Welfare Reform, California Style

Eloise Anderson

Eloise Anderson was appointed director of the California State Department of Social Services in August, 1992. As director, she administers the state-wide operations of an agency with over 4,500 employees, and manages an annual budget of nearly $16 billion, comparable in Canadian dollars to the whole budget of the government of British Columbia, to put it in context. Eloise Anderson has been a community organizer, a social worker, a municipal management consultant, an employee relations specialist, and an administrator of community services. She has a B.Sc. from Central State University, and has pursued graduate studies at the University of Wisconsin, Milwaukee. Eloise Anderson spoke to a Fraser Institute Round Table Luncheon audience on December 11, 1995. -Note

Your welfare system in Canada is somewhat different from ours in California, so I'm going to try to give you a sense of our system, what it is, why it is, what we've tried to do, and some questions we have to ask as we try to move forward.

Let me begin by saying that right now, the Congress of the United States is trying to change welfare drastically. They're talking about actually eliminating the Aid for Families with Dependent Children (AFDC) program as we've known it for the past 60 years.

AFDC in the '30s

In order to understand our system, at least partially, you need to know from whence it came. Our system started in the 1930s. During the 1930s in the United States, a significant number of women lost their husbands to industrial accidents. If a woman was widowed and went to work it was more than likely that her child ended up in an orphanage. While most of us think of orphanages as places for children who have no parents, in the 1930s, the orphanages were full of children whose mothers worked. Why did that occur?

Think back to 1930, and think about life for a woman in 1930, and life for a family. The amount of effort required to maintain the family was considerably greater than it is today. In 1930, when AFDC was started, just to fix breakfast took several hours. Now think about this.

In 1930s America, probably in 1930s Canada, too, we didn't have electrification everywhere. In fact, most cooking facilities in the home were either wood-burning or coal-burning. Many homes did not have hot and cold running water. If you did have hot and cold running water, you were very lucky, and if you had indoor water you were very lucky—many homes just had pumps.

Now think about a mother getting up in the early morning hours to get breakfast ready. There were no Pop Tarts or instant oatmeal. First she had to start the fire in the stove, and then she had to go to get water, usually outside the house. Without a readily available hot and cold water supply, if you needed hot water, you boiled it. That took 45 minutes to an hour. Then you probably made some kind of porridge, some oatmeal, some grits, something like that for breakfast, and you probably made biscuits or your own bread. So we're talking another 20 to 30 minutes. By the time the kids are fed and ready for school, if they went to school, we're talking about working time from about 5:30 a.m. to 7:30 or 8:00 in the morning.

Now, let's talk about cleaning clothes—a very simple task that we take for granted. Right now what do we do? We open up the washer, we throw the clothes in, we close the washer, we take them out, we throw them in the dryer. Well in 1930, you washed in cycles. On Monday, you got all your whites together and on subsequent days coloured garments could be washed.

I'm sure you all know this if you think about it. But it's important to set the stage to realize that in the 1930s when much of the thinking about welfare originated, housework itself was a full-time, seven-day-a-week, 12- to 14-hour-a-day task. It was very unlikely that women with children who had no breadwinner in the household could manage on their own. That is the foundation on which Aid for Families with Dependent Children (AFDC) was built. It recognized the fact that it was an absolute necessity for someone to be home with the children, not just to take care of them in terms of nursing or parental control, but to cook and clean for them—to do the domestic work.

AFDC in the '90s

Let's fast-forward to 1995. The majority of the women in America with children work outside the home, whether they are married or unmarried. In California, we have fewer single people with children on AFDC than we have single people with children working. So we have women, who are single, who are mothers, who get up every day and go to work, some of them at low-paying jobs, with children. And we have another population that looks very much like this population, who don't work.

So you have a system that has now become unfair. You have a system that taxes this group of single, working mothers over here, that are similarly situated, to take care of that group of single mothers over there who don't do anything. Not surprisingly, this generates quite a bit of anger in society—absolute anger at the system.

In the United States, we're a throw-away society. For example, once our automobile has gone to the repair shop more than five times, we're more likely than not to be looking for a new one. The AFDC system has been in the repair shop since 1940, but we refuse to get a new one. We ought to treat this program the same way we treat clothes. Nobody in this room has anything on that they had in 1930. We need to do the same thing with AFDC—we need to change. What I hope we're beginning to do in California is to look at who we are as a people, and to figure out what we want to do. We've had lots of debate on what it is we want to do, and I think the problem that we're having is that we tend to view the people who receive AFDC differently than we view ourselves. I always say to politicians, “Why don't you go visit several different people who are on the program, and talk to them, and see if they're really as helpless as you think they are? Pick a random sample, but please don't let the advocates take you to the homes of the poor.”

Who gets aid?

So we don't really know the people whom we set policy for. That's a problem in terms of how we invent policy. Another problem is that we are absolutely afraid that these people are so different from us that they will abandon their children if we don't take care of them. I suggest to you that if that is really the case then their children are already abandoned—we don't have to wait for that to occur. And in some of these families, of course, this is a true description of the circumstances.

Unlike in Canada, in California, single person assistance is not offered by the state. Counties do that, so we don't have people who are single and able-bodied on our state programs. They're on county programs. The programs that I run are family programs, programs for people who have children in their families, the disabled, and the elderly. Those are the programs that I have some say over.

Generally speaking, the funding for welfare programs comes from the federal government. From the other end of the country, the federal government in Washington, D.C. dictates to us in California what we should do. Washington tells us who's eligible, who's not eligible, and basically how we should run our program. We in turn pass that down to the counties.

However, a piece of federal law called a “waiver,” says that states can undertake research in pilot programs. What we ask in our waiver program is for the federal government to allow us to demonstrate something new. When you hear about welfare reform in the States, what you are hearing about is each state asking the federal government if it can demonstrate a new way of doing something, which means that in five years, if things don't change, we have to go back to the old way of doing things, which is really scary for us.

In California, we have had to face a couple of things on our road to reform. I have found that one important thing for humans is a crisis. We don't seem to be able to move unless we are facing a crisis.

Well, California had its crisis. It had a huge recession. The government was faced with not being able to afford this program any more. So the governor proposed a reduction in the grant. In 1992, he dropped the grant by 4.5 percent. That's not a lot, but you would have thought he had taken all the money away. What he decided to do as we dropped the grant was also to allow people to work while receiving aid. Unfortunately, AFDC is a high-tax program. For every dollar a recipient makes, a dollar is taken off his or her grant; there's no incentive to go to work. Therefore, we tried to create a fill-the-gap budgeting system, where people could actually work themselves off AFDC and continue to work. We tried to be worker-friendly.

Education versus job-finding programs

We have a program called Greater Avenues for Independence (GAIN), which is designed to get people educated. There is a belief in our country that the only way you can work is if you have a Ph.D., and so we want to make sure all citizens have a college degree. Well, there are those of us who believe that all you really need to be able to do to work is follow directions. Get to work, and mostly employers will teach you to do what you need to do. But you've got to be able to do those two things—get up out of bed to get there, and then follow directions. So we tried very hard to shift the GAIN program from being an educational program to being a work program. Interestingly, we found that in some of our counties with the highest unemployment rates, people were getting jobs. We weren't surprised, but everybody else was. The other interesting thing we found is that people don't have to have high levels of education to be good employees. The employers weren't surprised.

We also found that most people did not actually know how to look for a job. So we found that the most important thing we could do for people was to show them how to look for a job, show them how to present themselves to the employer, and give them a certain kind of a skill which I call “not being insubordinate.”

When you look at the data for people on our GAIN program, they leave the program for two reasons. One is crisis. They don't know how to manage crisis, and we have some theories about that. The other one is insubordination. Consider insubordination. If you look at who's on our caseload, you will find that a little over half of all the women on our caseload were teen moms when they first entered the program. There is nothing in the world more insubordinate than a teenager. That's what being a teenager is all about—being insubordinate. So you have a teen mom, and you put her on AFDC. She's never worked, and all of a sudden, she's in a job. When has the insubordinate attitude been worked out of her?

How do we learn how not to be insubordinate? Most of us worked as teenagers. What did we learn as teenagers? How to keep our mouths shut, how to follow directions. That was really hard for us as teenagers, but that's what a teenage job is about—learning what employers expect.

Well, these teenage moms on AFDC have never learned that. So we figured, well, if that's what's high on the list, then we've got to be prepared for these people to fall out, get fired a couple of times before they do well. We've got to be prepared in the system for them not to be successful the first time out of the chute. It's got to be okay to fail, because who of us are in the first job we ever had? None of us, so we should have the same expectation for them.

Fitting the reality of work

We needed to change our expectation of people to fit the reality of work, which this program had never done. The first thing that we had to do was to convince the welfare system that it's okay for people to go to work and get fired, and not to coddle them once they get fired. When they come back in the office, we say, “What did you learn?” You see, we actually believe, at least in our design, that you learn from your failures. And that you actually learn less from success than you do from failures. So what we tried to create is a model for welfare recipients that is the same as the implicit model that we have all used as our key to success. We thought, if we could get these people to recognize the pathway to success they would get out of the aid dependency trap.

The other reason for leaving the program was the onset of a crisis. People in the AFDC would not stay at their jobs because as soon as they got to a crisis, they left. What was going on here?

Child sabotage

I talked to the moms, and found that there were two things happening. Any mom who's ever stayed home and goes to work understands the first one. It's called “child sabotage.” When you go to work and you have never worked before, your children sabotage every effort you make to go out the door. They have sicknesses they never had before, they have headaches in places that's not their head, you name it. Children sabotage because they can't handle change.

Partner sabotage

The other much more interesting reason for leaving the program, was that we behave as if these women don't have men in their lives. We want to believe that somehow, they are chaste, having babies. So we've designed things around them that put them ahead of their men. We give them training, we give them work experience, and they're dealing with men who are very much like them economically, who are very much like them educationally. We enhance them without enhancing their men, and so their men sabotage them.

The men say, “Gee, she's moving up economically; she no longer is going to need or want me. Why would I let this happen?” So we haven't developed systems that take whole families along, we've only developed systems where we put all our resources into the female and none into the male, and therefore he sabotages her. We haven't thought about what it takes to make the family of adults responsible for the child. We've only thought about what it takes to make the mother responsible for the child. We're trying to change how we think about this.

Work not worth it

Another reason people stay on AFDC, which is the hardest to overcome, is that most people don't want to take jobs that we have convinced them that they are too good for. This is really tough, because most of the people who are on AFDC have minimum skill levels, so what they are offered in the workplace are not even $9, $10, or $11 an hour jobs. But we have convinced them that unless they have a job that pays $14 an hour, it's not worth it for them. How do you change that?

It's very clear that we had to make our grants less than the workplace wage. Our grant structure and benefit package couldn't be better than work—we had to change that. We're still in that fight. Our belief is that there are two things that we cannot do. First, we cannot eliminate poverty for people. That is a self-issue. People personally eliminate poverty in their life. The government can't do that. Second, we cannot and should not put people on assistance on a ladder higher than people who work. So if we help you and give you assistance, we should help you to the entry level of the workplace, not to the middle level of the workplace. Otherwise we are helping non-workers to higher levels of support than the Joe over there who goes to work every day and pays taxes.

Daycare

We also tried to figure out what are the needs of working parents. We determined that they absolutely, positively needed lots and lots of daycare. They proved us wrong.

Poor people do exactly like rich people do. Rich people don't take their children off to centres for daycare. They have nannies. They have someone who comes in. One person, not shift care. Poor people use child care the same way. They have their relatives or their friends take care of their children. They're not interested in this daycare stuff. They're much more like the rich. They don't use daycare or daycare money a lot. One of the reasons they don't use it a lot is that we make it a big hassle if they don't put their kids in the programs that we think are good for their kids.

If we're going to give daycare money out, or childcare money out, let's let people choose how they want to use it. Why do we, the government, have to tell them who they're going to put their kids with? This has also been a big fight, and you can imagine why. But I think we're winning the battle that it's okay for your grandmother or your uncle or your aunt or whoever to take care of your kids. That's still going to be a big fight because daycare centres will lose with this one.

Transportation

Another issue interesting to me, and one that was new to me when I came to California, was transportation. In California, if you are on assistance, your car cannot be worth more than $1,400. This is the only place I've ever been where you actually need a car. And when they told me that's how much a car could cost, I said “Guys, I've got a bike worth more than $1,400.” So we upped the asset value of the automobile.

Savings accounts

The next thing we did was to allow people to save. Now people have said to me that all this saving is no big thing—American people don't save. But here's my view of savings for the poor. If I'm asking you to work at a low wage job, which are usually not the best, feeling-good jobs, you've got to be able to see the future. That's what makes us different from other animals—our ability to see the future. If I'm asking you to work yourself out of poverty, you've got to be able to that. We humans have the ability to put a little aside for something we want in the future. So what is it that we can do to help people in our programs learn to plan for the future, so that they're not always focused on right here and now?

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In California, we have immigrants who work for low wages, who take care of themselves, and who send money home every week. Now, if immigrants can do this, why can't welfare recipients do exactly the same thing?

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We decided to have two accounts. One I call a “rainy day” account, and the other one I call the “American Dream” account. First, to the rainy day account. Any mother can tell you, when it rains, it pours. The refrigerator goes out, the roof blows off, the kids come in with all their clothes torn and tattered. So we need to have mothers be able to put money away so that they can save for special things, like birthdays and emergencies, so that they're not always having to give up a job to go get these things.

The second account is to save for a house, education, and your own business. I know that every American, at least once a week, says, “I want my own business because I don't want to work for this idiot anymore.” At least once a week that conversation is had, so we know that it's important. Now, what does saving in this account do? It says to a person that they can do this crappy job because they can put a little money away every week and know that they can send Janie to college. You see, that's what makes us different, and if you don't have a program that allows people to hold on to some money, hold on to some resources, do a little dreaming, get their goals in the right direction, they will never get out, they will never do anything.

We've never had a program that allows people to save. Now we let them save up to $5,000 in these accounts—and it changes their attitude toward their situation.

In California, we have immigrants who work for low wages, who take care of themselves, and who send money home every week. Now, if immigrants can do this, why can't welfare recipients do exactly the same thing? So it's again a belief that people, given opportunities that are different, will do, and do do for themselves very well. We have to quit throwing barriers in their way, of which we do a lot.

Teen mothers

The other question that faces us is teen moms. We go nuts about teen moms in our country for a lot of reasons. One is that we know from the data that if a woman graduates from high school unbirthed, that generally she will not produce a teen mom herself. So we've got to get her out of high school without a child. We also know that, if we can get her to space her children, it is very unlikely that her child will become a teen mom. So we've got some data here that we know about.

We also know a couple of other things: 1) if we can get her to age 18 and through high school, she will go into the work force, and she will be an active producer throughout her whole life; and 2) that she will not marry a man who doesn't come up to her standard, because women, strangely enough, marry upward. Very few women marry downward.

We also know that there is an important role for the father in the family. In the past, AFDC was set up in such a way that it competed with the father as a source of income and we really would like that to stop. If a woman has to make a choice between marrying the government and marrying a man, we want him to look better than the government. We believe that a couple of things happen when men get in households with their children and get bonded and attached to their children. One, we think these men's criminality drops pretty rapidly. Two, we think they will do anything they can in terms of work to provide. In the case of a lot of men, and you see this wherever men become fathers and form families, their work effort increases. They work more jobs, longer hours.

The data say when you have two people, two adults in a household working together for the child, it is very unlikely that they will be in poverty. So, family unit formation, particularly marriage, is important.

Marriage

Now I'd like to talk about marriage not as some kind of wrap-around thing that we've got to beat over people. I kind of come to it the way my grandmother did. My grandmother said that marriage is an institution created for children because no sane adult would do it voluntarily. And I believe that. Because it takes us so long to mature as a human animal, marriage helps us raise children. It is an important institution for children, not for adults. We have to convince people that we ought to do this again. We've got to invest in marriage.

The other reason that we have to invest in marriage is that it has always, as long as I've been alive, and probably as long as we humans have been around, taken two people to bring whatever their resources are to a family to make it work. And we've done it differently, we've had all kinds of divisions of labour, but it has always taken two, and it clearly still takes two—at least two—to make a kid survive in our time. And then there are a lot of emotional reasons why we should do this. So, we're trying to invest in how we try to make families work, and not get government so involved that families stop working.

That is, for us, a balance, because you don't want to totally walk away, but you do not want to do it so much that you take all of the incentives out. People will normally take the easy way out, so you don't want to set things up so that the government in some form is the easy way because this removes people from the mainstream.

The urban/rural issue

In California, we have a huge urban/rural issue. Most politicians, when they look at welfare, look at it in the urban centres. But we also need to look at rural communities, and what's going on there. In California, we have two types of rural communities. We have food production rural—agriculture—and we have natural resource rural. I'm concerned that the way we structure whatever we're going to structure works not only in the urban area, but also in those two types of rural area.

Why am I so concerned? Because I have counties where the largest employer is the welfare department. As we pull down the system, we have to understand the economic links to all of the other things that are going on. Most of us don't see that. Most of us only see the recipient at the end whom we get very angry about. We don't see all the economic ties that the system has to all of the other things that happen in an area. As we dismantle and change the system, we have to know how it works its way through an entire community or a region. We're spending a lot of time thinking about the rural economic base, how that will change as we move away from the present system, and how much dislocation we will have as we do this.

When will change happen?

Is my organization ready to go? How do we make the change happen? Where do I get resistance? When I came to California, it was very clear to me that I was an employer as well as a policy developer. So I spent a lot of time dealing with organizational change. What's very interesting is that most government leaders don't lead their own organization. And their organization bites them because it won't let them change.

I spent a lot of time with county workers talking about a vision: where we're going; why we're going there; what they're going to do in the new system; what the new system is going to look like for them; how much fun it's going to be to come to work and not have somebody on the other side of the table grousing at them; and getting them ready for change. Then I spent a lot of time with county directors who make lots of money off the system—$140,000 to $150,000 a year managing their accounting systems—about the changes they will experience, and that if they don't get it together, they won't have a job, because they won't be needed.

We have 58 counties in California and I've got 30 counties that are ready to make the change. I've got 4,500 employees and I believe I have 4,000 who are ready to make the change. We're ready to make the moves to change. The people are ready to change. I've spent a lot of time over the past two years doing speeches, newspaper articles, doing everything I can to talk to the people about what it is we're trying to do.

I tell them, we'll have safer streets, we'll have kids that have found their way back into the school system. We'll have people who are willing to work hard. We'll have parents who are really contributing. They'll like what they're going to have. We believe that we've got the citizens ready to go.

Who's not ready? The politicians. They don't know what this means for them. But I would suggest that if they don't hurry up and move, we may have a revolution in state government the way we had in the Congress. They will look up in the polls and find themselves gone. Americans are ready for something different. We know, at least in our state, that 45 to 60 percent of our juvenile delinquents come from these welfare families. We know that half of the children we have in child welfare care come from these families. The present system isn't working. And so for us, it's a matter of creating the new vision, letting everybody touch it, letting everybody feel it, smell it, walk around it, dream with us, get it in their heads that it's not harmful. People can do this. We're ready to go. We think it's simple, and our motto is “keep it simple so people can understand it.”

Questions for Eloise Anderson

Q: How does the education system relate to welfare in California?

A: It probably contributes to it. I don't have a high opinion of the educational system in the United States, so I'm pretty biased in a negative sense about education. I don't know how we found ourselves in a situation where we expect people who have never done anything but teach school, teach people how to work. Let me give an example.

There's a place called Stockton, California, that has a port, and they repair ships there, as well as engaging in trade. There was a classroom there where one of the little kids said that he wanted to be a welder, but the teacher told him that welding was an outdated trade. At that point I realized why I didn't like education.

You take a person who becomes a teacher, they go through K-12, no work experience. They go from K-12 to college, they go to college, maybe, to a Master's degree, and then they go into a classroom. What do they know about the world outside of school? So I'm not convinced that we should have government-run schools. I haven't seen the government run anything well, so I'm really concerned about that.

Q: How do you respond to the ideologues within the poverty industry who claim that any change to the welfare system is an attack on the poor?

A: Well, usually I tell them that any change to welfare is an attack on the advocacy groups but not an attack on the poor. What I believe we've done with the poor is to create an industry on their backs. Those of us who work in the programs that support the poor make a lot more money than the poor make from welfare. I believe that welfare recipients can do, and would do as much as you and I, if we quit telling them they can't.

Q: How do you treat people with disabilities income-wise and training-wise? For example, a professional who becomes disabled and can't work or another person who's disabled?

A: Well, we have rehab programs that try to figure out what people can do within their disability. We don't believe that people can't work. The disability organizations throughout the United States believe that one of the best things for people with disabilities is work. The question is, can you do the work you used to do? In many cases, one can; in some cases they can't. But I don't think we can have this old notion that because you have a disability you ought to be taken care of. You ought to be able to work at something to your potential, whatever that potential is.

So for disabled parents, what we are proposing is work of some sort. It may not be full-time work because you may not be able to work full-time and parent. But you need to work, and you need to have households where children see work going on. Kids cannot grow up in households and see no work and understand work. If they have a household, even with a disabled parent, they must see work, or it has no meaning for them. It has no structure for them—they don't know what to do with it. So work is something that we view as therapeutic, rehabilitative, and an absolute necessity for the rearing of children.

Q: Is there merit for governments to impose a residency requirement on welfare recipients, and does California have a residency requirement?

A: Yes, we tried to get one, but the courts drove it down. My view is that if you're moving to a new state, you ought to live in the state for a year before you are considered a resident. And at that point you become eligible for all the other things that everybody else is. Why? Because in the year, you've contributed, you've put into the pot, so that later you can take out of the pot.

We can't continue to let people take out of the pot and not put in, because the pot will become empty. In California, we are getting to the point where we have more people on some kind of assistance than we have people working. The pot's going to run out. The notion of having to contribute before you take out has got to be recognized somehow.

Q: What role should the family, i.e. extended family, I mean grandparents, aunts and uncles, play in the support of single parent families and teenagers with children?

A: Well, I'm pretty old fashioned. To me, your family you get, your friends you pick. So, in the whole notion of families, I believe the family ought to step up to offer aid before the larger society does. And if the family is not willing to step in, we need to start questioning why are we so willing to do so? If we have expectations of the families, I think you will find a whole lot of people will not be on aid. I think we need to go back to depending on the family system before we start depending on the government system.

Q: You say you want to invest in marriage and families, but how does investment happen without taking away resources? What positive investment are you making? What incentives do men have to stay in marriages?

A: Children. I don't believe that government should play husband. And that's what it's doing a lot. I believe that men should play that role. And I believe that when people have decided that they want to have a child, it is a personal decision that they've made and they ought to be personally responsible for it. You see, we behave as though people have no willpower, or can do nothing about this.

On our caseload, 99 percent of all the babies who are conceived and birthed were from consenting relationships. Now, we've got to get out of this notion that men are these things that run off all the time. I know guys who stay there for the long haul. We have to get into the notion that if you've decided as a person, both male and female, to have a child, then you've got to take responsibility. And we, as a society, shouldn't be in there helping you not to be responsible. If there's a crisis, we ought to step up and help, but it shouldn't be our policy to take over your role. Government is absolutely a poor parent. And we ought to quit trying to be one.

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. . . if you've decided . . . to have a child, then you've got to take responsibility. And we, as a society, shouldn't be in there helping you not to be responsible.

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If you have people who have children who can't take care of them, who won't take care of them, then I think you have to ask a different question. The question isn't, “how should we income support you?” The question is, “What kind of parent are you?” So it becomes a child welfare issue, not an income transfer issue. We've got to start asking that. We have to say, if you brought a child into this world, and you are not willing to do what's necessary to take care of this child, then we need to be in your face about your ability to parent. Once you put it into those categories, I think you have a whole different response as government.

Q: How does the issue of race play in the welfare debate in California?

A: Well, the races at issue are Asians, blacks, and whites. Blacks in California on AFDC are about 8 percent of our population generally, even though in some places like Los Angeles they are as high as 19 percent. The largest group of users of AFDC in California is Hispanics. Hispanics are Asian, Hispanics are brown, Hispanics are black, Hispanics are white. So it's not a race issue. It might be an ethnic issue, but its clearly not a race issue.

The second largest users of AFDC are whites. And nation-wide, the largest users of AFDC are whites. So we've got to get rid of who we think are AFDC recipients, and focus on who really are AFDC recipients.

Q: Do you have any suggestions for getting people out of public subsidized housing once they're in?

A: You have to set time limits. We've found in the United States that if you have a requirement based on income, then people never make enough to pay the full freight. So you have to institute time limits to get them out.

Q: What are your plans for those on social assistance who chronically abuse substances?

A: We believe treatment works. We also believe that you shouldn't give these people a cheque. You need to manage the money for them so that they don't wind up spending it on drugs and alcohol. You also need to make sure that they get into treatment. And you put time limits on it. Again, you give people so much time that they can be on it, and then when that is over, we expect that they've got themselves together and are off.

Q: Does California have a poverty index, and if so, is it a necessities index or a comfort level type of index. Which do you recommend?

A: The federal government has a poverty index they use which we've moved away from. We've had a “need standard” that we've moved away from, and now our index is the working poor. We've targeted our programs to the minimum wage. We said, for us, that minimum wage is the bottom rung of the work ladder, and so that's what we're going to target our programs to. The objective is to never give more advantages to someone who's on assistance than to someone who's working.

Q: What is your solution for the single-parent epidemic in the black population in the United States?

A: Actually, it's going down. The main solution is work. The second solution is to have men in the black community become more attractive than welfare. It has really been a problem when you have men who have very few skills, who can only get low-wage jobs, and you have a system that contributes more to families than they can put on the table. There is no reason for women to marry these men. What we want to do is to make his low-wage job look attractive so that he looks more attractive than welfare.

Q: Welfare fraud is statistically 2 to 3 percent, but opinion makes it as high as 40 percent. What is your opinion, and how do you deal with it?

A: We believe in California, on any given day, that it's between 50 and 60 percent, and we've got a lot of fraud programs in place in our state. I've been very heavy on fraud because until citizens trust that your system is not fraudulent, they won't go with you. So we have to bring fraud down. You've got to let people know that you're serious about it and you won't tolerate it, and that's what we've tried to do.

We've done all kinds of things from finger imaging to increasing our fraud workers, sending people into the home, going and checking, having an investigator follow up on information, and we're bringing fraud down. The best we've found is word of mouth. Once one person gets caught, they tell everybody, so we take people off aid. And we're beginning to get the counties to prosecute.

Q: Do you have a top-heavy bureaucratic welfare system, and if so, how do you manage to get your proposals for change implemented?

A: California has a big system, but it's probably one of the smallest per capita bureaucracies in the nation. But it's not efficient. One of the reasons for this is that I've got ten small counties, and if I could collapse them into one service area, I could save tons of money in administration, overhead, and duplication of services. We need to reorganize.

How do I get past the bureaucracy? I spend a lot of time talking to people in it about the new vision. The one thing that I've come to know is that the people on the front line want change as much as the rest of us do. So if you get the front line with you to really do the work, you can bring the rest of the system along.

Welfare Rates

Chris Sarlo

How much should be given to those in society who have no means?

In the mid-1960s, the Canada Assistance Plan (CAP) was established by the federal government to provide income to meet the cost of basic requirements of an individual or family when all other financial resources have been exhausted. This program, administered by the provinces, but with up to half the costs covered by the federal government, is widely referred to as “welfare.” It largely replaced a variety of informal, charitable resources available to people as a last resort.

As the article by Michael Walker and Joel Emes earlier in this issue of Forum shows, families on social assistance receive income that, in virtually all cases, exceeds the basic needs poverty lines. For example, a single parent and two children receive anywhere from about $13,000 to $17,000, depending on the province, compared to poverty lines in the $11,500 to $14,700 range. These welfare benefits include the maximum rates in each province along with all provincial and federal tax credits and tax benefits, but exclude any discretionary amounts given at the local level as well as any non-monetary benefits (drug or dental benefits, rent subsidies, etc.). After the welfare cuts in late 1995, the province of Ontario is no longer the most generous provider of social assistance overall, but it is still above the average.

Although, in real terms, these welfare incomes would have been middle class in the 1950s and '60s, by today's living standards these amounts are not high. Nevertheless, the basic requirements of living are covered, and this satisfies the stated intent of CAP. If we include non-money benefits such as subsidized housing, families on welfare could enjoy a range of amenities that are often out of reach for the working poor. Despite this, the social welfare community has consistently lobbied for higher welfare rates and has done so in the name of “social justice.”

Should we raise welfare rates? Wouldn't this be the right thing to do?

There are two concerns with a policy of higher social assistance payments. The first has to do with economics and the second with fairness. The economic problem with higher welfare rates relates to the adverse effect on work effort. The argument is that the more generous welfare is, the more that people will be attracted to it and away from the labour market. As benefits rise, more people find that they are financially better off on welfare than they would be working. Even people who are fairly “attached” to the labour market and who might be better off in the long run by continuing to work are attracted into the welfare system by generous benefits. Ontario is a textbook case in point. During the 1980s, as welfare rates almost doubled in real terms, welfare caseloads more than doubled and increased sharply even as the unemployment rate fell.

What about fairness? There are a number of considerations here. First, we should remind ourselves that the income of welfare recipients comes from the earnings of others, and that the giving is involuntary. There is no doubt that the idea of helping disadvantaged people has widespread support and that, in the absence of government programs, most people would happily assist those in need. However, free choice is not permitted. If it were, some recipients might actually do better, while others (criminals, addicts, and job shirkers) would likely do worse.

Next, it is the case that tens of thousands of working Canadians earn less than employable persons on social assistance. For example, in 1993 (the latest year for which income microdata information is available), over 100,000 single parent families in our three largest provinces (Ontario, Quebec, and B.C.) did not receive any social assistance and had earnings that were less than the relevant welfare benefits. This calculation excludes tax credits and child tax benefits which would accrue to both welfare recipients and non-recipients alike. In addition, there were about 65,000 two-parent families of four in those same provinces who received no social assistance, but whose head had earnings that were lower than could have been received in welfare benefits. Most of these working poor families paid income taxes, part of which would have been used to support their better off counterparts on welfare.

To be sure, life on welfare is not luxurious. It is comparable, however, to the current standard of living of many thousands of hard working Canadian families. It exceeds, in most cases, the standards of millions of working Canadians who struggled to make ends meet a generation ago. Many readers will have been raised in families that were less well off in real terms than today's welfare recipients.

The very notion of involuntary charity is troubling. That aside, it is not at all clear that raising welfare rates is consistent with any reasonable definition of fairness.

Fighting Welfare Fraud

Owen Lippert

Across Canada, governments struggle to contain and cut their welfare budgets. Committees are struck, commissions commissioned, and arcane journals consulted. Politicians want to know not just what works; they want to know what works with the fewest political problems. Fighting welfare fraud and punishing the perpetrators always comes top of the list. Why? It's simple. People who work very hard for their money are, and have every right to be, outraged that someone is stealing their tax dollars.

What is welfare fraud? How big is it? What can be done to stop it?

At its core, welfare fraud is a form of the underground economy. A person participates in the formal economy by following the rules of the game. By breaking these rules, a person commits fraud. But there are different sets of rules. They vary from strict laws against organized criminal activity to regulations on personal assets, to the requirement that forms be filled out correctly. Depending on what rules are broken, the kinds of abuse differ. At a minimum, there are three kinds of fraud:

1.individuals who deliberately fail to provide pertinent information, such as details about occasional outside income,

2.individuals who systematically violate the conditions of welfare. A prevalent example is a common-law spouse-in-the-house, and

3.organized gangs who operate widespread frauds involving hundreds of individuals, and fake IDs, with the profits often funding other criminal enterprises.

How big is welfare fraud? Government estimates of fraud—defined as deliberate criminal attempts to steal—range from between 3 percent and 5 percent. With Canada's total welfare-related bill now reaching about $40 billion, even this low estimate represents between $1.2 and $2 billion. Most jurisdictions will also admit that “client error” is at least twice as large as outright fraud. This would give a total figure for overpayments of between 9 percent and 15 percent, or $3.6 to $6.0 billion.

The trouble with the official view is that only recently have officials begun to seriously measure the problem. Previous efforts to look at a select number of cases suggest the actual level of fraud may be far higher. In 1989, a review of 15,000 cases in Alberta found that 22 percent of the files contained overpayments and that basic information could not be confirmed for 22 percent of the clients. In an eligibility check in British Columbia done in 1990/91, the ministry reviewed 13,524 files. Of these, 2,576, or 19 percent of all files, were closed for lack of information. Entitlements were adjusted for a further 14 percent of all files. The combined rate for improper payment reached 33 percent of the sample.

Recently, Ms. Eloise Anderson, Director of California's Department of Social Services, spoke at a Fraser Institute luncheon. When asked, she estimated overall fraud in the California system at 50-60 percent. Her opinion was based on a variety of research programs conducted in Los Angeles county, including the fingerprinting of welfare recipients.

It may be speculative, but not implausible, to say that up to 40 percent of all welfare payments in Canada are in excess of what they would be if error, cheating, and outright fraud were eliminated. This would represent an amount of $16 billion or roughly half of the federal deficit.

What should be done to eliminate welfare fraud?

First, governments must recognize fraud as a critical system failure that diverts scarce resources from the truly needy. Fighting fraud is not, as some opponents claim, just another oppressive measure aimed at the poor. They argue that governments should not bother with welfare fraud until they have tackled tax fraud. Do both.

Second, the opportunities for fraud should be removed. One means is to issue “smart” cards that would provide identity and benefit information. Such computer data encoding could be placed on a person's health care card in order to avoid duplication and to provide privacy. It is not valid to argue that such an identity card irrevocably violates the privacy of recipients. People always have the option not to apply for benefits provided by the taxpayers.

Another way to reduce the possibility of fraud is to abolish a separate shelter allowance. These rent vouchers are highly subject to abuse through “doctored” receipts. As well, they distort housing markets by raising rents for sub-standard rooms and lowering rents for social housing.

Third, and most importantly, welfare rates must be set in order to minimize the incentives for fraud. The best idea is to set a consistent formula for welfare rates based, not on politics, but on the cost of basic necessities. Professor Sarlo of Nipissing University has painstakingly developed a reliable guide to the cost of basic food, clothing, shelter, and other necessities across Canada. Provincial Necessities Index Committees could adjust rates to reflect changes in prices rather than in the government of the day.

Another idea is to eliminate the earnings limits on welfare recipients that create disincentives for them to work even part-time. The potential returns of such a plan outweigh the potential risks if firm time limits are placed on benefits.

With such reforms, government will send a clear message. Individuals can earn a living with less effort than that needed to collect welfare by fraud. Those in need of emergency assistance will find it no harder to obtain the help they need. Indeed, strong anti-fraud measures could free up resources by making welfare more responsive to people who want to get back into the workforce.

Revamping Canada Post

Gordon Davies

Gordon Davies was Manager of Strategic Plannning at the head office of Canada Post Corporation for 7 years. -Note

The federal cabinet gave us a fresh opportunity to put Canada Post under the policy microscope when the minister then responsible, the Hon. David Dingwall, announced the Canada Post Mandate Review last fall. The terms of reference call for submissions on Canada Post Corporation's (CPC) mandate, its mode of organization, its exclusive privilege to deliver letters, its governance, and related matters.

On February 15, 1996, The Fraser Institute filed a 25-page brief with the Mandate Review and on March 22, 1996 presented its views in a public participation meeting in Vancouver.

Here is what the Institute has recommended the Canadian government do with the post office:

•revoke CPC's monopoly on the delivery of letters in Canada

•reconstitute the Lettermail, Addressed Admail and retail counter operations into a new enterprise, and make common shares in this enterprise available for purchase by private sector entrepreneurs, including those postal employees who, like other Canadians, opt to put some of their savings or earnings into the new venture

•oblige CPC to divest itself of its Unaddressed Admail or flyer distribution business by making its limited flyer distribution infrastructure, related information systems, and flyer customer base available for purchase by private entrepreneurs on a regional or national basis

•segment all of CPC's parcel, package and courier business operations physically and financially from the rest of its operations and put these assets up for bids from private-sector entrepreneurs

•direct CPC to stop wasting untold millions of dollars on its Mirabel-like electronic and “hybrid” mail services in the provision of which the corporation has utterly no competitive advantage

Lettermail has declined in volumes and revenues, and there is a serious risk that CPC will soon get trapped in an upward rate spiral as volumes continue to decline and the corporation is forced to increase rates even more rapidly to cover the high fixed costs of collecting, processing, transporting, and delivering letters in order to merely break even. More rapid rate increases will in turn accelerate the decline in volumes, and so on. The only way to make Lettermail a more competitive service is to subject it more to the force of competition and the orientation of profit.

The Institute also proposed that CPC's Addressed Admail operations remain integrated with the Lettermail operations, because there are significant economies to be realized by using the substantial base of fixed plant and automated sorting equipment to process the combined volumes. From a processing perspective, a piece of Addressed Admail is virtually identical to a piece of Lettermail. There are also important economies in the delivery function—it makes no difference to a letter carrier that the content of Addressed Admail is basically the same for every recipient, in contrast to Lettermail, which carries unique messages, such as utility bills and credit card statements. CPC distinguishes between the two only in order to be able to segment the market and maximize its revenues. (This practice is not anti-competitive—it just makes good business sense.)

CPC's pervasive retail counter operations are a worthwhile asset in their own right—franchisees are able to take advantage of postal traffic to market and sell other products and convenience services: video rentals, snacks, and cosmetics are familiar examples. It is important to keep the retail counter operations together with all other elements of Lettermail and Addressed Admail service, in order to provide owners of the new postal enterprise with points of contact with their customers, which include both businesses and households. Obviously, the public will also benefit from this integration because it will continue to have access to postal outlets to buy postage stamps, post letters and parcels, and pick up parcels.

In its Unaddressed Admail or flyer business, CPC has such huge volumes that it employs a separate workforce to deliver flyers once or twice a week in urban areas. Letter carriers also deliver a few flyers on their rounds. There is no reasonable rationale for the government of Canada to be in this business: the service annoys many households; many consider flyers to be wasteful and environmentally detrimental; and CPC's service—backstopped by monopoly revenues from Lettermail—interferes with the legitimate interests of privately-owned businesses which are entirely capable of meeting advertisers' needs for flyer distribution. All mail to be delivered by the postal system should therefore be required to have an address on it.

The parcel and courier business in any country is a high cost operation and, in Canada, it is highly competitive. Businesses use parcel post, but not to the exclusion of inter-city buses, major courier operations (which also provide international service), a large number of smaller local and regional courier and package delivery operations, taxicabs, even speedy bicycle couriers. International parcel post performance is truly dismal, both for businesses and households.

During working hours, CPC may attempt to deliver parcels to households in urban centres, but most recipients usually end up having to pick up their parcels at a postal outlet. CPC is capable of delivering only quite small parcels to community and group mailboxes. In rural areas, CPC's contracted delivery agents do not leave parcels and packages in rural mailboxes, for security reasons.

A few years ago, CPC purchased the Purolator courier operation from a private holding company, in an attempt to upgrade its parcel courier capability and get its hands on a reasonable parcel and package track and trace system, which it lacked. Having acquired Purolator, senior executives at the post office then met for months to figure out just what to do with it. We are not sure whether they have yet worked out a strategy. The operation should be de-nationalized as part of the privatization of CPC's other parcel and package delivery services.

The new postal letter enterprise would have the option of providing parcel delivery and pick up services. However, it would have no priority claim to purchase CPC's current parcel and courier operations and businesses, which should be made separately available for purchase by any interested party.

At one point in our history, our countrymen may have needed and wanted to have their federal government provide a parcel post service but, today, private operators can do the job faster and more economically. Particularly on city streets, CPC's delivery service overlaps the more popular services provided by private operators. Any such duplication is economic waste, but CPC's parcel business never really gets put to the market test, because the corporation is able to insulate the service from competition with the financial backstop it has from its monopoly on letters.

And what about rural mail delivery? Postal mandarins argue that if rural delivery could no longer be cross-subsidized to the same extent by delivery in higher-density areas, then the federal government would have to step into the lurch and provide a direct subsidy from the federal treasury for rural mail delivery. This indeed is one option. Other options are for rural residents to pay a little more for the high standard of delivery which they receive; perhaps satisfy themselves with less frequent delivery; or make their own contracts or supplementary contracts with their regional delivery agent. Combinations of these options are also possible.

Remember, CPC does not currently deliver parcels to rural households; private courier companies do, however, because they recognize that people who post packages in Canada will probably want to be able to have the items delivered anywhere in the country, not just in urban areas. In communication and shipment, the sender's needs are just as important as the recipient's. If our politicians determine that, as a matter of public policy, a line item subsidy is warranted to help our rural brothers and sisters continue to enjoy the same high standard of mail delivery to which they have become accustomed, so be it. This issue risks fast becoming a red herring.

Finally, we need to make sure that the management at CPC stops wasting millions upon millions of dollars of tax money on expensive, ill-advised and ill-fated initiatives which grasp for a share of the astonishing growth in markets for electronic communication services. Sadly, management at CPC does not yet understand that there are precious few businesses in Canada that will tolerate, much less pay for, an electronic communication service in which the post office attempts to insert itself as the middleman. Nor do households really need help from the post office in order to sign on to the Internet, for example. CPC has utterly no competitive advantage in electronic communication markets, although its unaccountable executives always have lots of cash to play with and waste on pet projects like these.

We need to start building a new, modernly-organized postal system now, to take us easily into and through the next century, and to again make all of us proud—if not proud owners—of our nation's postal enterprises.

[For a copy of the Institute's brief to the CPC Mandate Review, fax us at (604) 688-8539, or phone us at (604) 688-0221, loc. 314.]

Budget outKleins Klein

Michael Walker

This time last year, the Globe and Mail ran an assessment I did of the federal govern-ment's budget performance that was both critical and out of step with the generally complimentary tone of comment in the business community. (“The Federal Budget: Is That All There Is?” March 6, 1995).

My concerns at that time were that the budget had not gone far enough and that the legacy of further debt implied by it were unacceptable. I was also sceptical about whether their revenue and expenditure forecasts would be realized.

My initial impressions were amply reinforced when the “Budget Performance Index” calculated by The Fraser Institute scored the federal government at 18 out of a possible 100. Provinces like Alberta and Saskatchewan scored in the 60s on the same ranking. The index is a purely statistical comparison of 14 variables like per capita deficit, increase in inflation-adjusted spending, and average change in tax payments. It does not involve the exercise of judgment, and is the most objective index of budget performance available.

In the event, the actual budget outcome has been better than predicted in the 1995 budget. Total spending was expected to increase by 2 percent from 1994-95 to 1995-96. Instead, it stayed the same. The government did collect fewer taxes than it had expected, but the overall effect was to greatly improve the impact of the budget, even though the size of the deficit was the same. Going forward, the results are even more impressive.

Last year, total federal spending adjusted for inflation fell by only 0.6 percent relative to the year before. For comparison purposes, real spending in Ralph Klein's Alberta was scheduled to fall by 4.3 percent. Around The Fraser Institute, we use the “Klein” as a unit of fiscal restraint—as in, they did a Klein, or a half Klein or 1 Kleins.

While last year the federal government did 0.14 Kleins, the expected reduction in real spending in the coming year is 4.5 percent, or 1.05 Kleins. This dramatic turnaround in spending has in large part been due to the fact that the interest expense of the government is $3 billion less than forecast. It is true that program spending has been allowed to rise by $1 billion more next year than was anticipated in the last budget, but the bottom line, once again, is less spending and less taxation with a lower deficit.

In regarding the government's latest budget as boring, commentators have missed some of the most aggressive fiscal action in the country's history. That's probably because the Finance Department had been told to hide the harsher light under a kinder and gentler bushel—just in case there will have to be an election before the next budget.

Spending reductions by the feds have not been restricted to the involuntary reduction in interest rates. In fact, the 1998 fiscal year will bring a further set of departmental cuts to supplement those outlined for the period out to 1997-98 in last year's budget. While I am certain it is a coincidence, the set of cuts outlined for 1996 are exactly the same size ($1.9 billion) and have the same distribution as the cuts outlined in a book on the future of Canada published by The Fraser Institute last year.

The result is that the government is on a path that we suggested would lead to budget balance by the end of the decade. And the path to this destination would be largely achieved by spending cuts rather than revenue increases.

To see the potential effects of this unusual fiscal performance by the federal government, one has only to observe the past lionization of Mr. Klein in the Wall Street Journal and in other venues. The federal government is going, in the near-term future, to be able to boast that it has the lowest borrowing requirements of the G7 countries. Total government deficits in Canada will total less than in any of the G7 countries and, by 1998, the total financing requirement of the federal government relative to the gross domestic product will be less than half the comparable U.S. figure.

Far from being a bore, this budget was a turning point in Canadian fiscal history. We may well chart a dramatic turn in our fortunes to March 1996. The only proviso is that we avoid a separation catastrophe. Regrettably, in the one area of constitutional relations this budget fails miserably. Tough talk about central control over health care and welfare may play well on the back benches of the Liberal party, but it will be more grit in the intergovernmental gears for Alberta, British Columbia, Quebec and, I suspect, Ontario. )

[This article appeared in the March 14, 1996 edition of the Globe & Mail.]

March 19, 1996

John Raymond, Editor

Commentary Section, The Globe and Mail

444 Front Street West, Toronto,

Ontario M5V 2S9

Dear Sir:

My commentary column of the 14th of March “Budget outKleins Klein” has been greeted with jubilation by Liberal defenders of Paul Martin's budget, and with chagrin by Reform Party critics. The Liberals claim that I have vindicated their policy stance while Reform Party critics think I have lost my marbles.

For clarity, the purpose of my column was not to repudiate the work which The Fraser Institute has carefully done over two decades, nor even to agree that the government had done as much as it could have done in this budget to repair our fiscal circumstances. It was rather to indicate that, in part by fluke—the general reduction of world interest rates—and partly by virtue of the bad performance of other nations, the Canadian federal government's fiscal circumstance is going to look very good indeed by the end of this year. Finally, it was to point out that relative to the budget performance expected this time last year, this budget is better in terms of expenditure reduction than was achieved in the last fiscal period by the government of Alberta. Even if the government doesn't deserve the credit, this performance should be documented and acknowledged in an appropriate way.

I am still firmly of the view that the federal government should have aimed to balance its budget over two years, and have shown in a number of papers how this could well have been accomplished.

Thank you for the opportunity to set the matter straight.

Michael A. Walker

Executive Director

Breathe Deeply ... Another Unfunded Pension Liability

Gordon Davies

Readers of Fraser Forum have phoned to inquire about the contingent liability resulting from government employee pension schemes, particularly the liability arising from the MP pension plan.

Fully one-sixth of the gross debt of the government of Canada is owed to the government's Superannuation Account, and one-quarter of total interest paid on the federal debt is paid into that account. (The government pays a higher rate of interest—currently about 10 percent—on its Superannuation debt than it does on its total debt.)

What is this Superannuation Account? It is an account that records:

1)the amounts contributed for federal employee and MP pensions by the employees and MPs themselves;

2)the nominal contributions by the federal government, on behalf of the employees and MPs;

3)the interest which the government pays on the amount that it has borrowed from the account, which is all of the money that ever went into the account; and

4)the amounts that are paid out as pension annuities.

The Superannuation Account is not a fund. The only real money contributed to the account is the contribution made by employees, which is passed through to the Consolidated Revenue Account of the government.

The debt which the government of Canada has to the Superannuation Account was $101 billion as of March 31, 1995. The federal government pays interest to the account at a rate of about 10 percent, which is included as part of total interest paid on the federal debt in the budget. Therefore, notional interest payments by the government to the account are currently just over $10 billion.

The Superannuation Account was set up to record the above amounts, which were intended to fund pensions for federal employees. The contingent liability recorded in the account is very close to the actuarial liability for pensions, but this actuarial assessment includes only the commitment to pay annuities to currently-retired employees and to current employees when they retire, (only taking into account the earned years of service up to the time when the assessment is made (and not the on-going accumulation of pension credit time following the date of assessment).

As the federal government downsizes, fewer employees will be contributing to the account and more will be drawing pensions. This will result in more rapid growth in the contingent liability in the future, and an acceleration in the rate of growth in the cash requirement which results from the government's self-imposed commitment to pay superannuation to retired employees.

In fiscal 1994/95, the government received $1 billion in cash from employee contributions to the Superannuation Account, and it paid out $4.3 billion in cash annuities to retired em-ployees.      Source: Receiver General, Public Accounts of Canada, Volume 1, Summary Report and Financial Statements, pp. 6.19 - 6.22. -Note    Therefore, because the government was in a deficit position in 1994/95, it had to borrow $3.3 billion in capital markets just to finance the net cash outflow resulting from its commitment to pay federal pensions. This amount can be expected to grow very rapidly in the near future because of downsizing in the federal public service, as noted above.

It should also be noted that the government only notionally pays interest to the Superannuation Account, but this is a paper transaction only and, therefore, does not constitute a financial borrowing requirement. It is largely this item which explains the difference between the public accounts deficit and the (lower) financial requirements deficit. Likewise, the national accounts deficit does not include the notional interest paid by the government into the Superannuation Account.

The contingent liability which the government of Canada had to the Superannuation Account from 1975/76 to 1995/96 is shown in chart 1   Source: Statistics Canada, Public Sector Finance, 1994/95, Financial Management System, Table 1.9 and special request. -Note    .Over this period, the liability increased at an average annual rate of 11.1 percent in nominal terms, from $12.4 billion in 1975/76 to $101 billion in 1995/96.

Chart 2 shows the components of the 1994/95 contingent liability, by government superannuation plan: public service employees, MPs, Canadian forces, RCMP, and other.

For the first three plans, an employee contributes 7.5 percent of his or her salary to the plan, less the amount contributed to the Canada or Quebec Pension Plan. For these same three plans, the government makes a nominal contribution equal to 1.4 times the employee contribution for regular employees, 2.6 times the contribution for armed forces personnel, and 2.1 times the contribution by RCMP personnel. For MPs, the government contributes about four times the employee contribution, which is set at 11 percent of salary.Source: Receiver General, Public Accounts of Canada, 1995, Volume 1, Summary Report and Financial Statements, pp. 6.15 - 6.16. -Note

The superannuation benefit of all of these plans is a defined benefit—the benefit is earned by years of service. It depends, as well, on the highest average salary over a six-year period. For the first three plans, benefits are earned at a rate of 2 percent of salary for each year worked times the highest average salary over a six-year period. Therefore, an employee who worked for 30 years would receive a pension equal to 30 x 2 = 60 percent of his or her highest six-year average salary. Once a federal pensioner receives both Canada Pension Plan and superannuation payments, his or her superannuation payment is reduced by a small proportion.

For MPs, pensions are available after six years of service. MPs earn benefits at a rate of 5 percent of salary for each year they are a Member of Parliament times the highest six-year average salary. Therefore, an MP who served for six years would receive a pension of 6 x 5 = 30 percent of his or her six-year average salary.

Pension benefits under all four of these pension schemes are fully indexed to the cost of living, with adjustments for inflation made annually.

A Community of Communities

John Robson

In the aftermath of the new gun control Bill C-68, Justice Minister Allan Rock sententiously proclaimed that it was “time to build bridges to the firearms community." Even by his high standards, this was a fatuous statement. He had ignored their opinions, stigmatized them as criminals, if not psychopaths, trampled their rights, and now he wanted to “build bridges” based on their admitting he had been right all along and by doing what he said. But if this weren't bad enough, consider his use of the term “firearms community.”

What is the “firearms community”? Many Canadians own firearms: more than Mr. Rock realizes, in fact. But are they “a community”?

Firearms owners include aboriginals in the far north who have little contact with Canada's urban civilisation. They include aboriginals in much more urban settings who flout hunting and conservation regulations to pursue their “traditional lifestyle” of hunting with high-powered rifles and driving internal combustion vehicles manufactured in Japan. They include rural whites who despise aboriginals, as well as rural whites who count aboriginals among their friends, associates and family members. They include NDP supporters over 60, and Reform supporters under 20. They include men and women, libertarian-oriented quasi-hippies and acerbic Presbyterian social conservatives. They even used to include Liberal voters. They include people who read poetry, and people who burn it.

There is no “firearms community.”

There is also no “homosexual community.” There are homosexuals, though the number is a matter of some dispute. But among them are those who believe “the personal is the political” and have come out of the closet, rocketed through the living room and down the stairs, and are now dancing virtually naked in the street. There are those who are essentially private people, but who believe their “sexual orientation” requires them to support leftist parties who defend the “marginalized.” There are homosexuals who do not follow or concern themselves with politics. Some are artists, others bankers. And there are homosexuals who are on the far right of politics. Heck, some probably own guns.

And there is no “business community” either. There are all kinds of businesses, ranging from mom 'n' pop corner stores to vast banks. Some are highly profitable, others marginal, others lurching toward bankruptcy. Some are deeply involved in community activities, others believe that giving customers the best deal possible is the best form of charity. Some business people are leftists, even radically so, while others are moderate or right-wing. Some are kind and others cruel, some are smart and others are fools. Some are white homosexuals, others East Indian social conservatives. They don't meet, they don't plot, they don't even bowl together, and they don't belong in one big box.

So why do people like Allan Rock, who are ostensibly devotees of “diversity,” insist on lumping such diverse people into these artificial categories?

Well, if people are individuals, there's just not that much exciting stuff for Mr. Rock to do. There's no world to remake, no new society to forge. There's just the boring old business of protecting the lives, liberties and properties of citizens who are equal before the law.

After all, affirmative action makes no sense in an individualistic society, nor does soaking “the rich” (also not a homogenous group) nor talking about “women's issues” nor any of the other causes that so inspire our political elite. Nor, for that matter, does multiculturalism, which respects diversity among groups but despises it among people. For instance, if an aboriginal Canadian lives in the city, cleans his apartment obsessively with Lysol, and stays up nights writing computer code, he makes a mockery of the notion that all aboriginals are nature-worshipping deep ecologists. He's a bad Indian. No land settlement for him! Since the Indian industry believes all Indians are communists, no one will be allowed to sell their share, flee the reservation, and adopt a non-approved lifestyle.

I'm not kidding. After this same Allan Rock promised that Bill C-68 would be implemented in a way that respected the “aboriginal way of life,” I told Justice Department officials in a briefing that I was so ignorant I hadn't even realized there was only one such way, and asked them what it was. They looked at me as though I belonged in the mentally-special community. So what about our Indian computer programmer? Does he get different gun laws sensitive to his “way of life” because he's an Indian, or is the only good Indian a rural Indian so he gets squat? They never told me.

But I already know. For in Mr. Rock's Community of Communities, whether one conforms to one's group identity is the basis not only for inclusion and reward, but for exclusion and punishment as well. Consider, for instance, the prime minister's recent declaration that his government had (straight faces, now) done everything the “business community” had asked it to on the budget, and now it was time for the “business community” to create more jobs. Of course, the “business community” doesn't hire people, individual firms do, and if they hire too many they go broke and cost all of their employees their livelihoods, so it was a daft pronouncement right from the start.

But when the president of the Canadian Chamber of Commerce, Tim Reid, pointed out that the government was actually awash in red ink and the burden of taxes and regulations on business remained scandalously high, the formerly sensible Doug Young, now Human Resources Development minister and melting fast, promptly snapped back that “Tim Reid is not in the business community” (Globe and Mail, February 29, 1996, p. A4.) Reid, he sneered, was a lobbyist, but not apparently a member of any “lobbying community.” That's the punchline.

Once the government has us all lumped into groups, all it has to do is expel you from your group and you become, like poor Mr. Reid, a non-person with no right to an opinion.

And then not even Allan Rock will build a bridge to you.

There's Money in Them Thar Numbers

Filip Palda

It happens every year, just before federal budget time: the battle of statistics. Noisy interest groups trot out their pet numbers to show why government must not cut their funding. Poverty activists, unions, and even businessmen use these numbers to get the public's sympathy and its tax dollars. What these groups deserve is the public's mistrust. They are experts at telling hard luck stories based on bogus statistics. Canadians whose heart-strings are easy to tug might want to be on the alert for some of this season's prime abuses of statistics:

Abuse #1: Corporations are making record profits on which they pay no tax.

This message is simple and powerful. Unions and student groups are pushing this message because they do not want to see budget cuts. They want government to pay the debt by raising taxes on corporations. The only problem with this message is that it is not based on reality. The reality is that corporate profits have been falling steadily for the last 30 years. They took a nosedive in the early 1990s. There is an upturn now, but corporate profits are still lower than they were 10 years ago.

Even if profits are not at record levels, what about the B.C. Federation of Labour claim that in 1992, 66,000 corporations paid no tax on profits of $14.6 billion?

The Ontario Fair Tax Commission that reported to Bob Rae in 1992 had this to say about the so-called problem of untaxed profits: 11 percent of profits were not taxed because they were coming after a long period during which companies were losing money. The tax system takes the long view on profits. If you lose money in your first four years and make that money back only in the fifth year, it makes no sense to tax you. In the big picture, your company is just coming out even. The Commission also found that 54 percent of the profits not taxed had been earned by a branch of the company which had already been taxed. The branch was just transferring money to another part of the company. Taxing the transfer would be like taxing a citizen for taking money out of his right pocket and putting it into his left pocket. Finally, 31 percent of untaxed profits were exempt because these profits were earned by companies that had invested heavily in new machinery. The tax system recognizes that this machinery is a cost that should be deducted from taxable profits. In other words, corporations are not getting an easy ride.

Abuse #2: Poverty is on the rise.

This may be true, but it depends on what measure of poverty you use. The most popular measure of poverty is the Statistics Canada Low Income Cut-Off. According to Statistics Canada, you fall under the cut-off if you spend 20 percent more of your budget on essentials than the average Canadian family spends. If this is the perspective on poverty that you take, then you find that 15 percent of Canadians are poor. The danger of using this measure of poverty is that it is really a relative measure of income.

______________________________________________________________________

. . . no more than 3 percent of Canadians are poor, and poverty has fallen in the last 20 years.

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It looks at how much we spend on essentials relative to other families. If everybody's income doubled, but nobody's fraction of income spent on essentials changed, then the Statistics Canada measure would show no change in poverty. This is a perverse result because the income rise has made everybody better off, but the poverty numbers show no change in the poor. The low income cut-off shows no improvement because it is a measure of how well some families are doing compared to others, and compared to others, no one has changed.

A different way to measure poverty is to ask how much money it takes to satisfy an individual's basic needs. Using this measure, no more than 3 percent of Canadians are poor, and poverty has fallen in the last 20 years. It is no wonder that poverty groups avoid this Basic Needs measure of poverty. This measure shows that gut-wrenching poverty is smaller than most people think, and is disappearing. Such a finding could put poverty activists out of business. When a problem disappears, who needs the problem solvers?

Abuse #3: High technology businesses help the economy grow, but are strapped for cash because the market does not recognize their potential.

Some businessmen are using this message to plead for government handouts. Any politician who gives in to this plea is forgetting the 1980s. During that decade, investors put up record sums to finance high-technology startup firms. The cash dried up when high-technology ventures started failing in record numbers. Investors learned that high-technology means high risk. Their prudence today should not be taken as an example that they are blind to the potential profits of startups. Their prudence reflects that their eyes are open to the dangers. Any startup business that turns to government for money is admitting that it could not make a strong enough case to private investors.

Letters

Technology vs. environment

Dear Editor:

Towards the end of his essay, “Save the Environment with Technological Innovation” in the February issue of Fraser Forum, Mr. Desrochers states: “...government interventions and their subsequent price distortions, such as . . . huge subsidies to car makers through the building of highways . . . .”

It is absurd to call building of highways a subsidy. The whole population, not only car owners or car makers, benefit from highway construction, just as everybody benefits from any improvement in the infrastructure. Why single out car makers? Anyone without a car is still able to enjoy a fresh head of lettuce, which has been transported on highways across this continent. To suggest that this person is being subsidized by the building of highways is sheer nonsense.

By twisting the true meaning of a concept (subsidy) to suit his own agenda, the author destroys concepts and definitions, as well as his own credibility. It is most disturbing to see the hate of the automobile, and, therefore, the hate of material progress for mankind, rear its ugly head in an otherwise reasonable essay.

Grete Helin, Pender Island, B.C.

Dear Editor:

I have to confess that I am puzzled by your inclusion of the student essay by Pierre Desrochers in your February issue. It reflects a point of view, but a terribly faulted one. Certainly the biosphere may prove self-regulating but that does not excuse us disregarding the consequences of our actions. In the case of deforestation, such a laissez faire attitude presumes that we are content to see species after species of plant and animal life become extinct.

One cannot leave it to economic forces to control the effects of new technologies. Undoubtedly, super-tankers and bulk carriers are more economic forms of ocean transport, but the accidental damage done to marine life in the coastal waters of Britain and France, for example, shows no signs of recovery even yet.

Often it is not possible to undo the damage. Soda-acid plants leached methyl mercury into Prairie area rivers many years ago now. Fish at the end of the food chain are still unfit to eat.

Preliminary studies of the effects of new technologies in order to determine their possible ill effects may delay or deter their use at an economic cost. The biosphere will survive regardless, but we want to survive, too.

Denis Harvey, Orleans, Ontario

[Pierre Desrochers replies:

Behind Ms. Helin's argument lies the old fallacy that public works are always productive investments, and not a diversion of money from more productive uses. Money that is taxed away to build highways provides arbitrary government support to road transportation and the car industry at the expense of other modes of transportation, either already existing or that might come into existence as a creative answer to transportation problems. Infrastructure spending also means that there is less money available for people who have new ideas to produce things more cheaply or to produce new things. Government meddling in transportation, like in any other field of activity, discourages innovation and creativity, and favours particular interest groups.

As for the classical environmentalist complaints expressed by Mr. Harvey, it should be pointed out that many environmental organizations, such as the UN-funded “World Resources Institute,” now favour returning state lands to private landowners and local communities because, on the whole, they have maintained their woodlands in far better shape than governments around the world. On a more scientific note, it must also be pointed out that asbestos, alar, DDT, and PCBs—man-made poisons—are no more dangerous than arsenic, cadmium, and lead—nature-made poisons; and that more than 99 percent of the species ever to come into existence have been rendered extinct by “nature,” not by man.]

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