May 2000 Fraser Forum: Fences for Improving Governance
At a Fraser Institute conference in 1997, the Alberta Treasurer Stockwell Day described how a legislative fence allowed him to fend off demands for increased spending in the wake of growing fiscal surpluses. This fence required future surpluses to be allocated to debt reduction and tax cuts rather than increased spending. It was put into place at the same time Ralph Klein's government introduced legislation to eliminate the large deficits of the early 1990s.
When surpluses developed in 1997-98, Day was able to listen empathetically to pleas that he increase spending on education, health care, the environment, and many other good causes. As he put it, "The legislative protections allow me to smile, hold hands, and weep with the groups asking for more money, and say: `I'd love to help you, but you don't want me in jail.'"1
I believe that legislative and constitutional fences around parliaments in Canada are as important for the improvement of governance as the other measures considered in other articles in this issue of Forum. The Charter of Rights and Freedoms is already the best-known fence in existence in Canada. It protects individual freedom by restricting the coercive power of the state and it protects minorities from the tyranny of the majority.
In recent years, the Supreme Court of Canada has often been called upon to consider whether certain actions by the police and some contentious legislation passed by parliaments are consistent with the Charter. Many of the Supreme Court decisions have not been popular, and might not have been necessary had it not been for a Charter provision giving an important role to the Supreme Court, which it has exercised vigorously. In spite of these problems, most Canadians welcome the Charter's broad intentions.
This general acceptance of the Charter is noteworthy because its provisions interfere with the most cherished features of a democracy: a properly elected legislature is sovereign, reflects the will of the people, and therefore legislation passed by a majority reigns supreme. Yet, the Charter is seen as a legitimate or even necessary limit on this supremacy because democracy is a frail institution in need of protection from misguided politicians.
Politicians can, at times, be responsive to widespread public demands for the use of coercive powers to restore domestic peace, and protect society from subversion or foreign influences. It is too tempting at times for politicians to disregard the loss of individual freedom accompanying such policies, to extend the use of these powers to serve their own interests, and in the process to subvert democracy itself. For these reasons, the Canadian Charter prohibits laws restricting free speech, assures trial by jury, and upholds other fundamental human rights.
Politicians often are tempted to gain electoral support from one group in society by passing laws which provide benefits for them at the expense of other groups. For this reason, the Charter prohibits discrimination on the basis of race, gender, age, and other group characteristics.
While the Charter is explicit about the need for fences around legislators' abilities to violate fundamental individual civil rights, it is silent on the issue of fundamental individual economic rights. But economic rights have much in common with human rights. Deficit spending leads to debt. On one hand, the debt restricts the freedom of future generations to use the fruits of their effort as they see fit because they have to service the debt. On the other hand, deficit spending benefits politicians who use it to buy votes without having to face the wrath of tax-paying voters. In effect, the money goes to the current generation and allows it to live beyond its means.
Future generations suffer not only by having to service the debt; they also suffer when budgets are balanced but at excessively high levels of spending and taxation. Many types of spending, and especially taxation, reduce incentives to work and invest, which in turn lowers economic growth and therefore the income of future generations.
Future generations are even more helpless than minorities in society. They have no direct voice at all. They need to be protected from the present majority of voters and the politicians they elect. Many countries and jurisdictions in the world do this by legislated or constitutionally-mandated prohibitions on deficits and limits on spending and taxation.
Unfortunately, the Charter of Rights does not include provisions for individual economic rights, for reasons mired deeply in the nature of Canada's political system and the threatened veto of governments unfriendly to such rights. So, as a Member of the Canadian Parliament in 1996 I introduced a private member's bill with such provisions. My bill suffered the fate of virtually all private member's bills. It was debated routinely for a short time in the House of Commons. Some of the debaters on the government's side told me later that they learned much in the process. But they had been given scripts of their speeches by the government whip, who had them prepared by bureaucrats. The bill did not even make it to debate in committee, which is a necessary first step towards enactment.
While the prohibition of debts and limits on spending put fences around Parliament for the purpose of protecting the public, it is also possible to have fences which protect politicians from the public, much as happened in Alberta. Memberships in international organizations like the IMF, World Bank, the World Trade Organization, the United Nations, and NAFTA serve this purpose.
Consider, for example, that NAFTA prohibits the use of tariffs to protect Canadian industries from foreign competition. One can readily see how membership in NAFTA protects politicians from undue pressures. Reference to the NAFTA treaty allows them to reject pleas for protection by employers and workers because it would involve violating a binding international treaty and invoke retaliation from other countries. As a result, politicians have lost one of their tools for buying votes, but they also are able to serve the public interest better.
Why did the politicians in power vote for treaties which curtailed their ability to buy votes? I believe that they did so out of a sense of responsibility. They knew that protection was bad for public welfare. But they also knew that the existing system made it impossible to act in the national interest by campaigning against protection. The workers and employers affected by such policies would vote against them as a block. At the same time, the general public had few incentives to reward them with their votes because the benefits for every person were small and diffuse. By supporting an international treaty, the politicians were able to focus the debate on the overall benefits of free trade and expose the demand for protection for what it is, a means to provide undeserved benefits to special interest groups. The strategy helped bring electoral success to all of the governments in power when NAFTA was being negotiated.
Other international organizations and treaties perform similar functions. IMF-imposed rules and sanctions allow politicians to blame the organization for harsh policies which they know are needed but whose imposition by the ruling government would cause the loss of public support at the next election. The evaluation of major public investment projects by the World Bank allows politicians to blame that institution for rejecting projects with great voter appeal but low economic returns.
Looking ahead, I believe that the creation of a monetary union with the United States and Mexico would serve a purpose similar to that of NAFTA and other international institutions. As I have argued in The Case for the Amero2 a North American Central Bank charged with only the pursuit of price stability would be free from political pressures to adjust interest and exchange rates to assist industries in trouble. As a result, Canadian politicians would be isolated from demands by industries, which historically have demanded lower exchange rates to help them overcome the effects of falling world prices of commodities and other adverse shocks. Such assistance in the past has created labour market rigidities that slow adjustment to changing economic conditions and have put the Canadian dollar on its persistent downward trend. Just as is the case with tariffs, protected industries have benefited at the expense of the general public interest.
Of course, there are no perfect solutions to the problems of governance and fences between politicians and the public can bring new problems. For example, forces can capture international organizations and turn them into instruments for excessive government intervention, inflation, and other damaging policies that they were supposed to correct. Many people in England believe that membership in the European Monetary Agreement will lead to even more influence of the European Community bureaucracy in Brussels. This bureaucracy has increased regulations and social policies on its members, which many Britons think are undesirable. Hence, Britain has not joined the European Monetary Agreement.
For this reason, every effort must be made to ensure that treaties and international organizations designed to put fences around Canadian politicians are themselves endowed with strong constitutions and charters which assure their independence and commitment to the causes they were designed to pursue. Of course, there are no fail-safe treaties and constitutions, but vigilance and clauses for opting out of the agreements can avoid gross abuses and effects on members.
Notwithstanding the cautionary note in the preceding paragraphs, it remains true that fences to protect the public from selfish politicians and to protect politicians from pressures by special interest groups are powerful policy instruments to improve governance. Such fences would do in the field of economic rights what the Charter of Rights and Freedoms has done for human rights. Such fences would improve living standards in Canada. Their potential should be examined closely by those interested in improving governance in Canada.
Notes
- Herbert Grubel, ed., How to Use the Fiscal Surplus (Vancouver: Fraser Institute, 1998), p. 134.
- H. Grubel, The Case for the Amero, Critical Issues Bulletin (Vancouver: Fraser Institute, 1999).
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