consumers want will produce profit initially but to grow, or even continue to receive profit, and organization will have to concentrate on the cost of the resources it uses. In a free market profit both rewards those who discover and produce what consumers want as well as acting as a signal broadcasting consumer preferences to all producers. As more producers move into production of popular goods and services competition ensues as each producer seeks to find ways to both improve the product as well as reduce costs by finding more efficient ways to produce it using fewer resources.

Government actions can distort this market process. Government subsidies can make up for lost revenue thereby relieving the subsidized entities from having to find ways to reduce costs by being more efficient.In the case of the TCHC, the owner of the corporation is the City of Toronto which provides the TCHC with half of its annual revenues from taxes collected from the Toronto taxpayers. This taxpayer subsidy allows the TCHC to keep the rents below market levels on its properties which gives it a significant advantage over potential competitors.

Thanks to the subsidy from the city, TCHC enjoys a quasi monopoly in the low income niche of the local housing market. With few alternatives to choose from, residents of TCHC housing have little choice other than to continue renting from TCHC. While the tenants’ low incomes prevent TCHC from increasing its revenue by raising rents, it can increase its profit or surplus by reducing costs.

The easiest way for a monopoly to reduce costs is to reduce quality. In this case, quality is reduced by deferring needed maintenance as well as reducing or eliminating needed services such as pest control, security, etc. Both print and electronic media in Toronto have been running stories TCHC tenants living in units that are literally falling apart or overrun with vermin as well as accounts of other properties sitting vacant because they are uninhabitable. Both for-profit and non-profit organizations that don’t have access to taxpayer subsidies or government protection from competition have to control and reduce costs while continuing to meet consumers’ demand for quality goods and services.

Failure to do this results in their forced out of business as revenues decline and financial losses increase each year.