June Questions and Answers

Joel Emes

Q:What is the definition of "the debt" that we hear so much about?

A:When newspapers and governments talk or write about "the debt," they are usually referring to "net direct debt." Gross direct debt is the total amount of money owed by a government. Net direct debt is calculated by subtracting the value of financial assets that a government owns from gross debt. An all-encompassing measure of what Canadians owe, "total liabilities," is presented in The Fraser Institute's annual debt study. [Jason Clemens, Joel Emes, and Michael Walker, "Canada's All Government Debt: A Guide to the Present and Future Indebtedness of the Government of Canada and the Provinces," Fraser Forum Critical Issues Bulletin, The Fraser Institute, 1996. These questions and answers borrow considerably from this publication.] Total liabilities include net direct debt as well as net indirect debt and obligations. A government's net indirect debt refers to the debt of quasi-government entities for which the government is ultimately responsible. Obligations are programs and benefits that a government has committed to provide in perpetuity. Examples include the Canada Pension Plan, Workers' Compensation Boards, and civil service pension plans. The "Question and Answer" in the January 1997 Fraser Forum lists total liabilities by province for 1996. The 1997 debt study will be available in the fall.

Q:By how much has the debt of the provinces and the federal government increased over the last few decades?

A:Table 1 and this month's graph show how net direct debt has changed from 1969/70 to 1994/95. Provincial debt has at least doubled in every five year period since 1974/75. However, on a more positive note, no western province had debt until after 1975 and Alberta was still debt free in 1990. The growth in total debt has slowed since 1994/95 as the federal deficit has been reduced and provincial deficits have been eliminated or reduced. Table 2 shows the increase in debt as a percent of GDP. The negative signs in the first six columns represent debt as a share of GDP, while positive numbers represent financial assets as a share of GDP. For example, Saskatchewan had no debt until after 1985. The federal government racked up the largest increase in debt-over 50 percentage points-from 21.4 percent of GDP to 72.1 percent in only 25 years. Saskatchewan, Quebec, and Nova Scotia have increased their debt-to-GDP ratios by more than 30 percentage points while Prince Edward Island actually reduced theirs, although from 1990 to 1995, PEI's debt-to-GDP ratio has increased by 13.9 percentage points.

Q:How big is the current federal deficit and how does it compare with historical ratios?

A:The 1997 Budget Plan from the Department of Finance shows a budgetary deficit of $17 billion for 1997/98, or two percent of GDP. Between the fiscal years 1926/27 and 1995/96, the federal deficit-to-GDP ratio has ranged from 0.10 percent in 1937 to 22.65 percent in 1943. During this time, there were also surpluses: they ranged from 0.16 percent in 1965 to 5.44 percent in 1947. The ratio had consistently been greater than 3 percent from 1975/76 to 1995/96. Every decade from the 1930s on has seen the government of Canada on average spend more than it took in (see table 3).

Drugs and the Intellectual Property Debate

Owen Lippert and William McArthur, MD

On April 17, 1997, the House of Commons Industry Committee finished its four year review of the 1993 amendments to the Patent Act, known as Bill C-91. Among other things, Bill C-91 gives a full 20 years of protection to all patents including those held by brand-name pharmaceutical companies. The committee in its April 25th report did not endorse any changes to the key elements of Bill C-91, either to weaken or to strengthen existing intellectual property protection. Its members appeared not to want to get caught in the middle of a fight between drug companies, provinces, activists demanding lower drug costs, and proponents of property rights. Too bad. We need a public debate on the protection of intellectual property-in particular regarding pharmaceutical drugs.

In 1993, Canada accepted the international standard for the protection of intellectual property rights (IPR); that standard has now advanced and it's time we updated the legislation.

Prior to 1993, Canada had a poor record of defending intellectual property rights. In 1969 with the passage of Bill C-102, we "nationalized" the intellectual property of international drug companies through "compulsory licensing." Domestic generic drug companies could manufacture and sell a generic copy of a drug only 10 years after it was patented, and pay only a token royalty.

The government justified its actions as consistent with the intellectual property policy discussion of the 1960s that focused on how to capture for domestic industries the "spillover" from international intellectual property. The argument went that Ottawa had to correct the "market failure" of a potential monopoly by foreign drug companies.

By 1993, however, Ottawa finally appreciated what the Encyclopedia Britannica states clearly: "a patent is recognized as a species of property and has the attributes of personal property. It may be sold (assigned) to others or mortgaged or may pass to the heirs of a deceased inventor." Intellectual property is property no less than your house or car.

Yet the issue is not resolved. The generic drug companies continue to argue that weakening intellectual property rights will create competition, and, as a result, lower drug prices. Never mind that such competition would not be based on companies producing better or cheaper drugs. It would be based on the government coercing certain drug companies into giving up control of their products so that other companies could make cheaper versions of them.

Self-appointed activists, such as the Council of Canadians, have taken up the cause of weakening patent rights, but not just because they see it as a way to lower drug prices. They're also intrigued by the notion of undermining Canada's support for various trade agreements. Bill C-91 was designed to satisfy the GATT Agreement on Trade-Related Aspects of Intellectual Property Rights and the North American Free Trade Agreement. NAFTA, along with the recent free trade agreements with Chile and Israel, has boosted Canada's reputation as an advocate of freer trade and an impartial mediator. Canada could not go back on compulsory licensing without violating these agreements. And why would we want to? Once a struggling colony, we are now one of the great exporting nations, and many of our exports contain significant intellectual property content. How would we react if developing countries started selling knock-off versions of automobile parts made in Oshawa, Bombardier jets, Nortel switches, Corel software, MacMillan Bloedel Parallam, and McCain's Pizza Pops?

Even in terms of capturing "spillovers" from other countries' intellectual property, we would lose. We gain our most valuable benefits from the US, which is one of the world's most vigourous legal protectors of Intellectual Property Rights (IPR). Why would we undermine this unique access just as American and other companies are investing more research money in Canada because of our sensible tort liability laws, competent hospitals, and skilled physicians and technicians?

The generic companies and other such interest groups don't really appear to be winning the debate, but they do provide "political cover" for a far more potent special interest group-government itself. As provincial governments find themselves caught between their responsibilities as the monopoly funders of health care and their own financial limits, they must reduce rising costs, be it by capping doctor salaries or by restricting patients' access to prescription medicines. [It is noteworthy that higher drug prices have not fuelled the overall rise in drug costs. The culprit is usage, as one would expect with an aging population. Since 1987, the prices of patented medicines have risen, on average, slower than the rate of inflation. In 1995, average prices for patented medicines declined by 1.75 percent as compared to an increase of 2.14 percent in the Consumer Price Index (CPI). The price of most drugs is either staying the same or actually declining.]

Property rights are now acknowledged by economists as a critical prerequisite for economic growth. As noted in the March 1, 1997 issue of The Economist, "for markets to work well, an economy requires a complex web of effective institutions, from basic property rights and well-run legal systems to effective and uncorrupted bureaucracies.... Countries where property rights are weakly enforced, where the rule of law cannot be counted on and where governments are corrupt tend to grow more slowly, even if they claim to give their citizens' capitalist impulses free rein." The empirical evidence shows that there is a strong positive link between enforceable property rights and economic growth. For instance, The Fraser Institute's book Economic Freedom of the World: 1975-1995, presents an in-depth investigation of the amount of economic freedom enjoyed by over 100 countries world-wide.

To improve the economic advantage we gain from strong intellectual property rights, there are three things we should do:

1.adopt patent term restoration (PTR),

2.legally entrench the linkage regulations that control the "early working" of patented drugs by generic manufacturers, and

3.overhaul the substantive and procedural law affecting intellectual property litigation.

Patent Term Restoration

First and foremost, Canada should enact a PTR law. Simply put, PTR compensates inventors for the time government spends approving their product. Generally, pharmaceutical companies try to file their patents as soon as possible in order not to get "scooped" by a competitor. Yet filing a patent does not give the company the right to sell a drug. There is a patent review, then a Health Department review, and finally clinical tests. All this can take up to 12 years in Canada. During this time, the clock on the patent keeps ticking, reducing its effective life. PTR gives back some of the time consumed by the regulatory review and clinical trials, usually up to a maximum of 5 years. The US, the European Union, and Japan have all passed PTR laws. Canada should do the same. A PTR law would strengthen the existing incentive to innovate in Canada.

Linkage regulations and interlocutory injunctions

Critical to Bill C-91's economic virtue was the "linkage" of patent rights to granting permission to generic companies to copy a drug. The bill required the Ministry of Health to withhold approval of a generic drug until the company could prove that it was not infringing on an existing patent. This stopped the common practice of generic companies selling a copied drug before its patent had expired. Such abuses occurred because brand-name companies had little chance of winning an infringement suit in less than five years. (Other regulations in 1995 also granted a minimum period of five years of exclusivity for a patentee's confidential information, thus reducing the time available to generic companies to copy a drug before its patent expires: this is known as "early workings.") The Industry Committee did recommend examining the linkage regulations. Here are some positive suggestions.

Overhauling the laws affecting intellectual property litigation

Because the linkage regulations are not actually included in the act, they can be repealed by Order in Council at any time. Linkage regulations should have the clear strength of law by being included in the Patent Act. Moreover, since current linkage regulations are unclear and complex, they encourage litigation. Small wonder that such cases now clog the Federal Court of Canada. To achieve clarity and simplicity, the linkage regulations need the scrutiny which the legislative drafting process can provide. Another route to the same end is for the Federal Court to issue more interlocutory orders (court orders made while the negotiation continues) to prevent the sale of a drug while a patent dispute is in court. This approach has merit, but also a lot of complications. The inconsistency of Federal Court rulings on this practice suggests that the issue cannot be resolved in isolation from a much-needed overhaul of Canada's intellectual property law.

Overall review of intellectual property protection in Canada

After a recent survey of Canada's intellectual property laws, one Department of Justice lawyer commented, "If the Criminal Code were written like Canada's intellectual property laws, it would be unconstitutional." Many observers agree that the first Intellectual Property Improvement Bill enacted in May 1993 did little to end legal "rent-seeking" created by an overly complicated set of laws. We need simpler intellectual property laws.

In 1991, shortly before his death, the distinguished lawyer Gordon Henderson, Q.C., presented a review of intellectual property laws, commissioned by the federal government. Though parts of the Henderson Report made it into the 1993 bill, most of his recommendations were never fully considered. But the scope of his report presents an outline for the kind of reform that is necessary. It is disheartening, then, to read in the Canadian Intellectual Property Office's letter of February 14, 1997, inviting comment on a possible second intellectual property bill, that "As was the case for the first Intellectual Property Law Improvement Bill, it is proposed that this bill would focus only on issues that are not likely to generate significant controversy." Bluntly, there is need for "significant controversy." Even if intellectual property laws seem obscure at times, they involve the fundamental issues of property rights, the rule of law, and Canada's place in the world. Surely these are things worth talking about.

Economic Growth and Free Trade Are Not Dirty Words

Laura Jones

Capitalism, economic growth, and free trade are favourite targets of radical environmentalists. Despite the tremendous improvement in environmental quality that high income market economies have achieved over the past 30 years, many environmentalists continue to insist that growth causes, rather than solves, environmental problems. International trade is an additional target as markets continue to be more global in nature. Many greens claim that developed countries achieve high income levels and higher domestic environmental quality by "exporting" pollution to less developed countries. According to Michael M'Gonigle, a long term Green-peace activist, "the market-the very nature of the free market-is inherently anti-environmental. Free trade and the growth mechanism ... we can tag all the environmental caveats [onto them] that we want, but the direction of ever increasing free trade is by its very nature, anti-environmental." [Michael M'Gonigle, as quoted in Stephen Dale, McLuhan's Children: The Greenpeace Message and the Media, Toronto: Between the Lines, 1996, pp. 51-2.]

The dogmatic opposition to progress and prosperity expressed by many environmentalists is partly responsible for the public perception that there is a trade-off between economic growth and environmental amenity. In turn, the belief that free markets, economic growth, and free trade are inherently anti-environmental leads to a desire by environmental activists and governments to increase regulations and restrict trade in an attempt to reduce economic activity. Sadly, these measures do more to harm the environment than protect it.

Market-based economies have a better track record than planned economies at protecting the environment precisely because free market economies encourage innovation, wealth creation and trade. The higher income that follows creates a demand for cleaner air, cleaner water, safer waste disposal, and species and habitat protection. As a country moves beyond the stage in its development where people are only meeting their basic needs for food and shelter, the environment starts to become a priority.

Critics of economic growth claim that increasing production leads to increasing incomes, consumption, and pollution. What these critics fail to understand is that when per capita incomes increase, it is not just the demand for goods like toasters and automobiles that increases, but also the demand for environmental amenity. This demand is expressed in a variety of ways including increasing contributions to groups who promise to protect the environment, a willingness to spend more on goods produced in an environmentally sensitive fashion, pressuring politicians and producers to consider the environment in their decision making process, and changing personal behaviour in order to reduce environmental impact.

Producers respond to consumer demand by changing their production techniques and producing more environmentally friendly goods. But it is not just the changing tastes of consumers that leads producers to clean up their act. The competitive nature of free markets and free trade mean that producers are continually investing in newer, cleaner technology to improve productivity and profits. Economic growth gives producers the means to invest in new, cleaner technology, and free trade accelerates its diffusion.

Several recent studies support the idea that higher incomes lead to less pollution. According to the World Bank, pollution rates for particulate matter and sulphur dioxide begin to fall at per-capita incomes of US$3,280 and US$3,670 respectively. [Indur Goklany, "Richer is Cleaner," The True State of The Planet, Washington: The Competitive Enterprise Institute, 1995, p. 342.] Fecal coliform in river water declines after a per capita income of US$1,375. Access to safe drinking water and the availability of sanitation improve almost immediately as incomes rise. Another study done by economists Gene Grossman and Alan Krueger finds that most indicators of pollution start to fall before a country reaches a per capita income of $8,000 (1985 $US). [Gene Grossman and Alan Krueger, "Economic Growth and the Environment," The Quarterly Journal of Economics, May 1995, p. 370.]


Further evidence of the link between economic growth and environmental quality comes from developed countries. If economic prosperity is the problem, one would expect countries with high per capita incomes, such as Canada and the United States, to have high levels of pollution. These countries, however, are far beyond worrying about the worst environmental problems facing developing countries, such as deforestation and access to safe drinking water and sanitation. In addition, the relatively high level of environmental quality in high income countries is improving at an impressive rate. A recent Fraser Institute Critical Issues Bulletin, "Environmental Indicators for Canada and the United States" shows that overall environmental quality has improved 15.6 percent and 16.3 percent in Canada and the US respectively relative to 1980 levels.

Many greens deplore capitalism and market-based solutions to environmental problems. But the evidence suggests that economic growth and free trade help to ensure a healthy environment, and that economic prosperity and environmental quality are complementary goals. Instead of restricting our consumption and our economic growth, those concerned about the environment should be focusing on how to raise incomes around the world.

Freedom and Economic Prosperity

Chris Sarlo

Freedom is the essential precondition to economic prosperity. Without individual freedom, there is no investment, risk-taking or innovation.

Over the thousands of years of human history, the average person has not been free. The vast majority have had little control over their own lives. They were cannon fodder in wars sparked by someone else's ambition or vanity. They were forced to work hard, every day, for others in arrangements resembling slavery. Their day-to-day lives were governed by strict rules of church and state. The average person was dominated by some elite-landowners, gang lords, kings, dictators or religious leaders. The average person had no rights and very little freedom of choice.

And for most of the thousands of years of human history, thepace of economic progress has been painfully slow. The average person has lived at or below basic subsistence. All indicators of living standards (life expectancy, average calories consumed, the standard of housing) showed little change for the longest time. People were resigned to economic stagnation. Your grandchildren could expect to have the same life as your grandparents. That's just the way things were. Passivity and fatalism were understandable. Prevailing religious dogma discouraged science, open inquiry, and profit. Political arrangements worked against equal and fair treatment for all, property rights, and free markets.

All of this began to change about 300 years ago. Some philosophers, principally John Locke (1632-1704), argued that all human beings had fundamental rights and freedoms. Further, the state existed only to preserve and protect the rights of its citizens. This was a revolutionary idea. It completely contradicted the conventional wisdom at the time which held that common people had no rights and were properly subservient to the state. For Locke, a person's right to life, liberty and property were unequivocal.

These ideas were attractive to reformers and democratic movements in America and Europe. Increasingly, governments in the West began loosening their grip. The average individual was becoming more free to own property, start a business, and profit from innovation and commerce. It was far from perfect freedom. There was still a residue of privilege, injustice and intolerance. However, more and more, the old order characterized by feudalism, superstition, inflexibility, and a profound sense of resignation about the established ways was crumbling. More and more people were open to new methods and new ideas.

The results were no surprise. In the two centuries after 1750 living standards improved-slowly at first, and then at a greater pace. For the first time in history, the lot of the average person was improving beyond subsistence level. But, and this is the crucial point, living standards were improving only in those nations offering citizens comparative liberty (chiefly North America and Europe).

This economic improvement continued well into this century. All statistical measures of well-being showed stunning progress: real family incomes were rising; poverty rates declining; people had more savings and assets; and more and more people enjoyed the facilities and conveniences made available by advanced technology. As well, life expectancy rose sharply, reflecting better health standards.

However, the rapid rise in living standards made what poverty was left stand out all the more. By the 1960s, there was strong political pressure in all of the freer countries to use the state to help alleviate the poverty problem. They did this essentially by redistributing income.

During the 1960s and 1970s, governments greatly expanded their role in society and in the economy. New social programs were established. Tax rates increased. With good intentions, the state increased its regulatory powers over industry and commerce. The result was not only a systematic reduction in economic freedoms (examples such as rent controls, government-created monopolies, restrictive labour laws, and a rising tax burden come to mind here) but, predictably, a sharp decline in the pace of economic progress. Most indicators of economic well-being show little or no improvement since the mid-1970s. Poverty rates, after-tax family incomes, real consumption and real wealth have essentially stalled over the past two decades. The issue of secular stagnation currently dominates the economic policy field.

Economic progress is not automatic. It doesn't just happen. It didn't happen for most of human history. The key prerequisite to improving living standards is freedom: the freedom to own property and use it as you wish; the freedom to enter any line of business without penalty or restriction, and to compete freely for customers; the freedom to profit from success without fear of confiscation; the freedom to buy and sell as you wish without interference from the state. Without these freedoms, there is simply no incentive for people to take risks, innovate, invest, and work long hours.

The major current objection to freedom has to do with concerns about "social justice." The poor will be left behind if we allow greater freedom, it is argued. There will be greater inequality if we dismantle much of the welfare state.

For those who believe in freedom as a basic human right, fostering greater equality or serving some other purported social "good" cannot justify limiting freedom. No cause is worthy if it requires the use of coercion to succeed. Freedom means that only voluntary arrangements are permissible. Those with a more pragmatic approach, however, might ask the following question: In which era of human history did the poor and the disadvantaged do best? Under what conditions have those at the bottom tended to prosper and have more hope for a better and more productive life?

In the near future, The Fraser Institute will publish a study of how living standards have evolved in Canada. The unambiguous conclusion is that those at the bottom of the income distribution have fared best when economic freedom was greatest.

Geeks Unite?

Mark Weller

Recently there has been some murmuring around the Department of Labor in the United States about how to regulate the Information Technology (IT) sector. These rumblings, no doubt spurred on by such writers as Jeremy Rifkin, focus on the people who make their livelihoods working with computers. Not content to regulate the Internet and computers themselves, the US seems poised to regulate the profession, with the government of Canada close behind.

The argument in favour of regulating IT has two main thrusts. The first is quite reasonable: to respond to the increasing demand for uniform technical standards in the computer industry. Frustrated by incompatibility problems in everything from web browsers to mother-boards, many consumer groups are advocating the adoption of a set of uniform computer standards as a solution. These would apply to hardware, software and to the technical certification of IT professionals themselves.

The second argument has much less validity. It revolves around a belief that IT is forcing the replacement of valuable workers with machinery and technicians. By regulating the computing field, the pursuit of "needless" change would be curtailed, and the cost of implementing IT solutions would finally reflect "real costs." This point of view suggests that computers have made our economy too competitive and have imposed too much change, which, so the argument goes, will ultimately result in fewer jobs. So the time has come to regulate, in order to slow the pace of change.

Although some of the trepidation in the face of the changing marketplace is understandable, fear of the unknown should not become the driving policy in the debate about computing. In reality, there is only one honest response to the question, "What will all the workers do now?" and that is to say, "I am not exactly sure, but they will do something else." No one can accurately predict the future shape of the economy, but what history does demonstrate is that every technological innovation, from the railway to the microchip, has displaced workers, but has also resulted in the creation of new sectors and new jobs. The service sector, for example, was not predicted to emerge, but now is one the most important segments of the Canadian economy. So we do not know where all this innovation will lead, but we can be certain that the transition brought to the economy by information technology will bring with it great prospects and new opportunities.

However, even if one agrees that labour markets in the IT field should not be artificially controlled, there is the further issue of certification. What is the best way to ensure standards amongst IT professionals? What alternatives are there?

One alternative often suggested is the creation of a union or guild of computer technicians. Unionization efforts, which have had limited success with IT workers, have been focused primarily on those who have entry-level computer skills. However, even with this group, unions have had difficulty. IT professionals generally recognize that the industry rewards those with the most up-to-date skill set, not those who have the greatest seniority. If an IT shop were to be unionized, the resulting emphasis on job security would effectively devalue those with the least seniority. Those who have the least seniority in a firm tend to be those who are younger and more recently out of school, and it is this group that is the motor behind the innovation and change that characterizes the IT sector.

Unionization, which arose in the industrial era, is decidedly incapable of responding to rapid change. As long as professional standards do not change rapidly over time, unionization can keep up (barely) with the demands of business for greater skills. However, IT changes so rapidly, that union credentials would be virtually out of date by the time they were established.

In fact, once a standard is created, there is no guarantee that it will remain the standard. For example, 5 years ago it was generally accepted that Novell Netware was the industry standard for client-server networks. Today, Novell has been eclipsed by Microsoft NT. Professional standards, to the extent that they can be defined, become quickly outmoded. So the key to effective certification is flexibility, and this flexibility is best generated in a competitive marketplace.

An alternative concept that is being considered by groups like the U.S. Department of Labor is the creation of government standards of certification, that is to say, certification through regulation. Again, this does not allow for the required flexibility. What we see in the computer industry is an accelerated economy where bad ideas and products are mercilessly tossed aside in a very short period, while other products, if well built, tend to be perpetuated even despite the raging competition (for example, the ongoing presence of DOS and UNIX). Although it may be tempting to envisage a world where government standards are set to make certain that, for example, all computers support the same audio cards, it should be understood that technical standards for computing have only worked in the past when competition has been allowed to function for sufficient enough time to produce a de facto standard.

The best alternative to bring some sanity to the computer industry is for the creation of self-regulated standards within the industry to ensure quality of work. Just as Microsoft has a standard which it requires of people who are certified Windows NT technicians, there should be a standard for programming skills and technical abilities as well. And, just as Novell and Microsoft compete to provide standards for different systems, competition could be maintained in this way to preserve innovation.

The creation of self-regulated technical standards for IT professionals would finally place a much needed tool in the hands of consumers and employers and provide them with a means to make better choices about who to hire. Government enforced standards, by contrast, would limit choice and artificially constrain the development of innovative solutions.

Institute News

Brian April

The most important event since the last issue, of course, was the federal election. The National Media Archive conducted a study of media coverage, releasing its interim findings to the media during the campaign. The final results will be published in On Balance.

Senior Fellow Gordon Gibson, working as a private citizen, completed a paper commissioned by the government of British Columbia outlining the province's position on federalism. This paper, which is being released to the public, incorporates the work done by Mr. Gibson in the Institute's Canada Survival Project.

Research Fellow Owen Lippert, thanks to support from the Atlas Economic Research Foundation, attended the annual meeting of the American Business Forum in Belo Horizonte, Brazil, where he made a presentation to business leaders from throughout the Americas on intellectual property rights. This topic ties into both our Law and Markets Project and the International Economic Freedom Project.

Health Economist Cynthia Ramsay, working with the Angus Reid Group, conducted a telephone survey to determine the extent of alternative medicine use in Canada. The results, once tabulated and analyzed, will be compared to a parallel study being conducted by Harvard Medical School and will be published by the Institute.

The sixth annual Student Leaders' Colloquium was held in Vancouver, with the top 20 students who attended our cross-country seminar series. Once again, the quality of the discussion at the colloquium was excellent, and the students rated the experience very highly. Many past graduates of this program are now working in public policy positions at both the federal and provincial levels.

The Institute released three books in May: Tax Facts 10, The Underground Economy, and Economic Freedom of the World: 1997 Annual Report. This last book was co-published by the institutes in 47 countries participating in the International Economic Freedom Network. We also launched our first annual survey of mining companies in Canada.

Thanks to a generous grant from the Donner Canadian Foundation, the Institute will be managing a major national award competition for excellence in the delivery of social services by non-profit organizations. As well, the Bank of Nova Scotia made a significant extra contribution from in support of our student programs.

Of Human Rights, Fish, and Trees

Filip Palda

We have given government the task of protecting the rights of our trees and fish. Both forms of life are now in rough shape. Do we also want Ottawa to look after human rights? So far Ottawa's record on human rights is hard to judge. Canadian peacekeeping forces have prevented massacres in Cyprus, Haiti, and the former Yugoslavia. But Ottawa has spent millions of dollars to support a Cuban dictator who has earned one of the worst human rights records in Central America. Canadian politicians are also cozy with Chinese politicians whose CVs include organizing slave labour, and a 30-year assault on Tibet. Coziness has converted itself into subsidies for certain Canadians who do business with China. Coziness has also flowered into generous grain subsidies to China. What should Ottawa really be doing?

The danger and the beauty of government is that it can use muscle to get its way. For peace-keeping operations muscle makes sense. You can see where the damage is being done and you can go to the rescue. Politicians can judge the problem and voters can judge how politicians have performed. Muscle loses its coordination when the bad guys and the victims are not obvious. Take Ottawa's commercial love affair with China. To open Chinese doors to our businessmen, Ottawa wants to send CANDU reactors at a heavy discount to the Chinese government. The notion is that persuading the Chinese with gifts and hooking them into the world of international commerce will distract them from their abuse of human rights. Maybe. But intelligent people, if they had the chance, could disagree. At present they do not have the chance. Ottawa muscles the Canadian taxpayer into funding the human rights schemes of a few Canadian politicians. These leaders also have some say in which Canadian companies will do business with China. Government's monopoly on human rights has squeezed out other opinions.

A different tactic would be to leave Canadian businesses to their own dealings with China, unsubsidized, without government direction. Canadian consumers would then have the task of judging what a human right is, who is abusing it, and what to do about it. Specialist groups such as Amnesty International would help us make up our minds by suggesting who should be boycotted. Canadians already do this with the environment. We buy products wrapped in recycled paper, and we look at tins of tuna for a label that says no dolphins were killed in the hunt. Consumers were years ahead of government in their thinking on the environment. Why should it be any different with human rights?

Would consumers ignore human rights if tempted with a Chinese product sold at low price? Almost all goods we buy are bundles of features. Your clothes have a feel, colour, and style. Another feature of your clothes is whether they were made with forced labour. Human rights are bundled into the commodities we consume. Canadian firms who seek out humane Chinese business partners can cash in at the store register. They can ask a high price because their products have passed a human rights test. Such firms will have a rough time getting the consumer's attention, though, if government certifies that all Chinese goods we buy are humanely produced. They will also have a rough time competing if Ottawa gives a leg-up to firms who are better at lobbying than worrying about forced labour.

Of course our leaders might have the right answers and might be doing what is best for human rights. It would be nice to know what the trees and the fish think.

The Money Formerly Known as the Taxpayers'

John Robson

The phrase "the taxpayers' money" is very frequently used nowadays by politicians who want to emphasize their right-eous understanding that public funds are not simply theirs, to spend as they see fit. As far as it goes, this is probably good, although I'm getting rather tired of politicians with good attitudes but bad policies. However, it's not in fact "the tax-payers' money." And, curiously, the tendency to describe it as such is an impediment to good public policy.

It was the taxpayers' money. Then it was taken from the taxpayer and became the public's money. As Arthur Fish reminded us in a recent issue of Gravitas, "Since taxation essentially treats private property as public property, it must in fairness be conducted according to the law . . . " (Summer 1996, p. 25). If it were still "the taxpayers' money," it would be the taxpayer spending on the things she wanted.

That's the key. Once it has been paid in taxes it isn't the taxpayers' money any more. It's the public's money, because the public has asserted ownership and, through government, has taken it from its former owners.

The reason it is important to emphasize this is that the recurrent use of the phrase "the taxpayers' money" has the effect of minimizing the impact of taxation. If it's still their money, it hasn't been taken from them, it's really just been transferred from one pocket to another, so they don't have any great cause for complaint if taxes are high.

And that's not just something for politicians to remember, either. The Great Public, whose votes are secretly responsible for high taxes and all of the other things we love to grouse about, is relieved of some of the responsibility for considering either the prudence or the justice of taking great boodles of other people's cash, by a phrase that implies that paying money in taxes is no different in principle from, say, "giving" your money to your broker to invest. But you don't really "give" money to your broker at all. You simply employ him as your agent. Unlike taxes, the act of placing it in his or her care involves no fundamental transfer of ownership. Further, the implication of the phrase "the taxpayers' money" is that, just as the broker knows better than you do where it should be invested, so the politician knows better than you do how "your" tax money should be spent.

With taxes, what was once yours to spend as you saw fit (if you are "the taxpayer") is now in the hands of the representatives of the whole populace, to spend as they (the representatives, that is) see fit. Whether politicians spend this money wisely or not from the point of view of the public is quite another question. But well or foolishly, they do spend it on behalf of the public who took it, and not necessarily the taxpayers from whom it was taken.

There is nothing wrong with this, provided that voters, politicians, and the Constitution are clear on the legitimate use of the public's money. The formulation of what is legitimate is simple, though its exposition can become obscure and its implications in law overtly opaque. It is that property-including money-shall not be taken except through due process, with just compensation, and for public use.

Now, obviously, you can't compensate someone in cash for their taxes. But there is what is called "implicit compensation," in that, for instance, the provision of national defense compensates you for the compulsory payment of taxes to support the armed forces. In many respects, this is simply the flip side of public use.

Public use means that the property, whether it be money, real estate, or part of one's freedom of contract, is taken in order to be put to a use that benefits everyone equally. And taxes should only be taken for that purpose.

Otherwise, the state becomes (or, in our case, has become) a racket wherein money is taken from less numerous groups and given to more numerous ones for essentially political reasons. After all, spending other people's money is much more enjoyable than spending your own.

That is why I'd prefer to hear politicians speak of "the public's money," and remember-and be held accountable for-the fact that when the decision is made to turn "the taxpayers' money," which is the stuff in their wallets, into "the public's money," which is the stuff not in their wallets, we are not simply exercising wise stewardship in their best interest and with their unanimous consent.

Rather, we are implicitly taking their money at gunpoint (if you don't believe me, try not paying, and see how long it is before armed agents of the state come for you). Sometimes-when due process is followed, when just compensation is provided and when there is a public use-this is both good and necessary. But it is still expropriation. And if we use words correctly, then we won't forget just how drastic this is, and won't in turn forget to scrutinize carefully every proposed expenditure to see whether it really is for "public use" or simply the conveying of benefits on a specific group with a grievance and political clout. The latter have no right to turn "the taxpayers' money" into their own.

It was once the taxpayers' money, you see, and it ought to have remained their money unless there was a compelling case for taking it. When there is such a case, let's make it forthrightly and call it "the money formerly known as the taxpayers'," and when there isn't, let's not take the money at all.

June Student Question

[Mr. Denise Hyatt of Ontario asked this question on our website. Dr. Michael Walker, Executive Director of The Fraser Institute, answers.]

Do you think cash will be eliminated in the emerging new world order?

Whether cash will be eliminated or not will be determined by consumers and their relative preference for electronic means of payment or payment in currency. It is certainly possible to imagine that consumers will increasingly opt for the "smart card" alternative to cash. With this method, instead of going to a cash machine to withdraw currency, consumers would instead get their smart card "charged up" by withdrawing money notionally from their bank account.

As we have seen in recent years with the debit card, many consumers do indeed prefer not to have the bother of carrying large quantities of cash with them, particularly for purchasing their weekly grocery order or other large purchases. Even activities that have, in the past, been solely cash-based, such as the purchase of tickets for movie theatres and other amusements, can now be conducted using the cashless option.

So your question is good, but in your own behaviour you will be part of determining the answer! You can be absolutely certain that those who provide cashless alternatives will be guided by consumer choice rather than try to mould it. It is simply too expensive to try to change people's behaviour if an activity is something that they do not wish to do.

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Last Modified: Wednesday, October 20, 1999.