Contents  .......................... December 1996                                      

Editor's Notes
This Issue's Authors

Cover stories :
How America Got Its Litigation Explosion-and Why Canada Shouldn't Consider Itself Immune
Some Economics of the Canadian Legal Profession

Student Article : In the Name of Justice...
Tangling the Web

Also Reaturing :
Fraser Institute Wins $18 Million Lottery?
Media Expedites Campaign 2000's War on Poverty
Canadian Versus U.S. Poverty
Private Hospitals Improve Public Sector Health Care
December Questions and Answers
December Graph
Institute News
Restricting Reproductive Freedom Is the Real Indignity
Love in the Age of Monopoly
You Don't Own Joe's Bar and Grill

Editor's Notes

The Fraser Institute and the Manhattan Institute recently held an important conference in Toronto. Law and Markets: Is Canada Inheriting America's Litigious Legacy? featured speakers prominent in the Canadian and American legal communities, including the Chief Justice of Ontario, and Ontario's Attorney General.

The purpose of the conference was to look at the burgeoning number of civil suits and class actions taking place in the United States-many of them spurious-and determining whether such activity could be imported into Canada, and if so, how it would effect our economy. In fact, if American trends in civil justice are brought to Canada (and there is every indication that we are already seeing them emerging here) it will affect every Canadian. Products may not come to market if their manufacturers cannot afford to insure themselves against lawsuits, no matter how ill-founded. Municipalities may have to close local parks if they cannot afford the insurance needed to protect them from outlandish claims against them over those parks' (mis)use.

This issue of Forum reprints two of the papers presented at the conference. You might want to read the rest: call our events department to place an order.


This Issue's Authors

Brian April is Director of Development at The Fraser Institute. He has a Ph.D. in Modern History from the University of Cambridge.

Stephen T. Easton is Professor of Economics at Simon Fraser University. He has edited, co-written, and written several Fraser Institute books.

Joel Emes has his Masters in Economics from Simon Fraser University. He is a research economist at The Fraser Institute.

William McArthur, M.D., is a Visiting Fellow in Health Policy at The Fraser Institute. He is a practising physician in Vancouver, and was B.C.'s first Chief Coroner.

Kate Morrison is Co-ordinator of the National Media Archive. She has a B.A. (Honours) in Economics and Communications from Simon Fraser University.

Walter Olson is a Senior Fellow at New York's Manhattan Institute. He is a 1975 Yale graduate, and writes regularly for the Wall Street Journal, the Washington Post, the New York Times, and Reason.

Filip Palda is Professor at l'École Nationale d'Administration Publique in Montreal, and Senior Fellow of The Fraser Institute. He received his Ph.D. in Economics from the University of Chicago.

John Robson is a freelance writer based in Ontario. He has a Ph.D. in History from the University of Texas at Austin. He has written several Critical Issues Bulletins and many articles in Fraser Forum.

Christopher Sarlo teaches economics at Nipissing University in North Bay, Ontario. He is the author of Poverty in Canada, published by The Fraser Institute.

Karen Selick practices law in Belleville, Ontario, and is a columnist for Canadian Lawyer. You can reach her at kselick@connect.reach.net.

Michael Walker is Executive Director of The Fraser Institute. He received his Ph.D. in Economics from the University of Western Ontario. He has written, edited, or co-authored dozens of Fraser Institute publications.

Mark Weller is the Manager of Information Systems at The Fraser Institute. He has a B.A. in International Relations from the University of British Columbia.


How America Got Its Litigation Explosion-and Why Canada Shouldn't Consider Itself Immune

Walter OlsonSenior Fellow, Manhattan Institute. These remarks were given to the audience at The Fraser Institute/Manhattan Institute conference, Is Canada Inheriting America's Litigious Legacy? which was held in Toronto on November 21, 1996note

Many of our Canadian friends, contemplating America's disastrous experience with litigation, are inclined to say, "It can't happen here." No Canadian jury, they say, would award $4.8 million to the New York mugger shot by police while trying to escape the scene. Or $2 million to the drunk who fell on the subway tracks and whose lawyer said the train should have stopped faster. Or $1 million to the would-be suicide who jumped onto the tracks on purpose. Each of these are actual cases from New York.

Canada, they say, would never have produced a case such as the one which caused a stir recently in my own state of Connecticut, where a man trying to escape the police in a high-speed chase crashed his motorcycle into a parked car and got not only a half-million dollars from the city of Waterbury, because it had the temerity to chase him, but a $100,000 award against the owner of the parked car, on the grounds that it had been negligently parked in a location where it was too easy for him to run into it. Canadian culture isn't like that, they say.

Far be it from me to sell culture short, but there is something that is easier to quantify than culture, namely, the rules of the game in litigation. In both Canada and the U.S., these rules shape the incentives of lawyers and clients, and, once they've had a chance to work for a while, a profound change in these rules can succeed in creating a legal culture, or in turning one kind of legal culture into another. For as long as anyone can remember, we in America have maintained rules that make some kinds of lawsuits easier to file and more lucrative, especially for the lawyers, than they are in other countries, and over that whole period we've been known for having more of those sorts of lawsuits than other countries. More recently, particularly in the 1970s, we began a further and quite drastic liberalization of our rules in ways that encourage more litigation, and we indeed proceeded to get more litigation-a lot more. Canada is now being urged to adopt many of the same measures. As you look south of the border, my advice is: don't think it can't happen to you.

The legal tradition of every great nation embodies the principle that society, on balance, should discourage litigation by parties with doubtful cases. Lawsuits may sometimes be a necessary evil, but they are destructive and acrimonious; they tend to paralyze life; they endanger the innocent and tempt the bully; they have a large unavoidable random factor that accounts for the proverb about going to law: "He that hath right, fears; he that hath wrong, hopes." In general, lawsuits are something to be avoided except as a last resort. Not prohibited, necessarily, but discouraged.

Perhaps the most important rule flowing from this principle, both practically and symbolically, is the loser-pays or cost indemnity idea, which holds that the losing side should be at risk for some amount payable to the opponent-an amount that's typically less than the expense inflicted on the opponent by the lawsuit in question, but substantially larger than zero. In the United States, we are alone in setting a price tag of essentially zero on the harm done by litigation. Someone can come up to you, dump a pile of papers on your front lawn, say terrible things about you that get printed in all the newspapers, you may spend millions of dollars proving that each charge is untrue, and after you're completely vindicated, the offending party simply walks away. Many people will pull out their checkbook rather than face this prospect, and the threat alone gives a great deal of leverage to people who want to go about picking fights on the basis of weak cases.

This terror of being sued is one that we of course did not invent. It was the British humorist, Jerome K. Jerome, who wrote:

           If a man stopped me in the street, and demanded of me my watch, I should refuse to give it to him. If he threatened to take it by force, I feel I should, though not a fighting man, do my best to protect it. If, on the other hand, he should assert his intention of trying to obtain it by means of an action in any court of law, I should take it out of my pocket and hand it to him, and think I had got off cheaply.

Although we in the United States may not have invented the use of lawsuits to impose costs on an opponent, it can fairly be said that we have brought that art closest to perfection. Over the past few decades we have greatly liberalized the rules of procedure, evidence, and jurisdiction in ways that make it easier to dump costs on an opponent, and more onerous to be sued, win or lose. Our so-called "long-arm jurisdiction" lets litigants shop around for a court that's partial to them or hostile to their opponent. Our so-called "notice pleading" lets litigants get into court without specifying exactly what their opponent has done wrong or how it has hurt them, and switch theories later. And our so-called "pre-trial discovery," greatly expanded in the 1970s, allows fishing expeditions to demand the opponents' filing cabinets.

It is hard to find an area of legal procedure which the United States has not liberalized in recent years in order to make it easier to sue. We have relaxed the evidence rules so as to let in more dubious expert testimony when that is what is needed to keep a claim alive. We have helped along class actions through a variety of changes that have made it easier for lawyers to organize such actions for their own profit without a preliminary showing of likely success on the merits of the case, and without requiring that class action members opt in. We have revamped damage calculations in order to raise the rewards for suing, and have expanded the use of punitive and triple damages. We have passed all sorts of new laws creating vague legal obligations on which people can sue. For example, workers can sue if fired without "good cause," if subjected to a "hostile work environment," or if their disabilities are not granted "reasonable accommodation."

All along, a crucial difference between the U.S. and most other countries has been our welcoming of the lawyers' contingency fee, which allows lawyers to capture a share of the winnings for themselves. Roman law used to ban this kind of fee, as did British law, as did the various Continental legal systems, on the grounds that it gave lawyers too sharp an incentive to overpress their cases. It was the same general principle by which we consider it a bad idea to let traffic cops keep a share of the proceeds of the tickets they hand out, or tax collectors keep a share of the assets they seize: they'll be too likely to trample the interests of those over whom they exercise force. For a long time the United States was the only major country that allowed these fees, and only in narrowly limited situations. Now we encourage them in a much wider range of situations, and I understand that most Canadian provinces have also moved to legitimize the contingency fee.

That trend is part of a wider relaxation of old ideas of legal ethics. Ethical rules used to discourage lawyers from "stirring up" litigation, but in 1977 the U.S. Supreme Court decided that lawyers have a constitutional right to advertise and chase business in other ways. Justice Harry Blackmun, on behalf of a 5-to-4 majority, predicted that this would lead to an increase in litigation, but viewed this as one of the benefits of allowing advertising.

This really did signal a great change in our elite legal culture-by which I mean the culture of the people making the rules, as opposed to the culture of the street-which is hard to overstress. By the late 1970s our law schools had stopped teaching that litigation was a destructive thing to be avoided, and started teaching that it was really a good thing for society and the more of it the better. So why not deregulate the producers? Citizens were to be encouraged to seek full vindication of their legal interests, and the first step was to be fully educated as to what those interests were. By 1975 one of the most widely quoted of the new legal ethicists could write of a "professional responsibility to chase ambulances." Aggressive litigation styles were easier to rationalize if it were in the social interest to hit your opponent good and hard.

What we got, of course, is a full-fledged industry devoted to identifying chances to sue and running the resulting suits for maximum dollar output. That industry now lobbies very successfully for policies that resolve every social issue in the direction of more litigation. It is also trying to export its "products," sending emissaries to the United Kingdom, Canada, Australia, to show how it's done and how best to change your rules.

This is one of those ways in which, Quebec aside, you may be menaced by sharing with us a common language. The dominant tone of the American law reviews for the past 20 years has been extravagantly in favour of every expansion of our litigation system, and those reviews are widely read throughout the English-speaking world, where they help spread American elite legal culture. And sure enough, the United Kingdom, Canada, and Australia have all seen steps aimed at watering down loser-pays, expanding the use of contingency fees, revamping procedure in ways that encourage suing, and so forth. Continental Europe appears to be doing a better job of fending off these pressures.

If you must be influenced by America, please listen to our current debate, not the writings influential two decades ago. Back then, some very grand promises were made for litigation as a cure for social ills. But having downed the potion we are now waking up with something worse than just a hangover: an increasingly divided and embittered society, costs in the hundreds of billions of dollars, and a business and professional life where many merchants, doctors, and accountants see themselves as just one unlucky jury away from losing it all. Our public opinion is increasingly signalling that it considers the sign of social progress to be a court system with less needless squabbling-one more like Canada's, in fact.

No doubt you hear frequently that the Americanization of your legal system is inevitable, and that you may as well get used to the prospect. But it's not inevitable if you muster the will to stop it. And if you do, you might just find that a legal culture of restraint, civility, and peacemaking was the real wave of the future all along.


Some Economics of the Canadian Legal Profession

Stephen T. Easton  This paper was prepared for The Fraser Institute/Manhattan Institute conference, Is Canada Inheriting America's Litigious Legacy? which was held in Toronto on November 21, 1996note

An economist's usual approach to analyzing the legal profession would examine supply and demand. How many lawyers are there and how much are their services worth? What are the forces that change the number of lawyers, the extent of their practices, and the prices that they receive for the services that they render? In Canada at the present time it is not really possible to do this. The data characterizing the legal profession are not sufficiently fine to support such a construction. Any analysis must of necessity be more limited. But even without a full description of the economic geography of supply and demand, past and current trends provide landmarks and lookout points of interest.

The single most striking characteristic of the Canadian legal profession from an outsider's perspective is the expanding number of participants in the industry. From 1985 to 1995, the number of members of the Canadian Bar Association increased by 37 percent. During this same period, Canada's population grew only 13 percent.

The reasons for and consequences of this dramatic expansion need to be explained because they will guide the development of the legal environment in Canada for the next half a century. If it is the case that society's complexity requires more and more legal advice in order to function, then we might think of the increased number of lawyers as being demand driven. This increase in demand would be associated with both higher numbers of lawyers, and higher prices being paid for their services. If, on the other hand, the increase in the legal population has been supply driven, then we might anticipate that the average amount of money paid for a unit of legal services would decrease. Furthermore, the increase in the number of lawyers may not be associated with traditional demands for legal services, and this may lead to changes in the legal landscape that do not enhance economic activity.

My hypothesis is that what we are observing is, at least in part, a supply driven phenomenon. Further, even if this is not the case, there is likely to be a reduction in some of the traditional sources of demand for legal services in the next few years, which suggests that the focus of legal activity will be changing. In particular, the emphasis on civil litigation will become more pronounced as lawyers explore additional ways of using their skills beyond those associated with traditional criminal and civil law. Much of what follows is speculative. But even with the limited data at hand, there is much to speculate about.

The number of lawyers

Since 1985 the numbers of lawyers in Canada has increased significantly. Figure 1 pieces together a visual description of the number of lawyers per million of population in Canada over the past 40 years, while figure 2 emphasizes the past decade. As is apparent, there has been a steady increase in the number of lawyers both in the long and in the short run. This is faster than the overall growth in service sector output. In the column headed "Membership," table 1 shows the increase in the absolute numbers of lawyers listed by the Federation of Law Societies. It shows a substantial increase over the past decade: the number of lawyers has risen from 45,675 in 1986 to 62,637 in 1995. Column 2 looks at another way to see the increase-the growth in the numbers of lawyers per 100,000 of the general population. This ratio grew from 1,750 per 100,000 in 1986 to over 2,100 in 1995.

Click here to view Figure 1: Lawyers per 1,000,000 Population, 1951-1991
Click here to view Figure 2: Lawyers per 1,000,000 Population, 1985-1995
Click here to view Table 1: Membership in the Federation of Law Societies: 1986-1995

Of course it is not necessarily true that the sharp increase in the number of lawyers is undesirable. We live in a much more complex society today than in times past. Issues such as intellectual property rights will undoubtedly play an increasingly important role in the future. More lawyers will be needed for many reasons. But it is still the case that we have to feed many more legally credentialed mouths, and it is this issue to which we need to pay some attention. Some negative evidence does exist on this score. As a pure statistical matter, Brock, Magee and Young (1985) find that the rate of economic growth of a country was lower in proportion to its number of lawyers. In their analysis they standardized for the level of economic development, but they did not try to compare legal systems. Though far from conclusive, we should nonetheless be interested in the rapid increase in the numbers of lawyers being trained. What they are doing and why they are doing it is important. Are the changes that may be taking place in the legal profession desirable?

Canada is not the only common law jurisdiction with many lawyers. In comparison to the United States in 1993, we have only about two-thirds as many lawyers per capita. However, it is also the case that we are training more, faster. In 1971, Canada had half as many lawyers per capita as the U.S., but by 1981 this was at 60 percent. Figure 3 points to the rapid increase in the proportion of lawyers in Canada relative to the United States. Although figure 3 does not show it, in the past few years the per capita number of lawyers in the U.S. has actually declined slightly, while the number in Canada continues to increase. As an absolute fraction of the population devoted to the legal profession, however, the United States continues to dominate.

Click here to view Figure 3: Canadian and U.S. Lawyers per 1,000,000 Population, 1951-1991

If Canada is to have an increasing number of lawyers in the future, there are a number of questions that come immediately to mind. Will the activities of the added lawyers mirror those who have been in the profession in the past? Or will there likely be changes in the kinds of activities to which the new and larger numbers of professionals will need to turn to earn their keep?

Sources of traditional demand for legal services

Although it is certainly the case that the general public associates the legal system with crime and punishment, the crime rate cannot explain the pattern of persistent growth in the number of lawyers displayed in table 1. In fact, although the crime rate rose from 1986 until 1991, it has fallen back gradually since then. This is in contrast to the steady increase in the number of lawyers. Table 2 displays the number of criminal code incidents per 100,000 people. Clearly, the number of incidents has little to do with the increase in the number of lawyers.

Click here to view Table 2: The Behaviour of the Crime Rate

Furthermore, we should expect the demographic structure of the Canadian population to continue to support a falling measured crime rate. Most of the people caught for crimes are males between the ages of 15 and 29. The fraction of the Canadian population in this age range is forecast to be declining for the next quarter century from a current rate of 10.7 percent to a level of 9.7 percent.World Bank population forecast note Although many factors other than mere age are involved in the changing crime statistics, certainly the potential change in the demand for legal representation in criminal litigation in Canada will be different than were this segment of the population still growing.

Legal aid as a source of income

One of the stalwart sources of income for Canadian lawyers since the early 1980s has been legal aid. Legal aid expenditures have grown substantially since they were instituted in the early 1970s.See for example Easton, Brantingham, and Brantingham (1994)note Although legal aid expenditures are not a large part of the income earned by all lawyers, it has been a very steady and growing component of income that is suddenly beginning to fluctuate.Probably in the order of magnitude of 10 percent or so of all spending on legal servicesnote Since 1970-71 when legal aid in Canada constituted $12 million (1971 dollars) annually to a high water mark in 1993 at $670 million (in 1995 dollars), expenditures on legal aid-both criminal and civil, have expanded enormously.Even adjusted for inflation, the 1970 number of $12 million is no more than $40 million in today's dollarsnote

Soon, however, this source of income is likely to be significantly reduced. In the largest provinces-Ontario, Quebec and British Columbia-the number of certificates issued for legal aid work has been, is or is about to be cut significantly.In June 1996, Quebec amended the Legal Aid Act, even although the caseload had remained more or less the same since 1991-92note For example, in Ontario-the province which has used almost half of the legal aid dollars in Canada-although the cost per case has been kept about the same in the past few years, the number of legal aid cases has spiralled as governments of all political stripes have tried to reconcile budgetary objectives.

Click here to view Table 3: Legal Aid Caseload in Ontario, 1990-1995

In these times of restraint, reductions in both caseloads and overall costs are a goal for all of the provinces. Throughout Canada there is a worry that the costs of legal aid have risen out of hand, and that some restrictions are appropriate and necessary.

However, it is interesting to see the direction that legal aid caseloads have taken. While in large part we think of legal aid as the legal system's aid in enforcing a fair argument for people who risk their liberty in criminal matters, over the past decade more and more legal aid has been spent on civil cases. In Ontario, where once over 60 percent of legal aid cases were criminal cases, in 1995 only 54 percent of cases were criminal in nature. Although this trend is not national, since legal aid is idiosyncratic by province, there is a tendency for civil legal aid costs per case to be rising faster than those for criminal matters. Thus, relatively more resources have tended to be directed toward civil cases in the recent past, although current budgetary redeployments and retrenchments may change this loose pattern.

Where does this leave us? We have a legal system that faces a reduced caseload from criminal work. There is both a reduction in the number of crimes being committed and a reduction in the number of legal aid cases. Resources devoted to civil justice issues have been increasing. This is the tableau against which the rapid expansion in the number of lawyers must be set.

Other sources of income

There are numerous other trends affecting lawyers' incomes. British Columbia is toying with no-fault auto insurance, a path already trod in Ontario and other provinces. No-fault divorce is another source of reduced demand for lawyers.

So where have the increases been in the sources of revenue for lawyers in the civil arena? Fraser Institute researchers who examined the civil justice field in some detail were astonished to find that there was little or no statistical information in Canada about the civil justice system, and remarkably little about the justice system at all (Lippert, Easton and Yurish, 1996).

For example, it is impossible to catalogue the number of civil justice cases taking place in Canada on an annual basis because many jurisdictions do not keep appropriate records. Similarly, it is impossible to talk about efficiency in the courts in anything other than an extremely cavalier fashion. This is an increasingly important problem to courts and lawyers now that the justice system is called upon to bear budget cuts as though it were simply any other part of the provincial budget. Yet there is no sense in which the courts are efficient; that is, that the best practices for case management are used, that appropriate accounting is kept of the expenditures of court time versus pre-court conferencing, and so on. For example, there is no cost associated with leaving civil cases filed even when the parties have long since settled or abandoned an action. This clutters the books and can lead to very misleading estimates of caseload backlog.

The importance of record keeping (or its lack) by the judiciary or any statistical agency means that it is impossible to have a precise idea about the evolution of legal caseloads. We do not have a systematic way of discriminating among cases. We do not have a good idea about the relative importance of liability cases versus contract cases. How many and how important are each of them? How quickly are class action cases increasing? In a survey of corporate counsel, The Fraser Institute, in conjunction with the Canadian Bar Association and the Canadian Corporate Counsel Association, attempted to get some kind of a picture of what has been taking place. But future surveys will be necessary to provide comparative data.

In the absence of quantitative information about caseload, we can get a sense of the importance of different sectors of the business to the legal profession by looking at spending and income of different components of the legal system. Column 1 in table 4 reports the average real growth in receipts by private law firms. Although there are many caveats with these numbers (Lippert, Easton and Yurish, 1996), except for the mid 1980's, the growth in receipts by law firms has not been very substantial. In contrast to the growth in spending on court and regulatory agencies, the legal profession has lagged in two of the three periods we examined. These figures have been adjusted to take account of inflation-hence the term "real."

Click here to view Table 4: Average Annual Real Growth of Civil Legal Receipts by Major Recipient Groups, 1973-74 to 1993-94

What is apparent from the figures on income is that there has been little increase during the period of the rapid run-up of the number of lawyers. It suggests that the increasing number of lawyers has not been matched by an increase in the kind of case law that has been traditionally been practised by lawyers. It is both natural and understandable that the kinds of law that lawyers will pursue in the future will be different than those practised in the past. The market will need to be expanded. However, the traditional sources of demand have not increased to keep up with the supply. Furthermore, we foresee few future increases in the demand for criminal, legal aid, and even some kinds of injury claims. It is the expansion of civil litigation that we need to investigate to make sure that it is useful rather than damaging.

Consequences for the legal environment

The gradual breakdown of the civil justice environment has already begun to take place, if we believe its participants. There have already been court-ordered releases of potential felons because of overly long delays in the criminal courts. Many have complained about the delays that are clogging the system in particular courts.

To try to determine the magnitude of the problems facing the Canadian civil justice system, The Fraser Institute, the Canadian Bar Association, and the Canadian Corporate Counsel Association survey also sampled corporate counsel about the kinds of problems that they were facing with respect to their caseloads. In the sample, corporate counsel dealt with an average of 58 cases each year during the last five years. Most (38 percent) of these cases were about contract law, while 14 percent involved labour or employment issues. Personal injury, product law, and tax matters were the subject of 11, 8, and 5 percent of reported cases respectively. Parties to the case were other companies in 46 percent of all cases, and individuals in 41 percent of cases. Cases involving governments and government agencies at all levels were evenly split and totalled 10 percent of cases. Unions were the subject of about 3 percent of cases.

Counsel who completed the survey began work on a case an average of 10 months after the dispute began. The final disposition took 39 months, on average, although if the case went to trial it took 47 months. Comments by counsel included remarks that "trials take too long; [and are] too costly;" and that "the plaintiff in this case did nothing to move it forward for, literally, years, and there was nothing in the court procedures to prevent that."

While such observations are certainly not definitive, they suggest that there are already difficulties associated with clogged resources. With the potential expansion of civil justice in the area of liability, class actions, tribunal appeals, and the like, it will be a miracle if the system is not seriously slowed down in the next decade or two.

Conclusion

The legal profession is expanding in numbers, but less rapidly in terms of revenue. Traditional income sources such as legal aid are likely to be contracting in the near future, and provinces are considering a number of strategies that are potentially income reducing for the legal profession. It seems to be clear that there will be a gradual change in the kinds of law being practised. What kind of law is valued in practice, and what is being taught in the law schools today? What kinds of new law are being proposed? For example, what kind of restrictions should there be on class actions? Are lawyers receiving the kind of training that is appropriate to the current legal environment? Do we as a society want to encourage the expansion of law in one direction or another? It seems reasonable that with the continuing development of the service industries and the consequently new emphasis on intellectual property (whether disseminated over the Internet or through traditional channels), more and new law will be made. Yet the increase in the number of lawyers is probably not associated with these trends for the most part. How we assess the costs to the economy of expanded legal activity in nuisance suits and speculative liability challenges is an area of research that Canadians must be prepared to investigate. There are too many new lawyers to split the traditional pie.

References

Easton, Stephen T., Paul J. Brantingham, and Patricia L. Brantingham. Legal Aid: Efficiency, Cost and Competitiveness. Government and Competitiveness: School of Policy Studies, Queen's University, 1994.

Lippert, Owen, Stephen T. Easton, and Craig Yurish. "Trends in Canadian Civil Justice (revised)." The original was presented to the Canadian Bar Association's "Taskforce on Civil Justice," February 1996.

Magee, Stephen P., William A. Brock, and Leslie Young. Black Hole Tariffs and Endogenous Policy Theory. Cambridge University Press, 1989.

World Bank data on diskette. World Tables, 1995.


In the Name of Justice...

Howard Markowitz  Howard Markowitz is a law student at Osgoode Hall Law School, York University, Toronto. This article is reprinted from the November/December 1996 issue of Canadian Student Reviewnote

At a timely seminar on current issues in personal injury law, Ken Howie, plaintiff's litigator and Law Society Bencher said, "The contingency fee is as alive and well in Ontario as it ever would be with a formalized agreement." Michael Royce, a McCarthy Tétrault partner representing the Canadian Medical Protective Association wrote that most plaintiffs' lawyers "undoubtedly make it clear to their clients from the outset that, if the action is successful, they will charge a fee which exceeds the amount their normal hourly rate would generate for the work they have done." Finally, Serge M. Lapalme, who chaired the Canadian Insurance Bureau's advisory committee, has speculated that 60 to 70 percent of personal injury cases in Toronto already use this type of contingency fee arrangement where the lawyer essentially finances the action until disposition.

With this much support for the legalization of contingency fees in Ontario, the provincial government must catch up to the realities of legal practice, as has every other Canadian province, and amend the Solicitor's Act to permit contingency fee arrangements. Everyday survival as a rational being hinges on the freedom to choose right from wrong, good deals from bad-and the provincial government's baseless fears of a cheapened legal profession, frivolous claims, and increased unethical practices cannot be used to justify the forced obliteration of a citizen's right to retain a lawyer through the payment method of his or her choice. If anything, a contingency fee option can improve Ontario's inadequate legal system by promoting access to justice, enriching lawyer services, and adjusting to the technological realities of legal practice in the late 20th century.

First of all, access to justice is in a sorry state in 1996 Ontario; the costs of bringing an action to trial begin at 5 figures, and the number of available Legal Aid certificates was cut by 57 percent from 231,000 in 1993 to a mere 100,000 in 1996. A contingency fee option lets willing clients pay their legal bill by essentially borrowing from their lawyer until they receive compensation from the defendant. And by shifting the over $10 million financing burden of publicly-funded civil damage lawsuits onto consenting lawyers, Ontario could allocate more Legal Aid certificates to such crucial areas as criminal defence, immigration hearings, and family law.

While optional contingency fees guarantee maximum access to justice for Ontario's poor, the middle-class can also gain a heaping portion of fair-play with their newfound opportunity to launch costly litigation without "selling the farm" to pay their legal fees in advance. Under current payment restrictions, risk-averse individuals who cannot afford to initiate litigation under an hourly-fee contract are forced by government to either drop their claims or make do with insufficient settlements. In fact, many of Ontario's past cases have been so complex and doubtful that they never would have been launched without some fancy legal footwork to skirt around the longstanding ban on contingency fee rights. A case in point was the famous thalidomide baby litigation of the early 1960s, in which Ontario lawyers had to get jurisdiction to hold proceedings in the U.S. where contingency fees were allowed. True access to justice in Ontario for both the poor and middle-class will only be achieved by permitting the contingency fee option.

Second, contingency fees can enrich legal services in Ontario. Osgoode Hall's "Legal Profession" course confronts the public's lack of trust, which is responsible for so much of the low public image lawyers have in this province. (Lawyers rate second lowest, above only politicians themselves.) The contingency fee option counters this mistrust by reassuring sceptical clients that since lawyers own a piece of the action, they really will work their hardest. Fixed fees for estates, trusts, and divorces put a premium on a lawyer's ability to serve clients efficiently and produce quality work, as opposed to just throwing "legal teams" of inexperienced students/associates at a project and then mass billing for the hours of each.

Furthermore, lawyers frequently earn their low public image by consistently miscalculating or lowballing the projected costs of legal actions, infuriating clients with a higher-than-expected number of zeros on the final bill. Contingency fees both empower clients and raise lawyers' public images as firms are forced to absorb their own faulty cost estimates. Once again however, this risk-shifting catalyst for enriched legal service will only be achieved when Ontario legalizes contingency fees.

Finally, the technology of modern legal practice demands a lawful option for lawyers to charge contingency fees. Six months ago, a young entrepreneurial lawyer from the University of Toronto told a group of York University students how he had invested nearly $10,000 in state-of-the-art computer equipment before opening his law office in February. With contingency fees, this energetic legal expert is rewarded for his efficiency because he can charge a client several hundred dollars for a successful standardized divorce claim or stock transfer agreement. Yet strict hourly billing won't officially earn him any more than $5, since it only takes him a minute to type his client's name onto his software template and print it out. Ontario's most efficient young lawyers are essentially punished for their high productivity, quick thinking, and mass technological investment, while a computer-illiterate lawyer who takes four hours to recopy his legal drafting by hand hits the jackpot and earns up to $1,200 for his sluggishness! Let's catch up to the realities of modern legal practice by granting lawyers the freedom to charge contingency fees.

Ontario's government spends billions of taxpayer dollars in order to maintain access to justice in this age of fiscal restraint, so why not let willing lawyers diversify the province's risk of financing losing actions by taking on a portfolio of cases under a contingency fee basis? Instead of letting powerless clients worry over unpredictable hourly billings and discretionary expense-padding, shift the risk of lowball cost-estimates onto the lawyers through contingency fee payments.

Ontario must catch up to other provinces, to 20th century legal technology, and to the long-time de facto existence of contingency fees among Ontario's top plaintiff lawyers. Free choice for Ontarians . . . legalize contingency fees today!


Tangling the Web

Mark Weller

Where will all the lawyers go now that the demand for lawyers in traditional sectors has decreased? One answer could be the Internet. Many legal professionals are already gearing up to deal with an emerging element of cyberspace- government regulation.

Nineteen ninety-five was clearly the year that the public at large was introduced to the World Wide Web. However, if 1995 was the year of Web, then 1996 was the year of government on the Web. Outstripping all other organizations and topics in their on-line growth, in the last year government departments of all kinds have sprung up on the Internet. The domain extension .gov, which is reserved for U.S. government sites, now accounts for more than 2.8 percent of the total sites on the World Wide Web. While most of their other departments have been reduced, governments throughout the western world have been spending like mad to get their bureaucracies on-line.

Of course, an even greater danger than governments sprawling through cyberspace is the threat that, having discovered the Net, they may begin to desire to control it. After all, the reasoning goes, regulation is a job creator: it keeps bureaucrats busy, as well as the legal professionals who are needed to interpret the regulations.

One example of this intention was expressed recently on the CBC Newsworld program "Ottawa: Inside Out." During a segment that aired on this program on November 16, Canadian Radio and Television and Telecommunications Commission Chair Francoise Bertrand stated: "I think it's very important, on those new modes of communication, that there is Canadian content, Canadian producers as well." In other words, the CRTC is looking at ways to regulate content in cyberspace.

However, such wrong-headed plans are not limited to the Canadian government. Since the Internet operates across national boundaries, international organizations have begun to take a similar interest in regulating the Web. The United Nations Educational, Scientific and Cultural Organization (UNESCO) is interested in regulating the rights of authors in cyberspace and may soon emerge as the key institution involved in regulating the Web. They have also expressed concerns about equality of access to the Internet, and have discussed ways to promote culture on the Web. In order to demonstrate the folly of these initiatives, it is necessary to address a few misconceptions.

First, the Internet is actually something new. As Nicholas Negroponte, head of the Media Lab at MIT put it not so long ago, "Shipping bits is fundamentally different than shipping atoms." For example, web publishing and book publishing are two fundamentally different things. So existing regulatory frameworks should not simply be stretched to cover new media, which seems to be what the CRTC is advocating.

A similar misunderstanding exists with regard to intellectual property on the Net. The legal community's key reason for wanting to regulate the Web has been its concern for the protection of the rights of authors. However, this problem, insofar as it exists, arises not from any deficiency in the rights the law currently grants to authors, but rather from the difficulty of enforcing these existing rights on the Internet. The reproduction right, which is recognized in international copyright, encompasses all of the actions about which authors have concerns. The problem of enforcing international copyright on the Web, however, requires a technological fix that will not be solved by further regulations.

Of course, the assumption is often made that even if it makes no technical sense, the Net must be regulated for some greater societal good. In the CRTC's case, the greater good is the preservation of Canadian culture. There is, however, no threat to Canadian culture on the Internet-it is, in fact, thriving. For instance, we now know that 4 percent of all Web sites in the entire world have the domain registration .ca. That means they were registered as specifically Canadian sites. In terms of the percentage of the population that is on-line, Ottawa and Vancouver both rate in the top 20 cities worldwide. There is no Canadian on-line content crisis.

The real crisis that may be approaching is that by regulating the Internet, it may be effectively snuffed out. To understand why, we must first have an accurate picture of what the Internet is. Technologically speaking, it is a network of thousands of computers connected by phone lines. Geographically, it is largely American-there is a misconception that the Internet is global when it is in reality mostly based in the United States. So why is this? How did the U.S. get a head start on building the information highway? Quite simply, the United States was the first country to break up state-mandated long distance monopolies. Competition among carriers brought about cheaper long distance rates and this suddenly made the Internet economically viable in a way that it had not been before. Canada followed suit in de-regulation, and has reaped rewards with a strong national presence on the Internet. So the Internet is a direct consequence of de-regulation.

With regard to property rights, the legal framework for the Internet already exists, and there is no need for further regulation to address the concerns of authors, citizens, or producers of culture. Rather than helping, regulating the Internet would be a giant step backwards for telecommunication both in Canada and around the world.

I view legal professionals who hope to find new opportunities from the Information Highway with some trepidation. Certainly there is a role for lawyers on the Net, but if there is any temptation to regulate this new medium in order to provide a stronger basis for litigation, it should be resisted. The World Wide Web, for example, has thrived chiefly due to a lack of regulation. The imposition of arbitrary strictures would attack the Net at its core, reducing its efficiency and utility as a communications medium. As a world-wide phenomenon, the Internet is anticipated to generate over US $5 billion in annual revenues by the year 2000. The economic benefits that the Internet could deliver will not happen if lawyers and regulators, in their race to control the Net, kill the golden goose in the process.


Fraser Institute Wins $18 Million Lottery?

Michael Walker

I could not believe my eyes. Had we won the lottery? Had a faithful friend died and left us a legacy? What could explain our enormous good fortune? Since the lottery pays out considerably less than a slot machine in Las Vegas, we would certainly not have purchased a lottery ticket. And while we have many good friends, nobody would leave us that much money.

The cause for my consternation was a new book by Walter Stewart, The Charity Game, which states that The Fraser Institute has an annual revenue of more than $18 million per year. The truth is that the revenue of the Institute in the year cited was about one tenth that amount, or $1.8 million per year. Alas, it was not our good fortune but simply a mistake by Walter Stewart that explains the very large revenue which he attributed to us.

The implication of the error, of course, is that The Fraser Institute is 10 times as large as it actually is. We are not surprised that others over-estimate our size; we are very proud of the high productivity of our staff and the very large number of bangs we get per buck that people invest in us.

Nor was this the only mistake Walter Stewart made in his book. Another "problem" that he raises is the issue of why some groups qualify as tax exempt, tax deductible organizations, and others do not. The main dividing line, which is drawn by Revenue Canada, is whether the organization is engaged primarily in research and educational activity, or whether the group is engaged primarily in political activity.

The Fraser Institute has always been a non-partisan, non-political organization. (On more than one occasion we have been subject to very close scrutiny by auditors from Revenue Canada to confirm the fact.) Mr. Stewart scoffs at this notion and asks why The Fraser Institute can publish study after study recommending basic changes in the way government policy is organized and still call itself non-political.

The answer is that there is a world of difference between politics and policy. Policy is engaged in by governments formed from any of the political parties. As long as research is carefully done, it will distinguish between the policies and the parties which happen to pursue them.

The Fraser Institute has always maintained that there are good policies and bad policies, and none of the political parties has a monopoly on either of these categories. It is true that from time to time a political party may emerge which gets its policy agenda more right than wrong, and in that sense even making a judgment about policy may imply some comment about politics. That cannot be avoided, but commenting on the policies is not itself a political act.

As to whether The Fraser Institute is partisan in its outlook, we have had the satisfaction of seeing our policy recommendations adopted by NDP, Liberal, and Conservative governments. We recently awarded the top budget performance rating in the country to the NDP government of Saskatchewan. They won it on the merits of their policies; their politics were irrelevant. That's the difference between a partisan and non-partisan research organization.

The reason The Fraser Institute and other groups like it deserve different treatment than political activist groups is that we make a real contribution to the basic understanding of economic and social policies, and the effects they are likely to have on the economy. Moreover, we make this contribution not by lobbying politicians but by providing facts and interpretation to the general public through a number of routes. The value to the Canadian people of correct versus incorrect policy is enormous, and is measured in the hundreds of billions of dollars. For example, the reduction in trade protection, which has been engineered largely by economists since 1950, itself amounts to savings for consumers of about $50 billion per year. The policy research which yields these kinds of outcomes is a good investment for the people of Canada to make, and should be very sharply distinguished from activities which, for the most part, simply seek a benefit for some political interest group.

Given the other difficulties in his book, it is not surprising that Walter Stewart does not seem capable of making this distinction. But to be charitable, so to speak, he does raise some valid questions about the differential treatment of groups which clearly cross over the line and engage in lobbying or other overtly political activities. But frankly, that bit is not worth the price of admission to his "game."

In any event, it's going to be some time before you'll have the opportunity to buy the book. It has just been removed from store shelves across Canada and destroyed in order to avoid a law suit brought about by another group featured in the book who were not amused by Mr. Stewart's inattention to factual details.


Media Expedites Campaign 2000's War on Poverty

Kate Morrison

In recent weeks, newspaper readers have been subjected to a barrage of headlines like the following: "1 in 5 children lives in poverty" (The Province, November 19, 1996); "Trustees urge war on child poverty, Boards organizing political push" (The Globe and Mail, November 18, 1996); "Feds, provinces target child poverty, A rush to defend the youngest victims of social benefit cuts" (The Vancouver Sun, November 8, 1996); "Child poverty benefit urged, Federal investment plan would resemble UI, CPP" (The Globe and Mail, November 16, 1996).

The CBC's Julie Van Dusen reported on "The National" on November 13, 1996: "More and more Canadians kids live in poverty. Consider this. . . . Canada has the second highest rate of poverty among industrialized countries. . . . One in 5 Canadians under the age of 18, 1.4 million children, live in poverty."

The source of these statistics is Campaign 2000, a national network of anti-poverty groups who are pressuring government to redistribute $20 billion to low-income families by the end of the century. The media, perhaps because of sensationalism, simplicity, laziness, or perhaps real empathy for income redistribution objectives, have repeated Campaign 2000's message without question and, for the most part, without clarification.

One in five Canadian children do not live in poverty; they live in families whose annual income falls below Statistics Canada's Low-Income Cut-Off line (LICO). LICO is a measure of income disparity that the popular press has coined "the poverty line." It is not a measure of actual need. In fact, Statistics Canada takes great pains to point out that LICO is not a "poverty line" and should not be confused with one.

Most media, apparently, would rather shock readers and viewers than inform them, and therefore they continue to report LICO statistics as though they were poverty statistics.

As for Canada having the second worst rate of child poverty amongst industrialized nations, this is another widely disseminated "fact" that is based on relative measures. It is derived by taking the median income in each country, dividing it in half, and calculating the proportion of the population that lives below that income level. Poverty is a word that evokes strong images-malnutrition and inadequate clothing or shelter-and is an inappropriate term for describing the 1 in 5 Canadian children who live in relatively poor households in a very rich country.

A front page article in the Globe and Mail recently reported, "the number of Canadian children living in poverty has increased by 46 percent since 1989, to 1.3 million children" (November 16, 1996). But Canadian Social Trends, a quarterly publication of Statistics Canada, presents an entirely different picture. It emphasizes that "fluctuations in the percentage of children under age 18 who live in low income families can be attributed to changes in the business cycle through the 1980s and 1990s. The percentage of children below Statistics Canada's LICOs rose during the recession and declined during expansions. There was, however, no long term trend, either upward or downward." The report found that the earnings of Canadians under 35 has declined "substantially" since the late 1970s but that families are having fewer children, having them later in life, are more educated and more likely to be bringing home two incomes. According to the report, these factors, combined with rising transfer payments to families, has offset the impact of lower earnings.

Child poverty is almost certain to be an election issue. The Chrétien government is contemplating an integrated child benefit program to the tune of $3 billion, as part of its platform. The wisdom of such a program will be judged according to its perceived need and its estimated effectiveness. According to the media and their uncritical repetition of the rhetoric from anti-poverty groups-the need is dire.

Are more Canadian children living in poverty? It is impossible to say until an absolute measure of poverty is introduced, perhaps one similar to that produced by Professor Chris Sarlo who has developed a "Basic Needs Poverty Line." Professor Sarlo has estimated that there are about 313,000 children living in real poverty in this country. Nonetheless, the media have allowed anti-poverty groups to dominate the debate and present a false image of Canadian society, one in which more and more Canadian children are being deprived of a happy, healthy life. It makes a good story. It's compelling, it's simple, and it's human. Fortunately, it's not true.


Canadian Versus U.S. Poverty

Chris Sarlo

The United Nations has designated 1996 as the International Year for the Eradication of Poverty, and the latest available statistics show that Canada still has a long way to go to meet this goal. Nearly 4.8 million children, women and men-one of every six Canadians-were living in poverty in 1994, and the overall national poverty rate was 16.6 percent. In a country as rich as Canada, these figures bear witness to the failure of successive federal, provincial, and territorial governments to provide for the well-being of a significant portion of the people they were elected to represent.The National Council of Welfare, Poverty Profile, 1994, Spring 1996note

The National Council of Welfare (NCW) is a federal government creation which advises the Minister of Human Resources on matters of concern to low-income Canadians. Its job, presumably, is to give Canadians an accurate picture of the extent of poverty and deprivation in Canada. The statement above doesn't mince words. Fully 16.6 percent of Canadians are "living in poverty."

As I pondered on this claim recently, I thought about how much worse things must be in America. After all, the term "underclass" was invented (or at least appropriated) by American sociologists to describe the depressingly grinding poverty in both rural and urban United States. Any regular reader of the New York Times or Time magazine will have been informed, often, that the U.S. has the highest rate of poverty among industrial countries.

But, in fact, the official U.S. poverty rate stood at 14.5 percent in 1994, a value below the NCW's stated rate for Canada. What does this mean? Is the National Council of Welfare telling us that Canada has a higher incidence of poverty than the U.S.? Have our living standards now fallen to the point where we have proportionately more poor than America? In fact, they wisely avoid any comparison with the U.S. or any other country. The two rates are not in any way comparable, even though they are both referred to as "poverty rates."

In the United States, poverty is measured using the "Orshansky" method. In the early 1960s, statistician Mollie Orshansky observed that the average family spent about one-third of their budget on food. She argued, therefore, that a line set at three times the cost of a nutritious but "economy food plan" (with appropriate adjustments for smaller households) would be a reasonable poverty line. This approach has been the official U.S. method of measuring poverty in America since the 1960's. In 1994, the U.S. poverty lines, expressed in Canadian dollars, and with family size in parenthesis, were: (1) $10,309; (2) $13,197; (3) $16,147; (4) $20,683; (5) $24,451; and (6) $27,641

In Canada, the National Council of Welfare uses Statistics Canada's "Low-Income Cut-Offs" (LICO) as poverty lines. However, Statscan has taken great pains to point out that these cut-offs are not poverty lines and have no official status. There are very good reasons for rejecting LICO as useful poverty measures. They are not in any way connected to the actual cost of necessities (food, shelter, etc.) in Canada. LICO is very much a relative measure, intimately connected to average living standards by construction and through frequent "rebasings." Finally, the LICO lines are set high enough to allow for the purchase of a wide range of "social amenities" beyond the basic needs. I have argued that we should look upon the LICO lines as "goals," and not as useful guidelines for poverty. They simply do not tell us anything interesting about the nature or extent of deprivation in Canada. The 1994 LICO lines (for major urban centres) in Canadian dollars by family size are: (1) $15,479; (2) $20,981; (3) $26,670; (4) $30,708; (5) $33,550; and (6) $36,419

Inter-country comparisons of important phenomena are important. For Canada, comparisons with the United States are particularly relevant because of our close geographic, linguistic, cultural and economic ties. We really should know how our poverty rate, for example, compares to that of Americans. Currently, we don't.

The research I have done on the lower end cost of a nutritious diet provides an opportunity to fairly compare our two poverty rates. In determining poverty lines for Canada, I have calculated the cost of basic needs, including food. The food costs estimates fulfil all Health Canada's energy requirements and Canada Food Guide balance suggestions. While this approach is not identical to Orshansky's "economy food plan," the principal is the same. Thus, using the Orshansky method and my own "essential food costs" in 1994, I have calculated the following (preliminary) "American style" 1994 poverty lines for Canada: (1) $7,480; (2) $9,589; (3) $11,980; (4) $16,187; (5) $20,395; and (6) $24,602.

These poverty lines, explicitly including Canadian food costs and utilizing the U.S. poverty line construction methodology, are far preferable to a simplistic exchange rate conversion of U.S. lines. Using these lines (which are, incidentally, very close to my own poverty lines for Canada), the poverty rate for Canada in 1994 is 4.9 percent. Figure 1 compares the Canada and U.S. poverty rates over the past 21 years where both rates are adjusted according to the overall Consumer Price Index.

Click here to view Figure 1: Comparing U.S. and Canadian Poverty Rates Using the "Orshansky" Method, 1973-94

U.S. poverty rates have remained in the 11 to 15 percent range over the past two decades while Canadian poverty has declined rather significantly and is currently well below the American rate. This finding gives us a much different impression about poverty in Canada than is suggested in the annual reports of the National Council of Welfare.

I wish to stress again that the comparison here is not precise. The determination of the Orshansky economy food plan is somewhat different than my determination of essential food costs. As well, the use of income as an indicator of well-being, always a problem due to such factors as non-cash benefits, unreported incomes, and part-year families, is particularly troublesome in making cross national comparisons. Nevertheless, this is a useful first attempt to make a comparison of a matter of vital concern to us all.


Private Hospitals Improve Public Sector Health Care

William McArthur, M.D.

The Canadian acute care hospital sector is inefficient when compared with its counterparts in other countries.The Health Services Utilization Group for the Conference of Federal/Provincial/Territorial Deputy Ministers of Health, "When Less is Better: Using Canada's Hospitals Efficiently," June 1994. This document provides evidence on the topic, and contains an extensive list of references. See also William McArthur, Cynthia Ramsay, and Michael Walker, eds., Healthy Incentives: Canadian Health Reform in an International Context, The Fraser Institute, 1996, p. 145-53note In 1994, Canadian hospitals consumed $27 billion, which accounted for 37.3 percent of all health care costs. Most of the funding for acute care services was provided from taxpayers' pockets. Furthermore, Canada, with 3.4 percent of GDP going to taxpayer support of hospitals, spends far more on this aspect of health care than many countries which provide high quality hospital care. For example, the U.K. spends 1.8 percent of GDP on acute care, the Netherlands 2.1 percent, Ireland 2.9 percent, and Australia 2.2 percent.

Spending taxpayer dollars inefficiently on acute care is compounded by the fact that the hospitals are subject to government regulation and control to a degree that makes the government the de facto owner of the facilities. The OECD considers only 3.6 percent of all hospital beds in Canada to be owned by the private sector. Most of these are in chronic or long term care facilities. Thus, the monopoly government provider does not face competition from the private sector. The result is that the efficiencies which flow from private sector competition are excluded from the largest segment of taxpayer spending on health care. This must be changed.

Canada must learn from countries that have preceded it in improving the productivity and efficiency of the acute care hospital sector. Table 1 reveals that in most countries, privately owned and operated hospitals provide a significant proportion of care, and they have to compete with both government and other privately owned facilities in order to have the opportunity to serve the public. These private hospitals may receive funds from individual patients or their insurers (United States), from the government (United Kingdom), or from both (New Zealand). In a competitive private-public system, acute care facilities are divided into the following general categories.

Click here to view Table 1: Public Spending on Acute Care Hospital Beds, and Privately Owned Hospital Beds as Percent of Total Beds (1993)

Public sector hospitals

Public sector hospitals are Crown corporations, and compete with private sector hospitals to provide service to patients of all types. These hospitals are administered by boards appointed by the provincial government. However, the present board selection process, whereby some individuals appointed to these bodies are patronage appointments with few qualifications or little experience for the task, should be replaced with a more competent and competitive selection process. These Crown corporations, like all other hospitals, are subject to all provincial and federal legislation governing corporate activities in their jurisdiction. They must pay taxes to government and pay dividends to their shareholders-the taxpayer-as represented by government. Failure to perform adequately in this respect is cause for dismissal of the Chief Executive Officer, and in some circumstances, the board.

The Toronto Hospital at its various sites in Toronto, and the Vancouver Hospital at the Oak Street and UBC sites, provide two examples of hospitals that might be organized in this fashion.

Charitable and religious hospitals

Charitable and religious hospitals have always played a significant role in health care in most countries, but in recent years in Canada their role has diminished, in part because the religious orders have experienced difficulty in attracting a sufficient supply of personnel, and in part because of the take over of hospital care by government. This is a retrograde change which needs to be reversed. A variety of religious orders have run hospitals around the world for over 100 years, and many of them provide examples of exemplary care and management. St. Paul's Hospital in Vancouver, and Mount Sinai Hospital in Toronto have strong religious affiliations, and the Catholic and Jewish bodies that started them should be encouraged to resume ownership, control, and management of these facilities. These hospitals would then be in a position to compete head-to-head, and unfettered by government, with the large publicly owned hospitals in Vancouver and Toronto. Under these circumstances, patients acting through their physicians and insurers would quickly decide which hospitals provided the service most suited to their individual tastes. The outcome would be innovations in service, improvements in efficiency, effectiveness, and appropriateness of care and bed utilization.

Community hospitals

Community hospitals should be encouraged where they are owned and operated by the communities they serve. They would provide a degree of local input into a hospital which is not possible within the government owned Crown corporation structure. This type of arrangement improves the service and responsiveness of hospitals, particularly in rural settings. People in rural communities often feel that their needs are ignored, or at least misunderstood by remote government bureaucrats; locally owned hospitals would do much to correct this feeling of powerless isolation. In this setting, the stakeholders are members of the community, and they have the power and opportunity to create profits or accept losses as they see fit. They receive funding according to whatever contractual arrangement is reached with the government, but can supplement this in the manner of their choosing, including local fundraising, municipal tax levies, endowments, charitable donations or other means appropriate to the setting and the community. The aboriginal peoples of Northern Quebec, Northern Ontario, and British Columbia would probably welcome the opportunity to own and operate hospitals and clinics under their jurisdiction. This type of proprietary ownership is becoming popular with the Maoris in New Zealand.

Private, for-profit hospitals

For-profit, private enterprise hospitals would provide an important competitive incentive to the Canadian health care scene. These facilities owned either by private companies, or by companies traded publicly on the stock market, would have the opportunity to compete, head-to-head, with other hospitals for the opportunity to provide service to patients. In many of the larger cities there are hospitals which co-exist in close proximity. Some of them should be sold to the private sector.

It is of paramount importance that hospitals in all categories be encouraged to compete for the opportunity to provide service to all patients, regardless of whether their insurance is with the public sector, or with the private sector. This has been done in other countries with significant benefits to everyone. In the United Kingdom many public patients now receive their treatment in private facilities, with the result that enormous pressure has been put upon public sector hospitals to improve their service and productivity to meet private sector standards. In New Zealand and most European countries, private sector hospitals have always been a vital part of the secondary care scene, and it seems that in those jurisdictions few people would consider changing this arrangement.

Many Canadians are apprehensive that introducing private sector hospitals will lead to a two-tier system where quality care would be available only to the financially well-to-do. This is a misconception unsupported by other countries' experiences. For example, most people familiar with the situation in New Zealand claim that while the private hospitals provide more choice in terms of ancillary services, the best quality high technology care is often available in the publicly-run facilities. This is perfectly reasonable and comprehensible: an adult requiring relatively uncomplicated surgery, such as removal of an appendix, may prefer to have the operation in a hospital where a well appointed private room is available, with unlimited family visiting and other benefits. The same person requiring complicated brain surgery to remove a life-threatening brain tumour will be concerned primarily with the quality and sophistication of care available in the operating room, and subsequently in the recovery and intensive care rooms. In many circumstances this may well be in the Crown-owned public hospital.

Evidence from the reforms instituted in the U.K. in 1990 reveal that individuals from the lower socio-economic classes benefitted the most from the private sector's increased involvement. Both the Labour and Conservative parties recognize this. Both acknowledge that further improvements in health care can only come about by having the private sector play a greater role in the delivery of care.Ibid, p. 8; Independent Healthcare Association, Independent Perspectives on Health & Social Care, London, October 1996, p. 6note It is time for Canada to wake up and follow the example of the countries that preceded us in our dalliance with state run, monopoly health care. It is time to let private sector competition bring the service, the cost, and the performance of public sector hospitals into line.

[The theme of this paper is an extension of a proposal outlined in Healthy Incentives: Canadian Health Reform in an International Context, edited by William McArthur, Cynthia Ramsay & Michael Walker, The Fraser Institute, August 1996. This book (ISBN 0-88975-165-X) costs $19.95 and may be ordered from any bookstore in Canada, or can be purchased directly from The Fraser Institute.]


December Questions and Answers

Joel Emes

Q: How large are agricultural subsidies in Canada? How do Canadian agricultural transfers compare internationally?

A: The Organization of Economic Cooperation and Development (OECD) compiles estimates of total transfers associated with agricultural support. Agricultural transfers are defined as the sum of all transfers from taxpayers and consumers, net of budget revenues from tariffs on imports. Agricultural support cost Canadians almost $8 billion in 1995. Table 1 presents an international comparison of total agricultural transfers, total transfers per person, and total transfers as a percentage of GDP. This month's graph shows the percentages of the agricultural subsidy taken from taxpayers and from consumers. In Canada in 1995, transfers from taxpayers were $4.586 billion and transfers from consumers were $3.008 billion (Canadian dollars). Transfers from consumers are an implicit tax due to market price support. In Canada, supply management programs (i.e., marketing boards) are the main support instrument in the milk, poultry, and egg sectors. Production is regulated by federal and provincial quotas, while producer prices are set by quasi-governmental committees. Several changes to agricultural support were announced in the 1995 federal budget. The most notable was the elimination of the Crow rate subsidy under the Western Grain Transportation Act. Producers now bear the full freight costs for prairie grain and oilseed products, although freight rates are still subject to legislated maximum levels. These subsidies have impeded diversification and led to resource misallocation. Their elimination would lead to increased diversification in western grain producing regions into livestock and high value-added products.

Click here to view Table 1: Total transfers associated with agricultural support, 1995

Q: What do these transfers work out to on a per farmer or per acre basis?

A: Table 2 presents transfers per full-time farmer equivalent (FFE) and per hectare of agricultural land for 1993 and 1995. FFEs include farmers, hired farm employees, and unpaid family workers. Agricultural land is defined as the sum of arable land, land under permanent crops, and permanent meadows and pastures.

Click here to view Table 2: Total transfers associated with agricultural support per farmer and per hectare of agricultural land, 1993 and 1995


December Graph

Joel Emes

Click here to view December Graph: Percent of Agricultural Transfers from Taxpayers and Consumers, 1995


Institute News

Brian April

This new feature is intended to keep our members abreast of the Institute's activities, which are not always fully apparent from our publications. If there is anything particular you would like to see in this section, please let us know.

Economic Freedom symposium

The most important recent developments came out of the symposium on International Economic Freedom held in San Francisco on October 30-31, co-hosted by Rose and Milton Friedman and Michael Walker. The symposium achieved its aims of refining and expanding the measurements of economic freedom, first set out in our book Economic Freedom of the World: 1975-1995 (1996), and of establishing an International Economic Freedom Network to promote economic freedom around the world. Organizations from 49 countries have agreed to participate in the network, though all may not be able to act as co-publishers of the 1996 rankings. This project will become a major undertaking for the Institute, and it will be funded separately from our domestic programs. The symposium was sponsored by the Atlas Foundation and Philip Morris International.

New project grants

The Institute has received two major project grants from the Donner Canadian Foundation, which will enable us to pursue with vigour two important projects launched earlier in the year. The Law and Markets Project, which held its launch conference in Toronto on November 21 in cooperation with the Manhattan Institute of New York (the preeminent legal research Institute in the U.S.), will now commence detailed research into a number of specific aspects of civil justice. Also, the Right-to-Work Project will now go forward with a detailed review of the Canada Labour Code and a study of the impact of closed shop unionism. Many new members have joined the Institute in support of this project.

Student seminars

Student seminars were held in Vancouver and Victoria, both sponsored by the Lotte and John Hecht Memorial Foundation, and in Toronto, sponsored by the Weston Foundation. This was the first time we have held a seminar in Victoria, and the results were very encouraging for the planned expansion of our student programs. Thank you to everyone who gave an additional donation to support our students.

Federal report card

In consequence of the release of our report card on the federal government, and a direct mail campaign, the Canada Survival Project received considerable attention recently in Quebec, and attracted nearly 100 new members. Thanks to their donations, and to the generosity of all members who have made additional donations, we will be able to intensify our efforts in this area.

New staff

The Institute has hired Ms. Karen Lam, of the Ontario Ministry of Finance, to head the International Centre for the Study of Public Debt. Ms. Lam holds a Masters degree from the University of Toronto. As the continuing financial support of the membership has increased our funding level this year, we will be hiring more research staff to increase our "punch" accordingly.


Restricting Reproductive Freedom Is the Real Indignity

Karen Selick  A version of this article has previously appeared in Canadian Lawyernote

I'm looking at Bill C-47, the proposed Human Reproductive and Genetic Technologies Act introduced in the House of Commons this past June and still waiting to be debated. Why is the government bothering with this, I wonder? I don't recall seeing surrogacy contracts or sperm sales among the pressing issues that Canadian voters mention when polled about their concerns.

The bill says it has three goals: to protect the health and safety of Canadians, to ensure the "appropriate treatment" of human reproductive materials outside the body, and to protect the dignity of all persons, especially women and children. Then there's a list of about a dozen prohibited activities.

What's missing, in both the bill and Health Canada's explanatory media release, and in all the material I've seen from the Royal Commission on New Reproductive Technologies, is any rational explanation of how the declared goals tie in to the prohibited practices. It's as though the practices absorb their wickedness by osmosis, simply by being mentioned in the same document as the accusations against them. The government has announced that they're bad, therefore they're bad. QED.

For example, how does the sale of sperm-as opposed to unpaid sperm donations-jeopardize anyone's health or safety, or lead to inappropriate treatment of tissue, or violate anyone's dignity? Liability-conscious labs will still want to screen semen for disease. They'll still store it the same way. And I understand that ejaculating into a test tube while the lab technician waits outside the door is found by most sperm donors to be a tad undignified, pay or no pay.

The only serious violation of dignity would arise from passing the bill-from telling adult citizens they cannot engage in freely negotiated, voluntary contracts. The state is saying that both buyers and sellers of sperm are like infants, like mental incompetents-incapable of determining what's in their own best interest. Big Brother knows best. Now there's a genuine indignity for you.

There are other non sequiturs in this legislation; for example, the ban on "medical procedures" aimed at sex selection of children. There are already books on the market-not to mention several Internet sites-telling couples about do-it-yourself techniques they can try in order to alter their chances of conceiving boys or girls. Presumably, these techniques will remain legal. Even this Liberal government, interventionist as it is, doesn't have the stomach to hire sex police to ensure that couples make love equally before and after ovulation, or that women don't douche with baking soda or vinegar. But in that case, why ban the medical procedures? Both sets of techniques are unreliable.

Leftist feminists allege sex selection will lead in some unspecified way to the "devaluation" of women. Too bad they don't understand basic economics. They've got it exactly backwards. Even if they're correct in their silly hypothesis that Canadian couples will dispro-portionately choose to produce boys (an assumption that the Royal Commission admits is unsupported by the evidence), they're wrong about the effect it would have on women's social status. Plentiful resources generally command low values; scarce resources, high.

Besides, if the next generation of Canadians is disproportionately male, women will have the upper hand in selecting a mate. By choosing judiciously, women might well help breed out or train out such undesirable behaviours as violence or alcoholism. Shouldn't that make feminists happy?

The most disturbing rhetoric from Health Canada is its vilification of all things commercial. We can't "commercialize reproduction," the media release says. It would be "contrary to the principles of human dignity, respect for life and protection of the vulnerable." The notion that money taints every human activity with depravity dates all the way back to antiquity. It's balderdash. Money is one of mankind's greatest inventions-as necessary and beneficial to civilized life as the wheel.

Even those who subscribe to the Marxist ideal, "from each according to his ability, to each according to his need," find money to be a useful tool. It can be broken down into tiny units, so that when a cattle rancher and a baker each want to give according to their abilities and take according to their needs, the rancher doesn't end up giving a whole cow for a loaf of bread.

Money also serves as a means of storing value, permitting people to schedule their transactions more conveniently. The rancher can sell his cattle weeks before his shopping spree in town. He doesn't have to drive the herd along with him to barter as he goes from store to store. And money solves the problem of having to find someone whose abilities and needs coincide inversely with yours. The rancher can still get bread from the baker even if the baker is a vegetarian.

So what's the problem if a woman wants to rent out her uterus for nine months? Why is that less dignified than babysitting someone's child after it has been born? She's simply trading her time and discomfort for other things she wants more-perhaps something for her own children. Money is merely an intermediate device that lets her fulfil her other goals.

There was a time when acting on stage and wearing dresses above the ankle were considered grossly undignified. That nonsense passed, and these restrictions on reproductive freedom will, too. Meanwhile, Canadians who want to exercise their reproductive rights will have to do it in California.

Click here to view cartoon


Love in the Age of Monopoly

Filip Palda

Fall is the season when hospitals and universities launch fund-raising drives. If you have a charitable dollar in your pocket then these causes are worth considering. It is also worth considering how much more your contribution could accomplish if government loosened its control over hospitals and schools. These institutions work in a straight-jacket of regulations and dance to the tune of government paymasters. Regulations and subsidies limit the ways in which your voluntary contribution can help patients and students.

There is nothing wrong with government regulations, provided they allow schools and hospitals to find new and clever ways of answering the needs of their clients. But the regulations we now have encourage stagnation. Hospitals and universities are state monopolies. They face little competition, and follow rigid operating rules. This means that your donations will find limited expression on the campus or in the clinic. Monopoly means that the donation "shopper" faces a small number of unchanging outlets for his or her money. If you only want to give to a school where students or patients pay their own way, too bad. There are no such universities or hospitals in Canada, and none will appear until government gives the nod. The generous citizen gets less "bang-per-buck" out of giving to monopolies than if a variety of flexible institutions were competing for his or her money.

The most rigid feature of our hospitals is that they are obliged to deliver "one-tier" of health services. One tier sounds egalitarian, but what it means in practice is that hospitals are not allowed to discover what their patients really want. Imagine a world in which government only allows one type of car to be produced, and one type of house, and one style of clothing. Creative drive would grind to a halt. Hospitals and schools work in this sort of petrified world. This is also the sort of world into which voluntary contributions are obliged to find their way.

Government funding adds a further complication for private individuals who want to see their contributions going to good use. A recent study done by U.S. economists found that for every dollar of contributions that people gave to state schools, government withdrew almost a full dollar of state funding. This meant that total funding for the state university stayed the same. If Canadian governments play the same sort of financial shell game that U.S. governments play, then donors have to be on the alert. They should be glad that their private dollars are chasing mismanaged government dollars out of education and health. But they should also question politicians on where these liberated dollars are going. The slack that private contributors give to politicians in health and education may allow politicians to delay much needed reforms in other fields, such as pensions and unemployment insurance. Private giving to universities and hospitals should not be like a rabbit that disappears inside the government's magic hat.

Politicians could make themselves heroes by giving citizens more control than they have now over how their money is spent. Think of what would happen if citizens were allowed to earmark their tax dollars on their tax forms so that they could decide how much money hospitals or universities got. Conflict would disappear between voluntary donors and politicians who exploit their generosity.

Citizens would be in charge of both government spending and donations. If this is too rough a pill for our leaders to swallow, they might at least consider easing their hold on government monopolies. If these institutions suffered fewer government regulations they could offer us something new and interesting for our voluntary donations. A move in either of these directions would boost the power that individuals have to do good.

Further reading

Becker, Elisabeth and Lindsay M. Cotton (1994). "Does the Government Free Ride?" Journal of Law and Economics, 37:277-298.


You Don't Own Joe's Bar and Grill

John Robson

You don't own Joe's Bar and Grill, unless you are Joe. Simple? Perhaps. But if you aren't the owner, surely you can't walk in and help yourself to the contents of the till, decide to redecorate the place, give his workers a raise, or change the menu. Yet we do.

Lucien Bouchard paints out Joe's apostrophe. Activists hammer him with taxes and hand out the money to street people. Bob White tries to give all the employees a raise to at least $10 an hour. And the City of Toronto says that for the benefit of Joe's customers, his employees, and his own prosperity, he must ban smoking. All these proposals enjoy substantial popular support, so the general public does believe that they own the place, and that their representatives can make any rules they like about what happens in it.

The Ottawa Citizen reported approvingly that "More and more compelling evidence of the dangers of second-hand smoke, and the fact that most people hate their smoking habit, are the reasons behind the new tolerance for smoking bans, say no-smoking advocates."Ottawa Citizen, July 4, 1996, p. A3note Terry Corcoran responds that second-hand smoke is less dangerous than two pork chops a week. And I respond: if we are justified in coercing people for their own good because "most people hate their smoking habit," should we also lock people's fridges and perform compulsory plastic surgery because most of us wish we ate less and looked better?

It no more matters whether second hand smoke is carcinogenic than whether loud music is deafening or bacon is fattening. The real question is: should we let people wrestle with their own lives, dilemmas, and risks, exactly as though we considered them responsible moral agents, or should we take over their pitiful lives for them and strap them all into safety equipment before forbidding them to leave their houses?

The Globe's editorial page clouds the issue by saying "Smoking is still a legal activity. It may be a misguided pastime, but that's beside the point. Keeping it out of the office, shunting it to the back of the restaurant, exiling it from the shopping mall-these are fair approaches to the regulation of an offensive habit in establishments that all must frequent."Globe and Mail lead editorial, July 4, 1996, p. A18note

But offices, restaurants and shopping malls are emphatically not "establishments that all must frequent." If you don't like them, stay away. I myself do not agree with Gene Hackman's character in Crimson Tide who justified lighting a cigar by stating, "I don't trust air I can't see," and I generally don't go to bars because they expose one to second-hand smoke, loud "music" and fun, all of which I prefer to avoid.

But just as no one has to go to Joe's Bar and Grill if they don't like the atmosphere, no one has the right to stop people from going there, nor to wage war on their desire to do so. No one is deprived of any legitimate rights if this, or any other, commercial establishment happens not to be one they themselves would care to shop in or work in.

In a free economy, no matter how eccentric your tastes-and I speak from experience-someone will almost certainly offer to satisfy them commercially. But if not, you may not resort to force to make them do so. You are no worse off if Joe's Bar does not appeal to you than you would be if it did not exist, and you may no more force Joe to establish a bar and then run it to your tastes, than you may force him to change an existing one to suit you better.

I have no grievance because most corner stores sell only milk chocolate, and I can no more return with the cops and compel the owners to make wholesale changes to their range of merchandise than they can order me to buy what they have or go to jail. For the essence of a free market is to protect not producers' but consumers' freedom. To portray smoking as evil owners versus virtuous patrons and employees is just blowing smoke. The corner store sells what it does because people want to buy it, and Joe's Bar and Grill prospers because it satisfies customers' tastes. In consequence, any attack on the store's shelf-stocking practises, or on bars' or restaurants' smoking and other rules, is secretly an attack on the preferences of their customers. Even those who don't smoke must be happy enough with the place, for otherwise they wouldn't be its customers.

So the ban on smoking in private places, made even less honourable by fraudulently labelling them public, turns out to be simply an extension of the usual totalitarian impulse to use the police power of the state to make everyone behave the way you think they should, generally linked to a vacuous profession of absolute tolerance for anything one agrees with totally. The real "war on smoking" isn't on bars that inflict tobacco fumes on unwilling customers. It's on those customers, who don't behave properly and who don't want the things their self-appointed betters say they should.

The anti-smoking activists can already patronize and work only in smoke-free establishments, try to persuade other owners to change their policies through the lure of their custom, and attempt through peaceful persuasion to convince other citizens to join them in doing so. But no, that's not good enough for them. They have to change every bar in Toronto so that it behaves as though all its customers shared their tastes. They want the world, and they want it now!

NOWNOWNOWNOWNOWNOWNOW!

But they can't have it. They can't even have Joe's Bar and Grill. You see, it's not mine to give.

info@fraserinstitute.ca You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.

If you know someone who would be interested in this web page, please enter their email address below, and we will forward this URL to them: Email Address:

Last Modified: Wednesday, October 20, 1999.