February Questions and Answers

Joel Emes

Q: How does Canada's unemployment rate compare internationally over time?

A: Table 1 shows historical unemployment rates for several countries in the Organization for Economic Co-operation and Development (OECD). Canada's best position in the group shown is for 1995, sixth highest out of 14. This table highlights a major difference between Canada's recent economic condition and that of our main trading partner, the United States. In 1976 our unemployment rates were about equal (in fact, our rate was half a percentage point lower). Since then, our unemployment rate differential has deteriorated considerably to 4 full percentage points higher in 1995.
 
                   

Q: How long do people remain unemployed in Canada? How does this compare internationally?

A: In 1995, the percentage of unemployed people who were out of work for over a year varied considerably among OECD member countries, from 9.7 percent in the United States to 62.9 percent in Italy (see Table 2). Table 2 reveals the relative change in the incidence of long term unemployment within a country. Compared to Norway and many other European Community (EC) countries, the change in the incidence of long term unemployment in Canada is good. A more useful comparison, however, is with the U.S. and it shows that our performance regarding long term unemployment leaves a lot of room for improvement.

Q: How do North America and the EC compare on private sector versus public sector employment growth?

A: This month's graph illustrates some of the fundamental differences in North American (American, specifically, as Canada's economy is only one tenth the size of the US's) and European employment growth from 1973 to 1992. There were approximately 30 million more private sector and 5.5 million more public sector employees in North America in 1992 than in 1973. The private sector was responsible for 84 percent of all new jobs over this time period. In the EC, there were roughly 3.6 million more private and 5.1 million more public sector employees in 1992 than in 1973. The private sector in the EC accounted for only 41.1 percent of the total employment growth. In the U.S., fluctuations in unemployment have been mainly cyclical, with high inflows and outflows in employment. In the EC, inflows into unemployment have been relatively low, but outflows have been even lower.

Visual Difficulties are Impeding                                                 Health Reform in Canada

Bill McArthur, M.D., and Cynthia Ramsay

In terms of economic freedom, Canada rates high, relative to other countries in the world. On the whole, Canada and its governments value personal choice, protection of private property, and freedom of exchange. As a result, Canada is a high-income country and it citizens enjoy a standard of living and a degree of personal freedom that are the envy of many in the world. However, one area where the freedom of Canadians is severely restricted is health care. While demands for health care are increasing, governments have been reducing funding while at the same time making it virtually impossible

for Canadians voluntarily to pay more for their own health care. Canadian governments are tenaciously holding onto their monopoly over the delivery and financing of health care. As a result, Canada's health system is showing all the failings typically associated with monopolies: lagging technological innovation, consumer/patient dissatisfaction, and a restricted supply of available services. Given the pitfalls, why, then, are governments unwilling to relinquish their monopoly control over the system?

Visual impairments common to Canada

Double vision: monopolies are bad except...

Many people claim to understand that monopolies are expensive, inefficient, bureaucratic, unresponsive, and to be avoided wherever possible. They point to the former East Germany, Cuba, and Russia to illustrate that state run monopolies are undesirable. They explain how reducing government involvement in an industry is usually beneficial to consumers: deregulation of the aviation industry reduced air fares and increased service, and reducing government constraints on the telephone companies unleashed explosive growth and productivity in the telecommunications industry. In addition, most people believe that the only business in which the government should be involved is the business of governing. They would dismiss a proposal recommending that the production and marketing of food in Canada be taken over and run completely by government. The paradox is that many of these same people who reject the prospect of the government taking over farms and supermarkets will tell you that only a state run monopoly can provide quality health care. For some reason, they regard the health sector as inherently different from other service sectors. They fail to understand that the health care sector is influenced by the same rules of competition and market economics.

Tunnel vision: the health system in the United States is the only other health system in the world

For many people, advocating an increased role for the private sector in the delivery and financing of health care in Canada is advocating the United States' health system, a system they consider to be exorbitantly expensive and one that denies

access to a large segment of the population. They fail to take into account the high quality of care available to the poor and the elderly through Medicaid and Medicare, the greater amount of medical technology available in the U.S., and that Canadian governments often send patients to the U.S. for treatment when the waiting lists here get too long. Too often, Canadians looking to the U.S. see only the weaknesses of its health care system, and perceive it as the only alternative to our own. However, there are many countries, including the U.S., that offer many vibrant, practical, and affordable alternatives to much of what Canada does now.

Myopia: our current health care system can take us into the future

An aging population and expensive technological advances are placing an increasing burden on an already overtaxed health care system. Waiting lists for treatment will only get longer unless those who can afford to opt out of the public sector health care budget are given the freedom to do so. Unfortunately, the federal government has taken the view that allowing people to spend more of their own money on increased access to the health care system violates the central principles of socialized medicine. It refuses to permit citizens to enhance their access to care despite the fact that Canada sells health care to citizens of other countries, and in spite of the expressed willingness of many Canadians to spend their money on their health.

European corrective lenses

European experience shows that there is no inherent relationship between the existence of a private health care alternative and a lowering of the quality of health care available to the average citizen. The Swiss health care system has always had a private alternative, and the health status of its residents of all social classes is superior to that exhibited in Britain where, until recent reforms took place, socialized medicine had been in place for more than 50 years. The French and German health care systems both encourage access to private care for significant portions of their populations without any obvious negative impact on general access to treatment. In fact, the availability of private care actually enhances the care available through the public systems because of competitive pressure.

Britain's National Health Service

Canada's health system was modelled on that of the United Kingdom. If Canadian health reformers were to go to the U.K. today to look for models, they would find a system that is very explicit about the need to involve both public and private options. They would find a system that relies on market forces to extract performance from health care providers, and on competitive incentives to encourage more effective use of resources. In the U.K., the discussion no longer turns on whether to have a solely private health care system or a solely public one. Within the general context of a publicly financed health system ensuring access for all citizens, the need for private options is recognized.

Health care in Germany

The German health care system provides evidence that a private option does not necessarily adversely affect the quality of care available to public sector patients. About 10 percent of Germans are covered by private insurance, and while these patients must have incomes above roughly $60,000 a year, there is no evidence of any deleterious impact on the health care provided to those whose incomes are lower. The reality is that German doctors cannot run a practice on the basis of private patients alone, since they represent only one in 10 Germans.

Conclusion

The main justification for the government health care monopoly in Canada is that any other method of organization would produce a "two-tiered" health care system with one standard of care for the wealthy and another, lower standard of care for the less wealthy. Despite extensive research, we have not found a study that actually produces evidence that "two-tiering" would cause such problems. We have found, however, considerable evidence that no such differences in the quality of care would be produced. In fact, the overall quality of care improves for people in all socioeconomic groups when there is greater private sector involvement in health care.

There are a number of other reasons for seriously considering the addition of a private component to Canada's health care system: the most obvious is the fiscal pressures with which our governments are attempting to deal. We cannot afford universal health care. Even those who prefer the public health care option must recognize that private financing is preferable to further curtailment of service. In addition, a private health care sector would introduce competitive incentives to a system which, at the moment, has all the features of a monopoly.

Essentially, the key to efficient management of the health care system is the creation of an incentive system within which participants have the freedom to make rational choices. Nothing meaningful will be accomplished by institutional reforms as they do not take into account changes in individual behaviour. Just as personal freedom and freedom of exchange are vital to the health of a country's economy, they are also vital to the quality and longevity of a country's health care system.

Bibliography

William McArthur, et al., eds., Healthy Incentives: Canadian Health Care Reform in an International Context, The Fraser Institute: Vancouver, 1996.

Cynthia Ramsay and Michael Walker, Waiting Your Turn: Hospital Waiting Lists in Canada, 6th ed., The Fraser Institute: Vancouver, 1996.

James Gwartney, Robert Lawson, and Walter Block, Economic Freedom of the World: 1975-1995 (The Fraser Institute: Vancouver, 1996.




Toronto Megacity:                                                                            A Retreat from Common Sense

Wendell Cox

Ontario's Progressive Conservative government is poised to impose a governance structure on Toronto that violates the principles of its own "common sense revolution." Recently tabled legislation would make municipal government more remote from the people, and more expensive.

Like any other urban area, Toronto can be defined in a number of ways. There is the city of Toronto, with 650,000 residents. There is the regional government-the Municipality of Metropolitan Toronto (Metro), which includes six local governments: Toronto, East York, Etobicoke, North York, Scarborough, and York, with a combined population of 2.3 million. And, there is the Greater Toronto Area, which includes Metro and the regional governments of Durham, Halton, Peel, and York (popularly referred to as "905," after the telephone area code), and their constituent local governments, all of which contain a population of 4.5 million.

The government plans to amalgamate the six local governments and Metro into a single "megacity," hoping to reduce the cost of local government. The "905" regional governments and cities would escape amalgamation. But despite its sincerity and good intentions, the Harris government is about to make a mistake that is both costly and anti-democratic.

The megacity will dilute democracy. Smaller governments tend to be more accountable and responsive, because the individual citizen has a more powerful voice. For example, a voter's voice in a city of 100,000 population is 10 times as strong as in a city of 1,000,000. Further, as governments increase in size, processes and communications necessarily become more bureaucratized and rigid. They become less understandable to the individual citizen. With a less efficient and effective feedback system, the quality of government services is likely to decline.

Even more ominously, larger governments are more susceptible to special interests, which have the financial resources to hire lobbyists to learn, understand, and manipulate the complicated bureaucratic processes of larger governments. This puts individual citizens and neighbourhood groups at a disadvantage. Moreover, there are economies of scale with respect to political advocacy-it is simpler and less expensive for special interests to influence a larger government than multiple smaller governments. It is a simple truth that as government gets stronger, people get weaker politically.

The political disenfranchisement that accompanies mega-government has spawned a growing municipal secession movement. Examples are found in the two largest U.S. cities-New York and Los Angeles-and there are others.

It is not a victory for democracy to move city hall further away. To paraphrase Abraham Lincoln: Government of the people, by the people, and for the people, is government that is closer to the people.

A megacity will cost more: according to the Harris government, one of the most compelling arguments for a megacity is that it will cost taxpayers less. Unfortunately, virtually all of the evidence suggests the opposite. There is good reason for this. The potential savings from amalgamation come from a single source-the elimination of administrative duplication. For example, it has been said that the megacity will replace the present six fire chiefs with one. But as bureaucracies get larger, more, not fewer administrators will be needed. Ultimately, the new megacity is far more likely to add a mega-chief than to lay off five of the fire chiefs. The government's vision of bureaucrats standing in unemployment lines will inevitably give way to the reality of even larger bureaucracies.

But that's just the beginning. Amalgamation will set in motion much more expensive dynamics. The megacity will be forced to harmonize the level of public services throughout the previous six municipalities. Services will tend to migrate to the highest, rather than to the lowest or middle level, which will raise costs. But far more significant are the labour cost implications. More than 60 percent of municipal costs are employee related-wages, salaries, and employee benefits. Collective agreements will have to be harmonized, and they will be harmonized upward. And, in the longer run, the megacity will be susceptible to even more expensive collective agreements as trade unions exercise the special interest economies of scale characteristic of bigger governments. Surely the Harris government does not intend to strengthen municipal trade unions-but the megacity proposal surely will do so.

The relative inefficiency of larger municipal governments is not just theoretical. A wealth of data is available from U.S. sources. According to U.S. Census Bureau data, the per capita expenditures of cities over one million are 18 percent higher than those in cities of 500,000 to one million. U.S. counties of more than one million are 42 percent more costly than medium sized counties. Amalgamated city-county governments of more than one million spend more than double per capita the amount spent by smaller amalgamated cities. Larger school districts are more costly than medium sized school districts. U.S. Department of Transportation data shows that larger transit districts are 26 percent more costly than medium sized districts. And the U.S. experience also shows that costs rise inordinately during amalgamations. During the 1950s and 1960s, school districts amalgamated at an unprecedented rate-and costs per pupil rose at much higher rates than in previous and subsequent decades. The transit amalgamations of the 1960s and 1970s produced cost escalation considerably greater than that of U.S. health care. It is not surprising that virtually no academic studies have identified actual savings from government amalgamations. And it is equally unsurprising that the overwhelming majority of proposed municipal mergers in the U.S. have been soundly rejected by the voters.

As the megacity's costs rise, so will taxes. This will drive new and existing businesses from Toronto and will destroy jobs. Service quality will suffer, and Toronto could begin to lose its middle income resident base, a process well advanced in U.S. cities. To survive and prosper in the next millennium, Toronto needs to be more efficient, not less.

Recognizing that bigger government was less democratic and more expensive, Britain's Thatcher government dissolved the Greater London Council in 1986, placing all responsibilities in the more than 30 boroughs-no two combined equal the population of the city of Toronto. It further required local governments to tender services competitively. Similarly, conservative state governments in Australia have required their municipalities to tender services competitively. Savings have routinely exceeded the total costs of administration-many times the theoretical (though illusory) savings from amalgamation. If the problem is that of too costly local government, then the solution is not bigger government, it is competitive incentives-a strategy appropriate for any government that wishes to put public purposes and the people first.

One of the chief tenets of the "common sense revolution" is direct democracy-that the people should be able to decide important issues through referenda. Each of the six cities has scheduled a referendum on the megacity. This is especially appropriate in a nation with a tradition of submitting constitutional questions to direct democracy. But, in violation of its own principles, the Harris government has announced that it will ignore the results.

Around the world, democracy is ascendant, and governments are becoming more efficient through decentralization and competition. But not in Ontario. With substantial devolution of powers from the province to the municipalities, the megacity could become the largest North American local government outside the city of New York. With a population exceeding that of six provinces, residents of the megacity will simply be denied local government. Along with the megacity will come mega-bureaucracy and mega-taxes. It is a serious setback for democracy, efficiency and the "common sense revolution.")

[Wendell Cox's City of Toronto report can be obtained on the Internet at            http://www.city.toronto.on.ca/3wrd/cox.htm.]

The Educational Value of User Fees

Filip Palda

By now, Canadians will have received enough credit card bills to dispel any lingering Christmas cheer. A second blow falls in April, when Ottawa and the provinces demand payment for government services. Both types of bill raise our blood pressure, but at least credit card statements have instructional value. These statements are an itemized reminder of the consumer's monthly follies. It is sad to say, but pain, linked to an identifiable action, is a great educational tool. To avoid such pain, people learn to be smart shoppers. Tax bills give us no idea of where our taxes go. They are designed to minimize our knowledge, and stunt our ability to be smart shoppers of government services.

We hand thousands of dollars to government with little clue of what the money is buying. When was the last time your tax bill included an itemized account of government purchases on your behalf? In commerce such a situation would be considered unacceptable, and probably criminal. Imagine getting a phone bill without a list of your calls, or a utility charge without a statement of the electricity used, or a contractor's fee without seeing the receipts for labour and materials. When it comes to taxes, one of the biggest bills we pay, such a lack of detail is considered perfectly natural.

It is easy to see why politicians keep tax bills obscure. More detail might lead to public rioting. Imagine an elderly couple who graduated from high school 50 years ago. They now live from private pension income, on which they pay $10,000 a year of income, sales, and property tax. How would they feel to learn that 4 percent of their tax goes to funding higher education; and that this $400 is a gift to aspiring doctors, lawyers, and the two-thirds of university students who come from families with above average incomes? How would a worker toiling at minimum wage feel when he learned exactly how much he paid for the welfare cheques of able-bodied men and women, or for the subsidies that go to Canada's book publishing corporations?

The public mood would grow especially ugly if the Canada Pension Plan sent out estimates of what citizens can expect from it over the long term. The young would discover that they are financing the tail end of a Ponzi scheme, the end that pays for the benefit of earlier investors. It is little wonder that politicians do not dare send itemized tax bills. Such bills would bring home the reality that the better part of government spending is a shell game, in which tax money is mysteriously shuffled between citizens.

Vague tax bills may keep the public peace, but they also encourage Canadians to overfeed on government services. Ninety percent of government services come without any obvious price tag. Your Employment Insurance premium does not rise if you have a long history of unemployment, the way car insurance rises after even a single crash. Education and health can be had by simply walking through a school's or a hospital's door. This is the way it has to be if our leaders want to preserve their control over bloated governments. To clarify who pays what would anger Canadians and make them question their leaders. To make Canadians pay user fees for services would take away the politician's main tool: the ability to quietly redistribute money from the central tax pot.

This open buffet of government services makes smorgasbord thinkers of us all. At a smorgasbord you had better eat till your belly hurts. If you do not, someone else will benefit from the fixed price you paid to get in the restaurant. This is why people with a big appetite go for all-you-can-eat deals. The nice thing about such restaurants is that you can choose to stay away from them. Our present system of paying taxes does not give us a choice. We must all feast at the same table.

Professor John Matsusaka of the University of Southern California has studied what tax forms look like in U.S. states where citizens have a direct choice over

the types of taxes they pay. In states where citizens can put initiatives to the popular vote, taxes are $100 lower per head. Taxes are lower because citizens vote to have government charge a direct user fee for some services, instead of hiding the cost in general taxes. These citizens also vote to take control of finances away from the state level and bring it down to the community level. It seems that people like to see where their money is going. If Canadians were given the right to propose laws directly, they might start learning what they are paying for. This would be a big advance in our ability to be smart shoppers of government services.

Letters

Will the Market Really Address Faulty Software?

Dear Editor: Mr. Weller's article on faulty software in the September Fraser Forum dealt with a very serious problem. I am not sure, however, that his proposed solution-leave it to the market-is not a bit too simple.

All software has bugs. "Good" software has few and non-fatal ones; "bad" software has many, some fatal. Some bugs are forgivable (e.g. in some Mac/ Works sets, the spreadsheet forgets its format and has to be hand-nursed). Some bugs are fatal and unforgivable (such as presenting the user with the message, "Back end data base error" or "General protection fault," two Lotus 1-2-3 favourites, either of which terminates the run and from neither of which is there any escape).

The market can't really handle this. A developer or corporation may have committed heavily to a certain package for months or years before these bugs crawl out. Appeals to the supplier for help are only sometimes heeded but usually ignored (after all, they're two releases further on and the one you're using is a distant memory). Worst of all, those bugs are probably still in the new release.

Changing software is not as simple as trading in your automobile. Migrating complex systems to a new platform is agonizingly expensive and error-prone. Further, there is no Consumers Union Reports to help in choosing; software reviews in industry magazines tend to be superficial and emphasize the gee-whiz aspects such as fonts and the GUI [Graphical User Interface].

I've suggested to Lotus (with no response, as usual) that they take the approach Chrysler took in the 1950s to stave off bankruptcy when they introduced the then-revolutionary 50,000 mile guarantee; their software will work as advertised and as in the manuals or it will be fixed free. This might slow down the headlong rush to get the next release onto the market.

Most unforgivable of all is that the new release may not do correctly something (such as some Boolean algebra-1-2-3 again) that was working fine for 10 years.

I don't think the market can handle this; but if not, who/what can?

Frank Gue, P.Eng. Burlington, Ontario

Is the Murder Rate Really Down?

Dear Editor: The On Balance contained in your September 1996 issue of Fraser Forum discussed the decline in the incidence of homicide in Canada ["Murder Down for Fourth Year in a Row-CTV Coverage Up"]. I was disappointed that you would even pay lip service to the proposition that all homicide statistics began in 1976. I recommend that you review your 1995 Fraser Forum article by George Graham, and become reconnected with the idea that there have been three homicide regimes in Canada:
until 1967 when homicide was subject to capital punishment 1967 to 1976 when capital punishment was reserved for those who killed on-duty police officers and prison guards (although no executions took place) 1977 to present-no capital punishment

It is true that the homicide rate has steadily declined from 2.90 [per 100,000] in 1976 to 2.04 in 1994 (George Graham, "Capital Punishment No Deterrent?" Fraser Forum, May 1995, p. 21). However, to argue that this decline proves the abolitionists' point requires us to believe that the only meaningful homicide statistics occurred after 1976. Furthermore, we must ignore the advances made by medicine in the treatment of trauma. The abolitionists want us to believe that the level of homicides which prevailed before the experiment in abolition began are meaningless. This letter will argue that the abolition of capital punishment is a failed social experiment which should be ended.

Let's examine the three separate homicide areas. Between 1961 and 1967, when we still allowed the courts to have capital punishment as one possible punishment choice, the homicide rate never exceeded 1.5. This rate prevailed for five years following the last executions in 1962. Based on this observation, it would be logical to assume that the historic homicide level in Canada was at, or below, 1.5 homicides per 100,000 per year. The second era began with changes to the Criminal Code, in 1967. Under this new regime, capital punishment was reserved for murderers of on-duty police officers and prison guards. Despite the murder of several peace officers, there were no executions. Our homicide rate rose from the 1.5 level to 3.02, in 1975. Finally, in 1976, our current execution-free regime began. All subsequent "success" is measured against a homicide rate that had already reached a point twice the historic level! Using a bloated homicide rate as their benchmark, our politicians, the abolition advocates and social science "experts" dare to boast about the positive effects gained by banning capital punishment.

I submit that the success of this new social experiment should not be measured as it is, against the highest historic level of homicide, but against the long-term, historic average rate for homicide. When measured against this long-term average, Canada's experiment with the abolition of the death penalty is exposed as seriously flawed. First, the difference between the actual annual homicide rates and the rate of 1.5 indicates that nearly 5,500 Canadian citizens were murdered because the killer knew he would not be executed, even if he was caught and convicted. Second, we incur the cost of incarcerating convicted murderers. At $40,000 per year, a 25-year sentence is a spending commitment by our government to make each convicted murderer a "million dollar man." What other citizen in our nation is earmarked for the expenditure of a million dollars in public funding? Today we suffer from a homicide "plague" which could be cured by changing our Criminal Code to reinstate capital punishment for the most vile forms of murder. How many more innocent people have to die because our politicians lack sufficient intestinal fortitude to risk charges of political incorrectness and to do what simple justice and a majority of Canadians demand? To argue that capital punishment is not a deterrent to murder is simply a lie.

I would like to see a study begun to determine if the advances in trauma medicine parallel the "decline" in the homicide rate we have observed since 1977. I suspect you would find that the improved prospects for survival afforded by more highly trained paramedics, the increased availability of modern hospital emergency units, and the gains made in the treatment of trauma more than offset the claimed "decrease" in the homicide rate. In fact, I'm willing to wager that the actual murder rate, after discounting the effects of medical advances, has increased.

Jon Coates Halifax, Nova Scotia


Saving the Salmon from Destruction:                                  Markets to the Rescue

Laura Jones

There is a political battle brewing between Ottawa and Victoria over the management of British Columbia's salmon fishery. But neither the province nor the federal government offers a promising solution to the problems plaguing the fishery. As both governments fight to bolster political support for themselves, what is best for the salmon and the individuals who have a direct stake in the resource is, at best, a secondary consideration. Individual transferable quotas (ITQs), the solution which is most promising, is not being considered.

The strategy of the federal Department of Fisheries and Oceans (DFO) for saving the salmon is to buy back licenses and increase the restrictions on remaining licenses. The provincial government objects to the reduction in employment that these measures will cause. Both strategies promise failure. Restrictions on licenses has not worked in the past and one only has to look at Newfoundland and the collapse of the North Atlantic cod stocks to see the dangers of trying to maximize employment on the back of a natural resource. Fortunately, there is an alternative.

Individual transferable quotas (ITQs) are an alternative to DFO's restrict-the-amount-of-effort-that-goes-into-fishing style of management. Under an ITQ system, rather than indirectly trying to control the number of fish caught through license limitation, fishing area, time and gear restrictions (also known as effort restrictions), participants are given the rights to a proportion of the total number of fish harvested. The evidence is clear. ITQ management has successfully resuscitated fisheries on the edge of collapse in many countries.

It is time for the stakeholders in this country to face some hard facts. In addition to the looming conservation crisis, the salmon fishery is an economic disaster. In 1994-95 approximately $3.4 million was generated from commercial salmon license fees, while at least $49 million was spent managing the salmon fishery. The current way of life in the fishery cannot be maintained without continuing increases in taxpayer subsidies. Unemployment payments to B.C. fishers have risen steadily over the past decade. Estimates from Human Resources Development Canada indicate that $1.85 is paid out for every $1 in premiums collected in the Pacific Region fishing sector.

The ITQ solution is economically viable. It would allow for sustainable employment in the fishing industry by putting conservation first and short term employment goals last. This option takes away the uncertain "lottery" component of fishing and replaces it with the certainty of a proportion of the catch. As the allowable fish entitlement is set beforehand, larger profits can only come from keeping fishing costs low and by improving marketing. This benefits not just the fishermen but the consumer. Quotas would foster longer fishing seasons, make fishing safer, increase the price that fishers get for their catch (as they can sell fish fresh rather than frozen), and end allocation disputes.

ITQ management has saved fisheries that were on the verge of collapse elsewhere. Since ITQs were introduced to Iceland's failing herring fishery in 1975, catches have increased almost tenfold, and the fishery is more efficient-a greater number of fish are being caught with fewer boats.

Closer to home, the halibut fishery in B.C. was facing six-day-long seasons in 1990 until the introduction of quotas extended the season to 214 days in 1991. Prices increased by about $1.00 per pound in 1992 because fishermen were able to land fish fresh. At the end of the trial period for halibut quotas, 91 percent of the fishermen voted in favour of continuing the program. Any politician receiving 91 percent of the vote would treat it as an overwhelming endorsement of his or her program.

Quotas would fundamentally change the nature of the fishing game. But whether they are introduced or not, the nature of the game will change. The current path will see the inexorable depletion of the resource. In the end, no fish means no fishing industry.

A recent report by Dr. Art May to the Minister of Fisheries and Oceans on intersectoral allocation calls for ITQs in the salmon fishery. It is time to move beyond the political rhetoric coming from Victoria and Ottawa and implement ITQs, which have helped save fisheries facing similar problems in Iceland, Australia and New Zealand. If we in Canada want to have a viable fishing industry, we should follow the recommendations of the report and implement ITQs on a trial basis.)

What Does it Mean to be Rich?

Chris Sarlo

My research has focused attention almost exclusively on the bottom of the income distribution. What about the other end? What does it mean to be rich, in a material sense, in Canada?

Defining "rich" turns out to be no easier than defining "poor." For both concepts, there will be some who prefer a relative approach and others, such as myself, who prefer an absolute approach. A relative approach defines someone as poor (or rich) if they have substantially less (or more) income or resources or consumption than most others in the society in which they live. An absolute definition of "rich" is not nearly as symmetrical as the relative approach. With poverty, someone would be classified as poor if they cannot afford (or cannot otherwise acquire) all of the basic necessities of everyday living at a standard of quality deemed minimally acceptable in the society in which they live. The rich, to be consistent, would be so classified because they can afford much more than basic needs. They would be far removed from the poverty line. How far removed would be purely an arbitrary choice. A value set at somewhere between six and ten times the absolute poverty line, however, seems to conform to current notions of "richness."

An example of a purely relative poverty line, using gross income as an indicator, would be a cut-off set at half the average income. Thus, a relative cut-off for the rich might be set at twice the average income. In 1994, the average family income ranged from $45,339 for families of two persons to $66,005 for families of five or more. There were 1.63 million families, 20 percent of all families in Canada, living on reported incomes less than or equal to half the average. In that same year, there were 501,000 families, or 6 percent of the total, that would be classified as "rich" in relative terms.

The problem with the relative approach to measuring the poor or the rich is that economic growth, by itself, will have no impact on either. This is because the relative approach really only informs us about inequality. If everyone's real living standard doubled over a period of time, the number of relatively rich and relatively poor would not change because everyone is still in the same relative position. This confounds our common sense. Economic growth and improved living standards should reduce the number of poor and should increase the number of rich. For this reason primarily, I prefer an absolute approach.

An example of an absolute poverty line would be a cut-off set at the actual cost of range of basic needs (such as nutritious food, apartment accomodation, clothing, essential furnishings and supplies, personal hygiene and health care needs, telephone, and essential transportation) varied by family size. In 1994, my own calculations of basic needs poverty lines, rounded to the nearest thousand were: $7,000, $10,000, $13,000, $16,000 and $19,000 for households of size one through five or more respectively. In 1994, there were about 290,000 poor families in Canada or about 3.5 percent of the total. If we use a poverty line multiple of six to define "rich" (although a case could be made for a somewhat higher multiple), the rich threshold for the average family would be about $82,000 in 1994.

What is noteworthy is that, when we measure it in absolute terms, there are many more "rich" families now than even a generation ago. In 1961, only about 2.8 percent of families had incomes over $82,000 (in equivalent 1994 dollars). By 1994, 16.4 percent had exceeded that threshold. This is a remarkable achievement due entirely to strong economic growth and market opportunities for those willing to work hard. Now many more families are able to enjoy the "good" life available to just a few in the 1960s. Indeed, an income above this threshold is a realistic goal for most Canadian families.

If we use this particular family income threshold of "richness," connected as it is to the absolute poverty line, we find that rich families in Canada have certain characteristics that clearly separate them from other families (see table 1) and yet also share some characteristics with others.

Trade Unions Versus Trade

Michael Walker

As Team Canada landed in Seoul, Korea, to begin its export promotion tour, the press coverage was marred by demonstrations that had been launched by Korean trade unions protesting a recent change in Korean labour law. The Canadian media's focus on Seoul as the starting point for Team Canada has meant that this issue has been widely reported in Canada. The question is, should Canada take the opportunity of the trade mission to object, and demand that Korea adopt Canadian-style labour codes?

To some extent this is, as Yogi Bera used to say, deja vu all over again. When Team Canada went to India last year, the media focused on labour practices there, particularly child labour. It took the intervention of a Unicef worker from Canada to point out that the Indian economy is still trapped in the clutches of the last century and, as it was then in Canada, child labour is often a preferred alternative to what might otherwise be the consequence for many children and their families. Foreign Minister Lloyd Axworthy recently confirmed that trade sanctions against India, proposed by organized labour, are not the solution to this problem.

The coverage of Korea's labour demonstrations may also create a misimpression in the minds of Canadian observers not aware of that country's background. As I found out recently in a discussion about this topic on CBC television with Bob White, president of the Canadian Labour Congress, many people are ready to assert that developments in Korea imply that the rights of workers there are being ignored. While the recently democratic Korea has a considerable way to go in providing a full range of civic and political freedoms, recent developments there are about a different agenda-one that is familiar to Canadians.

First, it is important to realize that Korea has had a relatively benign labour market experience. Following the democracy movement in the 1980s, the number of trade unions tripled between 1986 and 1990. The number of union members also increased, but has been declining since 1990. The percentage of permanent employees who are unionized has fallen from 20 percent in 1989 to 14.5 percent in 1995. During the same time, there has been a steady decline in the amount of work time lost due to labour disputes. During 1995, 393,000 work days were lost in work stoppages. That compares with 7.2 million days lost in 1986.

Second, trade unions and employers have agreed in the past to lifetime employment agreements that have made it very hard for Korean businesses to down-size as the markets for their products become more competitive. Adjustments which the Canadian Auto Workers and American Auto Workers unions have long permitted to North American automakers are the focus of the current difficulties in Korea. But there is a more important issue for Korean trade unionism, and that is its very survival-in this regard, Korean trade unions are no different from those in any of the other industrialized nations.

Korean trade union leaders, just like Bob White in Canada and the head of the AFL-CIO in the United States, face a steady decline in union membership in the private sector. Private sector unionization has fallen to about 10 percent of the U.S. workforce and is at about 15 percent in Canada. Korea's 14.5 percent is therefore typical. What is not typical is the steep gradient that exists between the workers who are unionized and work for large industrial concerns like Hyundai, and those who work for the smaller firms which supply their parts. The latter firms are intensely competitive and productive. Large firms, on the other hand, have suffered steadily declining productivity but have retained their relatively high wages.

Given the sharp divide between the unionized large firms and the non-unionized smaller firms, it is not unexpected that the trade unions would, with the full support of their members, press to retain their grip on the choice jobs. In Canadian terms, the correct image is that of members of the Canadian Union of Postal Workers using picket line violence to stop other workers from getting access to jobs that they are willing do for wages that the postal workers reject. The only difference is that the wage gap in Korea is much larger.

The other key difference between Korea and Canada is the fact that public servants in Korea-except those working for government-owned enterprises-are generally not permitted to join unions. Only 6 percent of public servants, mostly labourers, are union members. By contrast, most public servants in Canada are union members, and growth in public sector membership is the mainstay of the union movement.

So, should Canada take the opportunity of trade discussions to complain about the labour developments in Korea and press for more public sector unions and the preservation of the power of large-firm unions? To ask the question is to answer it.

Institute News

Brian April

Nineteen ninety-six was another highly successful year for the Institute, both in terms of impact and organizational growth. We continued to increase our media exposure dramatically, from 2,053 "hits" in the Canadian media during all of 1995 to over 3,000 during the first eleven months of 1996. That equates to roughly nine mentions of the Institute in Canadian media every day. As well, the Institute's web site has been extraordinarily successful. During 1996, 17,553 visits were made to our site, and 268,780 pages of text downloaded. Increasing numbers of Canadians, therefore, are reading and hearing the Institute's analysis and recommendations.

The Institute's publishing program had another successful year, both at home and abroad. Our biggest sellers this year were Economic Freedom of the World: 1975-1995, Youthquake, Healthy Incentives: Canadian Health Reform in an International Context, and Money and Markets in the Americas. The first of these, in particular, had a tremendous impact, and has been translated into Spanish by another organization participating in the Institute's international economic freedom network. Over the years, many Institute books have been, or shortly will be, translated into 14 languages and sold in 47 countries.

Finally, the Institute is pleased to announce that Dr. Owen Lippert will be rejoining us to direct the Law and Markets Project.)

Callous Conservatives versus Caring Liberals

Walter Williams

The Republicans want to re-examine health and safety regulations and require the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA) and other regulatory agencies to make a cost/ benefit analysis prior to making regulations. President Clinton and other liberals have accused Republicans of callously disregarding the health and safety of America's children. That's nonsense. It's liberal regulatory excesses that beg for relief, and here's just one example why.

Mrs. Cleaster Mims is founder and director of Marva Collins Preparatory School of Cincinnati. It's a private school with a student body of 185 mostly low- and middle-income black students enroled in grades K-8. Virtually all of her students score at-and in some cases, two, three and four years above-grade level. The school radiates with discipline, love and high expectations. Scores of students are on her enrolment waiting list.

To meet the demand for Marva Collins' superior-not to mention safer-education, Mrs. Mims has started a campaign to raise money to purchase a $450,000 former nursing home that will allow her 500-student capacity and provide facilities for a few boarding students. While quite a bargain, the building is in need of repairs and alterations that could easily raise the price tag to close to $1 million. To raise that kind of money is a daunting challenge in and of itself, but regulations created by "caring" liberals could easily put her mission entirely out of the question.

Because of the building's age, asbestos and lead paint are present. But according to Cincinnati architect William Miller, who made an inspection of the building, "The materials are sound and non-hazardous by prudent reasonable standards of safety." He concludes that only relatively minor repairs need to be made to address existing asbestos and lead paint hazards.

But when have you heard of OSHA and EPA being reasonable? Miller estimates the combined cost of regulatory mandates for asbestos and lead paint removal could add as much as $200,000 to the renovation. Then, there are close to 200 doors in the building. To bring them up to Americans with Disabilities Act (ADA) mandates and construct ramps and meet other requirements might add another $150,000 to costs.

Mrs. Mims' plight is a result of the liberal vision of the world. Liberals see only benefits from regulations and ignore costs. Sure, it would be wonderful if the 500 students at the new school had zero risk of asbestos and lead paint hazard. It would be wonderful if a wheelchair-bound student, who might enrol, would find no physical impediments. That's the wonderfulness of OSHA, EPA and ADA regulations. On the other hand, the costs of those regulations are borne by their invisible victims, the 500 black students who will have to forego a better and safer education. You can bet the rent that the hazards of government education are far greater than those posed by asbestos and lead paint in the building Mrs. Mims wants to purchase.

All's not lost. Mrs. Mims is a woman who knows no false pride and has boundless energy. she is willing to beg and cajole and plead with these federal and state agencies. But we might want to ask who is more callous: politicians who support regulations that make Mrs. Mims' dream of a better education impossible, or those who want to make those regulations more sensible?

Hands Up! Your Money or Your Life!

John Robson

Well, that's a fair offer. Say what? It's not an offer? What do you mean? I want you to raise your hands voluntarily, and contribute your money to a worthy cause, namely, me. And if you don't, I'm going to shoot you. Voluntarily, of course. That's the Canadian way.

Mad? Criminal? This is mainstream! For instance, in the Toronto Star last Hallowe'en (an appropriate date for it), columnist Thomas Walkom explained that "MDs face stick because carrot didn't work." Apparently the Ontario government was going to have to force doctors to go hang out their shingle in Pickle Crow and other remote and unappealing locales because they didn't go there voluntarily. The idea was that if they went voluntarily the government wouldn't force them to, but if they didn't, it would. [Toronto Star, October 31, 1996, p. A23] I consider this just the tip of a very nasty iceberg.

In another example, also last fall, Ontario's Intergovernmental Affairs Minister Dianne Cunningham told the press with a straight face, and they reported with a straight type face, that the Ontario government might have to expand its bike helmet law to those over 18. She explained that "One of the reasons I think we didn't legislate for adults is that they said they would wear them without legislation. We may need legislation for adults." [Toronto Star, October 17, 1996, p. A2] The idea was that if they wore them voluntarily, the government wouldn't force them to, but if they didn't, it would.

Okay, that's two public officials. Then there's the rather eccentric decision by Richard Bargen, the now ex-chief medical officer in the districts of Baffin and Keewatin, to use his most drastic emergency powers to ban all smoking in public places (read: private places other than homes) in the Eastern Arctic. This is dubious as health policy, since I can't think of many less healthy acts than smoking a cigarette outside in 50 below weather. But it's worse as political philosophy. You see, Bargen said they would try to persuade owners of hotels, bars and "other operators of public places" to cooperate voluntarily, but if they didn't, they'd be hit with thousands of dollars in fines. "`No one is going to be coerced,' he said. `That just doesn't work up here.'" [Globe and Mail, August 2, 1996, pp. A1, A3] The idea was that if they banned smoking voluntarily, the government wouldn't force them to, but if they didn't, it would. (He got sacked, but for going too far too fast, not for going in the wrong direction entirely.)

The reason for this increasingly bizarre use of language is increasingly bizarre thought patterns. Commentators as well as politicians are increasingly unable even to comprehend economic freedom, let alone articulate its justification and defend it. The Globe's Jeffrey Simpson, for instance, reacted to Stephen Harper's assumption of the Vice-Presidency of the National Citizens' Coalition with a January 17th column asking him to attack private sector salaries as vigorously as the NCC has attacked public pensions. Not even Simpson, who is no fool, seems to understand any more that citizens are free to deal or not deal with banks and other corporate entities and that the economic freedom of the citizens protects them from exploitation, while government takes away your freedom, and if you don't like the outcome, you can lump it. I don't mean he doesn't agree with the argument, though apparently he wouldn't. I mean he doesn't seem to be aware of it, and presumably nor are his readers. Likewise, the politicians don't seem to think that their conduct requires justification.

But ideas, as Richard Weaver so famously argued, have consequences. Certain beliefs, whether articulate or inchoate, lead to certain actions, and to a large degree, the reverse is also true: if we act in contravention of certain beliefs for long enough, we cease to hold them. For a long time in Canada, and in North America generally, we have refused to accept the implications of the idea that government is force and that therefore any action by government involves a deprivation of liberties. One such implication that we have ignored is that any proposed government action is guilty until proven innocent. It may or may not be legitimate in any given case depending on whether the benefits outweigh the costs. But as liberty is good, deprivation of it is bad, so each deprivation requires explicit justification . . . or ought to.

Another major implication, equally ignored, is that if government is force, then anything that cannot be done by force cannot be done by government, no matter how desirable it would be if it happened spontaneously. Since one cannot make people cooperate by force, we should not try to get them to cooperate through government even if it would be good if they did so.

So far are we from grasping and acting on this, however, that force is now our first resort. Every time we get the idea that it would be nice to get together voluntarily and do something good, we immediately use the state to force everyone to do it. Care for the poor? Welfare. Care for the aged? CPP. Care for the sick? Canada Health Act. Manufacture high-tech products? Scientific Tax Credit. Have good theatre? Cultural subsidies. Throb with linguistic vitality? Commissioner of Official Languages. There isn't a problem, at this stage, to which we don't seek a government solution. But government is force, so there is no longer any problem we don't try to solve by force. And that means we keep giving up economic freedom.

One result, of course, is that generally we make our problems worse not better, since economic freedom and the good things its exercise brings are precisely the purpose of good government. Another is that by insisting on calling government action community, voluntary, an expression of our highest nature and collective will, the paramount expression of our compassion, and so forth, we have lost the ability to tell cooperation from coercion. We whack someone with the policeman's truncheon, and then say "Thank you for sitting down." We take their taxes at gunpoint, and say "Thank you for contributing." We force people to pay into the Canada Health Act, force them not to purchase listed services from someone outside the plan, and then say, "Look, everyone supports it. They've all joined!" We call force persuasion, like some hideous vision out of Orwell's 1984. Finally we can't tell persuasion from force at all anymore.

The ultimate irony is that our frustration with government is rapidly becoming our main public problem, and it sure as heck isn't going to be cured by more government. It is a problem we cannot even begin to solve until we understand what economic freedom is and why it is important.

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.