Feature Article:

Blowing the Whistle on Discrimination

Michael Walker

Nothing quite offends the sensibilities of normal folk like discrimination. It starts in the family. Siblings rile at being treated differently. "It's not fair that XYZ got something that I did not. You are not treating us as equals."

It was not surprising, therefore, that when the issue of discrimination broke on the public policy scene it quickly became a driving force for the overhaul of legislation. First was the treatment of the races, principally in the United States. Then the treatment of genders. Then the differently-abled. From the right to vote, to sit at the front of the bus, and to use public washrooms, we progressed to the requirement that to operate within the law, a business must have a certain mix of visible minorities or of particular genders on its staff.

Along the road from Selma, Alabama, to Toronto and Victoria's pay and employment equity laws, the original notions of fair play have been left in the ditch. What began as a movement to ensure that every citizen would be treated equally before the law in every respect has become a device whereby special interests have sought to settle scores for real or imagined wrongs or, more practically, to pursue incomes which could not be achieved on merit alone. So-called affirmative action programs have become reverse discrimination mechanisms punishing current generations for past outcomes.

Canada has generally lagged the process in the United States, but we have in most particulars followed in their footsteps, usually five or ten years later.

But the worm has turned. In a recent decision, based on the careful research of the San Francisco-based Pacific Research Institute, the Board of Governors of the University of California threw out its "affirmative action" admissions policy. They did so because it so obviously discriminated against groups who were not the specific targets of the policy. Bright Koreans and other visible minorities, as well as whites, were getting the shaft in order to accommodate the named minorities.

More generally, the new Republican-dominated Congress in the United States is determined to overhaul many of the laws which attempt to accomplish nationally the ends sought by the University of California rules. And, with the characteristic lag, these sentiments will eventually come to Canada. Indeed, the new government of Ontario has already announced that it will abolish the so-called employment equity legislation brought in by its predecessors.

The reason for this shift in attitude is not that Republicans or the Conservatives in Ontario or the Board of the University of California have become "unfair" in their outlook, or decided to indulge a taste for discrimination. The change in policy is coming because of the evidence of the unanticipated consequences of these well-intentioned but flawed policies, and because genuine minority groups themselves are recognizing that the laws often do not serve their interests.

There is nothing surprising about this outcome. In the early 1980s I co-authored two books which tried to warn Canadians about the problems with such policies. In Discrimination, Affirmative Action and Equal Opportunity, my co-author, Walter Block, and I pointed out that the prospective impact of these polices was such that Canada should avoid following in the footsteps of the United States. Wage differentials, we noted, are caused primarily by productivity differences, not discrimination. For example, equally trained, equally experienced single men and single women have been and are paid almost identically. In fact, women, at some ages, actually receive higher average wages than men of the same age.

Perhaps the most pernicious notion of all to come out of the attempt to legislatively pursue perceived discrimination has been the attempt to legislate equal pay for work of equal value. While seemingly fair, such policies ignore all of the important insights of modern economics, such as how value is determined. Markets and not wage bureaucrats determine value, and, as has been impressively demonstrated in experiments in China, the Soviet Union, and even here in Canada, markets have a way of making themselves felt even in the face of the most energetic effort to suppress them.

The practical side of all of this is that those groups and businesses who have been benefiting from reverse discrimination policies would do well to reconsider their options. While the protection of equal opportunity is likely to continue, affirmative action legislation which is exposed to the effect of markets is highly unlikely to survive the decade. Regrettably, it will take somewhat longer to expunge the sort of affirmative action programs which the University of California has just abandoned, but which some Canadian schools, like the University of Alberta, have just adopted.

Where Discriminators Dare

Filip Palda

Wage discrimination is a disgrace against workers. Government programs to restore pay equity are an equal disgrace. These are not views that seem to fit each other. The boss who pays a woman less than a man doing work of equal value to the company should be punished. Who else but government is going to do the punishing? The answer is something called the free market. This is not a welcome message to the pay equity commissions that are flexing their muscles in Ontario and Quebec. But it is a message people need to understand if they are going to get real solutions to the problem of discrimination.

Discrimination is a form of economic stupidity. This is why unequal pay for work of equal value is hard to find in free markets. The boss who does not pay his workers a wage that reflects their abilities will discourage good people from joining the company. These people suffer, but so does their boss, who loses human treasures to the competition. Eventually the competition clears these bosses out of the market like a tractor passing over weeds. The beauty of competition is that it uses the harshest test available to pass judgment on a discriminating employer: treat your people wisely or go out of business.

Bosses can get away with discrimination when someone else picks up the tab for their mistakes. Where do we find this special breed of employer? Industries that live on subsidies and use regulations to keep out competitors might be a good place to start looking. Government offices might also be candidates. Government cannot go bankrupt and it faces no competition. This means that senior bureaucrats can afford to indulge their fancies about who should be hired and how much they should be paid.

Evidence from the U.S. supports these hunches about discrimination and competition. In the 1950s, unregulated U.S. industries hired more than twice the percentage of Jewish MBAs from Harvard that regulated industries hired. In baseball, the free agent rule forced team owners to outbid each other to attract good players. This bidding closed most of the gap in salary between white and black players of similar talents. In the banking industry, reduction in competition led to a fall in the employment of women relative to men.

A tantalizing study by Ivy Broder and Laura Langbein looked at whether protected industries and governments were more offensive discriminators than competitive industries. To answer this question, the two economists analyzed a sample of information on the salaries of electrical engineers. They wanted to see which type of industry paid its male engineers better than equivalent female engineers. To decide on what "equivalent" meant, Broder and Langbein first looked at all the reasons why male and female salaries might differ. They took into account how the years of experience of the two sexes, their number of children, and where they lived, affected salaries. They used these differences in qualification to "handicap" each worker in their sample.

If wages depended only on qualifications, then after the handicap, all workers would be on the same salary level. Even after handicapping, Broder and Langbein found differences in the salaries of the sexes. Obvious market forces could not explain these differences. This unexplained wage gap might have been due to discrimination, or to other market factors that the researchers were not able to pinpoint. It turned out that these unexplained differences between the salaries of men and women were largest in the government and in protected sectors. There was no unexplained difference in the private sector. In other words, someone looking to find discrimination against female electrical engineers would have no luck looking at unprotected, fully competitive industries. If there was any discrimination, it was at the hands of government, or of industries that hid behind a protective apron of regulations.

The subtle steps researchers must take to find out who might be discriminating wears on the patience of reformers. People with a high octane mixture of compassion and indignation in their tanks cannot slow down to consider complexities. To them, equal pay for work of equal value is easy to spot and correct. Spotting the discriminator is done by "global skills evaluation criteria". A secretary complains that she contributes as much to the company as the groundsman but collects a smaller pay. A government evaluator is then called to the scene to sniff out how much effort, skill, responsibility, training, and experience, each of the two jobs takes. The next step is the most mysterious in the process. The evaluator must somehow judge whether the secretary's blend of qualifications makes her worth as much to the enterprise as the groundsman is worth.

A mechanic asked to compare whether wheels are more important to the car than its engine would face a similar challenge to his judgment. The car needs both components to run. He might reluctantly give some opinion on whether engines and wheels take an equivalent amount of effort and material to manufacture. But he could not say much about the price each should fetch. These prices depend on whether engines are in short supply, or wheels are in surplus. Job evaluators are in the same fog. What they see as an underpaid secretary may be a woman working in a job many other women want to fill. The "overpaid" groundsman may be holding a job few men are ready to accept. This means that to attract groundsmen, employers will have to pay more than to attract secretaries. There is no discrimination at work. Wages differ because men and women have different preferences for what seem to be equivalent jobs.

The blinkered approach that wage evaluators take in their work is understandable, but damaging. They have only a few hours to figure out what a worker is worth. They cannot trace the steps the market takes in coming to a measure of worth. When evaluators put too high a price on women, they cost women their jobs. Evidence from the U.S. suggests that pay equity has raised women's salaries and reduced the number of jobs open to them. Lost jobs are the ugly side of the rulings pay equity tribunals hand down in their rush to justice.

Economist Peter Kuhn researched Canadian wage-discrimination laws in detail. First he noted that in the late 1970s (the period he studied) 15.4 percent of women felt they were the victims of wage discrimination. For each woman in his sample he tried to measure discrimination by an elaborate statistical technique. This technique uses measurable information such as age, experience, and training, to filter out legitimate reasons for a difference in salary between men and women. The difference that cannot be explained by these factors may be due to discrimination. He found that even if laws removed this unexplained difference in salary, the proportion of women reporting discrimination would only drop from 15.4 percent to 10.2 percent. The remaining 10.2 percent would represent women whose feelings of discrimination depended on what Kuhn called "nonstatistical factors," i.e., nothing that could be related to fact. The lesson for reformers is that laws to restore equity in the marketplace will cater more to the impressions of the plaintiffs than to measurable evidence.

These critiques of the equity movement do not mean that discrimination does not exist, or that we are helpless against the problem. These critiques suggest instead that we should be humble about what government laws can achieve. Almost all employers have power over their employees, and some employers will be tempted to abuse this power. Pay equity laws will catch a few bad employers, but they will also mistakenly catch good employers, like fishnets that unintentionally pull dolphins in with tuna. The best defence against discrimination may be to trust in the natural law of competition. Competition means that no employers enjoy the protection of subsidies or regulations. They have no choice but to recognize the talents of their workers or suffer a loss of valuable workers to more savvy employers. Competition may explain why women began challenging men for equality in the workplace as far back as the early 19th century--long before the anti-discrimination movement began.

References

Broder, Ivy, and Laura Langbein, "Wage Differentials Among Regulated, Private and Government Sectors: A Case Study," Eastern Economic Journal, Vol. 15, 1989, pp. 189-201.

Cox, Donald, and John Vincent Nye, "Male-Female Wage Discrimination in Nineteenth-Century France," The Journal of Economic History, Vol. 49, 1989, pp. 903-920.

Eyraud, Francois, "Equal Pay and the Value of Work in Industrialized Countries," International Labour Review, Vol. 132, 1993, pp. 33-48.

Killingsworth, Mark R., "Heterogeneous Preferences, Compensating Wage Differentials, and Comparable Worth," The Quarterly Journal of Economics, November 1987, pp. 727-742.

Kuhn, Peter, "Sex Discrimination in Labor Markets: The Role of Statistical Evidence," American Economic Review, Vol. 77, 1987, pp. 567-583. )

Feature Article:

A Lesson from the U.S.: Quotas Drag Down Standards

Walter Williams

Navy Lt. Kara Hultgreen was killed recently while attempting to land her $38 million F-14A Tomcat fighter on the USS Abraham Lincoln. The Navy's official public report said the crash "was precipitated by a malfunction of the left engine." Questions about pilot error were greeted with charges of sexism. According to John Corry's summary in The American Spectator (June 1995) and a report of the Center for Military Readiness, the govern-ment's and media's version of Hultgreen's accident is part of the continuing saga of government deceit and media complicity. But here's what really happened.

On approach to the USS Abraham Lincoln, Hultgreen made five major errors and ignored repeated wave-off signals by the ship's landing officer. One of those errors caused the F-14A's left engine to stall, sending the plane out of control, because Hultgreen mistakenly jammed on the rudder. In the 20 years of F-14A's service, no pilot had ever stalled an engine this way. In an effort to back up the lie that the crash was due to engine failure, the Navy selected nine male pilots to "fly" through Hult-green's pre-crash conditions in a ground simulator.

Chief of Naval Operations Admiral Jeremy Boorda reported, "The situation was recreated in an F-14 flight simulator. Eight of nine pilots in the simulator were unable to fly the plane out of the replicated regime." Boorda failed to say that the male pilots had been ordered not to execute the F-14A manuals's so-called Bold Face Instructions, the critical things a pilot must do to fly through an emergency similar to Hultgreen's.

Documents obtained by Elaine Donnelly, director of CMR, show that Hultgreen not only had subpar performance on several phases of her training but had four "downs" (major errors), just one or two of which are sufficient to justify the dismissal of a trainee. The White House and Congress' political pressure to get more women in combat is the direct cause of Hultgreen's death. But the story doesn't end there. A second female F-14A pilot identified by Elaine Donnelly only as Pilot B, has been allowed to continue training despite marginal scores and seven "downs"--the last of which was not recorded so she could pass the final stages of training. These double standards are destructive in several ways. They risk the lives not only of women like Hultgreen and Pilot B, but the lives of fellow military men and women. They dumb down aviation standards. After all, what do we do when a male F-14A trainee, washed out because he had four "downs" and subpar performance, accuses the Navy of sex discrimination? In the name of sex equality, do we lower standards for males? Finally, special concessions for female pilots undermine military morale and respect.

The Hultgreen incident demands several responses. The first is to court-martial the Navy officers who deliberately submitted false and misleading reports about the incident. Second, Sen. Strom Thurmond, chairman of the Armed Services Committee, must call hearings. If the Navy establishes double standards for female aviation trainees, families of those exposed to unnecessary death should be informed and the nation should debate the wisdom of the Navy's affirmative action policy. Then, there's the pure military mission question: How much military efficiency are we prepared to sacrifice to promote the leftist quota vision? )

Feature Article:

The Economic Benefits of Right-to-Work Legislation


Fazil Mihlar

In the United States, 21 states have right-to-work (RTW) laws protecting workers from being forced to join a union or pay union dues. Unfortunately, not a single province in Canada has similar laws. The evidence in the U.S. suggests that states with RTW laws have created more jobs and have seen a larger increase in their average after-tax annual incomes than non-RTW states. Since 1991, New Zealand has also experienced the economic benefits of RTW legislation. [For a detailed examination of the issue, see Fazil Mihlar, "The Economic Benefits of RTW Legislation: A Submission to the Joint Review Committee on RTW Study," The Alberta Economic Development Authority, Vancouver: The Fraser Institute, August 15, 1995.]

Recently, the Alberta government set up a committee under the Alberta Economic Development Authority to study the impact of RTW laws in Alberta. At the same time, the newly-elected government in Ontario intends to revoke Bill 40 (the labour law) which has further entrenched union monopoly power. Given the resolve of both Alberta and Ontario to reform their existing labour laws, it is perhaps time to embark on fundamental reform of the labour code in all the provinces. These reforms would send a message to the international and domestic investment communities that Canada is indeed open for business.

Provincial Labour Laws and Unionism

Private sector unionism in Canada is structured and regulated by each province's respective labour relations codes. All provincial labour legislation specifies that employers and unions are free to enter into an agreement whereby all employees are required to be union members. A union that gets a majority of workers' votes in a certification election becomes the exclusive bargaining agent for all of the workers in a bargaining unit. On matters that come under the scope of collective bargaining, individual workers are forbidden to represent themselves. Every worker is forced to accept the representation services of the exclusive bargaining agent. Most labour agreements have a union security clause. The absence of a union security clause is commonly called an "open shop." The inclusion of a union security clause can be in the form of a "closed shop," a "union shop," or a "Rand Formula."

Under all provincial labour codes, exclusive representation means that workers are not free, on an individual basis, to decide whether to be represented by a union, nor can competing unions offer representation services to minorities. Union security contracts negotiated under provincial labour codes are such that individuals who are subsequently employed in a particular firm are not free to opt out of union membership and/or payment of union dues. Therefore, union security contracts cannot be called voluntary exchange contracts.

Defining Right to Work

Under the concept of natural rights, each worker owns his or her own labour and, hence, is free to offer or not offer to work for a prospective employer, depending on whether he or she deems the employer's offered wage acceptable. RTW includes the right of any worker to offer to work for a lower, the same, or a higher wage than the wage considered acceptable by any person or group of persons. According to RTW, no worker nor any group of workers can shut out other workers who are willing to accept a lower wage offer by an employer. The issue of RTW encompasses the mutual agreement between employees and employers to include or not to include union security clauses in collective agreements. [Charles Baird, "The Varieties of `Right to Work': An Essay in Honour of W. H. Hutt," Managerial and Decision Economics, Special Issue, 1988, pp. 33-43.] Quite simply, RTW means that each person has a right to acquire and maintain employment with any willing employer without having to join or pay dues to an exclusive bargaining agent or any other union.

Can RTW Remedy the Adverse Impact of Unionism?

In essence, unions are government-sanctioned monopolies. Unions, given their monopoly status, can impose sizeable economic distortions and costs on the economy. Trade unions gain wage increases for their members at the expense of consumers, shareholders, and especially non-unionized workers. In addition, trade unions reduce productivity increases and economic growth, and also impede the development and growth of small firms which generate substantial employment in Canada. [See John Addison and John Burton, Trade Unions and Society: Some Lessons of the British Experience, Vancouver: The Fraser Institute, 1984; and Michael A. Walker, "The Future of Unions," Fraser Forum, The Fraser Institute, July 1993, pp. 31-32.]

A survey conducted by the Fantus Company, one of the largest industrial relocation firms in the U.S., indicated that half of all businesses looking to relocate will not even consider moving to a state without a RTW law. Another survey of industrial site selection decision-makers undertaken by Area Development Magazine revealed similar results: 39.1 percent of respondents considered RTW laws "very important" in determining to where they would relocate. Another 32.3 percent considered it to be an "important" consideration. A study conducted by the Center for Business and Economic Research of the University of Tennessee demonstrated that "low taxes," "tax concessions," and "government support for sight acquisition" are ranked as being less important decision-affecting factors than RTW laws. The conclusion is clear: an attractive business climate--of which a state RTW law is an essential part--encourages new firms and increases development and expansion by existing businesses. [National Institute for Labour Relations Research, "Jobs Up in Right to Work States," 1994.]

RTW states offer firms a business environment free of many labour union imposed regulations that raise costs and reduce the number of jobs in non-RTW states. As a result, businesses in RTW states have lower costs, allowing them to produce goods and services competitively and to employ more people.

The Economic Impact of RTW in the United States

In the United States, 21 of 50 states have some form of RTW legislation. Florida was the first state to pass RTW legislation, in 1944. Four states have enacted RTW legislation since 1955, with Idaho being the latest in 1986. The economic impact vis-à-vis investment growth, job creation, and income growth has been impressive in RTW states in comparison to non-RTW states.

The Evidence [James Bennett, "A Higher Standard of Living in Right-to-Work States," Virginia: National Institute for Labour Relations Research, 1994, pp. 1-4.]

(1) The appropriate comparison across cities, states, or regions in measuring economic well-being is the purchasing power of after-tax annual income. The relevant question is: is money income (adjusted for taxes and the cost of living) higher in non-RTW states than in RTW states? Research conducted by Professor James Bennett suggests that in 1993 after adjusting for the cost of living and the state and local tax burden, the average after-tax annual income is $36,540 in RTW states versus only $33,688 in non-RTW states. Thus, a typical urban family in a RTW state has $2,852 more in after-tax purchasing power than a similar family in a non-RTW state.

(2) Another important point raised by Professor Bennett's study is that the gap in living standards between RTW and non-RTW states appears to be growing. In 1987, RTW states had only $1,377 more in after-tax purchasing power compared to the 1993 figure of $2,852. The difference in after-tax purchasing power between RTW and non-RTW states has more than doubled between 1987 and 1993.

(3) Between 1988 and 1993, 77 percent of all new high-paying manufacturing jobs in the U.S. were created in the 21 RTW states, even though these states have less than 35 percent of the U.S. population.

(4) RTW states also attracted 57 percent of new and expanded corporate facilities in 1992. As well, they created 98,400 more non-agricultural jobs than non-RTW states over the 1987 to 1993 period.

(5) During the 1983 to 1993 period, according to the National Institute for Labour Relations Research (NILRR) in Virginia, states without RTW laws suffered a net loss of 876,300 manufacturing jobs, while RTW states experienced a net gain of 503,800.

The Economic Impact of RTW in New Zealand

Between 1984 and 1991, New Zealand converted its economic system from the most heavily regulated system to the least regulated of the OECD countries. Among its reforms was the Employment Contracts Act (ECA), which was the cornerstone of the comprehensive economic and social reform program. The ECA converted a centralist, corporatist, industrial relations system into a decentralized market order. Freely negotiated labour contracts are now the basis for responsive, diverse labour markets. [Wolfgang Kasper, Liberating Labour: The New Zealand Employment Contracts Act, Kiel: The Institute of World Economics, June 1995, p. 1.]

Labour is now treated as a marketable service, and the wage as market price, agreed upon freely by employers and individuals or groups in decentralized contact negotiations. The ECA greatly reduced the role of government and unions in wage setting in the workplace. The main aim of the ECA was to enhance the adaptability of private enterprises so that they could compete more effectively in the global marketplace. Its key features were:

The Evidence [Wolfgang Kasper, pp. 29-45; and Steve Marshall, "The Impact of the Employment Contracts Act," Economic Alert, Vol. 5, No. 6, August, 1994.]

In 1991, many opponents warned New Zealanders of the dire consequences of labour reforms, claiming that public resistance against the bill would be mobilized. The main thrust of the arguments was that real wages would fall, creating low-paying jobs. Subsequent events have shown these fears to be unfounded. Indeed, the New Zealand economy appears to have benefitted from RTW laws. Using industry-level quarterly data from 1986 to 1993, an econometric analysis found that "at least one percentage point of the employment growth rate [of the 4.4 percent growth rate since the ECA] can be attributed to the ECA legislation." [Tim Maloney, "Has New Zealand's Employment Contracts Act Increased Employment and Reduced Wages?", Department of Economics, University of Auckland, July 1994, pp. 12-17.] Several other indicators suggest that RTW legislation has had a positive economic impact.

(1) In the first half of 1991, the recession, which had begun in 1989, came to an end in New Zealand. Output grew by 15 percent in the three years prior to 1995--as much as it had grown during the entire decade between 1974 and 1984.

(2) Between the passage of the ECA in 1991 and 1995, more than 150,000 new jobs were created, the equivalent of the entire workforce of Christchurch or Wellington. In March 1995, there were 5 percent more jobs than a year earlier.

(3) From a high of nearly 11 percent in September 1991, the aggregate rate of unemployment has fallen consistently, decreasing to 6.6 percent as of March 1995.

(4) Given the 1991-92 recession, wages and salaries per employee in the business sector rose marginally after the ECA.

(5) Strike activity fell after the enactment of the ECA. In the first 10 months after the passage of the Act, 90 percent fewer working days were lost than in the 10 months from May 1990 to March 1991.

Economic Focus: RTW in Idaho [National Institute for Labour Relations Research, "Case Study: Idaho, Economic Development and Right to Work," 1994.]

Idaho became the 21st U.S. state to implement RTW legislation in 1986. Most indicators suggest that the Idaho economy has benefitted from RTW legislation.

(1) Since the passage of RTW legislation in 1986, 103,700 non-agricultural manufacturing jobs have been created.

(2) Prior to the enactment of Idaho's RTW law in 1986, unemployment was at 7.9 percent. As of September 7, 1993, it was 5.9 percent.

(3) Idaho has a personal income growth rate of 6.5 percent compared to the national average of 5.5 percent.

(4) Over 1,000 net new businesses opened their doors in Idaho in 1992. Since 1987, net new business starts have totalled 5,000.

(5) Idaho's 32.8 percent growth in manufacturing employment from 1987 through 1993 was the fourth largest rate of growth in the U.S. for that seven-year period. By contrast, employment in the manufacturing sector in Idaho declined by 2.1 percent in the six years before Idaho's RTW law went into effect.

Conclusion

Positive economic benefits have accrued to jurisdictions that have implemented RTW laws. RTW legislation is an important element in creating an attractive business climate. Fundamentally reforming labour laws in the provinces would help stimulate investment and job creation which would benefit all Canadians. If Canadian provinces were to adopt RTW laws, they could become a magnet for job-creating investment from the other parts of the world.

Labour market flexibility is not a panacea for all economic ills. It is, however, one important factor in the equation for economic prosperity. The arrangements in many provincial labour codes inhibit flexibility in labour markets, reduce incentives for increasing productivity, and increase the costs of production. Therefore, the labour market needs to be reformed to introduce flexibility in wages and in conditions of employment, and to ensure that labour markets can "clear" and thus provide the impetus for increasing economic activity and the creation of wealth.

No Small Change:                                                                         The Fate of the Dollar in a Separate Quebec

Stephen T. Easton

If Quebec chooses to use the Canadian dollar as its currency, there is little that Canada can do to prevent it. But Quebec will not use the Canadian dollar for very long, and everyone should understand why.

Upon separation, Quebec will want to use the Canadian dollar because it is the most familiar way to go about daily transactions, it has a long and relatively stable history of value, and it is the unit of currency in which all Canadians, including Quebecers, have most of their assets and liabilities.

The rest of Canada will not be able to prohibit a sovereign Quebec from using our currency. Indeed, we prevent no one from using our currency as a matter of simple self-interest. After all, if a foreigner holds Canadian dollars, they are expanding our markets. They will either invest in Canadian assets or buy Canadian goods and services, both of which redound to our benefit.

But a little while after separation, the other shoe will drop. What exactly is the status of Canadian dollar assets held in Quebec banks? If a Quebecer has a Canadian dollar account at the Royal Bank in Quebec, is it insured for $60,000 by the CDIC? I don't think so. Recall that CDIC is the acronym of the Canadian Deposit Insurance Corporation, with emphasis on the first word. WE don't insure Canadian dollar deposits in the U.S. or any other country.

But eager to offer equal security, the government of a sovereign Quebec will no doubt offer its own insurance. But how useful will this insurance be? The essential feature of the CDIC is that it is ultimately backed by an authority that has the ability to issue money in the required amounts. It is backed by the lender of last resort. If a major Canadian bank were to fold, not a likely case at the present time, deposit holders would be guaranteed their minimum. If necessary, the government could issue a directive to print the required amount of money.

I do not think this same insurance system would extend to Quebec. And this has nothing to do with being churlish after a referendum "Oui." It is simple common sense that Canada is not about to issue insurance for Canadian dollar deposits in another country. That country will evolve a host of regulations and a set of legal precedents that are different from those of Canada. Correspondingly, the mind boggles at a government of Quebec-led rescue of a major "foreign" bank just because some assets are held by Quebecers.

So where do we stand? Quebec will have a Canadian dollar and deposits in local banks that are uninsured. They will be safer in Canada than in Quebec. It is hard to imagine that any Quebecer will keep too many dollars in an uninsured deposit in Quebec when she could keep them in an insured institution across the border in Canada. Perhaps the government of Quebec will offer an interest rate premium to keep deposits in Quebec. Or perhaps Canada will insure foreign resident owners of all Canadian dollar deposits in Canada.

Some day after separation, Quebec will have to issue its own currency. Quebecers will not be able to use the U.S. dollar. It would just be too expensive to buy all those dollars to allow them to circulate. Since the U.S. is unlikely to make the new state of Quebec a gift of $7 billion or so, the only way Quebec can accumulate dollars is to obtain them by borrowing them or by exporting enough goods and services without buying any imports. After all, imports mean that money flows out and without a net inflow of dollars, Quebec cannot accumulate enough currency to run the day-to-day activity in the economy. This would be ruinous. Contrary to some economic mythologies, we import to improve our lot and raise our standard of living by purchasing things that we need, like TV sets, medicine, and fresh food in winter. Using another country's currency would mean Quebec foregoing imports for a year or so. This is not feasible. It would be an economic catastrophe of the first water. Thus, Quebec will have to replace the Canadian dollar with its own "fleur de lis." It is far better to keep the Canadian dollar which already circulates, but even better still to print your own.

With its own Quebec dollar, Quebecers can have their deposits insured in their own currency to their heart's content. No premium would have to be paid to keep dollars in Quebec banks. The government can make sure that this currency is useful by requiring taxes to be paid in the local "fleur." And the government can print money to cover its deficits and rediscover the glories of debt financing without paying any attention to anyone else. No more tyranny of the Bank of Canada. Quebec can rediscover the inability to control the real interest rate chez nous.

Of course the discipline of the market will ensure that the value of the Quebec currency is a function of how useful it is to others. It will be interesting if the "dirigistes" in Quebec City are able to create a currency that maintains its value with the Canadian dollar. But create that currency they must.

Recent Visitors to the Institute

Patrick Luciani
Senior Program Officer,
Donner Canadian Foundation

Lucie Bohac Konrad
Executive Director
Canadian Youth Foundation, Ottawa

Marshall Casse
Minister-Counsellor for Economic Affairs
Embassy of the U.S., Ottawa

William T. Fleming, Jr.
Consul
U.S. Consulate General, Vancouver

Professor Ronald Bodkin
on sabbatical at the
Department of Economics,
University of Washington, Seattle

Surinder K. Suri
Director and Chief Economist
London Life and London Insurance Group
London, Ontario

Mr. Byong-ki Lee
journalist with Dong-A Ilbo Daily News
Seoul, Korea

Mr. Chan-koo Park
journalist with Seoul Shinmun Daily News
Seoul, Korea

Diane Francis
Editor, The Financial Post

Professor George Von Furstenberg
Centre for International Studies
University of Toronto

Brian Plimmer
Vice President
Canada, New Zealand Business Association Inc., Auckland

Professor Brian Kantor
Head of the School of Economics
University of Cape Town

Brenda Humber
President of The Women's Bank Society
West Vancouver, and
Cynthia Spraggs of The McNaughton Group

Jack Weisgerber
Leader, B.C. Reform Party, Victoria

George Gibault, freelance researcher

William Dennis
Senior Program Officer
Liberty Fund, Inc.

Jeanette Nordstrom
Vice President, Marketing
National Center for Policy Analysis, Dallas

Recommendations for Welfare Reform

Owen Lippert

Mike Harris took the bold and correct step of cutting Ontario's welfare rates by 22 percent. Rate levels are now only 10 percent higher than the average of the other provinces. Harris has given the Minister of Social Services the mandate to reorganize the welfare system. Here are some suggestions for Ontario and for other provinces looking to reduce costs and improve service.

The important point to remember is that welfare should be temporary assistance for those in need. It is not a training course. It is not a job. The best course for people on welfare is to leave it for a job.

Unequal Shares

Chris Sarlo

Why should we be concerned about inequalities of income and wealth? Why should disparities matter? Why should anyone care if some people enjoy enormous financial success? As we reflect on these questions, there is little doubt that they do matter. While there is a contingent for the view that unequal shares are, per se, bad, the interest in the distribution of income and wealth is far broader than can be attributed just to committed egalitarians. An explanation of the widespread fascination and genuine concern with differentials is needed.

Discomfort with inequality, especially growing gaps between rich and poor, has to do to a great extent, it seems to me, with our concern for the poor. We interpret growing inequality to mean more misery and greater hardship for people who are already having difficulties. This need not be the case, of course. If the real income of low-income folks is growing but growing less rapidly than that of well-off folks, then inequality is increasing even though poverty is declining. It is important to separate the two issues. We should be concerned about poverty, about the inability of any human being to acquire basic needs, and about artificial barriers to opportunity, especially for children.

There is, I believe, a rather common view that very high incomes are inevitably the result of fraud or other suspicious activity. It's not possible to make a lot of money without doing something unethical, according to this view. A roughly similar perspective suggests that the economy is a sum-zero game, so that if some people win big, others must be losing big. Either way, growing inequality is not regarded as desirable. While such views are relatively easy to rebut with simple economics and common sense, that fact remains that people who hold such views will instinctively dislike inequality.

Of course, wealth obtained by force or fraud is theft and should be returned to its rightful owner. Surely, though, it is possible for some people to become very well off honestly and fairly by providing valuable goods or services to many others. How, we must ask, are those others (or anybody else) harmed by either the voluntary exchanges or by the subsequent accumulation of wealth by the seller?

A case can be made that feelings of guilt are behind a fair bit of the discomfort with inequality. Living standards have improved over the years to the point where some people don't have to work very hard to earn a very good living. In those circumstances, it is natural to compare one's good fortune with those who do not have jobs or who earn much less for the same effort, and to feel guilty. In turn, it motivates many of us to take more than passing interest in distribution trends.

Closely related to this is the fact that poverty, in the traditional sense of the word, has been largely eliminated in Canada. Of course, if we listen to the popular media, we would have a different impression. Nevertheless, declining rates of basic needs poverty has, to some extent, shifted the focus of academic study towards the measurement of unequal shares.

It seems to me that envy explains some of the concern about unequal shares. We can't let the rich keep getting richer. It's obviously unfair. This view has at its root a principle of entitlement to wealth in general, regardless of who earned or created it. Also at work here is a resentment of success. People don't deserve to have a lot more than the average. Perversely, there are those who would prefer to see everyone equally miserable than to permit some to rise substantially above others.

I want to suggest that while concern about inequality (and even dislike of inequality) is common, it is largely misplaced. To a great extent, what people are really concerned about is poverty and lack of opportunity. They dislike the idea of human beings living in miserable and deprived circumstances. However, the concepts of poverty and inequality have become so intertwined in the popular press that citizens are understandably confused. They are told often enough that the rich are getting richer (without any supporting evidence) and that this means, as an automatic consequence, that hunger and misery are increasing.

What underlies unequal incomes is not widely understood. It turns out that age explains a large part of observed income inequality in Canada. For most workers, real income increases as they get older (as they become more experienced and responsible). So, even if everyone earned exactly the same lifetime income, there would be substantial inequality at any point in time due to age differences.

What does all of this mean? It means that it is quite easy for the social welfare community to exploit people's natural sense of fairness and compassion and convert that into support for redistributive policies. Confusion about the distinction between poverty and inequality works in their favour. It also means that challenging the notion that income inequality is bad, per se, is going to be difficult and unnecessarily controversial.

Murder in the Casino

Filip Palda

The French author Victor Hugo wrote that "behind every great fortune there is a crime." Had he been around today he might have said the same thing about provincial lotteries and casinos. These enterprises bring fortunes to government: 30 cents out of every dollar gambled in lotteries goes into the treasury. Provinces guarantee themselves this amazing investment return by operating on principles that drug lords and racketeers might recognize. The trick is to forbid anyone but the province from getting into the business. With only one house open for bets, people have no choice but to accept low prizes for long odds. The measly payouts that players get reflect a tax hidden in the price of their lottery tickets. Why do we let government godfathers get away with such extortion?

Lotto corporations are monopolists out to gouge their customers. Like OPEC, Ontario Hydro, Bell, and the cable barons who control our TV sets, Lotto corporations call the shots in their domain. They can call these shots because they have muscle to back them up. If a private company were to sell lottery tickets that paid back 80 cents of prize money for every dollar gambled, instead of the current 40 cents, the province would simply call on the police to shut the operator down. This is what happened in the United States. A private company paid out prizes based on numbers drawn in a state lottery. The prizes were so generous that the state had to track him down and charge him with a crime. Monopolies exist by force.

Citizens have trouble fighting against state-run monopolies because they lack information. We do not sense how deeply the monopoly is gouging because we have no standard of comparison. There is no private Lotto game or casino that might pay out better odds. How do you complain if you do not know what you are missing? Our ignorance is the bliss of the government gambling establishment. It acts as it wishes while we bow our heads in submission.

The submissive attitude of Canadians who gamble may not last long. Researchers in the past few years have uncovered stinging facts about state gambling monopolies that could shake the public out of its torpor. It turns out that the poor gamble more than others. So they end up paying most of the tax that is hidden in the price of a lottery ticket. The thumping burden on the poor might not be so bad if the money was earmarked for good causes. Annual statements from lottery corporations claim the money is earmarked, and goes to hospitals, the arts, education, and community projects. But U.S. studies on money earmarked for education find no evidence that lottery revenues have led to higher government spending on education. Instead, legislatures appear to reduce other sources of funding, as earmarked funds roll in. If these studies carry over to Canada, the lesson is that state gambling revenues may not lead to more social services. They may instead simply transfer the burden for existing government services to the poor. A con artist would be impressed.

References

Mary O. Borg, Paul M. Mason, and Stephen Shapiro, The Economic Consequences of Lotteries, (London: Greenwood, Praeger, 1991). )

Watch Manitoba for the Strongest                                  Balanced Budget Law in Canada

Robin Richardson

In the March 9, 1995 budget, the Government of Manitoba presented draft legislation for The Balanced Budget, Debt Repayment and Taxpayer Protection Act. There was an election shortly thereafter, and the governing party was returned to power with a majority.

When the Manitoba legislature reopens on September 18, six weeks will be devoted to debating and passing this proposed balanced budget law. Manitoba is the province to watch; its balanced budget law will be the strongest in Canada.

Two plans in one

The Manitoba Act is really two plans in one. First, it is a balanced budget plan; second, it is a debt elimination plan.

(1) The Balanced Budget Plan

The government of Manitoba will not be allowed to incur a deficit for fiscal year April 1, 1995-March 31, 1996, nor any year thereafter. Exceptions are made for natural disasters, war, and a drop of more than 5 percent in overall provincial government revenues.

If a deficit occurs in contravention of the Act, the government is required to achieve at least an offsetting surplus in the following year.

The proposed Act contains financial penalties on the premier and all members of the executive council for non-compliance with the balanced budget provision. They could lose 20 to 40 percent of their remuneration for non-compliance with the provisions of the Act in the previous year.

Commentary

This penalty on the premier and his colleagues for failure to balance the provincial budget under the provisions of the proposed Act would be unique in Canada. No other Canadian province or the federal government has any penalty for non-compliance with their budgetary plans.

The government of Manitoba is to be congratulated for introducing this provision in the proposed Act. A recent survey of balanced budget laws in the United States concluded that tough provisions for non-compliance are necessary for an effective balanced budget law.

(2) The Debt Elimination Plan

Furthermore, the Act would establish a Debt Retirement Fund to receive mandatory and discretionary deposits from general revenues beginning March 31, 1997. All of the budgetary surplus after provision for the Fiscal Stabilization Fund would be transferred to the Debt Retirement Fund.

Unlike Alberta, Manitoba has not set out a year by which it anticipates the provincial debt will be eliminated.

Commentary

Manitoba's proposed Act would be greatly improved if the legislators were to include a definition of a "debt elimination period" of, say, 25 years as the period beginning on April 1, 1997 and ending on or before March 31, 2022. By setting a clear target in the Act for a "Debt Freedom Year," it is more likely that the taxpayers of Manitoba will understand and accept the analogy with the home-owner's mortgage. Collectively, Manitoba taxpayers owe a huge mortgage on their provincial government "home." Being able to "burn" the collective "mortgage" on or before the year 2022 would be a worthwhile goal for the people of Manitoba.

Taxpayer protection

Another unique feature of the Manitoba Act is that it would require the government to get taxpayer approval for a tax increase through a province-wide referendum. This includes all proposed increases in provincial income and retail sales taxes, as well as taxes for hospitals, colleges, and universities.

The Act would, however, allow for an increase in the rate of a tax if the increase resulted from changes in federal taxation laws and is necessary to maintain provincial revenue or to give effect to a restructuring of taxation authority between the federal and provincial governments.

Another provision is that the Act would allow a tax increase without referendum approval if the proposed change was designed to "restructure the tax burden" and does not result in an increase in revenue.

Conclusion

The government of Manitoba will soon have the best balanced budget law in Canada. In one piece of legislation, Manitoba's law should ensure that the provincial debt will be eliminated over a period of time and that the tax burden does not increase. The features of the proposed Manitoba law are worth studying and adopting by other governments in Canada if they are serious about deficit and debt elimination. )

Remembering Dr. Neil McLeod

Michael Walker

We note with sadness the passing of Dr. Neil McLeod who played an important role in the early development of The Fraser Institute. Having lived a full, productive, and active life, Neil died at the age of 78 years after a several-year struggle with cancer. A few weeks before his death, Neil wrote full of enthusiasm for golf, for life and for the activities of The Fraser Institute of which he was an avid Trustee.

Saskatchewan born and schooled, Neil McLeod joined the Royal Canadian Air Force at the beginning of the Second World War and served for five years. Following the War, Neil completed his Ph.D. in Economics at Cornell University. A brief career in the grocery industry with top-line marketers like Loblaws preceded Neil's joining the Institute of Paper Chemistry at Lawrence University in Appleton, Wisconsin, in 1955. There he was Professor of Economics, and assumed a variety of administrative tasks, latterly as Treasurer. The Institute was the premier school for advanced, Masters, and Ph.D. level studies in the paper industry. In 1974 Neil was lured away to a newly-endowed organization, Liberty Fund Inc., which had been started by Indiana entrepreneur Pierre Goodrich a dozen years before.

While initially a Program Officer, Neil was soon the President of Liberty Fund and, at an age when most people are retiring, he set out to establish what has become a world renowned organization for the advancement of liberty. Literally hundreds of thousands of scholars in virtually every country of the world have been touched by the Liberty Fund's unique colloquium and symposium program, or its extensive library of reprinted, classic, and out-of-print books concerning liberty. In contemplating the huge success of Liberty Fund it is important to remember that before Neil McLeod came along it was really only a glimmer in the eye of the founder. Not only did Neil build a program which has had a significant impact around the globe, he also built a strong staff which has amplified and expanded the work which he began. Fortunately, he had the satisfaction of seeing this unfolding.

The Fraser Institute was an early beneficiary of Neil McLeod's help. As a fledgling organization in the mid 1970s, we had great ambition and vision, but very few resources. One day, "out of the blue," came this former Canadian economist asking how he could help The Fraser Institute reach a broader group of professionals who were interested in our work. The result was an International Conference on the Impact of Unemployment Insurance, which brought to Vancouver many of the top minds in the economics fraternity. This symposium "put The Fraser Institute on the map," in the international community and was the first of many mutually beneficial collaborations between the Institute and the Liberty Fund.

In later years, The Fraser Institute and the Liberty Fund joined forces to bring the ideas about free markets to economists and others in many countries of the world, particularly through attempts to devise an international index of economic freedom. The later exercise involved no less than four Nobel Prize winners and stands as a major accomplishment which made more easily possible the recent publication of the Freedom Index by the Heritage Foundation of Washington.

We will miss Neil McLeod. We will miss his never-give-up determination and ebullient optimism. We will miss his sense of humour and wry turn of phrase. But most of all, we will miss his wisdom and his counsel as a member of the Institute's Board of Trustees.

September Question and Answer

Isabella Horry and Michael Walker

Q: Which of the governments in Canada is making most headway in getting its budget in shape?

A: This is a question frequently asked of the Institute. In order to answer it we have created the first federal and provincial government budget performance ranking. The Canadian Budget Performance Index measures the behaviour of federal and provincial governments with respect to budgetary spending, revenue, deficits, and tax-supported debt. The Index is a composite of three sub-indices: "spending," "revenue," and "deficit and tax-supported debt."

The Institute has constructed this index as a supplement to the Fraser Institute Tax Freedom Day in order to give a broader perspective on the fiscal affairs of the provinces and the federal government. Tax policy is important, but it is not the only aspect of government finances which should be considered. Some provinces, such as Saskatchewan, with late Tax Freedom Days, have, comparatively speaking, controlled their spending and their deficits in recent years and on an overall basis are showing greater improvement than some other provinces, like Newfoundland, which has one of the earliest Tax Freedom Days but ranks in the middle on overall fiscal performance.

The top three overall budgetary performers are Prince Edward Island, Saskatchewan, and Alberta with overall scores out of 100 of 68, 61, and 58 respectively. The worst performance, by far, was turned in by the federal government with a score of only 18.8 out of 100. Alberta scored lower than might be expected on the basis of its past performance because it expects to incur a budgetary deficit in the current fiscal year. Prince Edward Island did not score at the top level in any category but was a consistent performer overall and without a "flashy" performance topped the other ten contenders. The same was true for Saskatchewan which did better than average in all categories except spending control, but achieved the second highest grade overall.

The federal government's very low score underlines the need for strong action on the taxation and deficit control front, and shows clearly, if any other evidence was necessary, that it is now primarily the federal government's fiscal performance that is lacking.

This is the only ranking of the federal government and the provinces on a consistent basis that has ever been compiled. In addition, the calculations include all of the spending of the provinces, so that those provinces that have pushed some of their spending into off-budget accounts get fully tagged for all of their spending.

With the exception of the tax-supported debt figures, the data are taken from the federal and provincial government budgets [The Ontario data for the fiscal year 1995/96 are taken from the 1995 Ontario Budget Plan.] for 1994 and 1995. The tax-supported debt figures are obtained from the Dominion Bond Rating Service for the 1993/94 and 1994/95 fiscal years. Spending and revenue cover both current and capital accounts.

The Budget Performance Index contains three sub indices: spending, taxation and deficits and tax-supported debt.

The first index examines the extent to which the governments are controlling budgetary spending between 1994/95 and 1995/96. Both total spending and self-financed spending, that is, spending net of federal government transfers to the provinces, [Whenever provincial spending net of transfer payments from the federal government are analyzed, federal spending net of transfer payments to the provinces are examined.]are analyzed.

The second index looks at how each province's taxes and own-source revenues (revenue net of federal government transfer payments to the province) are being managed over 1994/95 and 1995/96.

The third index measures how deficits and tax-supported debt are being controlled.

The Spending Index is composed of six variables.

Federal government: The difference in the ratio of spending per capita to the average spending per capita by the other G-7 countries' central government [The data for this calculation are taken from the International Monetary Fund's publication--Government Finance Statistics Yearbook, 1993--and from Statistics Canada's Public Institutions division. Since the IMF Yearbook only gives data for Canada up to fiscal year 1989/90, we use data from Statistics Canada for 1990/91 and 1991/92. The spending series for Canada from both sources prior to 1990/91 are nearly identical.] (between 1990 and 1991).

The Revenue Index consists of six variables.

The Deficit and Tax-Supported Debt Index is composed of four variables.

Each variable is standardized such that the lowest score is zero and the highest score is 100. The variables are then assigned a weight of one and summed across their respective categories. The index showing the overall budget performance is obtained by averaging the "spending," "revenue," and the "deficit and tax-supported debt" indices.

[If you are interested in receiving more detailed appendix tables for this article, please call The Fraser Institute at (604) 688-0221.]

1967 Was a Bad Year

Douglas W. Allen

Despite its similarity to the United States, Canada is internationally thought of as a welfare state, akin to Britain and Sweden. For baby-boomer Canadians it is seldom even possible to separate the large role of government from being Canadian, for we have known no other state of the world. Indeed, to attack a program such as medicare is practically viewed as traitorous--though in a nation made up of peace keepers we say "un-Canadian." Yet it was not always this way. In fact, only a short time ago it wasn't this way at all. To make my case, I present a series of graphs that I have tabulated or run into over my years of research on the family. Together, they demonstrate that a great shift in social policy took place in Canada between 1966 and 1968.

Figure 1 shows real per capita expenditures on welfare for the U.S. and Canada. Figure 2 shows welfare payments as a percentage of gross national product. Both graphs demonstrate that prior to the mid '60s, Canada and the U.S. had similar expenditures on welfare. It is only after 1966 that welfare expenditures in Canada become higher. What accounts for these higher spending levels is the Canada Assistance Plan (CAP, 1966) which "introduced" universality into the welfare system. Prior to 1966, only specific categories of poor qualified for welfare (the blind, aged, widowed, or disabled). The notion of capable single young adult males collecting welfare did not exist prior to 1966 in Canada.

CAP removed categories of need, and, therefore, broadened the scope of assistance. Under CAP, the federal government shares equally in all costs and provinces are required to have no residency requirement for eligibility.

CAP not only raised payments and eligibility, it also made certain categories of the poor eligible for higher payments--most notably, single parents. Elsewhere, I have shown that these higher payments encouraged more births out of wedlock. [See Allen, 1993.]

From Figure 3, however, we see that the major change in births out of wedlock also takes place in the mid to early 1960s. [This information is not generally available to the public. It was compiled by Strategic Projections Inc. using Statistics Canada vital statistics. It was first published in Gairdner (1992).]

Figure 4 provides the Canadian divorce rate.  Once again we see that the country was in a relatively stable, steady state until 1968. By 1969 the divorce rate tripled, and it continued to rise until the mid '70s. There is a second jump in the divorce rate in the mid 1980s. Although CAP was a landmark piece of legislation for Canada, and had major financial consequences for the country, the 1968 Canada Divorce Act may ultimately have had a larger social impact. Today divorce, and all the tragic consequences that go along with it, is common.

Until 1968, divorce was uncommon because it was difficult to obtain. At that time, and in most provinces, the only ground for divorce was adultery, and this had to be proven in a court of law. For Quebec and Newfoundland, a private act of Parliament's Senate was required to dissolve a marriage! But the Divorce Act changed all of this. The Divorce Act created fifteen grounds for divorce (like adultery, cruelty, abandonment, etc.), but more fundamentally, it included "marital breakdown" as a ground for divorce. Marital breakdown is known as a "no-fault" divorce. It means that couples can terminate their marriages even though no specific act or fault has been committed. Many have said, and they are right, that no-fault divorce amounts to legalized child abandonment. The bottom line is that no-fault divorce made divorce easier, and increased the divorce rate in the process. [There is a huge economic literature on this question. But the results are now virtually unanimous on the point that the introduction of these laws in Canada and the US increased the divorce rate.]

Finally, figure 5 reproduces a graph from an article by George Graham in the May Fraser Forum, which comes from Mauser, 1995. As Graham argued, the death penalty was effectively abolished in 1967. The graph shows a clear regime shift at this same time.

Taken together, these graphs paint a dismal picture. Our spending on welfare is higher, there are more divorces, more children born out of marriage, and more murders than there were 35 years ago. But the incredible feature of figures 1 through 5 is their similarity. In all cases we see a stable, steady state prior to 1966-68, a regime shift in the mid '60s, and then a growth in the relevant statistic. Some academics will counter that these aggregate statistics mean little, but I've worked with the numbers enough to know that the story they tell remains the same no matter how much you torture them. I present them here as an interesting observation, not the final word.

The mid to late 1960s are often thought of nostalgically as a high water mark in Canada's economic history. Low unemployment, low inflation, a new young prime minister (who just happened to be the Justice Minister in 1967!). And yet we see it was also a time when two pieces of legislation (and de facto three) were brought in that changed even the very way we think about ourselves and our country. It was, indeed, "the best of times and the worst of times."

References

Allen, D.W., "Welfare and the Family: The Canadian Experience," Journal of Labor Economics, 11 January 1993.

_____, "Divorce: What's At Fault For No-Fault?" Simon Fraser University working paper, 1995.

Gairdner, W.D., The War Against the Family, Toronto: Stoddart, 1992.

Mauser, Gary, "Gun Control is not Crime Control," Fraser Forum Critical Issues Bulletin, March 1995, page 12, figure 4. )

Why Fear Competing Safety Nets?

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

Just before the federal budget came out in February, I heard a welfare advocate on the radio pleading for the federal government not to cut provincial transfer payments for social programs. Such programs, she said, are "the ribbons that bind us, one to another, all across the country."

The ribbon imagery was intended, I think, to give listeners a warm, cheery feeling. The effect was lost on me. I wondered whether it would be any more comfortable or uplifting to be bound with ribbons than to be bound with chains.

Defenders of the welfare state have worked tirelessly to portray Canada's social programs as the defining characteristic of the country--a civilizing force that distinguishes our kinder, gentler nation from the Hobbesian jungle to the south.

The truth is that Canadians don't have a monopoly on compassion. In fact, we don't even have the edge. For example: in 1992, Americans donated U.S. $122 billion to charities. Canadians donated only U.S. $2.4 billion--far, far less per capita than those supposedly mean-spirited Yanks.

The difference, welfare statists say, is that we dispense our kindness in an organized, centralized way, through government. While that is to some extent accurate, it is also true that the U.S. federal government spends nearly 50 percent of its budget on social programs.

But even if it were true that our government spends more lavishly than the American government on the relief of hardship, does this really mean we are nicer people? Surely it's a sign of greater benevolence that people donate their money voluntarily rather than being forced to hand it over via the tax collector.

The attempt to build a national identity on a foundation of coercive social programs is, in my view, pathetic. There are many other attributes this country can be proud of besides its "social safety net." The immigrants who arrived in Canada over the centuries came here primarily because they saw it as a land of freedom and opportunity. They didn't come seeking to be part of an ocean-to-ocean chain gang--or even a ribbon gang.

Despite all the pleading, the February budget introduced the "block funding" of social programs, which would allow the provinces to spend their transfer payments as they see fit, unconstrained by direction from Ottawa. The welfare statists howled. B.C.'s Minister of Social Services was one of many to voice this concern: "I'm afraid without national standards, there will be a very quick race to the bottom."

What an odd reaction. Welfare statists should be rejoicing that the federal stranglehold on social programs has been broken. In fact, if they genuinely believed in the fairness and efficacy of their policies, they would be campaigning to devolve the responsibility for social programs even further, from the provincial level down to the municipal level, along with the concomitant taxing power.

There would be several strategic advantages to this. First, because municipalities are relatively small, the welfare statists should find it easier to target one or two and convince all the inhabitants of the merits of generous social programs. They wouldn't have to persuade a whole country simultaneously, just a few thousand voters in a couple of small towns.

And because there are so many municipalities, it should be easy to find a few that will embrace the welfare state package even if others don't. They could start by targeting places that have traditionally voted NDP.

The country could then become a giant experimental laboratory for social programs. If the welfare state works as well as its proponents claim, it would provide us with model communities, full of picturesque, immaculate and crime-free government housing projects, with health care, day care, elder care, university education and prosperity for all.

When outsiders observed how well those munificent social programs worked, many would vote with their feet, moving into the model communities to join this marvellous system. To avoid becoming ghost-towns, other municipalities would be forced to imitate the welfare state communities and provide the same generous social programs. In other words, there would be a race to the "top."

Why don't welfare statists believe things would work this way? Why aren't they willing to let their theories compete in the real world? If the social safety net is what makes Canada kinder, gentler and more prosperous, why are they so convinced that only federal--not provincial or municipal--policy makers can grasp this? Why would voters support it in federal elections but not in municipal ones?

The answer, of course, is that welfare statists suspect (correctly) that support for social programs is weak. These programs can become entrenched only by being implemented at the highest political level--where the average citizen feels too remote and insignificant to cause change, or even to make himself heard.

In the same vein, look for a stepped-up campaign for Canada to commit itself to international welfare-state standards through the United Nations and the World Trade Organization. Voters back home can't throw the U.N. bums out of office, and people can't even vote with their feet if every country in the world offers the same statist agenda as a condition for international trade. )

1995 Privatization Shopping Lists for                            Canadian Government Business Enterprises

Robin Richardson

The dates were inadvertently left off the privatization shopping lists published in the July 1995 Fraser Forum. I apologize to our readers for this unfortunate oversight. The lists were based on data obtained from Statistics Canada as of December 31, 1993 for federal government business enterprises and December 31, 1992 for provincial and territorial government business enterprises.

These earlier lists have now been reviewed and updated to August 15, 1995. The new 1995 lists therefore reflect more recent privatizations and are an up-to-date indication of the potential for privatization of self-supporting and tax-supported Canadian government business enterprises.

When will a GBE be dropped from the lists?

Although a government may announce its intention to privatize a GBE, the GBE will still be kept on The Fraser Institute's GBE privatization shopping list until the government's share holding falls below 50 percent. For example, Petro Canada and Petro Canada Ltd. are included in the 1995 privatization shopping list since the federal government still holds more than 50 percent of the outstanding shares. Although the government has stated its intention to sell its remaining holdings of these companies, they will be kept on The Fraser Institute's GBE shopping list until the govern-ment's position is less than 50 percent. The Canadian National Railway is another current example. It will be kept on the privatization shopping list until the federal government's holdings are less than 50 percent. )

Student Essay:

Auctioning our Oceans:                                                            How the Capitalist Pigs could have Saved the Northern Cod

Tracey Nicholls Taylor  [Tracey is an accounting student with Certified General Accountants Association of British Columbia. This entry won third prize in our student essay competition.]

"The use of the air and sea is common to all; neither can any title to the ocean belong to any people or private man, forasmuch as neither nature nor regard of the public use permitteth any possession thereof."

--Queen Elizabeth I [Wesley Marx, The Frail Ocean, (Globe Pequot Press: Chester, Connecticut) 1967, p. 61.]

Our oceans, their resources and the people whose livelihood depend upon them have been poorly served by the application of mid-sixteenth century policy positions to late twentieth century ecological problems. This rigid, inflexible commitment to communalism coupled with the explicitly anti-intellect, anti-technology focus of the environmentalist movement have led inexorably to a maritime "tragedy of the commons."

The oceans of the world have been exploited, possibly past the point of recovery, because the costs of pollution and over-fishing are paid over time by everyone, whereas the benefits derived are immediate and accrue directly to the user. A situation where no one owns the resource in question precludes any attempts at responsible stewardship and conservation, as evidenced by the demise of the cod-fishing industry in Atlantic Canada. The solution is to invoke a sense of responsibility through ownership.

The idea of owning a plot of ocean in the same manner as one would own a plot of land is so far removed from "mainstream" environmental solutions that, at first hearing, it sounds to many like a far-fetched joke. However, closer examination of the idea brings to the forefront all of the similarities between it and land title. Use of navigational measures of latitude and longitude make it possible to map the boundaries of a plot of ocean in much the same way that land is mapped. The ownership of produce and resources derived from ocean plots would be subject to the same rules as mineral and oil rights on land.

One of the crucial selling points of ownership is the argument most commonly advanced against the idea: that fish know no boundaries. The movement of resources between ocean plots would encourage a dynamic similar to the "peer pressure" and resulting common standard that one sees in the front lawns of suburban homeowners. Such a system would, in effect, enlist the Not-In-My-Backyard (NIMBY) syndrome in the service of responsible conservation.

Owners impervious to such subtle social cues would still be restrained from open violation of adjacent plots by the existing safeguards of common law tort remedies. The issue of legal jurisdiction with respect to filing injunctions or suing for damages can most logically be addressed using the principles and precedents currently arising from litigation involving computerized transactions that cannot easily be said to take place within the borders of a given nation. Rather, the courts would have to examine such factors as the legal system governing the contract under which the asset was acquired, the territory in which the resource is traded, and the countries of legal residence of the suit's participants.

In keeping with free market philosophy, ownership interest in these plots, once surveyed, could conceivably be sold under the same procedures as mining ventures; the company(ies) that had invested capital in the surveying and mapping processes could prepare prospectuses, issue share capital and list the shares on a stock exchange. Ownership of ocean per se is no more of an impossibility or threat to national sovereignty and defence than ownership of land abutting a border, although problems might arise in some cases where the plots are located within the territorial waters of a nation. Specifically, the possibility of nations extending their existing foreign ownership rules to these acquisitions would negatively impact on the market's ability to achieve price equilibrium. Any such occurrences would provide a wealth of data for economists seeking to document the effects of regulatory controls on free markets and could conceivably be valuable ammunition in the battle to roll back regressive government regulation.

Title would, in my opinion, invoke a greater sense of responsibility on the part of the owner than the free market environmentalism solution of Individual Transferable Quotas (ITQs) currently in place in Australia and New Zealand. [Terry L. Anderson and Donald R. Leal, "Free Market vs. Political Environmentalism," Global Pollution, Trade & Aid Resource Book, (Political Economy Resource Centre: Bozeman, Montana) 1993, p. 43.]Although ITQs have been extremely successful, they do not appear to adequately address all of the concerns raised by free market proponents: the lack of knowledge, competence and accountability that characterizes government involvement in determining sustainable quotas; the cost-prohibitive manpower requirements of policing and enforcing quotas; and the economic inefficiency of dumping unwanted catches, as in the case of a salmon fisher accidentally catching smaller fish in nets cast specifically for salmon.

Only through private ownership will we be able to tap into the motivating agent of all individuals and corporations: self- interest. Motivated by rational self-interest and working within the context of a free market system, all of the title holders will discover that co-operation and conservation are the practices required of them if they wish to maintain their profitability and the market value of their assets. This is the method by which we may prevent the west coast salmon from fading into the mists of legend as the Northern cod have done.

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Last Modified: Wednesday, October 20, 1999.