Feature Article:                                                                   The Social Benefits of the Stock Market

Filip Palda

Sometimes great ideas pass us by because they seem ordinary. The Yale lock, the zipper, and the paper clip are brilliant inventions we take for granted. The stock market also belongs in this class. It has made Canada wealthy and secure. But few people would place the stock market high on the list of our civilization's great achievements. All those angry-looking men shouting at each other on the trading floor to sell, or buy, or do whatever it takes to turn a buck, do not inspire admiration. It has taken researchers many years to understand that there is science behind the shouting.

Most of us do not share these researchers' insights. What we hear comes from the media, which tells a sordid story of greed and vanity: Stock markets are like a casino. Money changes hands but nothing of value gets made. What I win comes at your loss. Speculators make prices jump about and leave the world a less stable place. Ruthless corporate raiders use the stock market to raise money for unethical leveraged buyouts, and inside traders use it to fleece ignorant stockholders. In this jungle investors go for the quick gain and neglect worthy companies with long-term plans.

Scare stories are easy to write but they lack perspective. Early this year The Fraser Institute will release a book by Professors Lewis Johnson and Bohumir Pazderka of Queen's University School of Business that brings us closer to the truth about stock markets. What follows is an outline of the rich and sometimes surprising ideas Professors Johnson and Pazderka ask us to consider.

The search for value

Stock markets spread risks, raise capital, direct information to its best use, and keep managers efficient and loyal. These functions may not grab the headlines, but that is perhaps because the headlines are missing the point. The stock market has evolved to answer one of the most basic questions that humans ask: "How much is it worth?" While philosophers debate what is important and valuable in life, financiers and traders put their money on the line to find the answer.

The inventor of a new antibiotic who forms a company may need the money of others to bring his product to the world. To get this money he can sell stock. He puts his idea on the auction block, where other financial experts will focus their expertise on setting a price. These other experts are investors or their talented agents. Investors will set the right price for the stock if they judge correctly how much good the antibiotic will do, and how much it will cost to make the antibiotic. If investors fail to see the full benefit of the drug they will bid too low and the company develops more slowly than it might have. If investors overestimate the benefit of the drug they neglect to put their money in other projects which consumers value more highly. In either case, the mistake is costly.

A great university

The risk of bearing these costs sharpens the mind and pushes investors to make use of every scrap of information they can get their hands on. Nothing goes to waste. Once a company is on the road, investors keep a close watch for any new information that may surface. Can the drug be improved? Are consumers satisfied? If investors are doing their jobs well, the moment news arrives the price of the stock will change to reflect that news. Because information has a way of turning up randomly we would expect stock prices in an efficient market to behave randomly. The whimsical rise and fall of the stock exchange does not reflect indecision or financial manipulations. The flutter of the TSE shows that investors are making good use of the truths that nature uncovers according to her fancy. Louis Pasteur told his students that chance favours the prepared mind. Investors spend billions of dollars preparing their minds for nature's revelations. These outlays on "turning a buck" have made stock markets into centres of learning that stand equal to the world's great universities. The difference between the two enterprises is that professors can afford to indulge in research which few people care about. Investors in a well-regulated market must seek the greatest good of the greatest number of people. Seeking this greatest good is the way to riches.

"Protect us from all anxiety"

One of the finest fruits of stock market research has been the discovery that bundles of stocks and bonds can protect people from risk. These bundles are known as diversified portfolios and derivative securities (or simply "derivatives"). Derivatives are securities that derive their value from some underlying security such as a stock, a commodity, or a currency. The best known derivatives are options. A type of option known as a put allows you to sell stock, commodities, or currency at a guaranteed price, for a guaranteed number of months. If the Canadian dollar is at 75 cents U.S. and I fear that it will fall to 70 cents in the next six months I can buy a put that will give me the right to sell each of 100,000 Canadian dollars for 75 cents U.S. This is particularly handy if my construction business imports its shingles from the U.S. A fall in the Canadian dollar could raise my costs at home and put me out of business. The put is also handy if I am a pensioner with my life savings in Canadian assets and I am tired of seeing these assets shrink every time our dollar falls.

The beauty of options is that I do not have to hold $100,000 Canadian to sell $100,000. I simply buy the right to sell the dollars at a guaranteed price. I buy this right from someone in the market who thinks that the Canadian dollar is not going to fall. I can think of him as my insurance agent, though he may be a rancher in Alberta or a merchant banker in Japan. If my fears about a currency disaster were wrong, this insurance agent makes his commission of a few hundred dollars. If my disaster happens he picks up what may turn out to be a very large tab. Millions of insurance policies such as these sell every day.

Shuttling risk around

The derivatives market allows people who can tolerate risk and who have a good sense of where real risk lies to take a weight of worry off the minds of more timid investors. Timidity takes many forms. Some people may fear that prices will either rise or fall, or that prices will not change, or that prices will rise then fall. The derivative's market has an "instrument" to protect against most patterns of risk. The design of these financial instruments is a science that works for the good of mankind. The peace of mind that financial scientists sell encourages timid investors to bring their funds to the stock market. This widens the pool of capital that feeds a nation's growth.

Derivatives make fine insurance because they can derive from almost any worrisome feature of the underlying security. If the investor fears, for some reason, that the Canadian dollar will stay within a two cent range of its present value, a derivative can be fashioned to protect him. Derivatives allow investors to do away with the possibilities they do not like about the underlying securities. Derivatives unpack the mixed bag of fortune and failure people get when they are buying something like a stock. Unpacking is good because it widens the choices people can make. For example, if music lovers could tailor a CD to their tastes they would save themselves the expense of buying many records with only a few pieces they want to hear.

Easy to misunderstand

Sometimes insurers will make large mistakes, and be forced to pay out painful sums to the people who bought their derivatives. These are occasions for the media to whoop with indignation. In an October 1994 feature, Time magazine drew attention to recent losses by mutual funds. These funds had put too much of their money in derivatives. Time primly declared that it had "Warned earlier this year...that derivatives posed a new and little understood threat to U.S. consumers and companies." The article painted a heartbreaking picture of innocent people lying broken under the "financial wreckage" done by derivatives. The main lack of understanding however was with the Time reporter, who seemed ignorant of the simplest facts about derivatives' markets. The only people who can be broken in these markets are the risk-takers who sell the insurance. Their loss is balanced by the gains of timid investors who buy derivatives as protection against financial shocks. If reporters do not lament the life insurance money that Allstate pays to bereaved families, then reporters should dry their tears for the derivatives' sellers who take risks and pay the price.

The media are just now discovering that derivatives exist, so perhaps their weak grasp of the issues and their isolation from academic findings should not surprise us. For example, painstaking studies by prominent U.S. economists and by the O.E.C.D. conclude that in the 20 years since derivatives became big business, financial markets have not become less stable. This may be hard to digest for those, such as Fortune reporter Carol Loomis who trumpet that derivatives have put the world's "financial system" in danger. To find likelier causes of risk in our society we do not need to look for exotic financial explanations. Something much more ordinary may be to blame.

The honourable crapshooter

Ironically, government may be responsible for turning the stock market into a supermarket for insurance. One of the intellectual excuses for the explosion of government that started in the 1930s was that the state had a duty to insulate the economy from violent ups and downs. By spending heavily when the economy was depressed and by spending little when the economy boomed government was going to iron out the peaks and troughs of economic fate. Careful regulation of the financial system would keep banks and trusts from speculating with other peoples' money and going under, while the bank of Canada kept the currency steady. This intellectual apology for big government won applause, even though history teaches that concentrating power in a few hands can make the future uncertain. Since the 1930s government has done much to destabilize the economy. Our large debt scares away investors who fear that the taxman may call on them to pay it down. The Bank of Canada plays roulette with inflation by refusing to follow strict rules about how the money supply will grow. And everywhere the government insulates people from the consequences of making risky decisions. Bailouts for businesses encourage excessively daring investments, and unemployment insurance relieves workers of looking for jobs where the risk of being laid off is low. Perhaps investors have turned to stock markets as a way of taming the risks that governments set loose. In taming risk the stock market is fulfilling the promise of stability that the welfare state has failed to keep.

The good speculator

It may seem odd to think of the stock market as a place where people put a price on their ignorance and buy relief from the anxiety it brings. We are more at home with the notion of the stock market as a terrain where reckless speculators and arbitrageurs trade on their hunches and destabilize prices. The media encourage this notion because it makes for easy and sensational reporting. The good deeds that speculators and arbitrageurs do are harder to understand.

Speculators are in the business of buying up goods or materials in times of plenty and selling them in times of need. This saves us from living either in feast or famine. For his services to society the speculator has earned money and a bad name stretching back thousands of years. Roman historians record that in 67 B.C. pirates infested the Mediterranean and cut off the corn supply to Italy. These historians thought it was obvious that speculators held on to their supplies of corn to drive up the price. They did not ponder that if speculators had not held on to their supplies there would have been no corn left for the catastrophic times that many believed lay ahead (as it happened, Pompey the Great took command of a Roman fleet, made short work of the pirates, and sent corn prices plunging, but that is not the point of the story).

When a speculator today buys stock in a drug company he is betting that in the future there will be a strong demand for the drug. His investment helps the company survive until the day when consumers have the greatest need for the company's particular expertise. When the speculator sells the company short, he is guessing that someday few people will need the drug. Maybe something better is being developed that will make the company obsolete. A short sale allows the speculator to redirect resources from the company to invest where he thinks they will be most needed.

The work of speculators also stabilizes prices over time. Buying today on a hunch that prices will rise tomorrow, makes prices today rise. Setting aside supplies for tomorrow means that the price rise in the future will not be as great as speculators at first anticipate. In other words, speculators help to spread the shock of a future price increase back to the present, so that the future shock is not so great.

The efficiency of arbitrage

Arbitrageurs are in the business of finding a single resource that sells for two prices. Suppose eggs sell for $1 a dozen in the supermarket and for $2 a dozen in the open air market across town. This is a bad situation because it means that there is a needless shortage of eggs in the outside market. The arbitrageur will make money if he buys as much as he can from the supermarket and sells it outside. His search for profits will bring eggs to where consumers need them most and will force merchants in both markets to bring their prices in line with each other.

Arbitrageurs perform the same social service that speculators perform. The only difference is that speculators move resources between the present and the future. Arbitrageurs move resources from place to place. Recognizing an opportunity for arbitrage becomes complicated when the resource in question is a stock, or even a portfolio of stocks and bonds. Two portfolios that do not have a single stock or bond in common may really be no different from the other. What matters to investors is the pattern of returns the portfolios promise. The trick is to identify portfolios that sell for different prices but promise the same returns under the same conditions of risk. An arbitrageur may discover that pensioners are paying too much for their retirement portfolio. A different and cheaper combination of stocks and bonds could sustain pensioners in the same style the old portfolio promised. The arbitrageur performs a social service by bringing cheaper alternatives to the attention of people who might be interested.

Leveraged buyouts and democracy

The profound interest that investors, speculators, and arbitrageurs have in making money has turned the stock market into a refined democracy. Every time they buy or sell a stock they cast a vote for or against the company. Company managers face a sobering opinion poll every day. If people are selling stock because the managers are incompetent, someone may scoop up a majority of stocks, win control of the company, and throw out the managers. This "someone" is usually an investor who has studied the company, and thinks he understands its true potential. By using financial instruments such as junk bonds, the investor can raise the capital he needs to buy out a mismanaged, undervalued company.

The use of junk bonds to finance leveraged buyouts became a science in the 1980s, under the intellectual leadership of Wall Street financier Michael Milken. Milken saw that there were pools of credit that could be tapped to bring value back to badly run enterprises. This discovery brought a just balance of power to shareholders suffering under wayward managers. Milken made a fortune selling his socially valuable service but excited a jealousy and suspicion that contributed to his being thrown in prison. We can only hope that one day a Michael Milken will blaze through the world of politics. If politicians faced the same threat that unsatisfactory company managers face, we would have a more efficient and responsive governments than the ones we now suffer.

Baking a bigger pie

The people who play the stock market may not realize it, but they are helping to build the nation. When investors sink time and money into researching which companies will grow, they are helping to guide resources to their best use. Betting a company will grow fast means putting funds at its disposal. It also means holding back funds from other companies with less chance of growing. By moving resources where they will be most productive, stock markets help to drive economic growth. Stock markets are not about slicing the pie. They are about baking a bigger pie.

Eastern European economies are a refreshing reminder of how important it is to have an organized market for financial securities. When governments in the East decided that it was time to privatize industry they faced a problem: At what price should these industries sell? The Czech Republic led the way by suggesting that private citizens should decide. The state entitled each Czech to a small share of the industries the state was privatizing. Citizens put about 70 percent of these shares (called vouchers) in the care of investment fund managers. Managers started trading these vouchers and soon it emerged that some industries sold for more vouchers than others. These different values grew out of the market research that the investment fund managers had done on behalf of their clients. This first act in the Czech economic play revealed where the country's best prospects lay.

The Czech experience is also a reminder of why investment funds are good for us. In the last decade they have become important traders on the world's exchanges. Investment funds are popular because they give ordinary people the chance to invest a few thousand dollars each year without having to become market experts. The funds take it on themselves to become the experts. They specialize in gathering information about the market and pass the benefits of this specialization to their clients.

Regulations needed

For any kind of market to work it helps to have regulations that punish dishonesty and protect consumers, without limiting the useful choices these consumers can make. In their zeal to protect the people who buy financial products government should make sure that they are not really blocking a productive exchange of resources. The recent push by G-7 countries to limit or even eliminate trade in derivatives is an example of misguided zeal. Sound regulations will only come from people who understand what is good in the stock market. This is no simple matter because stock markets are complicated and it takes an educated eye to appreciate their subtle workings. As ecologists have shown, you do not protect a forest from fire by stamping out every blaze the moment it starts. Sometimes the best policy is to let the forest burn a while. Forest management is a scientific business that follows rules which are not obvious at first sight. The Fraser Institute book by Professors Johnson and Pazderka explains that we should be open to similar possibilities when it comes to stock markets.

References

Blundell-Wignall, Adrian, Frank Bowne, and Paolo Manasse, "Monetary Policy in Liberalised Financial Markets," OECD Economic Studies, No. 15, Autumn 1990, pp. 146-178.

Greenwald, John, "The Devil's in the Derivatives," Time Magazine, October 10, 1994, pp. 48-50.

Kupiec, Paul, "Stock Market Volatility in OECD Countries: Recent Trends, Consequences for the Real Economy, and Proposals for Reform," OECD Economic Studies, No. 17, Autumn 1991, pp. 31-62.

Loomis, Carol J., "The Risk that Won't Go Away," Fortune, March 7, 1994.

Tease, Warren, "The Stock Market and Investment," OECD Economic Studies, No. 20, Spring 1993, pp. 41-63.

Feature Article:                                                                    Freedom of Choice in Health Care

Cynthia Ramsay

Health care in Canada is considered an essential public service. It is a service which costs taxpayers billions of dollars but over which they have little, if any, control. The conventional medical profession was given the power of self-regulation by provincial governments in the 19th century after much lobbying by the profession. It was granted the power to police itself because only it understood the complex nature of medicine, and therefore only it was capable of ensuring the quality of the service or good being offered, i.e. of protecting the public from incompetent practitioners and from harmful medications.

Unfortunately, there is a fine line between protecting people and denying the protected their rights. The medical community has been granted a cartel over the provision of health care services in Canada. As a cartel, the licensing boards have the power to restrict entry into the profession, to control the prices and the types of goods and services offered by the profession, and, therefore, they have the power to restrict the choices available to both its members--the suppliers of health care--and the public--the consumers of health care. With such power over all aspects of the health care system, a conflict of interest exists when challenges to their authority arise which may be beneficial to the consumers of health care in terms of costs, quality of care, and freedom of choice, but which could conceivably hurt the profession.

The challenge from non-traditional medicine

More and more, patients are demanding alternative, or complementary, forms of medical treatment, and they are willing to pay for them since they are not, or are only partially, covered by health insurance plans. With constant concern about the rising costs of health care, these patients should be encouraged to seek preventive, less costly, and less risky treatments than those that are now readily available to them. And they should be able to receive these treatments from qualified practitioners of several disciplines.

Acupuncture, the use of needles to stimulate blood flow, has existed for thousands of years. Homeopathy, which uses natural medicines to treat the whole person (and not just the present affliction), has been practised for centuries. The first recorded chiropractic adjustment, using the hands to realign vertebrae, took place in 1895. Chelation therapy, which uses a protein-like molecule that binds to calcium and various toxic metals, and then carries them to the kidneys where they are then removed by the body, has been available for more than 30 years.

Despite the long history of these complementary medicines, the "traditional" medical community, in the form of provincial medical licensing bodies, has yet to accept them on equal footing; as valid alternatives, openly discussed with their patients, to more intrusive, costlier, and often riskier medical procedures. Patients wishing to receive these alternate treatments must not only pay most, or all, of the expenses incurred, but they have, at various points in history, run the risk of having their treatment denied to them. As well, even licensed medical physicians practising alternative health care have had to defend themselves against charges of quackery by the association of which they are members and to which they pay dues.

Licensed medical practitioners who choose to practise complementary medicine are fulfilling an important public need that is not currently being met by the Canadian medical establishment. The medical licensing boards are using their near-monopoly control over the provision of medical services in Canada to restrict the choice of both the suppliers and the consumers of these services. In doing so, they are acting in direct opposition to the World Health Organization's 1989 Helsinki agreement signed on behalf of Canada and, therefore, by definition, on behalf of the provinces and territories, by the Minister of Foreign Affairs at the time. This agreement contains the following subsection:

A registered practitioner shall not be found guilty of unbecoming conduct or be found to be incapable or unfit to practice medicine or osteopathy solely on the basis that the registered practitioner employs a therapy that is experimental, non-traditional or departs from prevailing medical practice unless it can be demonstrated that the therapy has a safety risk unreasonably greater than the prevailing treatment.

A threat to the power of the cartel

It takes time, often a lot of time, to change the mind-set of the medical community as a whole. Since the early 1800s, medical practice in the western world has focused on the "germ" theory of disease which postulates that illnesses are caused by germs or other causal factors. This theoretical framework has been successful in many ways: it has encouraged the rigorous training of physicians and extensive research into the causes and cures of disease. However, because of its linear reductionist reasoning and its limited scope, there are many examples of how the "traditional" medical community has often hesitated to endorse ideas that work. It accepted only recently that there is a relationship between the food that people eat and their state of health. It failed to recognize the value of taking vitamin supplements and, at one point, it disregarded the claim that chemical preservatives could be harmful to a person's health.

However, the position of the licensing bodies with respect to complementary medicine and its practitioners (licensed medical doctors and practitioners certified by other institutions) is not simply a matter of being slow to accept new treatments. Nowhere in the Medical Practitioners Act of B.C., the Medical Act of N.S., or the Medical Act of N.B., for instance, are the medical licensing boards given the right to rule on what diagnostic or medical procedures are appropriate. Despite this, Ontario has banned the use of chelation therapy and has banned the use of other alternative medicines for periods of time. Medical licensing boards across the country have spoken out strongly against the use of some alternative therapies without any evidence that they are harmful, and have investigated the practices of the physicians themselves; thinly veiled attempts to protect their control over the supply of medical services in Canada. Licensed practitioners of complementary medicine are earning enough of an income to survive professionally outside of the traditional health care system, and their services are in such demand by the public that these practitioners pose a threat to the cartel of the medical licensing boards. Alternative treatments such as chiropractic manipulation have survived despite attempts to discredit and eliminate the practice because of the persistence of its practitioners and because of strong public support. However, even today, chiropractic care is not completely covered by provincial health insurance plans.

Evidence of constraints on supply and demand

The provincial medical licensing bodies across the country are supposed to abide by a province's Medical Practitioners Act or its equivalent. These acts require that the licensing bodies set standards for licensing and for medical practice and that they provide appropriate discipline when such standards are not met by their members. These acts also include a variant of the following section:

It is the duty of the college at all times a) to serve and protect the public, and b) to exercise its powers and discharge its responsibilities under all enactments in the public interest.

In most instances, the medical licensing bodies do act accordingly, however, at times they overstep their bounds. These bodies have been known to lay charges against licensed doctors practising complementary medicine without having received a single patient complaint, to seize patient records without patient consent, and to keep investigation of the charges secret. Incidents such as these have taken place across the country.

Drs. Baker and LaValley of Nova Scotia, licensed medical physicians who also practised homeopathy and acupuncture, had treated more than 6,000 patients over a seven year period. They were accused of quackery in 1993 by the Medical Services Institute (the provincial health insurer) and the province's medical licensing body. After an ordeal that lasted over a year, the doctors, with strong public support, won their right to practise their type of medicine. They also lobbied successfully to change the Medical Act of Nova Scotia to include registered practitioners of complementary medicine.

The Ontario College of Physicians and Surgeons interrupted Dr. Felix Ravikovich's practice in Toronto last year, and banned the use of a histamine injection he used, one which was backed by double-blind studies, pending a court hearing. Dr. Ravikovich had successfully treated over 3,000 patients for allergies, eczema and asthma. Although Dr. Ravikovich has been notified that the verdict of the hearing will be in his favour, he cannot treat his patients with the banned histamine injection until the verdict is officially delivered in January, 1995. Dr. Ravikovich's patients have formed a lobby group which is planning to sue the College.

In British Columbia, Dr. Alex Neil, a licensed medical doctor, had been practising chelation therapy for more than three years. In 1994, investigators of the College of Physicians and Surgeons, having received no patient complaints, seized and copied confidential patient files from Dr. Neil's office in Kelowna. They have refused to inform Dr. Neil, his patients, or the public as to the progress of the investigation.

Provincial medical licensing bodies exceed and abuse their mandate when they investigate and harass licensed medical doctors who practise complementary medicine with the informed consent of their patients and in the absence of demonstrable harm to their patients. Such actions coupled with the fact that alternative therapies generally are not covered by provincial health insurance plans indicate that freedom of choice in health care does not exist in Canada, neither for those who are supplying it or for those who are demanding it. From a pure cost perspective, irrespective of the argument for free choice, the medical licensing bodies are keeping the demand for health care services at an artificially high level by restricting the supply of services available to consumers. They are creating an additional inefficiency in the health care system; a price which everyone has to pay in the end.

The need for consistent requirements

The medical licensing bodies want proof that alternative therapies work and that they do not have harmful side effects. This is a valid and necessary demand if patients are to be protected from incompetent doctors and from potentially dangerous medications or treatments. Certain medical standards need to be upheld, the medical community must be held accountable for its actions, and patients must be able to expect consistency and fairness in the manner with which their complaints are dealt.

With this in mind, the reason given by the medical licensing bodies for refusing to acknowledge certain alternative therapies is that they have not been subjected to double-blind studies. Such studies monitor two groups of patients, those given the treatment and those who receive no treatment (patients who receive a placebo), with neither the physician or the patient knowing who has received the treatment until the study has been completed. Ideally, all new medications, surgeries and treatments would undergo such a rigorous test. However, between 85 and 90 percent of "traditional" medical practice is not based on controlled, randomized, double-blind studies. As well, only one percent of the studies published in medical journals are scientifically sound. These realities are not intended to dismiss current medical practices as untested and worthy of suspicion. They are simply an indication that the double-blind test should not be considered as the only valid test. Accumulated clinical observations, clinical experience, and less exacting scientific studies should be valid methods of testing therapies and medications. Acupuncture has been rigorously tested and has been shown to be effective in the treatment of pain, and studies have shown that chiropractic manipulation produces better relief of back pain than treatment by a family doctor or by an orthopaedic specialist.

How can provincial medical licensing bodies refuse to acknowledge the benefits of alternative treatments such as chelation therapy on the grounds that they have not been subjected to double-blind tests (or that such tests performed to date have resulted in indeterminate conclusions) while "accepted" practices such as angioplasties and bypass surgery have not undergone such examinations? [Practitioners of chelation therapy are not advocating it as a replacement to surgery but as an option before resorting to surgery, or after surgery has failed. They have asked the colleges to conduct studies but have been refused. As well, with E.D.T.A. being a generic substance, it is not profitable for pharmaceutical companies to conduct extensive testing of chelation therapy.
As it stands, there have been more than 3,000 research and clinical papers published on chelation therapy in North America alone and, over the last 20 years, over 1 million people have received chelation therapy worldwide. In the United States, the American College of Advancement in Medicine trains and certifies doctors who wish to practise chelation therapy and it provides guidelines for the safe use of chelation treatment.] Table 1 should indicate why some patients are choosing chelation therapy, even though it is condemned by almost all of the medical licensing bodies in Canada, it is not covered by any provincial health insurance plan, and there is not a lot of rigorously scientific evidence that it actually works (or whether the beneficial results that have been reported are produced by a placebo effect).

The medical and scientific communities must reach a consensus as to what constitutes proper medical research procedure. Either both accumulated clinical observation and double-blind studies should be considered as acceptable methods of testing new medications and treatments, or all new medications and treatments, without exception, should be subjected to double-blind tests before being used on patients. Preferably, because of the many indeterminate aspects of health and disease, more than one method of testing will be deemed as being appropriate medical research procedure.

Freedom to choose

Accumulated clinical observations, clinical experience, and other scientific studies have shown many alternate therapies such as acupuncture, chiropractic manipulation and chelation therapy to be effective. Many patients see alternative physicians with or without the knowledge or blessing of their doctor and no significant number of patient complaints have been registered with the medical licensing bodies. As well, there are no registered fatalities or serious side effects directly related to the use of the alternative therapies mentioned above.

The power possessed by the medical licensing boards in Canada was given to them by the provincial governments; it is not an inalienable right. Freedom of choice in health care will only develop if this power is tempered. There are many ways in which this goal could be achieved. The replacement of licensing by an alternative such as certification would allow for increased competition between the institutions certifying physicians and between the physicians themselves. Certification would assure the public that their alternative practitioners met the standards of the discipline's certification body and that the practitioners would be disciplined when these standards were not met. While the medical licensing bodies would still certify medical practitioners, other organizations would certify practitioners of the various types of complementary medicine. In the same way as practitioners in such disciplines as chiropractic manipulation, dentistry, optometry, and pharmacy are covered by their own legislation in most provinces, practitioners of complementary medicines would have set guidelines and regulations to follow which would vary with the type of complementary medicine being practised.

An alternative to the complete abandonment of the licensing system which now exists in Canada is to reduce the power which the medical licensing bodies have in the health care market. A few provinces have taken steps in this direction. Quebec has allowed the practise of midwifery to continue despite complaints from the province's medical licensing board because the board refused to cooperate with or to participate in a study of the value of midwifery. In 1991, Ontario passed a Midwifery Act which regulated the practice of midwifery within the province and it recognised the right of traditional aboriginal midwives to practise midwifery. As well, Ontario has officially recognised the practice of aboriginal traditional medicine as a whole. In Alberta, a motion to officially recognise complementary medicine was passed in the House last spring.

However, it is Nova Scotia that has made the most significant contribution to freedom of choice in health care in Canada to date. Its provincial government has officially recognised, after much dissension, complementary medicine by including the cited subsection of the Helsinki agreement in the province's Medical Act. The government has also legislated a Provincial Health Council composed of 12 lay persons from various parts of the province. This council is an advisory body to the government on health issues, it monitors the cost and performance of the province's health care system, and it provides Nova Scotians with opportunities to participate actively in health care planning.

Another promising development in the furthering of freedom of choice in health care is the recent Canadian Medical Association publication, Guidelines for Canadian Clinical Practice, which includes the statements that clinical practice should:

1) be sufficiently flexible to allow patients and physicians to exercise judgement when choosing among available options,

2) enable informed decision making by patients and physicians, and

3) recognize that the physician's primary responsibility is to his or her own patient.

Conclusion

Most practitioners of complementary medicine wish to remain members of their respective colleges, [Dr. LaValley and sixteen of his colleagues were instrumental in getting the Medical Society Institute in Nova Scotia to grant alternative practitioners a subsection in the Society's Act. In Alive, Dr. LaValley was quoted as saying about this group of practitioners: "We're members of a lawful practice and we want to go by the rules."] and most people would probably prefer that such organizations exist to protect their health. However, these medical licensing boards are not acting in the public interest when they deny people access to treatments which are effective, and when they harass licensed medical physicians because they provide an alternative method of treatment for their patients. The cartel of the medical licensing bodies over all aspects of the health care system must be dissipated and more public input into the system must be allowed.

Ministries of health, along with medical associations and professional bodies in such countries as New Zealand, Belgium, France, and Spain allow licensed medical practitioners to treat their patients by almost any means they feel is appropriate, and, in the United Kingdom, medical practice is virtually unregulated. The World Health Organization has officially recognised the value of complementary medicine, and, in the United States, the National Institutes of Health is establishing an Office of Alternative Medicine.

Worldwide, the concept of health and of what constitutes health care is changing. No longer is health being defined simply as the absence of disease, but now also includes physical, social, and mental well-being. As such, the public policy debate about health care is not a debate limited to scientists, physicians and legislators; it is a debate that engages the public individually and collectively. Improvements to Canada's health care system will require innovative solutions that integrate "conventional" or western world approaches to health with the concept of health embodied in the practice of complementary medicine. The government of Nova Scotia has taken the initiative in increasing the public's freedom to choose the health care that it demands. The other provincial governments must follow their lead and all of them must pursue these issues even further.

Selected Bibliography

Alberta Parliament. Hansard for the passage of Motion 511, 26 April 1994.

Amendments to the Medical Practitioners Act of British Columbia. British Columbia: Queen's Printer, 29 July 1993.

Canadian Coordinating Office for Health Technology Assessment, "Technology Brief," July 1992.

Chiropractic Fact Sheets, no. 8/13. Texas: Parker Chiropractic Resource Foundation, 1990.

DeMarco, Dr. Carolyn. "Witches for the Burning." Wellness M.D. 4, no. 1 (January/February 1994).

EDTA Chelation Association of B.C. Take Heart 5, no. 2 (March/ April 1993).

Fisher, P. and A. Ward. "Complementary Medicine in Europe." British Medical Journal (9 July 1994): 107-110.

Hamowy, Ronald. Canadian Medicine: A Study in Restricted Entry. Vancouver: Fraser Institute, 1984.

Lake, R. Editorial. Alive: Canadian Journal of Health and Nutrition 139 (March 1994).

Proctor, Rosemary, Deputy Minister, Ministry of Community and Social Services, Government of Ontario. "Challenging the Way We Think About Health." In The Path to Healing: Report of the National Round Table on Aboriginal Health and Social Issues, ed. Royal Commission on Aborginal Peoples. Vancouver: Canada Communication Group, 1993.

Rand Corp. "Coronary Artery Bypass Graft." Cat. JRA-02, 1991.

Smith, R. "Where is the Wisdom...?" British Medical Journal (5 October 1991): 798-9.

VanAndel, M., M.D., Deputy Registrar, College of Physicians and Surgeons of British Columbia. Letter to Mr. Kenneth Nunns, 8 August 1994.

van Rij, Andre, et al., "Chelation Therapy for Intermittent Claudication," Circulation (Sept 1994) 1194-99.

Wiancko, Dr. K.B., Chairman, Medical Advisory Board, E.D.T.A. Chelation Association of Alberta. Letter to the Honourable Ralph Klein, Premier of Alberta, 7 April 1994.

"Hitting the Wall" in Toronto

Michael Walker

On December 1, The Fraser Institute hosted a conference in Toronto entitled, "Hitting the Wall: Is Canada Bankrupt?" The conference drew a broad cross-section of the financial community and observers from across Canada. Their attendance was perhaps not surprising given that the conference featured distinguished speakers from around the world.

Sweden's just-defeated Finance Minister described how his country had "hit the wall" with interest rates on overnight money that reached 500 percent. Bo Lundgren laid the blame for Sweden's problems at the door of the comprehensive welfare state and the extent of taxation. But the most important message that the quiet-spoken Swede had for Canadians was that we were perhaps a few years behind the Swedish pace and that as a consequence we probably had time to take corrective action before the worst came to pass. But as others commented, and indeed as was concluded by Globe and Mail columnist Peter Cook, the very fact of the breathing space probably meant that no action would be taken.

The action that is necessary, by common agreement among the speakers, is a more or less dramatic cut in the extent of federal spending. As was pointed out, if Canada does indeed hit the wall, there will be dramatic cuts in spending as there have been in the other countries which have had the experience. We in Canada have much to learn from the experience in these other countries.

For example, Italy recently solved part of its spending problem by extending the retirement age under its very generous pension plan by five years.

New Zealand solved its problem by the most thorough-going retro-fitting of a western government ever undertaken. The number of civil servants there was reduced from 86,000 to 36,000, and a great array of government services and activities which had been nationalized or created in the public sector over the preceding fifty years were privatized. The result, said the Deputy Minister of Finance at the time, Graham Scott, has been a dramatic turnaround in the New Zealand economy. From hitting-the-wall bleakness in 1984, New Zealand has grown back most of the private sector activity which was lost, and at the moment faces the prospect of a very large government budget surplus during the next fiscal year.

The governments of Latin America also have a lesson or two to teach Canada. While most people are aware of the financial collapse and recent resurgence of Mexico, very little seems to be known about the even more dramatic changes which have swept Chile. This latter success story is of more than passing interest to Canadians since Canada is one of the largest investors in Chile. In fact, during 1992, Canadian capital investment in Chile was larger than that of any other country. The explanation for this development is to be found in the bad policies being pursued by the governments of B.C. and Ontario on the one hand, and the excellent policies being pursued by Chile on the other.

As the former Vice-Chairman of the Central Bank of Chile noted, the changed policy outlook in Chile has been nothing short of profound. For example, to give the flavour of the changes, while there are still compulsory health and pension arrangements in

Chile, no longer do these services have to be purchased from a monopoly, government supplier. In fact, pensions there are provided by private competing suppliers, just like the RRSPs are in Canada. Similarly, Chile's health care providers must compete to get the compulsory health care insurance premiums of the population. And of course, the government of Chile, unlike those of B.C. and Ontario, protects the property rights of those investors who invest in the mining, forestry, and fishing sectors of the Chilean economy.

But the most sobering comments heard at the conference were the opinions of foreign bond holders, like the Warburgs Bank representative who pointed out that Warburgs no longer holds Canadian government bonds as an investment. Rather, they are regarded as a speculative security to be traded from time to time when the yield is high enough. The Nomura Securities representative in Canada noted that Canadian government bonds were no longer attractive to Japanese investors because once the losses caused by currency depreciations were taken into account, the yield was too low. Of course, these opinions were being expressed against the echo of the report the week before by Statistics Canada that foreigners were dumping their holdings of government bonds at an unprecedented rate.

The only thing we did not discern was when Canadian governments are going to wake up, or if they will before Canada hits the wall.

Letters

Re: Advanced Education Institutions

Dear Mr. Richardson:

I recently read your article in the September issue of Fraser Forum (it takes a while for the mail to get to Aotearoa!) regarding attempts to have advanced tertiary education institutions included as part of the Crown reporting entity.

This is an interesting issue, and one that has been addressed in New Zealand as part of the Financial Management Reforms. Here are a few points that may be of interest:

1) Since June 30, 1993, all advanced education institutions (universities, polytechnics and colleges of education) are considered Crown entities in New Zealand. As such:

a) they are listed on the Fourth Schedule to the Public Finance Act 1989 (which lists all Crown entities); and

b) their assets and liabilities are included in the annual Crown Financial Statements for the Government of New Zealand.

2) The inclusion of advanced institutions (a.k.a. tertiary education institutions in New Zealand) on the Crown balance sheet recognizes the significant Crown interest in these institutions (net equity of $175 billion as at December 31, 1993).

3) The opposition to the inclusion of these institutions in the British Columbia consolidated reporting entity seems to focus unduly on "control" as the sole criterion for determining whether they should be there or not. Other factors would seem to include: who appoints the members of the governing board; who carries the risk of bailing out an institution if it were in financial trouble; who would assume the assets and liabilities if an institution failed.

4) In New Zealand, we were told by some officials in Government that the sky would fall if we tried to include these institutions in the Crown balance sheet--it would be perceived as a threat to academic freedom, it would lead to a loss of self-management for the entities, etc. As it was, the change was accepted by the institutions and we have not experienced problems in any respect. One immediate benefit was more accurate financial reporting by institutions.

Yours sincerely

Norman LaRocque
Senior Analyst
The Treasury
Wellington, New Zealand

Re: Quebec's debt

Dear Sirs:

October's Forum contained two implications that I don't believe are appropriate.

The first is in that single Quebec study that concludes that public and private sector "compensation" levels are about equal. The C.D. Howe Institute has, as I understand it, recently and generally concluded that a disparity exists in favour of the public sector, and that its excess over the private sector has broadened in the last few years. "Public Sector employment not always lucrative" may still, technically, be correct as you headlined it, but to print it without reference to its anomalous position on this question does not seem as fully informative as it could be.

The other implication that tested my patience is in the Quebec "separation obligation" story--that there are three payback possibilities spread over 10 to 25 years, say, and in which Canada may not take all the interest rate risk. That's preposterous, unless the idea is to help the poor starter country set up on its own.

That house mortgage analogy the author uses is appropriate, but vendors finance sales only for reasons that don't apply in this case--when it's the only way the product will sell, to get a higher price, because the buyer has poor credit, or in genuine compassion to help out a particularly desirable buyer.

If Quebec really wants out, and has the good business references in the rest of the world that its zealot leaders preach, the Quebec share of the debt should be no problem to borrow--within Quebec, or internationally, but on New Quebec's, not Canada's account. From Day One.

Joe Clark's country "too good to lose" is too good to lose, and it makes me uncomfortable and unhappy to consider these Plan B and Separation Obligation type of issues, but if we do so, let's not be suckers.

Keep up the good work.

Claude H. Maurice Victoria, B.C.

Robin Richardson replies:

As author of the article on Quebec's Separation to Canada, I presented several payback alternatives to show how the complexity of the subject. Canada must be firm, yet flexible, in what it requests from an independent Quebec or Quebec would be forced into bankruptcy. This would truly be counterproductive if we want to have them repay their share of the federal debt.

The "Separation Obligation" of $150.6 billion is a moral obligation, not a legal one. Quebec's credit rating would not allow it to borrow this amount without severe interest rate implications. The cleanest way to repay the debt would be for it to remain on Canada's books with Quebec paying it off over a reasonably long period, say 25 years.

If Quebec refuses to pay its share of the federal debt, the rest of us will be stuck with it.

Michael Walker replies:

The interest rate risk can be completely settled on Quebec's shoulders by insisting that they pay the same rate of interest as the government of Canada pays. In my opinion, we should force Quebec to face this risk.

January Questions and Answers

Isabella Horry

Q: How have the top spending priorities of the federal government changed in the past 30 years?

A: Federal spending rose from $8,832 million (or $44,808 million in 1994 dollars) in the fiscal year 1965/66 to an estimated $175,527 million in 1994/95. The January graph looks at the composition of federal government spending since the fiscal year 1965/66. In 1965/66 the top 5 categories of spending were: social services which comprised 28.0 percent of spending; protection of persons and property at 19.7 percent; debt charges at 12.5 percent; transportation and communication at 6.8 percent; resource conservation & industrial development at 6.0 percent; and health care at 5.4 percent spending. In 1994/95 the top five spending categories are: social services at 33.0 percent; debt charges at 25.2 percent; protection of persons and property at 8.8 percent; general purpose transfers to other levels of government at 6.3 percent; and general services at 4.4 percent. Table 1 details the composition of spending for selected years between 1965/66 and 1994/95.


Q: How much does the federal government spend per capita in the provinces? How has it changed over time?

A: The Fraser Institute's study, Government Spending Facts 2, estimates the federal government's per capita spending across Canada. In 1990, on average, $5,703 was spent per Canadian. This figure varies from $4,449 in Alberta to $9,346 in the Territories.

Doubts About Climate Change

Tom Rutherford

The prospect of global warming is much in the news lately and several countries are now proposing strong legislation to reduce carbon dioxide emissions. This legislation would have the potential to devastate their economies to combat the expected effects of the greenhouse theory. Presumably no thinking person would support drastic action based on inaccurate theories or misunderstood data, but often governments make decisions based on incomplete or conflicting information. Partly this may be because the theories are not testable in a short time and many feel, in areas such as the environment, that it is better to err on the side of caution. Even so, there are reasons to dispute the cause and effect of climate changes and the role of carbon dioxide. For example, reliable temperature records for the continental United States show no evidence of a warming trend since 1895 (figure 1) despite higher carbon dioxide levels. Most of the approximately 0.5ÉC warming of the last 130 years is felt only in higher latitudes and as warmer winters.

Writing in Delta (the Newsletter of the Canadian Global Change Program), Roger Pocklington argues that evidence is absent for man-caused global warming. Those who would take harsh action to reduce carbon dioxide emissions base their proposals on claims that the global temperature increase since 1860 is "broadly consistent" with industrial carbon dioxide production. But when one makes the temperature curve fit pre-1940 carbon dioxide emission data, then it does not fit data after 1940 and vice versa. Pocklington adds that from 950 to 1250 AD temperatures were about 1.5ÉC warmer than present and the period from 1450 to 1850 was about 1.5ÉC cooler than present. Scientists consider this latter period part of a minor "ice age" from which we are only now recovering. Evidence from arctic glaciers indicates that the climate today is still cooler than the average of the past 10,000 years.

Atmospheric carbon dioxide concentrations are much less than they should be if all sources are considered. Where is all the carbon dioxide we have put into the air since the start of the Industrial Revolution? An article in Science News reports that Miles J. Fisher has recently found some "missing" carbon dioxide sequestered around the roots of 35 million hectares of African grasses planted in South America since 1980. Calculations show that we can account for about one quarter of the "missing" carbon dioxide around the roots of these grasses. Carbon dioxide is a limiting nutrient for plant life and they cannot get enough of it at today's levels and fare even worse during periods of severe glaciation when carbon dioxide levels are even lower. Further research will likely find the remainder of the "missing" carbon dioxide associated with marine and terrestrial plants that have been taking advantage of higher atmospheric carbon dioxide concentrations and increasing their growth rates.

Greenhouse theorists suggest that sea levels will rise 30 cm/century at the current rate of warming and the spectre of coastal communities, such as Richmond, under water haunts some people. Yet recent findings by Gifford Miller and Anne de Vernal, as reported in Discover magazine, point out that 12,000 years ago snowcaps and glaciers were increasing in Canada's arctic and sea levels were falling at a time when the climate was as warm, or warmer, than today. Orbital changes cooled arctic summers then, but warmer ocean temperatures resulted in more water evaporation from the oceans and subsequently greater snowfall at higher latitudes. Remember, even at today's temperatures snow in polar and alpine regions does not always melt from year to year. That coincidence of warmer oceans, increased snowfall, and cooler summers, caused sea levels to drop about 60cm/century 12,000 years ago.

What the above research shows is that we do not have all the answers about the mechanisms driving weather and climatic change. Temperatures are not as high as predicted by greenhouse gas theory but what does this mean? Warmer oceans cause increased evaporation and cloud formation and while water vapour is a potent greenhouse gas. Clouds are an even stronger cooling force in reflecting solar radiation back into space. There is ample evidence that vegetation is flourishing because of increased carbon dioxide levels, and vegetation, too, is both a cooling and moderating force for the climate. However, these effects should not be construed as an excuse to increase carbon dioxide emissions. Far from it.

Reduction of greenhouse gas emissions should be a long-term goal simply because coal, oil, and gas deposits are not infinite resources and we are using them much faster than they can be replenished. They are far too valuable to squander on the needs of only a few human generations. But we do not need draconian measures to get these results. Current trends toward environmental awareness are having a desirable effect in most developed countries and in some developing economies as well.

Those trumpeting the need for drastic action to reduce carbon dioxide emissions are not climatologists but politicians, such as Al Gore, or environmentalists, such as Paul Ehrlich. The consensus among climatologists is that we are in an ice age and it is only a matter of a short time before we begin another period of severe glaciation. An excellent recent book by climatologist Patrick J. Michaels, called Sound and Fury: The Science and Politics of Global Warming, describes the lack of evidence for severe climate change and in doing so makes enemies of those such as Gore and Ehrlich. Gregg Easterbrook relates these comments in the July 6, 1992 issue of the New Republic:

Lately Al Gore and the distinguished biologist Paul Ehrlich have ventured into dangerous territory by suggesting that journalists quietly self-censor environmental evidence that is not alarming, because such reports, in Gore's words, "undermine the effort to build a solid base of public support for the difficult actions we must soon take."

In other words, facts and arguments against global warming theories have no place in their debates: this is truly dangerous thinking!

Since we do not have all the answers about the cause of global warming and cooling in the past, it is unlikely we have the answers to future climate changes. A good deal of sceptical debate is essential before we accept the greenhouse theory as fact and cause severe economic dislocation for many, especially in the developing economies. Climatologists feel that the 1990s will be the real test of the greenhouse theory and, according to climate modellers, a window of ten years will have little impact earth's long-term climatic health.

The studies being done about global climate change are producing more knowledge of weather's driving forces. We may eventually learn enough to control climate or, at least, modify those aspects that are deleterious to human survival. Anything we do, or do not do, to change climate will necessarily have side effects for other species and will drive evolution along a different path.

Thinking About Social Policy Reform

Chris Sarlo

Everyone needs a welfare program. Any one of us, rich or poor or somewhere in between, is vulnerable to the cruel twists and outright catastrophes that life can throw at us. Without question, some are better prepared to cope with calamity than others. However, for even the strongest among us, we can imagine an unpleasant event or circumstance that could overwhelm us and plunge our life into disarray. No one is immune from this. We may at some point require the help of others to get us through particularly trying times.

Throughout history, most welfare programs have been informal in character. That is, in times of need, people have been assisted by their family, their friends, their community. In most cases (the loss of employment, a sudden disability, a natural disaster, the loss of a family member, etc.), a combination of financial and emotional support from within the social circle would help someone get through a difficult period and back to self-sufficiency. Except in the case of old age or severe disability, informal welfare would be temporary with increasingly less subtle pressures exerted if support extended beyond a "reasonable" recovery period.

With informal welfare mechanisms, there is a strong incentive to participate in the giving of support. Not only do you genuinely care about the people in your circle, you also ensure reciprocity in your own time of need. The advantage of informal welfare is that it strongly promotes the work ethic and minimizes the chance of cheating. This is because the givers are intimately aware of the recipients' situation and because of the awkwardness for the recipient of requesting help on a repeated basis. The disadvantage is that requesting help from within one's own social circle may be somewhat demeaning, especially if the problem is perceived to be self-induced.

With industrialization and rapidly rising living standards, the income support component of informal welfare has tended to be replaced by more formal schemes. These formal schemes can be private or public. Life, home, and auto insurance are examples of private mechanisms which provide benefits to people in the event of specific calamities. These private, voluntary arrangements are popular because they provide income protection for the individual or family without the embarrassment or implied quid pro quo of informal schemes. Savings and pension plans are provided in the market for the same reasons. People tend to prefer these formal, contractual programs precisely because they allow them to maintain self reliance and dignity in the face of traumatic events. Unfortunately, the same cannot be said of public income support plans.

Public social welfare programs were introduced at a time when a great many Canadians were struggling to earn a living and did not have much left over for private, contractual income support plans. These programs (UI and welfare especially) were designed to provide, in most cases, temporary assistance while maintaining the self-esteem and dignity of the recipient. The results could not be farther from what was intended. The legacy of the social safety net has been dependency; erosion of self-esteem; work avoidance; subsidization of irresponsible behaviour and an entitlement mentality. Recipients may gain something in the short run, but are clearly worse off in the long run.

In recent months a stream of reports from the federal government have revealed the problems as well as the cost escalation of social welfare programs. What is unique is that political officials are now openly critical of these programs. For example, Brian Tobin, Newfoundland MP and Minister of Fisheries has recently stated "UI is a program just begging to be abused." The government has clearly stated that it is committed to reforming Canada's social programs.

But the problems with social welfare programs, UI, and welfare in particular, have been known for a long time. What is behind this sudden interest in social policy reform? Is it the fact that the accumulated evidence has convinced the government that the social safety net is so flawed and so harmful to the social fabric that it is simply not sustainable? Or is the deficit problem driving the agenda? Does anyone really believe that it would not be business as usual if the federal government had a $20 billion instead of a $40 billion deficit?

Canadian citizens are right to be extremely sceptical about the current round of social policy reform. There will not be any genuine change. There will be fine-tuning, some cost containment and lots of renaming of programs. The will be no fundamental questioning of the appropriate role of the state in the provision of social welfare.

If we were designing a formal income support program from scratch, what principles would we incorporate to avoid the costly (in both human and financial terms) problems of the current social programs? The following four might be a useful start:

1. Make work pay: Except for the elderly or the severely disabled, clients must always be better off by working than they would be collecting benefits. This requires a strong, built-in incentive to work.

2. Permit free choice: Compulsory programs are not only coercive and paternalistic, they work against that which needs to be promoted, namely, personal responsibility.

3. Be family neutral: An income support scheme should not subsidize or promote the traditional family or any other arrangement. However, neither should it undermine or penalize in any way the two-parent family. Families are the irreplaceable core of informal social welfare.

4. Do no harm: Both public and private policy makers need to incorporate the Hippocratic oath into programs, perhaps contractually. Social programs are of no value if people are made worse off by them.

Taxing those RRSPs

Michael Walker

It's funny how some people think. Take, for example, the chairman of the House of Commons Finance Committee, Jim Peterson. Mr. Peterson has been seriously proposing that in order to avoid facing the necessity to cut back its spending, the federal government should consider taxing the nest eggs which Canadians have been building for their futures. According to Mr. Peterson, the RRSP "tax expenditure" is simply too big and the wealthy are able to shelter too much income from the revenue minister. We've got to tax 'em, so he said.

I am sure that this was a random thought which should have been gathered in and smothered but which, in the mischievous way of errant thoughts, just tumbled out. There is no good reason for the Finance Committee or anybody else to consider that taxing RRSPs is an intelligent idea. In fact, there are a number of reasons for forgetting all about this mental miscreant.

The first is that the RRSPs to which 4.8 million Canadians contributed in 1992 are already an inferior form of retirement saving when compared to contributory registered pension plans to which 3.7 million contributed in the same year. The effective amount of tax sheltering that may be done on a registered pension plan has always exceeded the amount available on RRSPs. In other words, those who don't have an employer- sponsored pension plan--the self-employed, small business people, professionals etc.--are already discriminated against by the tax system. The Peterson plan would further distort this imbalance.

Even more inequity emerges from the fact that there are a large number of Canadians covered by pension plans to which they do not contribute directly and for which no "tax expenditure" is generated on the personal income tax.

One version of the pension tax-grab plan would see a tax on the income being generated within RRSPs. Here the idea is to tax the income from plans which have accumulated more than, say, $500,000. Now, the interesting thing about this proposal is that it would only penalize those who have been more than usually successful in managing their pension assets. Those who chose well and had made a greater rate of return than others who had received the same initial tax reduction, would have to pay more tax on their successful management of their retirement assets.

But the most monumental folly hanging on the branches of this particular monkey tree is that the source of the suggestion is going to be the beneficiary of the most generous pension arrangements in the county. Namely, those which the members of Parliament have set up for themselves! The irony of this situation is that the holders of RRSPs are not guaranteed anything upon their retirement. They hope that the amount they have themselves saved and invested will provide them with a certain level of income but they have no assurance that this will be the case.

Finally, it is important to note that the money invested in RRSPs is going to be taxed once it is withdrawn--and in all probability the tax rate that will apply then will be higher than the existing tax rates on average. Only those whose incomes fall in the top bracket of taxation now and are in a lower bracket when they retire are going to get any sort of tax break. In fact, the exemption of their retirement savings simply ensures that their savings are only taxed once, when they are withdrawn to be spent.

Nature's Case for Restoring Strong Property Rights

Elizabeth Brubaker  [This article is taken from a speech that Elizabeth Brubaker presented to The Fraser Institute's Student Seminar on Public Policy Issues in Toronto in November.]

When I was a student, I wouldn't have been caught dead at a Fraser Institute event. That was in Montreal in the 1970s . . . and free markets were definitely not cool. We all assumed that the answer to problems lay in government. Different government, perhaps, but lots of it.

As an activist in several so-called progressive fields, I've seen a lot of government since then: some better, some worse. But my eight years with an environmental group have persuaded me that even the better governments really screw things up. As resource owners, governments bear direct responsibility for allowing--more often, encouraging--most resource degradation and pollution. They squander their natural capital, razing their forests and plundering their fisheries. They also destroy resources they don't own, licensing and subsidizing polluters that foul private lands. Governments support environmental abuses that no free market would tolerate.

I want to talk this morning about just one aspect of free markets: property rights. Specifically, I want to talk about property rights' role in environmental protection. I'll try to keep theory to a minimum. Instead, I'll tell you stories that will let you see for yourself how people use property rights to protect the environment, and how, when government takes away peoples' property rights, the environment suffers. I'll start with the story of a man named Eugene Bourgeois.

Bourgeois raises sheep on the Bruce Peninsula, about three kilometres away from Ontario Hydro's Bruce nuclear complex. According to him, poisonous emissions from the complex have been harming both his flock and himself for almost a decade. Hundreds of sheep have mysteriously died. Lambs have been born without the instinct to nurse. At one time, 85 percent of the flock went blind. Bourgeois himself has suffered. While working in his fields he has become nauseous, disoriented, and faint. And he has developed excruciating headaches and an inability to concentrate.

Ontario Hydro's records show that the worst incidents have coincided with releases of a deadly gas--hydrogen sulphide--from its heavy water plant. A number of doctors and scientists have confirmed that Bourgeois' symptoms--and those of this sheep--are consistent with hydrogen sulphide poisoning.

But Hydro has denied any responsibility. Oh yes, it has conducted studies. And it has publicized those demonstrating its innocence. According to Bourgeois, it has also suppressed at least one study indicating that there might indeed be a problem.

Just following the rules

But Hydro's best defence isn't scientific studies. Its best defence is that it is following the rules: according to readings from a nearby air-monitoring station, its emissions haven't exceeded provincial guidelines. As one of Hydro's lawyers explained, "what we have tried to do is to show that there is a full regulatory process in place, [that] limits have been established, and that there is compliance with those limits." Apparently it's okay to leak lethal gas--even in amounts that kill sheep--as long as the leaks remain within approved limits.

But approved by whom? That's the key question. Politicians and bureaucrats--rather than the people affected--have the power to make decisions about air quality on the Bruce Peninsula. And those government representatives have implemented laws and regulations allowing emissions that might well, in their absence, be unlawful.

In the absence of specific laws approved by governments, a body of law called the common law applies. The common law evolved in England, from where it passed down to the colonies, including Canada. Governments often override the common law with their own statutes. But where they have not done so, the common law continues to apply.

The common law is court-made law. Judges--rather than politicians--created and refined it. In the Middle Ages, local custom often determined a judge's decision. As decisions were recorded and made available to other judges, legal custom began to replace local custom. Judges followed previous decisions, or precedents, thus entrenching a number of legal principles.

From this almost seamless transition from ancient custom to the contemporary common law emerged a number of principles regarding property. Under the common law, people have very strong property rights: they have the right to both use and enjoy their property. They also have a responsibility not to interfere with their neighbours' rights to use and enjoy their property. Any such interference is a nuisance, and will be stopped by the courts.

This principle is as old as the recorded law itself. A thirteenth century legal scholar wrote that "no one may do in his own estate anything whereby damage or nuisance may happen to his neighbour." The principle is embodied in a maxim that governs court decisions to this day: "use your own property so as not to harm another's." Clearly, that maxim has profound environmental implications.

How property rights work

Let's return to the Bruce Peninsula for a moment. Assuming that Eugene Bourgeois and his scientists are right, Ontario Hydro is using its property in a way that harms others. The utility, in short, is violating Bourgeois' property rights.

So what can he do? If the common law applied, Bourgeois could sue Hydro. If he convinced the court that, on the balance of probabilities, his case had merit, the court would likely issue an injunction. An injunction is a court order that requires a defendant to refrain from acting in a particular way or, in some cases, requires it to take specific action. For example, a court might order a company to shut down if it doesn't stop polluting within two months. Or it might order it to install abatement equipment.

Injunctions are the most common remedies in Canadian property rights cases. In fact, before 1877, Ontario courts had no choice but to issue injunctions if they found that plaintiffs' property rights had been violated. Courts now have the authority to grant damages instead of injunctions. But they are often reluctant to do so.

And with good reason. Judges can't put a dollar value on many injuries. Only the victim himself can know what value he places on clean water, or how much money he would be willing to accept for breathing foul air. But the victim doesn't determine the amount of court-awarded damages. In other words, by substituting damages for an injunction, a court forces the victim to sell his property rights at its price.

In contrast, injunctions allow the victim to negotiate his own price. If his environment is priceless, he may simply tell the polluter to go away. Alternatively, he may bargain away his rights or reach a compromise that benefits both him and the polluter.

Furthermore, only injunctions can prevent the recurrence of property rights violations. A court that replaces an injunction with damages says, in effect, that a polluter who is willing to pay may go on polluting. The court thus licenses the pollution. Fortunately, courts generally reject this role.

One possible scenario, then, is that if Eugene Bourgeois sued, a court would issue an injunction forbidding Hydro from releasing hydrogen sulphide. That injunction could, in effect, shut down the Bruce heavy water plant.

Unfortunately, it's not so simple. Government-made law applies here. The government gave Hydro permission to build and operate a heavy water plant. The utility can't produce heavy water without hydrogen sulphide. To the extent that its pollution is an inevitable result of its carrying on an approved activity, Hydro is operating under what lawyers call "statutory authority."

If Bourgeois tried to sue Hydro, the utility would doubtless claim immunity using statutory authority as its defence. Polluters have long relied on that defence. Nineteenth century railway barons cited it all the time. They argued that Parliament, in authorizing their railways, gave them permission to set farmers' fields ablaze. Their reasoning went like this: All trains inevitably produce sparks. Government authorization of a non-sparking railway would be useless. The government doesn't knowingly do useless things. And so, in authorizing a railway, Parliament must have intended to authorize a sparking railway.

Governments and courts alike bought this argument. The railways' victims weren't so wild about it. That's because once Parliament authorized sparking railways, those living along the tracks lost their right to sue for fire damage. Parliament, in its wisdom, had overridden the common law. It had, in effect, expropriated the farmers' property rights.

And so today's government has expropriated Eugene Bourgeois' property rights. Bourgeois is by no means unique. As his name so aptly suggests, his plight characterizes millions of ordinary Canadians, virtually all of whom have property interests of one kind or another, and virtually all of whose rights have been violated time and again.

Ronald Coase, who won a Nobel prize in economics, understood just how often governments sanction the violation of their citizens' property rights. In a famous article entitled "The Problem of Social Cost," Coase mocked economists for calling for still more government regulation. Here is a passage:

When they are prevented from sleeping at night by the roar of jet planes overhead (publicly authorized and perhaps publicly operated), are unable to think (or rest) in the day because of the noise and vibration from passing trains (publicly authorized and perhaps publicly operated), find it difficult to breathe because of the odour from a local sewage farm (publicly authorized and perhaps publicly operated) and are unable to escape because their driveways are blocked by a road obstruction (without any doubt, publicly devised), their nerves frayed and mental balance disturbed, they proceed to declaim about the disadvantages of private enterprise and the need for Government regulation.

Coase is right. All too often, government regulation is the environmental culprit.

Why do governments override property rights? Why do they so often promote development at the expense of the environment and those who depend upon it? (And at the expense, for that matter, of the taxpayer?) Generally they act in the name of "progress" or some undefined "public good." Railways apparently promoted the public good. Nuclear power, whose production is moderated by heavy water, apparently promotes the public good.

For the "public good"

But the story behind the Bruce heavy water plant suggests just how tenuous this public good can be. Ontario Hydro doesn't need any more heavy water. It has enough stockpiled to keep its reactors running for the rest of their lives. All of the heavy water it now produces goes to Atomic Energy of Canada Limited (AECL), which in turn sells it to South Korea. AECL could supply South Korea from its own reserves. But it wants to preserve its stockpile in case it succeeds in selling a reactor abroad someday. Those phantom customers could demand heavy water. In short, Eugene Bourgeois' lambs are dying so that AECL's export effort can have a future.

Sometimes revenue generation drives governments to override property rights. Michael Walker made me aware of one egregious example. He recommended a book called The Medieval Machine, which included a number of stories about medieval Europeans exercising their property rights. Tucked into that book was the story of how one industry--the mining industry--trampled others' rights with impunity.

In the 13th century, several European governments were desperate for the revenues produced by mining. They did everything they could to promote the activity. They gave miners free land. They exempted them from military service. But many of the perks came at the expense of local landowners and the environment. Governments encouraged miners to prospect anywhere--even on private property, with the exception of churchyards, orchards and gardens. They allowed them to cut privately-owned trees--which they sometimes prevented the owners themselves from cutting. They allowed them to divert streams. And then, to ensure that the miners' victims couldn't fight back, they freed the miners from the jurisdiction of local magistrates.

Seven hundred years later, special privileges given to Sudbury's miners proved that nothing had changed. At the beginning of this century, Sudbury's nickel business had the makings of a very important industry. Scientists had recently discovered nickel's military value: it could plate armour, or coat armour-piercing bullets. And Sudbury's mines supplied most of the world.

But mining and processing nickel devastated the local environment. The miners would roast huge heaps of ore to burn off the sulphur in it and reduce shipping costs. Since sulphur dioxide was heavier than air, it would linger at ground level until dispersed by the wind. Clouds of sulphurous fumes limited visibility. They killed crops and damaged soil. A reporter for the Globe described a spot near Sudbury as "one of the most unattractive places under the sun, for the sulphur fumes from the beds where its nickel ore is `roasted' have destroyed vegetation in the whole locality, leaving the rocky hills bare of trees and the streets and lawns innocent of a blade of grass."

In 1916, a number of farmers sued two nickel giants. One judge tried six of the cases together. And in a decision that contradicted all Canadian precedents, he allowed the companies to continue polluting, as long as they compensated their victims. Since mines inevitably produced smoke, he reasoned, forbidding smoke could ruin the industry. That must not happen. In the judge's words, "The Court ought not to destroy the mining industry--nickel is of great value to the world--even if a few farms are damaged or destroyed."

Fortunately for the environment, that was a very unusual court decision. The government knew that it couldn't count on more like it. And people were continuing to sue. So the government took its own measures to ensure against their success. In 1921 it passed a law--The Damage by Fumes Arbitration Act--forbidding courts to hear cases about sulphur fumes. Instead, a government-appointed arbitrator would award damages. In no circumstances would the arbitrator issue injunctions. From that day on, local property owners could do nothing to prevent the ruin of their environment. They could collect compensation. But they could neither prevent nor correct the pollution.

Today's government still tramples property rights to promote mining. Remember Shelley Martel, who recently resigned as Minister of Northern Development and Mines? There's an outrageous story behind her resignation. Martel had released personal information about an Ottawa landowner who had protested the Mining Land Tax. And what a tax. Essentially, it forces owners of lands dubbed "mining lands" to either develop their properties or to give them to the government.

Mining lands aren't simply mined lands, or lands owned by miners. The category includes lands that were granted long ago under various Mining Acts . . . even if they have never been mined and even if their current owners have no intention to mine them. (An owner might, for example, have purchased the land for a cottage, and might find the prospect of mining his little wilderness quite distasteful.)

Back in the 1960s, the province discovered that landowners were mining less than one half of one percent of the mining lands. For a government that valued the wealth and jobs generated by mining, that was disastrous news. Land must not be allowed to lie idle. And so, in 1969, to encourage landowners to mine, or to free up their lands for others to mine, the government quintupled the Mining Land Tax.

The increase had its desired effect. Many owners couldn't afford to pay the tax. Nor could they sell their land. Who would buy property with taxes much higher than those on neighbouring lands, which happened to have been granted under some non-mining program? Even mining companies wouldn't buy the land--they could lease it from the government for less. And so, over the following twenty years, owners returned one quarter of all mining lands to the Crown.

But the taxes weren't high enough to force everyone's hand. Some owners kept their lands, but refused to develop mines. Their stubbornness outraged Gilles Pouliot. "Let me tell you," the Mining Minister explained, "there are widows in Arizona who own property in Ontario, and because they own it mines are not being developed. The only way that mines will develop and Ontario will prosper is if we take their properties away from them."

The government again chose taxation as its preferred confiscation mechanism. Ontario's 1991 Mining Act, along with its regulations, introduced a 500 percent increase in the Mining Land Tax. Pouliot hoped that the tax would finally convince holdouts to forfeit their lands. He was both unambiguous and unapologetic about the tax's expropriative nature. It had, in his words, "always been intended as a means of returning land to the Crown."

I brought up mines, you will recall, to illustrate the variety of reasons why governments override property rights. Governments act to encourage industrial development. Under ideal conditions, industry will generate both revenues and jobs.

These days, however, the government often pays for--instead of earns revenue from--property rights violations. This is particularly true when it overrides property rights to create jobs. But while job creation projects may not make governments rich, they do create political capital. Jobs--even expensive, temporary, or ultimately counterproductive jobs--mean votes. And to most governments, votes are even more valuable than money.

Doubtless, that's why Ontario Hydro plays the job creation card whenever it asks the government for permission to build a new project. The government loves using the utility to create jobs. Never mind that the province doesn't need more power. Never mind that others can produce it more efficiently than can Hydro. And never mind that unnecessary projects, by increasing power costs to Ontario's businesses, actually destroy jobs. Those jobs, scattered about the province, are invisible. Hydro creates visible jobs.

That's one of the reasons why the government will soon let Hydro build one new dam and expand three others on the Mattagami River, up near James Bay. Energy and Environment Minister Bud Wildman has decided to by-pass an environmental assessment hearing for the project. Such a hearing might have considered the ways in which Hydro has trampled the property rights of the native people living in the river basin. A 1991 hearing dealing with dams in that basin opened with the story of construction crews chasing native people off their land, and then burning down their campsites to ensure they wouldn't return.

After uprooting the local people in the 1960s, Hydro made a terrible mess of their rivers. The utility operates its generating stations to meet peak electricity demands. It's like flushing a toilet: the water is held in a reservoir and then, swoosh, it comes rushing down. That's not so great for fish. It also wreaks havoc on river transportation. It's not unheard of for native people to travel up the Mattagami River and then find themselves stranded when the water flow stops.

If the communities that depend on the Mattagami River had strong property rights, they could ensure that new projects went ahead only if their concerns about peaking and other matters were met. Since Hydro has not met their concerns about the proposed project, they would likely veto it.

But the government, unrestrained, will almost certainly approve the Mattagami project. Why? A provincial representative offered one reason. In his words, "non-native communities have been promised jobs." So much for the environment. So much for native rights. Both, so ardently defended by the NDP in its opposition days, will be sacrificed for jobs.

I don't mean to be particularly hard on the NDP. Other parties' records are also rotten. The solution isn't merely to change parties. The solution is to take power away from governments of all stripes . . . and to put it back into the hands of the people. The solution, in other words, is to strengthen people's property rights.

Strengthening property rights

And how do we do that? Well, there are a number of ways. First, governments--both federal and provincial--can ensure that their laws don't override people's common law property rights. They can stop granting expropriation powers. And when authorizing an industry's activities, they can specify that they are not legalizing nuisances or other property rights violations. Then, when victims sue the industry, it won't be able to use the defence of statutory authority.

The federal government can take a more dramatic step: it can enshrine property rights in the Charter. Doing so won't by any means strait-jacket governments. The Charter just isn't that strong. But protecting property rights in the Charter will at least raise the legal hurdles and increase the political costs of overriding them. And to the degree that the Charter restrains governments, the environment will benefit.

Property rights, once restored, will empower the people that I've been describing as pollution's victims--the people living near heavy water plants or nickel smelters, those owning land under which minerals may lie, or those living downstream from hydrodams. Victims no more, these people will set the rules. They will have veto power over developments that threaten to harm them. And they will ensure mutual benefit from projects that do proceed by negotiating effective mitigation measures and extracting compensation of their choosing for any damages suffered.

But it's not just sheep farmers, cottage owners, and northern natives who will benefit from stronger property rights. Small businesses will also win. Historically, a huge number of the plaintiffs in property rights cases have been businessmen.

Entrepreneurs have challenged water pollution for centuries. Let me throw out a handful of examples from the last 150 years to give you an idea of the variety of these challenges. In England, the owner of a cotton mill sued a coal company for acidifying Borsdane Brook, whose water corroded the mill's boilers. In New York, a factory owner sued a salt manufacturer for salinating Oatka Creek, causing his machinery to rust. In one of my favourite cases, a Scottish distiller sued a coal mine for hardening the water in the Doups Burn, making it unfit for whiskey. And a hotel owner sued the town of Cobourg, Ontario, whose sewer emptied into a creek that crossed its grounds.

Air pollution has also been a favourite target of businessmen. A British innkeeper sued an electric company whose generating station showered his inn with steam. A florist in St. Catharines sued a foundry whose oily fumes coated his greenhouse. In Oshawa, a vehicle-transport business sued a foundry whose fumes damaged the finish on cars parked in its lot. And just a few years ago, the owner of an apartment building in Windsor sued a steel stamping plant whose vibrations drove his tenants out.

All of these entrepreneurs had an economic interest in clean water, clean air, or peace and quiet. Their manufacturing processes depended on them. Their tenants or clients demanded them. And they could achieve them because they had strong property rights, which the courts were willing to enforce. Restoring property rights will restore business as a powerful force for environmental protection.

Of course, some industries--particularly the larger, more powerful ones that are frequently victimizers rather than victims--will be less than enthusiastic about stronger property rights. And no wonder. It is often much more expensive to respect property rights than it is to follow government regulations.

With the help of government, polluters have ensured that the affected public and the taxpayers pick up the tab for environmental damage. In economics jargon, they have externalized their costs. A strong property rights regime will internalize costs. And when polluters have to factor environmental costs into their decisions about what equipment to install or how to operate, the environment will benefit.

A story from Florida illustrates how differently industry will behave when it has to bear the costs of its pollution. In the 1950s, a number of phosphate fertilizer companies polluted the air with fluorides. The fluorides settled onto neighbouring grasslands, where cattle grazed. Many cattle developed fluorosis. Their joints stiffened. They became so completely immobilized that they starved to death.

In 1958, the government ordered the fertilizer companies to reduce fluoride emissions or to purchase polluted lands. The companies balked at the 16 million dollars it would cost to install pollution-control equipment. And so, over the next six years, they spent 25 million bucks buying 200,000 polluted acres. They became huge land owners. And do you know what they realized? They realized that to protect revenues from their new grazing lands, it made financial sense to install the pollution-control equipment. That's cost internalization for you.

The moral dimension

I've been discussing the financial and environmental implications of stronger property rights. There is also a moral dimension. Under a strong property rights regime, negotiation will replace expropriation. Free choice will replace force. That prospect scares the industries that now have expropriation powers. They worry that people, if free to choose, will say "No" to their attempts to pollute, or to use their land. As one oil executive warned, "If people in Alberta had property rights we'd have to stop most of our drilling. If you let individual property owners decide when we can drill on their land, they'll hold us up to ransom."

He's partially right. Some people will refuse to negotiate. Others will hold out for prices higher than companies are willing to pay. And that's their prerogative. But most companies should survive. After all, their counterparts who can't expropriate seem to be doing fine.

Just look at the real estate tycoons who assemble land for huge developments. They offer sufficiently attractive prices to persuade people to sell. Sometimes they can't get all the land they want. So they go elsewhere. Or they simply build around the holdout. Next time you're at the corner of Yonge and Queen, notice that the Eaton Centre wraps around a Royal Bank Building. That's what happens when people can't expropriate. If you ask me, it's not terribly serious.

Power producers provide another good example. While corporate giants like Ontario Hydro can expropriate, small independent producers don't have that privilege. They have to buy the land or easements they need for their transmission lines. They may face holdouts. They may have to raise their offers. They may have to reroute their lines. Or they may simply decide that it makes more sense to generate power closer to where it will be used, obviating the need for so much negotiation.

Independent power producers are also learning how to negotiate permission to build generating stations. In the late 1980s, a company called Conwest proposed building a small hydro station on the Black River, just north of Lake Superior. It knew that it needed approval from the Pic Heron First Nation, whose reserve was adjacent to the proposed site.

The two parties reached an agreement that both would profit from. Conwest agreed to protect the environment. It chose a run-of-the-river station that wouldn't require a dam. Its low intake wouldn't disrupt the river's flow. And below the station it constructed a fish spawning area, along with nursery habitat. The First Nation got a 10 percent interest in the project, worth $150,000 a year for 50 years. It also negotiated construction jobs and training in plant operation and maintenance. Everyone benefitted. In fact, the experience was so successful that the First Nation is now developing another small hydro project. So you see, rights don't have to be development stoppers.

Eugene Bourgeois, the sheep farmer, confirms this. I said earlier that a court might issue an injunction shutting down the Bruce heavy water plant. But Bourgeois says he wouldn't seek plant closure. His demands would be modest. He would ask Hydro to reimburse him for the dead sheep. He would ask the utility to release gas at night, and in the winter, when it is least likely to do damage. He would ask it to inform him in advance of gas releases, so that he could take precautions against exposure. And he would ask it to provide him with protective gear to wear when he's working outside. In fact, Bourgeois has been asking Hydro to do these things since 1986. If he had property rights, enforced by the courts, he would have seen his requests acted upon long ago. Hydro would still be producing heavy water. But Bourgeois wouldn't be losing lambs.

Industry need not fear property rights

Ronald Coase, the Nobel economist, studied the conditions under which property rights will or will not impede development. He demonstrated that if transactions costs are low, the assignment of property rights will not affect resource allocation. If information is readily available and bargaining is easy, the same decisions will be made regardless of which party has the power to decide. In economics jargon, voluntary arrangements will produce efficient results. Whoever values a resource most will end up with it.

Not too long ago, my neighbour and I played out Coase's theory. I have two small horse chestnut trees in my backyard. I like them. They block the view of an ugly garage behind my property. My neighbour hates them. He worries that as they grow, they'll shade his flower beds, and worse, drop chestnuts everywhere. But he can't make me cut them down, because in this case I have the property right. If my neighbour wants a change, he'll have to make it worth my while. He'll have to pay. And that's exactly what he offered to do. He offered to bear the cost of cutting down the trees, and of replacing them with a row of cedars, which would block my view of the garage, but would be less offensive to him.

Let's say that I decide to accept my neighbour's offer. That will indicate that he values sunlight and a clean garden more than I value horse chestnut trees. Rejecting his offer, on the other hand, would indicate that I place a higher value on my trees, and that they should remain standing. Of course, if I reject his offer he might up the ante, throwing in some chrysanthemums, or cold hard cash. Whatever the details, whoever values his preference more will ultimately win the dispute.

Now say, for the sake of argument, that it is my neighbour who has the stronger property rights. Perhaps he has the right to sunlight, or the right to be free of horse chestnuts. In that case, he can force me to cut down my trees at my expense. If I treasure those trees, I can try to purchase his property rights. I can offer him a sum to allow the trees to remain standing. Or I can propose some amenity from which he will benefit.

The same result will be achieved in either case. But as Coase pointed out, the distribution of income will change depending on who has what rights. If I hold stronger rights, my neighbour ends up paying. If he holds stronger rights, I end up paying.

Coase would say that my exchange with my neighbour is typical of many resource use conflicts. Just substitute a free-flowing river, or clean air, or peace and quiet for horse chestnut trees.

To the extent that it applies, Coase's theory should allay industry's worst fears about property rights. More specifically, truly viable industries have little to fear. If resources are more valuable to them than to others, they will be able to acquire rights to them. Or they'll install abatement equipment, as did the Florida fertilizer companies. It's the unsustainable industries that will suffer--the parasites that can exist only at the expense of others. They often won't be able to acquire rights to resources that are of marginal value to them. And without such rights, they may well disappear. But I, for one, won't be sorry to see them go.

Don't trust governments

Let me leave you with one final story. It's a story that brings together many of the ideas I've been talking about. It demon-strates the power of common law property rights, the determination of local people to protect their environment, the government's concern for jobs, and its willingness to override individuals' rights in the name of the common good. It also illustrates how harmful such a policy can be, both economically and environmentally.

It's the story of KVP, the Kalama-zoo Vegetable Parchment Company. KVP used to own a pulp and paper mill on the Spanish River--the mill in Espanola that E.B. Eddy now owns.

Back in the 1940s, the Spanish River was a popular tourist destination. Its clean water and abundant game fish made it a perfect northern resort. But when KVP started up its mill in 1946, that changed. Every day, the mill released several tons of wood fibres and chemicals into the Spanish River. The river began to stink. It tasted disgusting. Fish died by the thousands.

A fisherman, a farmer, and several tourist operators sued KVP. The plant, they claimed, was violating their property rights and destroying their businesses. It should be shut down.

The judge agreed. People living along rivers, he said, have common law property rights to clean water. No industry--no matter how important--may alter the water's character in any way. And so the judge issued an injunction: if KVP didn't clean up its act within six months, it would have to close.

The provincial government was furious. Didn't the judge realize how many people that plant employed? To save KVP, the government amended the Lakes and Rivers Improvement Act. It instructed courts to consider the economic importance of a polluting mill before issuing an injunction against it. Armed with the new amendment, KVP went to the Supreme Court of Canada, to ask it to reconsider the injunction. But the court ruled that the injunction should stand.

Unfortunately, the government was determined to keep KVP alive. And so it passed a law dissolving the injunction.

The mill, able to externalize its pollution costs, survived. But even that huge subsidy didn't make it profitable. It was shuffled from one owner to the next, losing money sporadically and eventually requiring millions in government assistance. Meanwhile, the small businesses that had once thrived along the Spanish River disappeared. Commercial fishermen couldn't sell the tainted fish that remained in the river. Tourist operators couldn't attract clients. Farmers couldn't water their animals. In losing their struggle to clean up the river, these once-viable businesses lost their very lives.

And the pollution? It continued for years. Not until the 1980s, when the International Joint Commission declared the Lower Spanish River an Area of Concern, did clean-up begin in earnest.

I'll say it one last time. Don't trust governments to protect the environment. Trust people. They have an interest in protecting their land, and water, and air. We must empower them to do so. We must strengthen their property rights.

A Tale of Two Two Tiers

Michael Walker

This title does not contain a typographical error, as you might have thought it did, but rather it reflects the reality of the two-tiered health care systems which are emerging in two provinces, Alberta and Quebec, and the federal health minister's response.

First of all, let's reiterate for those who haven't noticed that our national health care system provides less than equal access to health care. Fraser Institute studies show that the probability that you will wait for health care depends on your income. If your income is greater than $60,000, your probability of waiting for care is about half that for other Canadians. There are a number of reasons.

First, health care, like average incomes, varies dramatically from province to province. Low income provinces like New Brunswick and Prince Edward Island, which spend less than the national average per capita on health care, also have longer waiting times and have less high-tech medicine available. So, being resident in a low income province leaves you with a higher probability of waiting on average.

Second, higher income folk are more likely to take advantage of the health care facilities in the United States when they need a procedure for which there are waits in Canada, like coronary by-pass surgery (Mr. Mulroney's mother), Interleukin II for Cancer therapy (Premier Bourassa), radiation therapy for prostate cancer (my neighbour and a member of the Fraser Institute's Board of Trustees) etc.

Third, according to a study done at the University of British Columbia, 80 percent of queue jumping in Canada occurs for other than medical reasons. In other words, people jump queues because they know somebody, because they are an elected official, or because they somehow are connected to the power apparatus in the health care system. All of these characteristics are associated with income, more or less. In other words, the higher your income, the greater the chance that you are connected, and the less chance that you will have to wait.

Fourth, if you are in Alberta and you need to have cataracts removed, you can wait until the public system is ready for you, or you can pay a facilities fee and have them removed at a private eye clinic. The doctor's fee is paid by the provincial health care plan. Of course, citizens of other provinces are welcome also; they just have to have the dough.

Fifth, if you are a resident of Quebec and you need to have your hip or your knee replaced, the probability that you will actually receive this operation is less than half the national average. (Hip replacements for males in Quebec is 20 per 100,000. In the rest of Canada, the rate of replacement is 50 per 100,000.) The reason, according to a recent paper by Dr. David Naylor at the University of Toronto is, "the Province of Quebec has a policy against replacing hips." Needless to say, those who aren't satisfied with such a policy either jump the queue (step three above) or go to the U.S. (step two above).

Evidently, there is nothing unusual about there being a two-tiered health care system in Canada--we've always had one. However, the fact seems to have just been discovered by Health Minister Marleau or her staff. And, by golly, she's bound and determined to do something about it.

But wait. What has been her first sortie in the war on two-tiering? To threaten Alberta with suspension of federal health care funding if the "extra billing," or whatever it will be called, doesn't stop. There is something wrong here, and maybe Madame Marleau and her medicare cops missed it.

Of all of the items mentioned above that lead to different treatment for Canadians at different income levels, only the Alberta approach actually reduces the amount of waiting overall. By letting those who wish to do so pay something toward their eye surgery, the Alberta approach actually reduces the number of people waiting for eye surgery in the public health care system below what it would otherwise have been. Each patient who opts for the private system creates a space in the public system for somebody who either can't or won't pay the private fees.

So why is Madame Marleau singling out Alberta? Especially when Quebec is solving its health care cost problems by simply denying operations to people who need hips or knees replaced. Can it be that Alberta's creative approach to reducing waiting times is against the National Health Act while Quebec's denial approach is not? Unless there is another explanation for the Minister's unseemly interest in Alberta and lack of interest in Quebec, it's time to scrap the National Health Act, not enforce it.

Say No to War on Drugs: Part 2

Karen Selick [A version of this article has also appeared in Canadian Lawyer.]

Last month in this column I suggested that the war on drugs was creating more problems for this country than it was solving. I mentioned the waste of money, the increase in violence, the racial tension, and the dangers to law-abiding, freedom-loving citizens from the concomitant gun control crusade.

The war on drugs is an example of Canada's predilection for mimicking the very worst policies that the United States can dream up. We are now showing signs of following them down yet another path in the anti-drug maze, one that promises to lead to even greater horrors than those I wrote about previously. I'm referring to the asset seizure and money laundering laws.

A decade ago, U.S. federal racketeering laws were changed to permit the government to seize suspected crime proceeds without first charging, let alone convicting, the owner. As well, financial institutions were required to report all transactions over $10,000, and smaller serial transactions if they appear to be designed to avoid the $10,000 limit.

According to Jarret B. Wollstein, associate editor of The Financial Privacy Report, there are now over 200 confiscation laws on the books. Thousands of federal, state and local police departments and agencies have got into this game. More than 5,000 confiscations occur each week.

The potential abuses of this kind of legislation were obvious from the start. The police force that makes a seizure usually gets to k