Brian Lee Crowley

Think what you like of Kevin O’Leary—He is right to call for the restoration of Ottawa’s economic power

Writing in my fortnightly Globe column I make the case that commentators can harrumph all they want at Kevin O’Leary’s plan to discipline the provinces for damaging Canada’s national economic prospects. He is doing nothing the founders of Canada didn’t plan and allow for.  His rhetoric may be a little over the top, but he is not wrong to say that Ottawa has the tools to discipline provinces who act contrary to the national interest (including via withholding some transfers) and that they should be used when circumstances warrant.

Guaranteed Annual Income: Wrong solution, wrong problem

In my never-ending campaign to épater les bourgeois (aka the commenters on the Globe’s comments page), my latest column takes aim at one of their favourite policy prescriptions: a guaranteed annual income for Canadians, delivered through the tax system (also called a “negative income tax”). Almost all the arguments advanced in favour of this alleged panacea are deeply flawed and take little account of incentives, human motivation or of the complexity of administering fairly or cheaply a system that will not be simple but rather devilishly complicated.

This column appeared in the 11 Dec. 2015 edition of the Globe’s ROB in their Economy Lab feature.

What Canada can, and cannot, do about inequality

To hear the critics talk, inequality is growing in Canada because of a mean-spirited effort by governments to reduce the tax burden and leaving the most vulnerable to fend for themselves. As I point out in my column for this Saturday’s Ottawa Citizen, this view ignores important facts. First of all, the level of progressivity in Canada is growing, not falling. In other words far from cutting taxes for the wealthy and washing our hands of those on low incomes, if you look at taxes paid and benefits received Canada’s social safety net is highly progressive and increasingly so.

Rising inequality is therefore not an artifact of Canadians failing to shoulder their responsibilities. The issue is that the inequalities created by globalisation, technological change and returns to skills and talent, market generated inequalities are growing even faster. So is the solution even more taxing and raising benefits? No. On the contrary, as the research I cite from Philip Cross and Munir Sheikh clearly shows, we are at the limits of what we can do through high taxes and passive income transfers. The rest of the progress we need must come from improving economic opportunities and incentives and equipping Canadians to benefit from them, both of which are made harder by high taxes and poorly designed transfers.

Separated at birth: Ottawa budget, 1995; Quebec budget, 2015

My latest musings for the Globe/ROB’s Economy Lab revolves around the context and significance of the year’s most important budget: Quebec’s. After years of failed attempts, the new Liberal government of Philippe Couillard will make another stab at fixing Quebec’s self-imposed economic decline by wrestling with the out-of-control growth of the Quebec state over the last 50 years. The stakes couldn’t be higher, but it is not at all clear that Couillard will be more successful than his predecessors. That very uncontrolled growth of the state has created a political climate in which a democratic mandate may not be enough to overcome the organised resistance to reform. In the column I draw parallels between the historical significance of Paul Martin’s 1995 budget and this one, 20 years later. Both aimed to fix the damage done by several generations’ worth of bribing Quebeckers to support federalism or sovereignty. Martin pulled it off, but his task was more manageable.

Wish Couillard well. He’ll need it.

The Future of Federal Transfers

I was recently invited by the Federal-Provincial Relations Division of Finance Canada to participate in a panel discussion in Ottawa on the future of federal transfers to the provinces. Here is the text of my remarks.

Does Retirement Have a Future in Canada?

Thanks to Jack Mintz of the University of Calgary School of Public Policy I have been invited to be on a panel at a major national conference on the theme of The Future of Canada’s Retirement Income System to be held in Calgary on April 12th and 13th.

My panel will be called What are the problems with the existing system? The main speaker will be Larry Kotlikoff (Boston University), and I will be joined as commentator by Joanne  DeLaurantiis (Investment Funds Institute of Canada). Here is how the conference programme describes the panel’s focus:

The research undertaken for the federal-provincial-territorial Ministers of Finance found that the retirement income system does well in support low income Canadians but there is a minority of middle class who may not have adequate retirement income.  What are the reasons for possible underfunding of retirement income for this group and how significant is the issue?

The Aboriginal Wizard of Oz

This is the first in a wonderful series of articles in The Australian by Noel Pearson, an Australian Aborigine and the Director of the Cape York Institute for Policy and Leadership. Mr Pearson is clearly part of a world-wide awakening among young Aboriginal leaders questioning whether the social service state can really solve the problems of Aboriginal peoples, as opposed to Aboriginal people rising up and taking their own fate in their hands. Every word in this series applies with equal justice to the deplorable plight of Aboriginals in Canada. As Mr Pearson writes:

What my opponents and sceptics from the Left have failed to understand is that when we talk about disempowerment being the singular and devastating feature of Aboriginal Australia, we mean that our people have had their responsibilities taken away from us. Responsibility is power. If we want our people to be empowered, then we need to take back the responsibilities that the welfare state has stripped away from us.”

Noel Pearson’s original article generated a plethora of mostly predictable commentary of the type “Non-Aboriginal Australians would love to have the kind of all encompassing tax-financed welfare services that Aboriginals enjoy.” Pearson’s rebuttal, also in The Australian a few days later, is a joy to read:…

There is no freedom of private choice and action when governments have assumed responsibilities that are normally undertaken by responsible parents and individuals. That government intervention has crowded out the responsibilities of individuals, families and communities is my point.

It is a misinterpretation of history to say that service provisioning followed a lack of responsibility. Aboriginal people never chose welfare as the basis of their inclusion in the country’s citizenship. They wanted equal wages, not welfare. They wanted a hand-up, not a handout. They wanted freedom from discrimination and racism.

But the welfare state regarded Aboriginal people as helpless and hopeless. It has never had any expectations of Aboriginal people. Or disadvantaged people generally. That is why it has stepped into their lives to such an extraordinary degree.

Invest in this!

On of my greatest bugbears is the abuse of language, for as the Chinese remind us, when words cease to carry clear and definite meaning, we cannot talk successfully to one another and what needs to be done remains undone.

High on my list of “linguistic abominations to be resisted” is the intellectually lazy language of politicians who are always promising to “invest” in their favourite spending programme. Elect me, they intone, and I will “invest” in (pick any of) health care or pensions, or EI, or welfare, or civil service salaries or innovation (whatever that is, other than doing new things…).

What’s wrong with this language? Investment actually means something quite precise. Here, from a recent issue of The Economist, is a classic definition of what’s at stake:

The goal of economic policy should be to maximise households’ well-being and hence their consumption—but over time, not just today. Consuming too much today will make the next generation poorer. By investing (and saving), a country sacrifices current consumption but future output and consumption will be higher. The optimal level of investment is the rate that generates the highest sustainable level of consumption over time.

So there is an important distinction between consumption and investment. When you consume something, as its name implies, you use it up  –it is gone. Consumption is the ultimate end or the objective of all economic activity — we work hard so that we can consume food and clothes and cars and clean air and all the other good things that we want. But to be able to consume successfully *over time*, to be able to enjoy a rising standard of living over the years, we can’t simply use up everything we make today. We have to set aside some portion of what we make today and invest it in long-lived tools that allow us to consume more in future. If we consumed everything we made today, we would enjoy nicer clothes and richer food and more theatre tickets, but because we didn’t save anything to preserve our standard of living over time, soon we’d not be able to afford a car, and we’d have to give up the house and move into an apartment, renting the space we lived in but not building up any equity in it. Our standard of living would decline….

Government is no different. When it takes our tax dollars and spends them on things used up today, such as civil servants’ salaries or social welfare payments or grants to business, they are not investing. They are consuming. There is nothing wrong with consumption, but if we overconsume today and underinvest for tomorrow, the long term consequence is a declining standard of living.

A classic example is infrastructure. For example many of our cities are limping along with infrastructure such as sewers and water mains that are very old — well past their useful life. We have been consuming the investments of our ancestors, but not saving up to replace them — a classic case of enjoying a higher standard of living today at the expense of tomorrow. Underinvesting (because we’re having too good a time consuming today) is very bit as morally reprehensible as long-term deficit financing of public spending, because in both cases we are making our children pay the costs of our decisions. And we’ll only fix that if we challenge politicians about the abuse of language involved whenever they turn consumption today into “investments”. It ain’t so…

Bélanger and Migué on Fearful Symmetry

Economists Gérard Bélanger and Jean-Luc Migué have an interesting piece in the National Post of 5th October arguing against some of the case I make in Fearful Symmetry attributing the rapid growth in government in Canada to a combination of the rise of the Boomer generation and a separatist Quebec nationalism.

One of the main points they raise against my argument is that growth in government was occurring all over the world, and especially in the western world, and therefore to attribute the growth in government in Canada to these two factors in Canada is to miss the larger picture of change affecting all western societies.

This would be a fair criticism, if it were true. But of course it isn’t. Indeed I spent an important part of the book tracing the growth of government spending in Canada, comparing it to our counterparts in the US (with whom we shared almost identical patterns of government growth for over a century, until the 1960s), and demonstrating that there were in fact two “camps” among Western industrialised societies. One was essentially the US, Canada and Australia, the other was much of Western Europe. The first group proved remarkably more resistant to the growth of government than the latter. But Canada in the Sixties and Seventies essentially changed teams. After a century of following in America’s footsteps, we suddenly and brutally changed camps. Over the ensuing few decades, America’s share of GDP devoted to government rose 6 percentage points. Ours rose over 20. As I say in the book, the zeitgeist in favour of larger government no doubt explains part of the growth in Canada. But it is the speed and size of the change over such a short period, that requires supplementary explanation in Canada, especially since the political class remained committed to small and limited government right up until the early 1960s, as I again show in the book.

As for the rise of a separatist Quebec nationalism only emerging in the 1970s, Migué and Bélanger must have lived through a very different history than I did. The Sixties were a time of radical nationalist ferment that was frightening the life out of the political class in Ottawa. The B&B Commission was named in response. The PQ was formed in the late Sixties from the merger of two other separatist political parties that had been agitating for some time. This was the time that mailboxes were blowing up in Montreal and the FLQ was issuing manifestos. Jean Lesage won the 1960s election on a platform of Maîtres chez nous, and Daniel Johnson won the 1966 election on the slogan of Égalité ou indépendence. The federal Liberal Party went and recruited les trois sages (Trudeau, Marchand and Pelletier) in the mid-Sixties as an attempt to strengthen their response and Trudeau was clearly made leader of the party because he was seen as the man able to respond forcefully to what was happening in Quebec, as indeed he did in the FLQ crisis in 1970.

It is historical revisionism pure and simple to say that because the PQ only made its entrée into the National Assembly in 1970 with a quarter of the vote or because the first referendum only occurred in the late Seventies (with half of French-speakers voting to give the government a mandate to negotiate sovereignty-association) that therefore nothing had happened in the decade preceding or that politicians in Quebec City and Ottawa were not already responding to the rise of a separatist nationalism in the province.

Tom Courchene responds, after a fashion

One of Canada’s most respected social thinkers and a man who has been a great inspiration to me personally, Tom Courchene of Queen’s University, wrote an op-ed in The Globe responding to my own. Mine was a summary of some of the arguments in Fearful Symmetry, focused in particular on the recent news that Ottawa was about to expand the number of seats in the Commons to reflect the growth of BC, Alberta and Ontario. Quebec and all the other provinces would gain no seats, implying a relative loss of not only population but political influence as well. Professor Courchene’s article was clearly intended to be a rebuttal to my piece, but like Andrew Coyne and several other readers who wrote to me, I found its arguments to be a bit mystifying.

OK, he spends the first third of the article agreeing with me. But the place where apparently he and I diverge is when I wrote that the shifting distribution of seats was a symptom of a larger malaise, especially for Quebec, which I described as “a society that cannot pay its own way or reproduce itself, that is highly dependent on transfers from the rest of the country, and that is losing its political influence.” Professor Courchene felt called upon to defend Quebec’s honour.

In so doing he said, for example, that while obviously Quebec’s weight would fall in the Commons, it would remain the same in the Senate. True but, as the French say, quel rapport? Is Professor Courchene seriously suggesting that the ultimate backwater in Canadian political institutions, our unelected Senate, will suddenly become the new avenue through which Quebec will exercise the kind of powerful political influence it has enjoyed in recent decades? If that were the case, I think you’d find Senate reform, giving Quebec the same number of seats as all other provinces, would rapidly move up the public agenda. He argues that falling seats in the Commons for Quebec will mean an abandonment by Quebec voters of the Bloc and a return to the fold of one or more federalist parties. But part of the argument I made in my op-ed is that as the Commons expands, and Quebec’s representation remains static, their ability to cause minority governments (as is the case today thanks to the Bloc) or to bestow majorities (as in much of the previous century), will be heavily diluted. It won’t disappear. It will just become less and less decisive. It is just arithmetic. Michael Bliss makes a similar point about Conservative Party electoral fortunes in today’s Globe.

But what really mystified me, coming from the father of the argument about “transfer dependency” which Professor Courchene helped to popularize in Canada in the 70s and 80s, was his attempt to make it appear that Quebec was the source of many highly desirable changes in Canada, most of which were only made possible by big, and badly designed, transfer programmes. Now far be it from me to deny that Quebec has been a valued and welcome member of Confederation, and I agree with him that the legal and linguistic diversity that Canada enjoys is in large part due to our perfectly legitimate efforts to accommodate Quebec and French-speakers. But as Professor Courchene quite well knows, because he has read my book and I have discussed it with him, many of the changes he singles out as gifts Quebec has bestowed on Canada, I argue have been the result of a sordid bidding war between Ottawa and Quebec City to keep Quebeckers from voting to leave Canada. Moreover this bidding war, by putting huge piles of cash on the table for Quebeckers to quarrel over, has created a society deeply mired in rent-seeking, or what I call PUPPETRY (people using political power to enrich themselves by plundering you).

The whole reason that Quebec is losing political and demographic weight is because its vast expansion of the state and its shift from being a society concerned with productive effort to one concerned with PUPPETRY have caused the emergence of that “society that cannot pay its own way or reproduce itself, that is highly dependent on transfers from the rest of the country, and that is losing its political influence.”

Among the many social dysfunctions that have emerged in Quebec since the Quiet Revolution, let’s list a few: low employment rates, low productivity per capita, low investment rates, low in-migration, low fertility, low family formation rates, high welfare dependency, high out-migration, high taxes, high debt, high divorce, suicide and abortion rates. Now why ever would you describe that as “a society that cannot pay its own way or reproduce itself, that is highly dependent on transfers from the rest of the country, and that is losing its political influence”?

Yes, as Professor Courchene points out, Quebec has been an innovator in social policy, although my gloss on that is that the innovation helps to create dependence on the state and is part of the problem. He cites cheap daycare as an example. On the other hand, that is a policy so far looked on in much of the rest of the country with scepticism, is very expensive and by no means an unalloyed blessing to parents and children, and is only possible in Quebec because of large transfers from other provinces who do not offer such services, when the transfers are supposed to guarantee that less well-off provinces can offer reasonably comparable services to richer ones. I think our history of transfers has been an unhappy one that has fuelled Quebec’s economic and population weakness and Professor Courchene’s defence of them makes him, in my view, a defender of a system that has done Quebec little good and much harm.

He attributes our “multiculturalism” to Quebec. Again, I disagree. In fact multiculturalism was opposed by Quebec as a dilution of their preference for a narrower and old-fashioned two-nation Canada, and the debate over the extent to which cultural minorities should be accommodated has been loudest and most ill-tempered in Quebec, leaving aside the extent to which Quebec has used its provincial powers under the constitution to marginalize the English-speaking population, a stain on Canada’s record of linguistic tolerance and diversity which I document in Fearful Symmetry.

And that brings us to Professor Courchene’s last point: Quebec has been the spear-tip of a movement in favour of “collective rights” that helps to distinguish us from the United States. Well, as a Laurier liberal, a believer in individual liberty, responsibility and accountability under the rule of law, I personally think that “collective rights” are harmful to democracy, are an unwelcome departure from our legal, moral and political tradition, and are unnecessary to distinguish us from the United States. Canadians were different from Americans before e.g. Bill 101 allowed the French-speaking majority in Quebec to oppress the French-speaking minority that wanted to send their kids to English-language schools (an example of how collective rights are really code for majorities oppressing minorities). Surely we only need to distinguish ourselves from American on points where they are wrong and we can do better. Anything else is difference for its own sake, an unworthy prize and one for which we should be unwilling to sacrifice our freedoms and moral tradition.

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Brian Lee Crowley
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