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Extreme Wealth Inequality Persists

Mon, 2017-12-11 00:15

There was little or no media coverage of the release of data on the distribution of the wealth of Canadians in 2016 last week, perhaps because there has been little or no change since the last Survey of Financial Security in 2012.

The top 20% of Canadians own 67.3% of all net worth (assets of all kinds minus liabilities), almost exactly the same as in 2012.

The bottom 20% have no net worth, and the bottom 40% collectively own just 2.3% of all net worth.

The top 20% also own 74.6% of all financial assets (stocks, bonds, bank deposits etc) held outside of RRSPs and registered pension plans, while the bottom 40% collectively own just 3.5% of such assets. Financial assets outside of pensions total $1.4 trillion.

Unfortunately, the new data does not detail the breakdown within the top 20%. Even within this group, wealth is highly concentrated in the hands of the top 10% and top 1%.

Clearly, taxable income from financial assets (interest, dividends, capital gains, stock options) flows overwhelmingly to a relatively small number of people. If the federal government was serious about progressive tax reform, they would be reducing the preferential treatment of such income in the personal income tax system. Over to you, Minister Morneau.

Categories: News for progressives

Canada’s newly-unveiled National Housing Strategy

Fri, 2017-12-01 23:20

Over at the website of the Calgary Homeless Foundation, I’ve  written a blog post about the Trudeau government’s recently-unveiled National Housing Strategy.

Points raised in the post include the following:

-One of the Strategy’s stated objectives is to reduce chronic homelessness in Canada by 50% over 10 years.

-The Trudeau government claims that this is Canada’s “first ever” national housing strategy. That claim may not be accurate.

-The Trudeau government appears to be overstating the likely impact of the Strategy. Specifically, they claim this will result in four times as many new builds (annually) going forward as were built annually between 2005 and 2015. Yet, the evidence does not appear to support that claim.

The link to the full blog post is here.

Categories: News for progressives

Ten considerations for the next Alberta budget

Wed, 2017-11-29 20:47

On November 17, the working group of the Alberta Alternative Budget (AAB) sponsored a one-day workshop at the University of Alberta. The event’s main purpose was to discuss recent developments in Alberta public policy, as well as expectations for the upcoming Alberta budget. Twenty speakers presented in total.

In light of what was discussed at the event, here are 10 considerations for the upcoming provincial budget:

  1. Governments often face pressure to privatize important public services—yet, privatization sometimes comes with its own costs. According to my long-time social policy mentor Allan Moscovitch, privatization “refers to the movement from public to private service delivery.” Governments of all stripes typically want to reduce the short-term cost of delivering important services. However, privatizing important public services can result in higher costs of services, reduced quality of services, and a deterioration in working conditions. For example, during her presentation, Hitomi Suzuta noted that public long-term care facilities (operated by Alberta Health Services) provide approximately four hours of direct care per senior in a typical day, while for-profit facilities in the long-term care sector provide just three hours of direct care per day (for more on this, see this recent report by David Campanella).

  1. Provincial funding needs to account for demographic changes. In his presentation, Jonathan Teghtmeyer noted that, since 2009-10, the number of students attending K-12 schools in one of Alberta’s public, separate or francophone school boards has increased by 18% (as a result of both high birth rates and high rates of in-migration to Alberta). During this same period, approximately 3,000 new teachers were hired—but according to Jonathan’s research, Alberta would have needed 6,000 new teachers in order to maintain the previous teacher-student ratios.

 

  1. Inflation erodes the value of funding, and new funding levels need to reflect this. During our workshop, John Kolkman noted that, since the election of the NDP government of Rachel Notley in 2015, there’ve been no increases to social assistance benefit levels.[1] Yet, during this time, there’s been roughly 4% inflation—that means that the value of annual benefits received by Alberta’s social assistance recipients has decreased by this same amount. Considering that a ‘single employable’ adult on social assistance in Alberta (without dependents) receives approximately $8,000 a year to live on, such an erosion in annual income can make life challenging. (For a recent overview of inflation in Alberta, see this November 2017 piece. And for an overview of social assistance in Alberta, see this blog post.)

 

  1. When it comes to annual spending by Alberta’s provincial government, there’s potential for cost savings. In the K-12 education sector, the Alberta government gives $263 million annually to private schools—yet, not everyone considers this to be money well spent. Speaking at our workshop, Barb Silva noted: “Many Albertans have no idea that private schools in their province receive public funding.” And in the homelessness sector, it’s well known that targeted spending on affordable housing can reduce public spending in other sectors, most notably the health and justice sectors.

 

  1. In order for crucial public services to be financed in Alberta, there’s a need for tax reform. During his presentation, Nathan Jackson (an Edmonton-based economist) noted that Alberta is the only Canadian province without a provincial sales tax; he also suggested that Alberta introduce one (along with a rebate for low-income households). This, he argued, could help stabilize provincial revenue. A 5% provincial sales tax (with rebates for low-income households) could result in more than $4 billion in additional annual revenue for the province.

 

  1. Gender matters. In her presentation, Angele Alook stated that in communities where there’s a lot of resource extraction, there are high rates of violence against women. She also noted that, in those communities, most of the high earning jobs in those sectors go to men. Perhaps not surprisingly, Alberta has the highest gender income gap of any Canadian province. It should also be noted that Alberta has yet to introduce pay equity legislation.

 

  1. Alberta not only needs more jobs…it needs more ‘good jobs.’ It’s important to discuss the quality and cost of public services delivered. But it’s also important to remember that the workers who deliver those services often need to raise families and maintain healthy lifestyles themselves. Wages need to be in line with Alberta’s high cost of living, and job security matters. In his presentation, Christopher Smith discussed wages in Alberta’s early childhood education sector. He noted that the average worker in this sector receives an hourly wage somewhere in the $16-$23-per-hour range. (Of course, the Notley government’s move to increase the minimum wage by nearly 50% over four years is consistent with a move toward higher-quality jobs.)

 

  1. Not every community in the province has the same needs. For example, Medicine Hat’s municipal government is in an exceptionally sound fiscal position. On a per capita basis, its annual revenue is more than six times the average for a Canadian municipality. Medicine Hat’s municipal government owns several public utility companies (something that’s quite unusual for a Canadian municipality). It owns both an oil exploration company and a gas exploration company. And it owns more than 4,000 gas wells. All of this is very good for the city’s bottom line, allowing it to have the lowest property taxes in the country and the lowest utility costs in the province (and all of which contribute to Medicine Hat having a relatively low cost of living). This also makes it relatively easy for Medicine Hat’s municipal government to donate land for the purposes of subsidized housing—typically, the donated land covers one-third of the capital cost of new subsidized housing. (The dynamic whereby some governments having more resources than others at the same level is sometimes referred to as a horizontal fiscal imbalance.) Perhaps not surprisingly, Medicine Hat has very little homelessness relative to other municipalities; by contrast, there are more people experiencing homelessness in Calgary than there are in the rest of Alberta combined (a point made by my colleague Victoria Ballance during her presentation).[2]

 

  1. Good public policy needs to be well-funded, but regulation matters too. In his presentation, Christopher Smith noted that, when it comes to child care, Alberta has regulated spaces for just one in three children aged 0 to 5. In her presentation on long-term care, Hitomi Suzuta recommended that the Alberta government introduce regulations for supportive living facilities stipulating minimum staffing requirements. And in his presentation, Ian Hussey noted that the Notley government has announced the ‘phase out’ of coal-powered electricity production (by 2030) and that this will come with compensation for the plant owners, as well as a $40 million transition fund for coal sector workers.[3]

 

  1. Even in the context of discussions about Alberta’s provincial budget, the role of federal government remains crucial. Social spending in Canada often relies on federal leadership and cost-sharing with other orders of government. For example, during her presentation, Victoria Ballance noted that Alberta, along with all other provinces and territories, receives funding on an annual basis from Canada’s federal government to operate existing social housing units (mostly for low-income tenants). This funding does not simply cover the mortgages; it also helps with the ongoing operating costs—that is, the difference between the rent received from tenants and what it actually costs the housing provider to keep the units in a decent state of repair. Funding agreements, which typically last between 35 and 50 years, have already started to sunset and are scheduled to end altogether in 2039. Fortunately, on November 22, Canada’s federal government unveiled its much-anticipated National Housing Strategy which, among other things, announced a 10-year plan to preserve the affordability of those units (the plan requires provincial and territorial cost-sharing). This federal plan was excellent news for social housing providers across Canada!

 

In Sum. As the Notley government prepares to release another provincial budget, Albertans need to be mindful of the many layers of analysis required to properly assess the document. With that in mind, our November 17 workshop helped shed light some of the wrinkles involved in a provincial budget. My hope is that this November workshop, held on the eve of the Parkland Institute’s annual conference, becomes an annual event.

 

 

I wish to thank the following individuals for assistance in preparing this blog post: Laurie Adkin, Angele Alook, Sandra Azocar, Victoria Ballance, Carolyn Blasetti, Dave Campanella, Ian Hussey, John Kolkman, Lindsay Lenny, Mel McMillan, Rick Mueller, Nathan Jackson, John Kolkman, Michael Parker, Jenn Prosser, Barb Silva, Christopher Smith, Garry Sran, Hitomi Suzuta, Jonathan Teghtmeyer and Trevor Zimmerman. Any errors are mine.

 

[1] Specifically, he noted that since 2012 benefit levels for Alberta’s ‘big three’ income support programs haven’t increased (representing a 10% loss in their real value during this time). He was referring to Assured Income for the Severely Handicapped, Income Support, and the Alberta Seniors Benefit program. He also noted that income thresholds to qualify for child care subsidies were last increased in 2012.

[2] For more on how homelessness differs across Alberta communities, see this web link.

[3] The funding will ‘top up’ Employment Insurance benefits to 75% of a worker’s previous earnings. It will also provide some post-secondary education assistance and training. Approximately 2,000 workers will be affected.

Categories: News for progressives

Gimme shelter: is Core Housing Need a useful measure?

Tue, 2017-11-28 00:40

For a new CCPA blog post on housing (un)affordability, I dove into the latest Census data for Metro Vancouver. I used two series on shelter cost and shelter-to-income ratio, and found that 32% of households were paying more than 30% of income on shelter (all households, owners and renters) and 16% of households more than 50% of income on shelter. The latter number is pretty alarming: one in six households in Vancouver paying more than half their income just to keep a roof over their heads; that’s 150,430 households!

Then I noticed that “core housing need” (CHN) in Metro Vancouver was 17.6%, a figure that is way lower. I have always understood CHN as three dimensions: affordability, measured as households paying more than 30% of income; adequacy, whether the housing is in need of repair; and suitability, if you have enough rooms for everyone.

So, my thinking went, CHN should be all of the un-affordability I discovered, and then some to reflect the other two dimensions. How then could CHN be so much lower than the share of households with shelter-to-income ratio above 30%? My instinct was to go back and check my sources and my math, hoping I had not made a major error somewhere. But that was all solid. So I did a deeper dive on CHN to figure this out.

First, some households paying more than 30% of income on housing but are just taken out. Those who are paying more than 100% of income are pulled out. This would be folks who have a relative paying their bills, for example, but also people who are using debt or other income not captured in their total (perhaps capital gains or inheritances).

Also exempted are students, and I found this on the CHN entry in the Census dictionary:

Non-family households with at least one maintainer aged 15 to 29 attending school are considered not to be in ‘core housing need’ regardless of their housing circumstances. Attending school is considered a transitional phase, and low incomes earned by student households are viewed as being a temporary condition.

This seems odd to me, saying you are too young to be in housing need, even if you are spending a large share of income on housing.

Next, there is this page with the new Census data on CHN, which states that after tallying the three dimensions of CHN I cite above, then:

The second stage established whether the household could be expected to have affordable access to suitable and adequate alternative housing by comparing the household’s total income to an income threshold based on local housing costs. Only those households who could not afford alternative housing would be considered in core housing need.

That’s a bit of a muddle. I also found this 2008 article discussing the concept, which notes:

Much work has been, and is being done, to examine those who spend 30 per cent or more of their household income to determine if they do so out of choice, through having the means and preference to spend more than the norm for housing, or out of necessity, because of their low incomes.

In other words, there are some households who pay more than 30% of income, but do so by choice, and if they wanted to they could move into cheaper digs and no longer pay more than 30% of income for housing. There’s some logic to this, I suppose, but in Vancouver the vacancy rate is below 1%, and that’s driving up rents. For ownership, home prices have surged such that few can afford to buy the house they live in –  if they did not already own it. Unless you have a super-high income, on the margin you are looking at more than 30% of income in Vancouver for shelter.

The second stage is a black box, and perhaps that black box needs fixing. Whereas the share of households paying more than 30% is easy to understand, the determination of “comparing the household’s total income to an income threshold based on local housing costs” is not transparent. Rents in Vancouver according to CMHC have not gone up much in recent years, but that is because they are only counting decades-old purpose-built rental , while not counting the secondary suites and condos that have become a substantial part of the rental stock more recently. It is among the latter where loopholes allowing landlords “renovictions” and “fixed term leases” undermine rent controls, and have fed the dizzying cost of renting on the margin.

So Core Housing Need is looking to me more like the Low Income Cut Off is for measuring poverty: it is not straightforward in terms of measurement; was instead created by Canadian statisticians a long time ago to provide a more nuanced statistic; but, may no longer be relevant or helpful given changes in housing markets. There may also be some measurement issues.

Finally, I note that Steve Pomeroy makes some comments about CHN, welfare incomes and the feds’ national housing strategy plans in this piece for the Caledon Institute. He concludes:

As this analysis has revealed, core need is an ineffective and distorted measure of outcomes. Indeed, the federal and provincial/territorial governments could invest hundreds of millions of dollars to reform welfare and create a national housing benefit only to find that the levels of core need have not declined, even though housing affordability problems for many households had been alleviated.

So there you go, if you were wondering what the difference is between shelter cost greater than 30% of income and core housing need.

 

 

Categories: News for progressives

When Will the Fiesta Start? Mexico-Canada Relations in a New North America

Sun, 2017-11-26 03:53

Stephen Clarkson

The following is a contribution in the blog series on the exceptional contribution of Stephen Clarkson to Canada.  Stephen Clarkson died in 2016. The substantial work he undertook on Canada’s relationship to Mexico is particularly relevant today as NAFTA negotiations occur.

Stephen Clarkson

Laura Macdonald is a Professor in the Department of Political Science and the Institute of Political Economy at Carleton University. Her research is focused on the role of non-governmental organizations in development, global civil society, citizenship struggles in Latin America, Canadian development assistance and the political impact of the North American Free Trade Agreement. Among her publications are the following books: The Politics of Violence in Latin America and the Caribbean (forthcoming); North American in Question: Regional Integration in an Era of Economic Turbulence (2012) Contentious Politics in North America, Palgrave Macmillan (2009); Post-Neoliberalism in the Americas: Beyond the Washington Consensus?  (2009); and Women, Democracy, and Globalization in North America: A Comparative Study (2006)

Laura Macdonald

When Will the Fiesta Start? Mexico-Canada Relations
in a New North America

Laura Macdonald

North America and The Solidarity Of The Weak

Stephen Clarkson’s career began as a student of Soviet politics and his dissertation concerned. The politics of his own country, Canada, and he was part of the group of left nationalists who founded the “new Canadian political economy,” he retained a strong interest in the world and moved beyond the sometimes parochial concerns of that approach and its sometimes single-minded focus on Canada’s relationship with the superpower to the south, the United States. The signing of NAFTA in 1994, which brought Mexico into a close relationship with both Canada and the United States, led to an important shift in his focus toward comparative regionalism. He also developed a deep appreciation and knowledge of Mexico and contributed important insights to Canada’s relationship with that other “periphery” as he termed both countries.

While always clear-eyed and somewhat skeptical about the possibilities for cooperation between Canada and Mexico, he remained hopeful about the possibility to “diffuse American preponderance through a solidarity of the weak.” (Clarkson 2004, n.p., my emphasis). In the current conjuncture, this possibility remains more important than ever. While early phases of the Trump presidency showed Canada and Mexico somewhat predictably retreating into their own corners to deal with his disruptive influence, more recently the two countries seem to be moving toward a closer alliance. What can Stephen’s thinking tell us about the possibilities of cooperation between the two weaker partners in the NAFTA alliance in the face of a Trump presidency, and can they collectively achieve some shared objectives in the face of the Trump onslaught?

In this paper I will first examine Clarkson’s thinking about the nature of the Canada-Mexico relationship within the broader North American region, how it changed over time, and then will examine what his thinking tells us about the possibilities and perils of partnership between the two peripheries and the future of North America. For all the talk we’ve had of “three amigos,” the disparities and asymmetries of the relationship have seriously undermined regional cooperation even before the arrival of Trump.

The Disproportionate Power of the Hegemon in the North American Region

Clarkson began his study of the Canada-US relationship as a young academic caught up in the public outrage against the war in Vietnam. This deep moral commitment led to the publication of An Independent Foreign Policy for Canada (1968). In it, along with fellow contributors to the volume, he argued passionately for an independent voice for Canada, advocating not independence for its own sake or an idealized notion of the Canadian nation, but in order to spur the country to promote a more egalitarian and just social order both abroad and at home. He did not view the Canadian past in a rosy, idealized fashion, referring approvingly to David Wolfe’s description of the Canadian case as “bastard Keynesianism,” and to Jane Jenson’s reference to “permeable Fordism,” “whose bargain between business and labour leaders excluded other social forces” (Clarkson 2001: 503).

He also objected to the doom and gloom he perceived among some intellectual approaches to understanding the shift from a world of nation-states to the “post-sovereign” or “post-Fordist” order. He retained an optimism of the will. I argue, however, that he did remain a nationalist in that his ontological understanding of the global system rested upon the nation state as a still fundamental actor, even if its powers might be constrained by other actors, including supranational forms of governance like the World Trade Organization, and multinational corporations (see Clarkson 2001). And this position led him to reject the idea that NAFTA represented a “world region” in the sense that Europe was (a position that would also disqualify almost every other region from that terminology).
Clarkson’s approach also emerged out of the practice of teaching. In a 1972 article, he lamented the lack of social science courses on the Canada-U.S. relationship, caused by the lack of serious literature, of appropriate conceptual tools, and the “continentalism” of the Canadian scholarly community (referring here to the role of Europe and then the United States as the site of “professional finishing schools”). He devoted much of his career to the task of developing a body of analysis and adequate conceptual and theoretical tools to understanding that relationship, not just for analytical purposes but to help develop a Canadian academic community as a “motor of national development” (1972: 271).

Once the Canada-U.S. FTA was followed by the NAFTA, which included Mexico, his intellectual approach shifted and it can be argued that unlike most students of the agreement, he approached the three partners as deserving equal attention. With Maria Banda, he recognized that despite the fact that both “peripheries” faced a common challenge in their relationship to the partner in NAFTA, the United States, each continued to view their own problems separately “since the evolution of scholarship on Canada’s and Mexico’s place in the North American continent had long proceeded in its own two vacuums” (2004, n.p.). Because of the differences in the two countries’ historical and cultural origins, their commonalities did not become clear until the signing of NAFTA. Even then few analysts followed his path in systematically examining these commonalities as well as differences. These commonalities rested on the nature of their relationship with their common neighbour. Both countries had struggled with their relationship with the continental hegemon and world superpower for many years, but had struggled alone, failing to overcome those historical, linguistic, economic and cultural differences.

Neoliberals (who he insisted on referring to as neoconservatives) view FTAs as based on an equal playing field, in which all parties will benefit even if inevitably there will be some individual winners and losers. In contrast to neoliberal approaches, Clarkson emphasized the asymmetries and imbalances that prevailed in NAFTA. Based on his reading of history, and contra Trump, Clarkson argued (with Mildenberger) that the United States benefited enormously from its relationship with its weaker partners in terms of its wealth, domestic security, and international influence (2011: 247). In Uncle Sam and Us, he argues that  “NAFTA was carefully designed to prevent any form of continental governance. …CUFTA and NAFTA do indeed represent a sea      change for the two peripheral members of North America. Far from producing a system of continental governance in which Mexico and Canada would have had some influence their texts have reconstituted American hegemony in the form of an economic rule book that establishes an unevenly liberalized market and a set of supraconstitutional constraints on the policy-making options of both Canada and Mexico” (2002, 41-42).

Asymmetry The Fundamental Imbalance

In stark contrast to the uninformed rhetoric of Trump and his populist allies, Clarkson shows clearly that NAFTA was not a “a catastrophic trade deal for the United States” but rather a highly asymmetrical arrangement whose design the hegemon, the U.S., was able to dominate, and which drew much more benefit than its two weaker partners, Canada and Mexico. Nevertheless, his methodological nationalism may lead him to underestimate the harmful impact of the agreement on workers and marginalized groups in the United States – not that he did not recognize this impact, but it was not his main area of interest.

In a prescient discussion of the situation we soon might face, he noted that the asymmetry of the relationship comes out perhaps most clearly in the prospect of abrogation:  “De facto asymmetry characterizes NAFTA’s formally symmetrical clause defining how any ‘party’ can abrogate the agreement: it needs only to give its partners six months notice of its intention. The threat of abrogation has a very different weight in the hands of Washington than in those of Ottawa or Mexico City. American interests would be affected – but not radically so – if Canada or Mexico defected from NAFTA. Disaster would be the assumed impact on either of the peripheral states should the United States abrogate. Following their virtually complete integration in the continental economy, they would be forced to their knees if Washington threatened to terminate its participation in the agreement, a technique it used when it forced Hawaii to join the United States late in the nineteenth century” (2002: 41).

Clarkson advocated for a systematic comparison of the situation of the two weaker countries partly for analytical reasons, but also for political reasons, since the possibility of constructing a “solidarity of the weak” represented an important (perhaps only) tool for counteracting the disproportionate power of the United States in the agreement. He was, however clear-eyed about the obstacles to such cooperation.

In addition to the asymmetry that characterizes the North American region, he also recognized the fundamental “imbalance” – the discrepancy between the US-Canada relationship and the US-Mexico one. In Does North America Exist he asks whether this discrepancy is being diminished “as the two peripheral countries become more similar in their US relations” (18). In particular he focuses on the possibility that “the development of the third North American bilateral has helped Mexico to become more like its northern counterpart and so reduce the imbalance with Canada of its periphery-centre relationship.” He also asks whether North America has evolved away from its origins as essentially “two separate bilateral relationships to a more trilateral space” (19). I think he is saying no to the second question but yes (somewhat) to the first one, and that the current situation seems to point to the possibility of greater convergence between the two peripheral partners.

Canada and Mexico – Toward a Partnership of the Weak?

In Chapter 18 of Does North America Exist, Clarkson focuses directly on the development of the “third bilateral” relationship, that between Canada and Mexico. He begins with a recognition that a feature of the “old North America” (pre-NAFTA, even though Mexico was then still geographically part of the continent) was “Canada’s manifest disinclination – in terms of both economic self-interest and intellectual curiosity – to connect with Mexico. The opposite was equally true: even though Mexico’s exports to Canada were considerable, its political and cultural connections were minimal.” (2008: 417).

This lack of mutual knowledge or interest is developed more extensively by other scholars, including our mutual friend, María Teresa Gutiérrez-Haces. In Los Vecinos del Vecino (The Neighbours of the Neighbour), Gutiérrez-Haces traces the way in which the character of the Mexican and Canadian states have been modified as a result of the relationship with their neighbour, the United States. She examines how “the two semiperipheries of the United States, represented by Canada and Mexico, have responded in a parallel, sometimes simultaneous, and on numerous occasions inconsistent fashion, to the U.S. neighbourhood” (2015: 14, my translation).
Canada was initially alarmed about Washington’s decision to agree to Mexico’s request to enter into an FTA that would threaten Canada’s privileged access to the U.S. market, and decided to agree to a trilateral agreement in a defensive move to protect its hard-won gains in the earlier negotiations. Clarkson elaborates on how Canadian and Mexican officials slowly began to overcome their mutual disinterest as they first negotiated the NAFTA agreement, and after the agreement came into force senior officials interacted and got to know each other more (Clarkson 2008: 418). Economic interaction also increased fairly rapidly, although Mexico still represented a tiny market for Canada.

At the same time, the two countries continued to view each other as rivals for U.S. affections, and Mexico was concerned about Canadian multilateral involvement in promoting international human rights in the late 1990s (419). Despite occasional opportunities for collaboration, Canadian diplomats “resisted being associated in US politicians’ minds with a Mexico that translated politically as illegal immigration and narco-traffic”. (420). Canada also rebuffed the proposals of the first democratically elected Mexican president Vicente Fox, who in 2000 pushed for a deepening of the North American partnership to promote greater investment in Mexican development (421).

According to Clarkson, the September 11, 2001 attacks changed North America considerably because of the effects of U.S. (over)reaction to those attacks on the bilateral relationship between Canada and Mexico. Even though there was no increase in trilateral forms of consultation, let alone new continental institutions, the crisis led both Canada and Mexico to recognize their common dilemmas. And the two countries’ foreign policies converged in opposing the U.S. decision to invade Iraq.

One sign of increased cooperation was the creation of the Canada-Mexico Partnership (CMP) in 2004 (based on the model of the 2003 US-Mexico “Partnership for Prosperity”). Five working groups were established on the topics of urban housing, sustainable cities, human capital, competitiveness, and agribusiness. Copying the structure of the US-Mexico Partnership for Prosperity, each working group was headed by one representative from government and one from “civil society” (normally the private sector) from each country. The groups operate in a non-transparent fashion, closed to observers.

As a result, they are hard to evaluate, but, according to Clarkson, appear to be excessively bureaucratic and “oriented to do little more than help the Canadian private sector drum up some business in Mexico” (425). Nevertheless, they contributed to increased interaction between government and business elites from the two countries. Clarkson also discusses the Seasonal Agricultural Workers Program, which is viewed in a highly positive fashion by both countries, despite criticisms that have been raised by academics and civil society organizations.

Overall, then, by the late 2000s, levels of interaction and limited coordination had been built between the two countries, even if the relationship was still overshadowed by the other two bilaterals – between the US and Canada on the one hand and the US and Mexico on the other. Clarkson judged at this point that this pattern of interaction had “helped Mexico reduce the asymmetry of its relationship with the United States and so diminish the imbalance of the two prime North American bilaterals. With North America’s peripheral members having developed an independent relationship of their own, it is clear that the continent’s governance is more than just a sum of their two relationships with the system’s hegemony”(434).

Constructing The Center Periphery Dynamic- ‘The Two Davids’

However in order to overcome centrifugal tendencies, the periphery could “play a special role in rebuilding the continent’s ‘regionness’ and so constructing US power itself”. This would require change on the part of the United States, but would also require Canadians to sacrifice. Canadians should “accept their own responsibility – and long-term self-interest – in helping Mexico break out of its vicious circles of corruption, criminality, and social disintegration” (Clarkson and Mildenberger 2011: 282); and Mexico itself, as this passage indicates, would have to embark on a difficult project of social, economic and political change.

In Dependent America, Clarkson and Mildenberger decry the fact that under the Harper government, Canada did exactly the opposite of taking responsibility for the situation Mexico faces. Instead, “Canada has played its own part in breaking down whatever trilateral solidarity NAFTA originally represented. Because it feared that its influence in Washington was contaminated by being associated with Mexico, Ottawa has taken pains to turn its back on Mexico. Openly, it instituted offensive visa requirements on Mexican travellers to Canada. Privately, it expressed reticence for a continental trilateralism that would link itself with Mexico in Washington’s eyes. Although the political, economic, and military conditions that had sustained Canada’s cordial transnational political culture with the United States have long since eroded, the Harper government is bent on resurrecting the two countries’ special relationship.”

They thus recognize that in order to break down the region’s disparities, the two “Davids” need to move beyond their differences (without ignoring their different economic, social, and political situations), and learn to work together. And in another prescient passage they warn: “The North American periphery has been Uncle Sam’s gold-laying goose for as long as most can remember. It would make an ironic epitaph for the United States’ hegemonic decline if alienating its most valuable and cultivated foreign asset accelerated its self-induced fall” (272). While Clarkson might not mourn the decline of U.S. power, which Trump’s pitfalls and machinations seem to be accelerating, he also recognized that the collateral effects on the former empire’s neighbours would be devastating.
What does a broad political economy perspective, that incorporates historical structures of oppression and is attuned to the asymmetries of the existing North American region contribute to understanding our current situation? And what can Canada and Mexico do to mitigate the damaging effects of Trump’s actions on their individual and mutual interests?

Trump, North America and Canadian Political Economists – “I told you so”

First, Canadian political economists are entitled to say: “I told you so”! While neoliberals continued to trumpet the clear benefits of free trade (without open borders) for decades, against substantial evidence to the contrary, political economists like Clarkson warned against the potentially devastating impact of the free trade agenda on the lives of ordinary citizens of the region. Although perhaps none of us could have foreseen the exact form blowback might take in the politics of the hegemon, it was not difficult to see that growing inequality would threaten the social contract on which Canada and the United States had built their (limited) versions of Fordism.
And in the case of Mexico, the threats of NAFTA and other neoliberal policies adopted by neoliberal technocrats since the early to mid-1980s were also not difficult to identify, even if few could have predicted the wave of deadly violence that the country has suffered since President Felipe Calderón unleashed his war on drugs in a bid for legitimacy after his closely contested electoral “win” in 2006 over leftist candidate Andrés Manuel Lopez Obrador.

And secondly, Clarkson’s analysis indicates the importance of an alliance of the two peripheries in response to the threat they each face in light of the Trump threat to rip up NAFTA, and other threats Trump has wielded against Mexico and Mexicans in the United States in particular.

The instinct of Canadian leaders (and many Canadians) is to distance themselves from Mexico’s problems and insist on the continued relevance of Canada’s supposed “special relationship” with the United States, a notion which, as Clarkson implied, was long obsolete.
This instinct was on display before Trump came to power when Stephen Harper imposed the visa requirement on Mexico, our NAFTA partner, in 2009. This move seemed to defy economic and political logic, since Mexico was one of the few countries where Canada could possibly expect to see significant economic prospects of diversification away from the declining U.S. economy at that moment. Most Canadian economic elites criticized this decision. In 2010, Canada also placed Mexico on a list of “designated countries of origin,” as part of Bill C11 – the “Balanced Refugee Reform Act”. This move suggested that Mexico was a country that was not producing legitimate refugee claimants, in defiance again of logic and evidence, given that country’s high levels of violence, serious record of human rights abuse and widespread impunity.

In the process, Canadian officials shifted from justifying these moves in terms of Mexican “queue jumpers” and “bogus claims,” to linking them in a xenophobic fashion to fears of criminality spreading to Canada as a result of Mexicans’ unrestricted access to the country (Gabriel and Macdonald 2014). This decision of the Harper government caused enormous shock and disappointment among Mexicans at all levels of society, who were accustomed to thinking of Canada as a remote, but friendly partner, and less racist than the United States. One op ed in El Universal, Mexico’s leading newspaper, for example, asked, “How to explain such a clumsy measure as the visas for Mexicans? It is an inefficient decision, since it corrected a relatively small problem by causing one of greater dimensions….[Harper] tried to confuse Mexicans by claiming that a North American trusted traveller program would be adopted. This doesn’t mean eliminating the visas. Furthermore, lacking solid arguments, immediately on returning to Canada he linked the problem of the visas with the incapacity of Mexico to control illegal migration – to Canada? – and even with problems derived from organized crime. This shift in his discourse is at least negative and ultimately counterproductive” (Reyes Heroles 2014, our translation, cited in Gabriel and Macdonald 2014).

The result was a diplomatic showdown and the decision of Harper to postpone and eventually cancel the North American Leaders Summit, scheduled to be held in Canada in 2015, partly because of the tension with Mexico. The deterioration of the relationship between the two peripheries thus contributed to sidelining the entire North America agenda in this period.

The Trudeau Rebuilding Exercise: Summitry and Lifting The Visa Requirement

In contrast, when Justin Trudeau came to office in 2015, one of his main goals was to “renew and repair our relationships with our North American partners”. The Liberal Party election platform stated: “For the past decade, Stephen Harper has led a government that is increasingly partisan, suspicious, and hostile when dealing with our closest neighbours: the United States and Mexico. We will end this antagonism and work with our partners to advance our shared interests. As a first step, we will immediately lift the Mexican visa requirement that unfairly restricts travel to Canada, and commit to rescheduling and hosting a new trilateral leaders’ summit with the United States and Mexico.” (https://www.liberal.ca/realchange/the-united-states-and-mexico/).

Trudeau made good on this promise by hosting the North American Leaders Summit in June 2016 (where his bro-mance with both of his North American counterparts was highlighted for public relations purposes) and lifting the visa requirement for Mexicans in December 2016.

In addition, in October 2016, then-Foreign Affairs minister Stéphane Dion met with his Mexican counterpart, Claudia Ruiz Massieu, Secretary of Foreign Affairs, in the first Canada-Mexico High-Level Strategic Dialogue The meeting was designed to advance on commitments made during Peña Nieto’s state visit to Canada and to promote cooperation in areas such as “cooperation in security and student mobility, best practices in consular management and increasing prosperity for Canadians and Mexicans.” Dion and Ruiz Massieu also discussed the political situations in Colombia, Venezuela and Haiti, reflecting increased willingness to coordinate foreign policy positions on issues in the hemisphere.

They also announced the creation of an annual bilateral dialogue on human rights, reinitiated an annual dialogue on multilateral and global issues, and established a high-level task force bringing together various government departments to address challenges within the extractive sector in Mexico. The creation of the human rights dialogue was especially significant as it displayed the Canadian government’s recognition of the need for serious and open discussion of the many human rights issues facing Mexico, and the Mexican government’s willingness to discuss these sensitive issues with Canadian counterparts, at least behind closed doors.
The election of Donald Trump in November 2016 ended these gradual signs of improvement of the North American relationship. Trump’s rhetoric represented an attempt to re-assert U.S. hegemony in the region and the world. The rhetoric was particularly hostile toward Mexico, with threats to “build a wall” and to make Mexico pay for it, the threat of deportation of 11 million undocumented migrants (and the attendant impact of the drop in remittances), about 5 million of whom are Mexicans, the threat of a border adjustment tax, and the threat to rip up NAFTA. All represented blows to Mexico’s economic and political stability and national pride represented most vividly perhaps in the online ripostes of former President Vicente Fox. The peso hit a record low of 22.03 to the dollar, pressured by concern over a potential trade war between the United States and Mexico.

The economic implications for Mexico are disastrous if even some of these threats are enacted. One Mexican analyst predicted that if Trump fulfills his campaign promises we could see a fall of 4.9% of GDP in the first year of his mandate. These economic problems would aggravate long-standing economic problems with the Mexican economy – the country has experienced low levels of growth since NAFTA took force and poverty and inequality rates remain extremely high.

In response to these threats, the Liberal government initially appeared to retreat to Canada’s long-standing default position, which is to prioritize the U.S. market. Dion was replaced by former trade minister Chrystia Freeland, who was given responsibility for U.S. trade relations and the NAFTA file. On her list of “top priorities” in her mandate letter was to “maintain constructive relations with the United States, Canada’s closest ally and most important economic and security partner”. Dion had been told in his mandate letter to both improve relations with the U.S. “and strengthen trilateral North American cooperation with the United States and Mexico” (MacCharles 2017).

The Canadian Pivot Betting On The Canada US Relationship Most of All

Freeland was apparently selected because of her strong connections in the United States and the perception that the cerebral Dion would not make a good negotiator. The Trudeau government also launched a campaign to make connections with the Trump team, especially with Trump’s influential son-in-law, Jared Kushner, and mobilized a group of well-connected Canadians like former Prime Minister Brian Mulroney, to try to get the ear of the new U.S. administration to convince them they had little to gain from picking a fight with Canada. There was much talk of “throwing Mexico under the bus” (Carmichael 2017). Although Freeland stated after taking on her new position that Canada supported NAFTA as a trilateral agreement and had spoken with Mexican colleagues, senior officials were quoted as saying there was no intention of creating a common front against the U.S. over NAFTA since this could bring heat onto Canada (Ljunggren 2017).

A January 24th, 2017 Reuters article quoted government sources on the sidelines of a cabinet retreat who stated that Canada would focus on its own bilateral relationship with the U.S. and would not step in to protect Mexico from being targeted: “We love our Mexican friends. But our national interests come first and the friendship comes second,” The same sources stated Canada and Mexico had little in common: “Trump is unhappy about the large U.S. deficit with Mexico and has promised to punish firms with manufacturing bases there.” Another source quoted in the same article stated: “Our negotiating positions are totally different. Mexico is being hung out of a skyscraper window by its feet,” (Ljunggren 2017).

Former Canadian ambassador to the U.S. under Brian Mulroney and NAFTA negotiator Derek Burney has been called upon to provide advice to the Trudeau government on the current situation. Burney told Maclean’s Evan Solomon (2017) that Canada should immediately abandon its relationship with Mexico: “We should not indulge in ridiculous posturing – like getting together with Mexico to defend our interests, when Canada has very different economic interests than Mexico. It is a fundamental error to conflate them.” Trump appeared to be engaging in “divide and conquer” rhetoric by talking about merely “tweaking” the relationship with Canada while engaging in fierce attacks on Mexico that led to the cancellation of the planned visit of President Peña Nieto to Washington.

Mexicans were certainly not oblivious to the Trudeau government’s wavering commitment to its NAFTA partner. Prominent Mexican academic and media commentator Denise Dresser published a blistering op ed (2017) in the Globe and Mail, which stated that despite the presence of many Canadian companies in Mexico, “Mexico has never been part of Canadians’ mental map. It remained a distant, unknown, uninteresting place, rarely covered by the media, rarely part of the conversation.” And since Mexico became Trump’s “whipping boy,” she noted with disappointment the “weighty silence” of Trudeau, Freeland and Canadians in general about the depiction of Mexicans and the idea that Canada would dump Mexico and negotiate a bilateral FTA with Washington:  “But today, we are disappointed and with good reason. It seems that Canada is compassionate, but on a case-by-case basis. It appears that Canada extolls its inclusive identity, but when push comes to shove, that identity is not tied to North America or to Mexico. Canada has the right to renegotiate NAFTA on its own terms, to ignore the plight of displaced and persecuted Mexicans. It can even turn a blind eye to the recently discovered mass grave in the southern state of Veracruz, with 250 victims of the country’s continuing violence.

But please, at the very least, don’t wrap yourselves in the flag of moral self-righteousness. Canada’s treatment of Mexico reveals the country as it truly is: a place not that different from the United States, where interests matter more than principles, where interests are more important than ideals. And please remember the next time you open the door to a Syrian, you just slammed it in the face of a Mexican.”

Is Canada Dumping Mexico?

Former Mexican foreign minister Andrés Rozental (2017) also denounced the strategy of dumping Mexico: “The Trump presidency should bring Mexico and Canada much closer together, not tear us apart. Whatever trade or investment measures the U.S. applies to our country may end up harming Canada as well and destroying the competitive advantages that the North American value chain has brought since NAFTA came into force 23 years ago.”

Other long-time NAFTA analysts and advocates like Colin Robertson have urged the Canadian government to establish common cause with Mexico, expressing the view that Canada could not avoid experiencing collateral damage with any Trump administration protectionist measures against our NAFTA partner, even if Canada was not the main target. John Weekes, Canada’s chief negotiator for NAFTA, responded to suggestions that he had received that Canada should pre-emptively pull out of NAFTA, reverting to the 1988 Canada-U.S. free-trade agreement, to distance itself from Mexico. “I understand the psychology,” They think the Trump administration sees Canada as good guys, “and the Mexicans as a bunch of rapists,” so we can do better without them. “But we don’t know what the hell [the U.S.] will propose…What’s the advantage in acting?” (Clark 2017).

Former Canadian ambassador to Washington, Michael Kergin, stated, “He’s certainly got Mexico in his sights but it’s a three-way agreement. What hits Mexico will inevitably have an impact on us.” Similarly, former CUFTA negotiator Gordon Ritchie stated, “If barriers are put up against Mexican imports into the United States, we would be affected because of supply chains” (Freeman 2017). Flavio Volpe, president of the Automotive Parts Makers Association of Canada claimed that the “sentiment ‘we can do this bilaterally’ will damage the prospects for the auto sector, which relies on trilateral relationships and [product] flows” (Fife 2017).
These reactions suggest that Canadian elites recognize that North America is indeed a region, however dysfunctional, and that any disruption to one of the “prime bilaterals,” in Clarkson’s terms, would seriously affect the other. In any case, it appears that the Trudeau government realized that its early reaction was short-sighted. As well, a month later, in the light of the chaos and ineffectiveness of the Trump regime, it appeared that standing beside Mexico was not as risky as it had initially thought. On February 21, 2017, Freeland assured Mexico that Canada would stand beside Mexico and would not seek a bilateral deal with the U.S. Freeland phrased this as a technical response to the nature of NAFTA: “…we very much recognize that NAFTA is a three-country agreement, and if there were to be any negotiations, those would be three-way negotiations,” even if some issues would be discussed with the United States on a bilateral basis.

Trade minister François-Philippe Champagne reiterated in a visit to Mexico in March that “NAFTA is a three-nation agreement. So the way to renegotiate a three-nation agreement is on a trilateral basis”. Nevertheless, when push comes to shove, it is possible that Canada may revert to its bilateralist impulse if Canada and Mexico are unable to agree on negotiating positions, or if Trump insists on punishing Mexico while somehow exempting Canada from protectionist measures.

The Clarkson Legacy

Stephen Clarkson has left us – too early – but has left behind a rich body of analysis that will help us interpret the monumental challenges we face as a country and a region. There is much to be learned from his work about the limitations of the NAFTA model and what measures states and leaders can and should adopt to achieve a better neighbourhood. As I have discussed in this short essay, despite his nationalist political leanings, he was an early and consistent internationalist in his intellectual interests. Nowhere was this more evident than in his treatment of the Canada-Mexico relationship. The emergence of the Trump challenge has heightened both the insecurities and vulnerabilities of both countries, and the importance that they work together.

Clarkson was highly critical of the anachronistic and close-minded tendencies of Canadian leaders who reflexively tend to shy away from the Mexican liaison. Most of his work focused on the actions wise Canadian leaders could take to improve our country’s position, but he viewed Mexico as an inevitable and necessary partner in limiting the power of the U.S. hegemon in the North American region. Unlike some government and business spokespersons who also advocate working with Mexico, he also recognized that in order to build a healthy region Mexico needs to undertake tough reforms to address the problems of inequality, poverty, corruption and violence that afflict that nation. Moving away from the neoliberal model that Mexico has embraced since the mid-1980s is a fundamental first step toward that objective, even though such a shift would not be welcomed by business elites.

References
Ayres, Jeffrey and Laura Macdonald. 2012. “Introduction,” in Jeffrye Ayres and Laura Macdonald, eds. North America in Question: Regional Integration in an Era of Economic Turbulence. Toronto: University of Toronto Press, 3-32.

Carmichael, Kevin. 2017. “Canada shouldn’t throw Mexico under the bus to placate Donald Trump”. Canadian Business. February 6.

Clark, Campbell. “Trump’s negotiation tactic for NAFTA? Creating chaos”. Globe & Mail. January 27.

Clarkson, Stephen “Reform from Without versus Reform from Within:NAFTA and the WTO’s Role in Transforming Mexico’s Economic http://homes.chass.utoronto.ca/~clarkson/publications/Reform%20from%20Without%20versus%20Reform%20from%20Within%20-%20NAFTA%20and%20the%20WTO’s%20Role%20in%20Transforming%20Mexico’s%20Economic%20System.pdf

Clarkson, Stephen. 1972. “Lament for a non-subject: reflections on teaching Canadian-American relations” International Journal, Vol. 27, no. 2.

Clarkson, Stephen. 2001. “The multi-level state: Canada in the semi-periphery of both continentalism and globalization. Review of International Political Economy, Vol. 8, no. 3, 501-527.

Clarkson, Stephen. Uncle Sam and Us.

Clarkson, Stephen. Does North America Exist?

Clarkson, Stephen and Matto Mildenberger. 2011. Dependent America? How Canada and Mexico Construct U.S. Power, University of Toronto Press.

Dresser, Denise. “Canada is suffering from a case of selective compassion.”

Fife, Robert. 2017. “Canada won’t abandon Mexico in NAFTA talks, Freeland says”. Globe & Mail, February 22.

Freeman, Alan. “Trump has aimed his NAFTA criticism at Mexico. But Canada is now worried.” Washington Post. January 19.

Gabriel, Christina and Laura Macdonald. 2014. “At Cross Purposes: Refugee and Immigration Policy versus Foreign Policy in the Canada-Mexico Relationship,” Paper prepared for 2014 Canadian Political Science Association Meetings, Brock University.

Global Affairs Canada. 2016. “Minister Dion concludes successful visit to Mexico, Guatemala and Honduras”. October 15. http://news.gc.ca/web/article-en.do?nid=1138179

Gutiérrez-Haces, María Teresa. 2015. Los Vecinos del Vecino. La continentalización de México y Canadá en América del Norte. Mexico City: Universidad Nacioanl Autónoma de México and ARIEL.

MacCharles, Tonda. 2017. “Mandate for Canada’s foreign affairs minister is now to focus on America first”. Toronto Star. February 1.

Reyes Heroles, Jesús. 2014. “Visas Harper,” El Universal, February 27.
Robertson, Colin. 2017. Canada and Mexico must stand together amid trade threats”. Globe & Mail, January 16.

Rozental, Andrés, “Mexico – and Canada – stand to lose in the Trump years,” Globe & Mail, January 27.

Solomon, Evan. 2017. “Why Canada – and its economy – has plenty to fear from Trump”. January 24 http://www.macleans.ca/politics/ottawa/why-trump-is-an-exceptional-worry-for-canada/

Categories: News for progressives

Louis Pauly on Clarkson’s Great Transformation

Tue, 2017-11-21 00:08

Lou Pauly

The following is a contribution in the blog series on the exceptional contribution of Stephen Clarkson to Canada.  Stephen Clarkson died in 2016.

This piece is by Louis W. Pauly who is the J. Stefan Dupré Distinguished Professor of Political Economy at the University of Toronto. He is cross-appointed to the faculty of the Munk School of Global Affairs.   His publications include twelve books with his most influential work focusing on the politics of global finance, economic crisis management, and multinational corporate structure and strategy.

Stephen Clarkson’s Great Transformation
Louis W. Pauly

From Innisland to Polanyi

Stephen had a complicated relationship with a country that had changed dramatically during his lifetime. He was a 68er, who came from what would have accurately been described as the elite of his generation in what used to be called Upper Canada. Even if they hardly appreciated it at the time, the members of that group had inherited the rapidly expanding Canadian political economy of the post-war years. That economy was somewhere between Innis’ commodity-based dominion of the British Empire and the emerging continental production system of our own time. Stephen learned to like neither—despite being a prime beneficiary of both. Like Abe Rotstein, Mel Watkins, and his friend Daniel Drache, he yearned for a relatively more autonomous, prosperous, and egalitarian country—a country different from the late-imperial one that had benefited him at Upper Canada College, Trinity College, and Rhodes’ Oxford.

Needless to say, the nationalism born of that yearning, that aspiration, was complex.
The frustration created by the gap between aspiration and reality defined Stephen and his generation. That generation truly lived through a great transformation. No wonder they were inspired by Polanyi! They were born in Innis-land. They grew old in the land of the continental supply-chain, a land that seemed destined to be ever more deeply integrated into a financial and innovation system grounded in political structures south of the border. The best of both worlds? Some say so. But Stephen rejected that rosy view. He saw only a transfer of colonial allegiance. In the days of Trump, who can plausibly argue that he was wrong to hope for something better, something more noble.

Personally, I’m glad that Stephen did not have to witness the abomination currently unfolding in the USA. He might have liked it too much. It would have taken away more of the shades of gray that lie in between the urge for Canadian autonomy and the reality of deepening social and economic integration. It would not have led him to optimism.
The Legacy of ’68 and Stephen’s Elite Past

One thing, though, always did leave a smile on Stephen’s face. He loved his students, and he loved teaching them about Canada in a changing world. Of course, he had some unfair advantages. At the end of every year, he would visit the undergraduate office in the Political Science Department. There he would find out who were the top undergraduates finishing third year. He would gather their names and addresses, and over the course of the summer he would write personal letters to them. The letters invited them to register in his famous fourth-year political economy seminar. Ah, despite the legacy of ‘68, the old instincts persisted! He wanted to work with the best, he wanted to shape the leaders of the next generation, albeit now a truly multicultural generation. And he did work with them. During his last decade, he found ways to take his seminar-students—the survivors of a rigorous selection process—abroad. Every year, he led them on serious research missions, which would always lead to a collaborative publication. And despite his stated disdain for the glittering prizes of his own elite past, he would quietly but exceedingly diligently work very hard to help the brightest of his students win Rhodes, Commonwealth and other prestigious graduate scholarships.

For present purposes, it is quite interesting to note the research theme that his students and he pursued in those seminars during his last years. It was the same theme that continued to win him distinguished research grants in Canada and Germany—so much for the idea of retirement, which he detested! The theme was comparative continentalism. It was not exactly clear where that research was going, but let me take some guesses and put it into the longer term context of contemporary political economy.
Stephen’s doctoral dissertation dabbled in Marxist thought. In retrospect, it can be hard to distinguished from a critique of hyper-liberalism: a global division of labour, the rise of boundary-spanning markets beyond the control of nation-states, the inherent value of labour inexorably usurped by capital, the inexorable rise of an impoverishing system that in the end would surely collapse. Alas, that nightmare abated in the post-war years and especially in the wake of rising nationalism in the 1960s. By the 1970s, the Vietnam War rendered the prospect of globalism seriously problematic, for here was a misguided venture opposed by national and international capital, the defense industry notwithstanding, but pursued to its hideous conclusion by a hegemonic state that could no longer calibrate its own fundamental interests but could indeed control markets.

Clarkson’s Pan Canadian Nationalism: One of His Red Lines

In its wake locally, though, came not Stephen’s dream of a new pan-Canadian nationalism, or Abe Rotstein’s and Mel Watkins’ infrastructure for an independent Canada. No, in its wake came the Auto Pact, the FTA and then NAFTA. And during the same era, Canada itself almost fell apart with the Quebec referenda of 1980 and 1995. Stephen was not happy. Eventually, his unhappiness found a focal point in the Investor-State Dispute Settlement Mechanism at the heart of NAFTA, a structure that seemed to lock Canada into a single continental economic system with an accountability flaw at its heart. The US Congress still held the ultimate whip-hand, but Canadians had no representatives in that ultimate decision-making body. There is no doubt that had he survived to the present moment, his attention would have been riveted on this particular, and particularly ironic, aspect of the NAFTA renegotiation demanded by Trump.

For Stephen, I think, whether one’s political economy priors have Marxist, liberal or even Gilpin-style realist roots, the resulting research questions today are three: was the North American experience of transformation and trauma in traditional authority relations happening elsewhere? If so, was the direction of change toward fragmentation or integration? And what were the most consequential political reactions locally?

Stephen’s research guided by these questions was still underway when he died, but a couple of books had come out along the way and many papers were in the pipeline. I do not know where his unfinished magnum opus would have landed on these questions. But my guess would be as follows.

The Terrible Spectre of a Contested Future

Continentalist ideologies remain ascendant in the real world of political economy. Who can doubt the existence of a US-centered North and South American economy—linked by finance, goods and services, drugs, labour mobility, and a US-defined rule of law? Who is not asking him or herself right now if that regional economy is being matched by a rapidly evolving German-centered Europe? (By the way, I’m sure Stephen did sense that during his last years; he was as attracted by German culture and by the post-war German idea of the social market economy. Note in this regard that by his own request half of his ashes are now buried in Germany.) And finally, who is not fascinated these days by the implications of China’s rise in Asia?

By the time he left us, though, I think Stephen was aware of the fragility at the core of each of these continental economies, the continuing, even deepening, linkages across them, and perhaps most importantly the ideological weakness of continentalism. Unlike most variants of nationalism, it seems not to call forth any potentially constructive passion. But around the world, it certainly does seem to inspire a spirit of passionate resistance. And thus might Stephen have concluded.

His students, though, could not stop there. For they had begun to see clearly the immensity of the challenges in front of their generation. The problems of collective action looming—from climate change to financial instability to refugee-generating conflicts around the world—could not be avoided. If the nation-state was no longer up to the task of problem-solving, if nascent continental polities were incoherent, if supranational institutions were absent or ineffective, that only serves to clarify things. If they remain inspired by Stephen Clarkson, they will take that clarity as a challenge, the starting point for new and urgent research.

If Stephen had lived long enough to be inspired by that next generation and to write yet another book of his own, he might have looked to his past work for an appropriate title. He might have called it “Canada and the Global Challenge.”

Categories: News for progressives

Andrew Cooper on Stephen Clarkson’s Foreign Policy

Mon, 2017-11-20 22:01

The following is a contribution in the blog series on the exceptional contribution of Stephen Clarkson to Canada.  Stephen Clarkson died in 2016.

This piece is by Andrew F. Cooper, who is a Professor at the Balsille School of International Affairs and the Department of Political Science at the University of Waterloo.  He is also the Director of the Centre for the Study of Rapid Global Change.  Andrew Cooper is the author of 9 books including Group of Twenty (2013) Internet Gambling Offshore (2011) and Celebrity Diplomacy

Stephen Clarkson’s ‘Foundational Text’ on Canadian Foreign Policy

Andrew F. Cooper

Canada and The World Then

 We collectively miss Stephen Clarkson but our individual intellectual understanding and appreciation of his work are quite different. Stephen was idiosyncratic, in the sense that it is difficult to typecast him too tightly via a particular framework although the new Canadian political economy comes closes (Cameron, 2016). He was hopeful for Canada’s future, but his analysis led him to pessimistic conclusions. He despaired about the limitations of Canada’s ‘mandarins’ (especially its diplomats) but had high expectations for both citizen based activity and some technocratic driven policy solutions. And he appreciated ‘big’ individuals in a manner rare for a political scientist, but was duly worried about the nature of that personalism, especially emerging from the US with bouts of go it alone zealousness.

To try to tease out some of these fascinating features about Stephen’s thinking with regard to Canada’s position in the world, I have gone back to what is his foundational work – his edited collection An Independent Foreign Policy for Canada? Published in 1968 this volume attracted attention not only from established academics but aspirant scholars (including myself as an undergraduate). Although I didn’t know Stephen at the time, I was intrigued and to some extent inspired by his animation of this collection.

Organizationally there is a lot about An Independent Foreign Policy that speaks to Stephen’s personality. This was not a work with one tightly controlled view. Rather it was a pluralist endeavor containing chapters by many of the big highly argumentative academics of the day (if with only a single female contributor, Pauline Jewett, a gap Stephen made up later in life with an array of female collaborations).

Substantially the topics especially in the opening section remain – in a time of Trump – highly relevant. The Myths of the Special Relationship, Quiet Diplomacy revisited, Retaliation? Confronting Uncle Sam!

Stephen’s own contributions in binding the collection together are significant in locating major points of continuity and adaptation in his later (prolific) writings. Therefore, although not as well-cited now as many of these subsequent works it is a valuable exercise to go through An Independent Foreign Policy as we remember Stephen and celebrate his contribution.

Canada’s Potential versus Structural Limitations

At the core of Stephen’s work is what he considers the Canadian conundrum, the tension between Canada’s (unrealized) potential versus the formidable structural limitations (Clarkson, 1968: x). Indeed, it was this tension that underpinned An Independent Foreign Policy.

In general mindset Stephen was an optimist. Indeed, in many ways, he was the godfather of a wave of books (many decades later) that advocated Canada go beyond its traditionally cautious and modest habits, and go big in terms of ambition. A primary example of this evolution is Jennifer Welsh’s book, At Home in the World (2004), framed by the aspiration that Canada should be a model international citizen. Another example of this ambitious construct comes from Michael Byers, of the University of British Columbia, in his Intent for a Nation (2007). The core themes of this ‘model citizen’ approach is to look to a fully post-colonial Canada, with a deep distrust for the status quo.

What is striking from the start then is a rejection of the positioning of Canada as a quintessential middle power, at least how that framework has been identified and utilized by practitioners and mainstream academics. While of course he comes back to the middle power notion later on in his career, he never embraces the middle power model in terms of its familiar diplomatic toolkit.

The Search for Alternatives

Nor however does Stephen embrace the alternative notion that Canada is destined to be a principal or foremost power. Although this school – led initially by James Eayrs (also at University of Toronto) gained some strength by the mid-1970s, Stephen kept his distance. Stephen was extremely interested in institutions, but the institutions that grabbed his attention were almost always exclusively economic (and in large part continental) in nature. Unlike other University of Toronto colleagues (such as Bill Graham and John Kirton) he did not engage deeply in the debates about the G7/8.

What was salient to Stephen – and increasingly so after the publication of An Independent Foreign Policy – was the substance of political economy rather than the practice of diplomacy or geo-politics. In this shift we can see a fundamental split between Stephen and other key individuals that advocated a revisionist foreign policy in the mid to the late 1960s.

It is pertinent here to also note the divergence between Stephen and Lloyd Axworthy. Akin to Stephen, Axworthy departed from the established tenets of the past with considerable impatience with the static quality of Canada’s traditional middle power diplomacy.  Explicitly, Axworthy wanted to liberate the middle power model from its identification with the fixed ‘order’ driven worldview of the Pearson era. This impatience was a long-standing condition, which may be traced back to Axworthy’s younger days as a critical observer of Pearson’s “worth[y]” but “grey and oh so solid” diplomacy. As neatly captured, for instance, in a series of newspaper articles that Axworthy wrote for the Winnipeg Free Press in September 1965, this sense of impatience pointed – like Stephen’s – toward diplomatic activity that was more noisy and public-oriented (Axworthy, 1965).

But the divergence between Stephen and Axworthy after the late 1960s is illuminating. Shut out of the NAFTA debates, Axworthy’s focus as minister was towards a more fluid focus on ad hoc, normative driven issue-specific coalitions of the willing. The most dynamic expressions of this narrative come on the issues of land mines, the ICC, and the advance of the Responsibility to Protect (R2P) The narrative of the Axworthy doctrine puts orthodox conceptions of security and national interest on the defensive; at the same time, it is an implicit criticism of traditional Pearsonian conception of middle power diplomacy, as it regards this approach as being too slow and too cautious.

Stephen retained an interest in these sorts of diplomatic initiatives. In a 2010 talk he pointed to how the land mines and ICC initiatives were examples to how pressure from civil society could influence government (Clarkson, 2010). Yet, this was not at the heart of his concern, as he privileged less specific cases of diplomatic success but the need to address structural conditions.

Such ambition fitted into his original desire and optimistic spirit to reach Canada’s unrealized potential but also to highlight his enveloping concerns (even pessimism) that the structural constraints were simply too great. As he suggested: “These examples give some sense of how citizens have tried to correct the constitutional imbalance that is constraining the regulatory state, exacerbating global inequalities and threatening the planet’s survival as a hospitable environment for human life. But activism is not enough. If the market’s capacity to self-destruct is to be contained, governments must get in step with their citizenry to give clear priority to human emancipation” (Clarkson, 2010).

Stephen’s appreciation of the structural constraints facing Canada pushed him further into the analysis of political economy. If the Independent Foreign Policy volume was animated largely by the Vietnam war, over time it was the issue of how ‘Continentalism’ compromised the Canadian economy and constrained the Canadian state that dominated his work.

Clarkson:  The North American Political Economist

Others in this collection will deal with Stephen’s association with the study of new Canadian political economy in greater depth. What I will add is above all my appreciation not only of the depth of Stephen’s knowledge but also the extent of his normative commitment on these issues. Even scholars who disagreed with Stephen acknowledge the nuanced approach that Stephen used to tease out the contours of Continentalism, and the full implications of these conditions. As rehearsed most specifically in  his book 2008 Does North America Exist? Stephen revealed the highly varied nature of those contours, with some sectors, for example, water management and the steel industry, far more integrated than would be expected.   In others (like intellectual property and financial services), bilateral relations and globalization are more powerful forces than regional convergences (Clarkson, 2008).

In terms of normative concerns where Stephen has had the most influence of later debates is his showcasing “Canada’s Secret Constitution” Consistently, Stephen emphasized the undemocratic manner by which NAFTA – along with the WTO – “create a new mode of economic regulation with such broad scope and such unusual judicial authority “that it entrenches certain inviolate principles or norms that are above the reach of any politician to alter.”(Clarkson, 2002).

As always with Stephen he continued to expand his intellectual horizons, moving from a concentrated focus on Canada to extended studies of the trilateral North American relationship including in considerable detail Mexico, and the comparative study of NAFTA and the European Union. In both cases not only did he tap into some valuable themes, not least the huge asymmetries among the three partners, and the absence of a European-style system in North America of multi-level governance.

Gaps in the Clarkson Oeuvre

All of this is not to leave Stephen free of criticism (although he would be quick to debate these issues). His focus on structural conditions has a mercantilist air about it, with a conflation between US state and commercial interests. As we see to some extent through the Nixon years, and more robustly at the beginning of the Trump administration, however, this connection can be broken. It is not only the asymmetry between the US and its North American partners that needs study, it is also the asymmetry between different winners and losers in the US as well as Canada and Mexico that merits attention. Stephen put a heavy weight on the ‘hollowing out’ of corporate Canada, but without the same appreciation of how corporate America has hollowed out investment and jobs in the US, leaving space open for a populist backlash. Stephen could argue that, “NAFTA cannot be blamed for the growing income inequality within the US economy [- whereas] free trade appears causally related to the various factors increasing economic disparities within Canada and Mexico” – this is not the message drummed home with considerable impact by Trump (Clarkson, 1998).

A second criticism at least for liberal internationalists is the disjunction between Stephen’s normative-oriented criticisms about NAFTA, the WTO and indeed many other institutions and the hold of the more pragmatic attitude of Canadian citizens and politicians. Dealing with the US in terms of institutions might be bad, but dealing with the US without institutions is worse. The Trump attacks on NAFTA, the WTO, and NATO brings this embedded attitude out. Whatever the difficulties of having NAFTA in place – with a US imposed Chapter 11 highly prominent in terms of policy output – are the difficulties of dealing with a unilateral ‘rogue’ US without some ‘insurance’ from increased risk of arbitrary and unfair treatment.

And finally, there is the question of the EU model as a suitable alternative design. Stephen is highly laudatory of the EU model, both in terms of “the strength of its institutions or the sophistication of its jurisprudence. Yet, no less than in North America, the process towards continental integration could be viewed by the peripheral countries as “fast but secretive, controversial, and divisive, privileging business interests and excluding social partners” (Clarkson, 1998).

All of this is not to detract from Stephen’s contribution. On the contrary, in many ways what we find with the Trump phenomenon is a reinforcement of the accuracy of many of the other themes that Stephen concentrated on. No less than when he edited An Independent Foreign Policy, it is the centrality of the US relationship to Canada that comes to the fore. When there is space – for example – in the aftermath of the Cold War Canada could downplay this relationship as it main game. But when things get tough, as in the Reagan years or with Trump the main stream dominates. So, in this sense, Stephen’s work remains a crucial guide for understanding Canada’s position in the world.

The Deficiencies of Canadian State Practice Still Haunts Us

A second major theme that comes out of An Independent Foreign Policy is an intense frustration with the bureaucracy ‘managing’ Canada’s place in the world. If the structural conditions imposed enormous constraints on Canada’s freedom of action, these limitations were exacerbated by a combination of “traditional elitism and secrecy” (Clarkson, 1968: xi). Such a culture immobilized big creative thinking and action.

As in later eras, Stephen was appreciative of some of the contextual difficulties, especially the need to work under conditions of the communications revolution. But there was a deep concern whether under any circumstances Canadian mandarins had the will to things differently beyond a crisis management approach.

This critique was another sign of Stephen’s distance from orthodox scholarship about Canadian foreign policy. For most academics up to the late 1960s celebrated Canadian diplomats and policy makers more generally for their skills.

Stephen punctured this sense of pride and image of superiority. Not for him the art of the possible, or mere problem solving. In many ways, this distaste connected with his suspicion that the functional approach in regard to institutions undersold Canada, with an onus on joining and status enhancement as opposed to a transformative ethos.

Stephen came to see Canada as a middle power in terms of its place in the hierarchy of nations (a semi-peripheral country) but he never embraced middle power diplomatic techniques. In some areas this was by omission, as there was only brief mentions of mediation as a primary focus of attention.

The main cause of contestation was on the primacy of quiet diplomacy in the Canadian repertoire. For the traditional ‘External Affairs’ mandarin this was the dominant practice in the tool kit. What was important was access and influence in Washington DC. Urges to criticize the US and US leaders should be tempered. Changes in US policy should be anticipated before they go public in an atmosphere of controversy. And there should never be the utilization of retaliation via linkage of issues.

In hindsight much of Stephen’s critique in An Independent Foreign Policy seems quite moderate. After all he played down the revolutionary dynamics. Arguing that Canada did “not need the mountain moving voluntarism of Mao. simply needs a leadership that can make it clear to the public – if not in a little Red book at least in a White Paper- what role Canada can play and how its objectives are to be achieved.” (Clarkson, 1968: 268).

Moreover, some of the changes pushed for by Stephen were coming into being albeit unevenly. One of the first things the government of Pierre Trudeau did was to start a conversation about foreign policy – a conversation that continued in a variety of structured forms in later years. Plus, we can see bursts of activity trying to do things differently in foreign policy, from the Third Option to the National Energy Program (NEP) related initiatives in the early 1980s.

Stephen was supportive of these efforts, and of course distressed when the momentum for both opening up the debate on Canadian foreign policy and the implementation of robust policies dried up first in the Mulroney years and then the Harper years. In doing so he became a key source of memory in the championing of an open autonomous foreign policy.

Yet as with any robust template for foreign policy there are points of contradiction and gaps. For the paradox of moving towards an autonomous and robust policy template in the early 1980s was that the actual policy making process reverted to the closed format that Stephen was so frustrated about in the 1960s. The only difference was that instead of a generalist elite dominating foreign policy it was now a centralizing cohort of technocrats inside central agencies.

Trudeau’s Failed Third Option:  The Reagan Cowboys

The NEP shows off this problem of reconciling dialogue among Canadians and the pursuit of robust policy making. As Stephen appreciated the process of decision making was secretive not only in the context of public dialogue but bureaucratic interaction: “remov[ed] from the normal process of interdepartmental consultation..[with DEA] ‘not informed until the last moment” (Clarkson, 1982: 79).

At the same time US retaliation showed itself to be no paper tiger. With the US first Reagan administration in place retaliatory pressures increased, with the Trudeau Liberals shifting from the practices of accommodation of the past to a “complacent and superior” positon that was premised on the notion that the “Californian cowboys” needed time to learn their job (Clarkson, 1982: 32).

The hard-line position of the Reagan administration was complicated further by the fact that the Trudeau government had expected some support for a global initiative on North-South relations. Not only were these (unlikely hopes) dashed but Canada found itself under pressure from Washington’s “institutionalized and unpredictable vulnerability” a doctrine of reciprocity that pushed the Trudeau government (again to Stephen’s frustration) to seek again the “advocacy of indirect means of influence” on issues such as Cruise missile testing. As Stephen suggested – very much in the mindset of An Independent Foreign Policy– this backtracking marked “a striking resemblance to the old quiet diplomacy approach and offers as little concrete evidence of its effectiveness” (Clarkson, 1982: 282).

Where the mantra of retaliation did creep into the Canadian agenda was at the sub-national level, a domain allowing for some considerable fragmentation on issues of provincial responsibilities. This type of action was of course most recently highlighted by BC Liberal leader Christy Clark, who on the eve of the recent election pushed for retaliatory trade threats to pressure for a softwood deal: “With our ban on moving thermal coal, we have got the Americans’ attention…We aren’t going to be weaklings” (Bailey and Hunter, 2017).

Stephen’s main contribution to the debate about Canada’s own practice was as a catalyst for change in change. Arguably more than any other text An Independent Foreign Policy for Canada opened up the debate about how accepted practices had run their course. Few pushed back to defend the Department of External Affairs as the core ingredient in the making of foreign policy. And the manta of quiet diplomacy lost ground accelerated over time to new and sophisticated practices of public diplomacy and national branding designed to cushion Canada from retaliatory activities).

Nonetheless, Stephen set himself a high bar to pass in terms of wanting both an open citizen based and coherent technically sound foreign policy. As the experience of the Trudeau government showed in the early 1980s robustness commonly combines with a revised form of elitism. What is more, under the structural constraints that Stephen so ably depicted, any departure in the traditional habit by legitimizing retaliation runs risks especially in the context of an America first administration – whether Reagan or Trump.

Continentalism and Canada’s Perennial Leadership Dilemma

Arguably the main point of departure of Stephen with most of his counterparts studying political economy – or International Relations more generally – is his appreciation for not only agency but the individual agency. Although to be sure a good deal of his work focused on the structural imposed by Continentalism, space opened up over time concerning how of major individuals influenced policy making decisions.

Here it is not so much An Independent Foreign Policy for Canada that acts as the foundation for this appreciation, but arguably his earlier work on Nehru and other ‘third world’ leaders focused upon in his thesis and subsequent publication on The Soviet Theory of Development (Clarkson, 1978: 265).

As alluded to by the reference to Mao and Canadian public policy, Stephen did not show expectation in An Independent Foreign Policy for Canada for a dynamic form of personal leadership in Canadian public policy. Nonetheless, he clearly expected more in terms of leadership than what was on offer by Lester Pearson in the 1960s.

To Stephen, Pearson’s instincts for quiet diplomacy (if useful at the time of the Suez crisis) had become a weakness weighing Canadian foreign policy down. As he writes Pearson’s has turned an “unobtrusive” style of diplomacy – “tactics which lead to his own international successes in the mid 1950s into a dogma that frustrates” (Clarkson, 1968: 265).

As well rehearsed in a host of later publications, Pierre Trudeau was far more Stephen’s image of a leader. And although on many specific occasions frustrated by his actions, Pierre Trudeau was the model that Stephen used to judge other leaders right up to the time of the government of Justin Trudeau (Appel, 2015).

If he found Trudeau fascinating (and in many admirable) Stephen became just as taken up by the personality types of American leaders. An indication of this shift from structure to agency in studying Continentalism is his tile of Canada and the Reagan challenge (as opposed to the neo-conservative challenge).

NAFTA and Market Integration

As a consequence of this shift Stephen became a close observer of bilateral (and later trilateral) summits between North American leaders. In the actual benefits of these summits Stephen was ambiguous. In some appearances, he supported greater institutionalization: “it’s amazing actually to think that, given all the attention spent on NAFTA, the three heads of government don’t meet regularly. They didn’t even meet after September 11, 2001, when the borders were blockaded, which put the whole notion of NAFTA in jeopardy” (Clarkson, 2005). At the same time, though, he was as worried as other observers that such meetings could be highly problematic, animating a securitization of North America.

But the importance of Stephen’s bringing individual agency in is that he was (or could have been!) well situated to take into account new unanticipated and disruptive changes at the apex of the US political system. A major contribution of his in the 1980s was to capture the individual importance of the Reagan challenge: “Reagan was serving notice on the world that America’s decade of instability and indecision was over [with a) simplistic and self-serving moralism” (Reagan, 1982: 21).

While a topic never allowed to be elaborated upon, Stephen was early on aware of the “tsunami” like implications of a Trump victory (Metro, 2015). In a December 2015 public event in Toronto he signaled that the Trump revolution would go beyond that animated by Reagan or George W. Bush “He’s off the map, even for conservatives”. Stephen stated, adding that Trump would “create an earthquake with Canada suffering tidal wave” (Metro, 2015).

The Clarkson Legacy

From his editorship of An Independent Foreign Policy for Canada, therefore, Stephen indicated his unique attributes as a scholar and a commentator. While building on his expertise in political economy in comparative perspective, he honed in on the Canadian continental condition. Although immersed in theory of economic development, what jumps out is his eclecticism: his concern with history and his blend of an analysis of structure and over time an appreciation of big personalities, albeit not always in a positive fashion.

For all of these of reasons– and many more- Stephen stands out among Canadian intellectuals. Yet if we miss him, we can still learn from him, not the least about how to balance tough interrogation of what is happening in everyday politics and policy making with an enthusiastic expectation that we can move beyond cautious and limiting habits.

References

Appel, Jeremy. 2015. “The Harper Doctrine in Red? Justin Trudeau’s Foreign Policy” Canadian Dimension, 1 June < https://canadiandimension.com/articles/view/the-harper-doctrine-in-red-justin-trudeaus-foreign-policy>

Axworthy, Lloyd. 1965. “Canada’s Role as a Middle Power.” Winnipeg Free Press, 8-9 September.

Byers, Michael. 2007. Intent for a Nation: What is Canada for? Madeira Park, BC :Douglas & McIntyre.

Cameron, Duncan. 2016. “Why is Justin Trudeau invited to the White House?” Rabble, 8 March 2016 < http://rabble.ca/columnists/2016/03/why-justin-trudeau-invited-to-white-house>

Clarkson, Stephen. 2010. “The unbalanced world of global governance,” Globe and Mail, 19 March https://www.theglobeandmail.com/opinion/the-unbalanced-world-of-global-governance/article4311549/

Clarkson, Stephen. 2008. Does North America Exist? Governing the Continent after NAFTA and 9/11. Washington, D.C., Woodrow Wilson Center Press.

Clarkson, Stephen. 2005. Presentation to the 38TH PARLIAMENT, 1ST SESSION STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE, 2 November  < http://www.ourcommons.ca/DocumentViewer/en/38-1/FAAE/meeting-66/evidence>

Clarkson, Stephen. 2002. “Canada’s Secret Constitution: NAFTA, WTO and the End of Sovereignty?” CCPA, October < https://www.policyalternatives.ca/sites/default/files/uploads/publications/National_Office_Pubs/clarkson_constitution.pdf

Clarkson, Stephen. 1998. Fearful Asymmetries: The Challenge of Comparing Continental Systems in a Globalizing World http://homes.chass.utoronto.ca/~clarkson/publications/fearful_pub.html 

Clarkson, Stephen. 1982. Canada and the Reagan Challenge. Toronto: Canadian Institute for Economic Policy.

Clarkson, Stephen, ed. 1968. An Independent Foreign Policy for Canada? Toronto: McClelland and Stewart for the University League for Social Reform.

Metro (Toronto). 2015. “A president Donald Trump would be a ‘tsunami’ for Canada: Prof”,  (Toronto) Metro, 2 December < http://www.metronews.ca/news/toronto/2015/12/08/what-president-donald-trump-would-mean-for-canada.html>.

Welsh, Jennifer (2004) At Home in the World: Canada’s Global Vision for the 21st Century. Toronto: Harper Collins.

 

 

 

Categories: News for progressives

Ontario’s Electricity Sector IV: Pre-Election Update

Sun, 2017-11-19 19:43

My first, second and third posts on the Ontario electricity sector described how policy and administrative decisions by different Liberal Governments gave rise to excess electricity generation with an inflated cost structure, leading to higher electricity prices. In anticipation of June 2018 elections, the Liberal Government recently implemented a costly and first-in-Canada financial scheme to fund its “Fair Hydro Plan” (FHP) to provide a short-term 17% price reduction. Given that the FHP is now a financial reality, this post focusses on the options available to a new Government with respect to both the FHP and the main driver of Ontario’s inflated cost structure, long-term contracts with independent power producers (IPPs).

Matter #1: What to do about the FHP

Ontario consumers received an across-the-board 25% reduction in electricity prices in July, consisting of 17% from the deferral of certain Global Adjustment (GA) costs and 8% from the rebate of the provincial portion of the HST. With respect to the former, Figure 1 updates my earlier analysis with publicly-available data from Ontario’s Financial Accountability Officer, showing that the FHP borrows about $18 billion in the short term and pays back about $39 billion in the long term. This scheme is designed to lower prices in anticipation of the upcoming election; it does not reduce underlying costs, only defers them.

 

It is clear that the Liberal Government will continue the FHP if returned to power. While the Conservatives and NDP both voted against the FHP-enabling legislation, neither has yet clearly stated what they would do if in power. The challenge is that the FHP requires the Government to continue to approve borrowing to keep prices below costs for an extended time period for political advantage. Many alternative borrowing schemes with different interest costs and political repercussions could be devised. Figure 2 presents my design of an Alternative Plan that would reduce the total amount of borrowing by about 55%, simply by transitioning back to cost-based pricing soon after the election.

 

 

As shown in Figure 3, the difference between the two plans is significant, at over $22 billion in the repayment phases. After a period of artificially low prices, both plans bring prices back to or above costs. The FHP has prices below costs for a total of ten years, the Alternative Plan for about half that time. Once borrowing has to be repaid starting in 2028, the prices under the Alternative Plan would be significantly lower than under the FHP. What would the Conservatives or the NDP do if they were elected in 2018? Would they continue with something along the lines of the FHP that they have critiqued? Or would they take the economically efficient but politically riskier  option to return prices to costs faster than in the FHP, perhaps as in this Alternative Plan?

 

Matter #2 – What to do about the Contracts

In previous posts, I demonstrated that the main policy driver responsible for Ontario’s inflated electricity cost structure has been the adoption of regulation-exempt, bilateral long-term contracts to procure new private-sector generation capacity.  This policy approach guarantees private producers a specific price at which they can sell their electricity, regardless of the market price. Figure 5 shows how installed capacity has evolved over time and how publicly-owned generation under OPG (both regulated and under contract) has declined and been surpassed by contract-based private generation. (The Bruce nuclear facility is a special case, a type of revenue-generating public-private partnership (3P) whereby management and financing is private while the infrastructure remains public; that is now also under contract.)

 

Has this bilateral long-term contract approach turned out to be good public policy? In the broader context of a political decision to have new generation provided only by the private sector, this approach may have been necessary in the early days of reform in the mid-2000’s to attract adequate private sector financing. However, such an approach soon become antiquated and indeed unique in North America, where other market-driven jurisdictions were implementing more flexible and less costly means to procure capacity. Indeed, in the context of the current Market Renewal process in Ontario, the Government has accepted that one such approach, Incremental Capacity Auctions (ICA), would replace long-term contracts as the means to procure capacity going-forward.

But that policy decision does not address the effects of the legacy 29,000+ long-term contracts totaling about 28 GW that have been signed and for which rate-payers are on the hook for another 10 to 20 years. It is the payment of such contracts that drive future costs; their review is the only means of lowering such costs. To ensure that such a review is a fair and reasonable policy option, it is important to discuss again why many of these contracts were not good public policy, putting these contracts into conceptual context as yet another type of 3Ps wherein the asset ownership and revenues of a traditionally public service (electricity) is private with a revenue stream guaranteed by the public. One of the Government’s stated reasons for the adoption of the private sector contract approach was that the public would not bear the risks of construction cost overruns and delays. That risk was in effect transferred to the private sector. However, these contracts failed to transfer two types of commercial risk, leaving them wholly with the public.

One such risk is associated with excess capacity. In a competitive market with free entry/exit, a situation of excess capacity would not hold for long because the corresponding lower market price would drive higher-cost IPPs out of the market. That does not occur in Ontario under the contract approach because the market price is only a small portion of the revenues received by IPP, the rest being the GA. So there is no exit, and the public continues to pay for unneeded capacity and curtailed electricity.

The other type of risk is associated with the difference between contract versus market price. The long-term cost trends to generate electricity depend on technology, input prices and technological developments. In Ontario, the market price of electricity has been in steady decline since about 2008-2009 (consistent with other competitive energy markets in North America). In the meantime, technological improvements have resulted in a steep reduction in the price of renewables generation. Rate-payers have only benefited partially from these developments. For example, standard offer solar contracts signed in 2009 will mean that rate-payers will continue to compensate IPPs until 2029 at the rate of $800/MWh set in 2009, rather than the current competitively-contracted average price of $155/MWh.

Options

So what are the options available to a new Government interested in reducing future costs by reviewing some of these contracts? First, it is important to create a hierarchy of contracts to understand the task at hand. By way of background, of the 28GW total contracted, OPG and Bruce account for 11GW. Of the remaining 17GW, about 5GW are accounted by about tw0-dozen larger contracts that were negotiated bilaterally, about 6GW were procured by standing offer arrangements (accounting for nearly 29,000 smaller contracts) and about 6GW were procured competitively via about 70+ contracts. This means that about 11GW were contracts that were not competitively sourced and whose contract price was established via negotiation or administratively. I would suggest that it is these contracts that could be first on the list to be reviewed. Second, it is also important to note that their review would not be an easy or fast process (otherwise it would already have been done) and is subject to legal and political risk because these contracts include termination and other compensation provisions if they are unilaterally amended by the Government. The specifics of such provisions, however, like the rest of the contracts, are confidential (at least for the bilaterally-negotiated contracts); therefore, these options are necessarily preliminary, and may have to be revised based on a review of such provisions.

  • Option #1. Negotiation. The Ministry could indicate to some IPPs that it wants to re-negotiate the corresponding contracts with the objective of reducing contract prices. The affected IPPs would have to determine whether to participate or to remain shielded behind the termination/compensation provisions and risk the uncertainty associated with the new Ministry proceeding with one or both of the options discussed below.
  • Option #2. Cancellation of Contracts with no special additional compensation. The Ministry could cancel some or all contracts, which would mean that the affected IPPs would no longer receive the GA or any curtailment payments, but would revert to the pure energy market of 2002, receiving only the market price (HOEP) for actual electricity dispatched. From the public side, the savings would be significant. Some of the affected IPPs would claim compensation in courts and international fora, and Ontario’s regulatory reputation in the energy sector would be further damaged, thereby further raising the risk-premium for future private investment in the sector. In the context of the current excess capacity, I can see a number of scenarios wherein the long-run public savings would be greater than the corresponding costs, especially if the Government decided to revert to earlier policy of giving primacy to the public sector in any required new investment after the current surplus situation is concluded around 2024-25. A variation of this option is that in tandem to the cancellation, the Government also enacts legislation that shields it from any claims of additional compensation, along the lines argued in this legal note.
  • Option #3. Replacement of Contracts with a new regulated regime. The Ministry could amend/cancel some or all contracts, replacing the compensation-related provisions with a new regulated regime. There are of course many options in this regard, but the main principle would be to provide for a regulated rate of return (ROR) for IPPs. One variation of this would be to establish a going-forward IPP-specific compensation regime providing such an ROR over the life of the project. For example, say that the calculated net revenue requirement to earn the regulated ROR for a particular 20-year project is $10 million, and over the last 10 years the project has received $7 million. Without any change, the project would receive another $7 million in the next 10 years, meaning that by its end, the project would have been over-compensated by $4 million in excess of the reasonable ROR (of $10 million). Under this example, the Ministry could revise its compensation regime downwards so that this IPP would receive only $3 million over the next 10 years, for a total of $10 million over the twenty years. A relatively efficient application of such a regime would likely be based on a series of economic models of efficient firms using current technology that could be updated periodically. Such models would be designed with the objective of capturing the majority of the affected IPPs, rather than having to review and calculate the ROR for every IPP. However, the Ministry would also need to carry out case-by-case reviews of the largest contracts and consider any special cases by appeal. My hypothesis is that total compensation to IPPs would be reduced considerably compared to the status quo under this option. It is possible that a portion of the affected IPPs would claim compensation in courts and international fora, but I suspect that it would be fewer than under Option 2, that a lower percentage would be successful and that any damages would be orders of magnitude less than the savings to the public.

There are tens of billions of dollars at stake. The Liberal Government has indicated that they will not review any of these contracts. What would the Conservatives or the NDP do if they were elected in 2018? Free from association with past policy mistakes and alliances, would they try to turn the political spotlight on some of the IPPs to see whether it strengthens their hand in future potential negotiations? Or will they take the well-worn path, throw their hands in the air saying there is nothing to be done (now that they have access to the confidential contracts) and continue to blame Liberal Governments for another generation, while rate-payers continue to pay for those mistakes?

Categories: News for progressives

Why Toronto needs a national housing strategy

Sat, 2017-11-11 23:53

Dr. Colin Phillips is an up-and-coming scholar in Canada’s homelessness sector. He has an opinion piece in today’s Toronto Star titled “Why Toronto needs a national housing strategy.”

Points made in the opinion piece include the following:

-The City of Toronto has worked hard to develop good practices on the ground to address homelessness.

-But, like all of Canada’s major urban centres, it can’t properly address homelessness without substantial increases in funding from the federal and provincial governments.

This opinion piece is quite timely, as a new “national housing strategy” is expected to be unveiled by the Trudeau government later this month.

On Monday, the Calgary Homeless Foundation will be publishing a peer-reviewed report authored by Dr. Phillips. That report’s focus will be Toronto’s Streets to Homes program (a program that provides immediate access to housing to persons experiencing homelessness).

Categories: News for progressives

The Private Corporation Tax Loophole and the Ultra Rich

Wed, 2017-10-25 19:47

The 2017 Economic and Fiscal Update provides some detailed data (see pp. 51-53) on who will be impacted by the government’s plan to limit how much passive investment income can be earned in a private corporation.

Income from investments held in a private corporation is taxed at a lower rate than investments held by a person in a non registered account such as an RRSP or TFSA. For most small businesses, there is no incentive to save in a private corporation rather than an RRSP of TFSA.

Responding to anguished cries from small business, the vast majority of which are not impacted at all, Minister Morneau will allow $50,000 of income to be earned within a private corporation. This is equivalent to assets of more than $1 million.

The government estimates that putting a cap on private corporation investment income will affect just 3% of private corporations with investment income. But this small group of just 8,400 companies accounts for a stunning 88% of private corporation passive investment income.

Crunching the numbers shows that the affected 8,400 companies have average assets of $35.7 million.

The Department of Finance estimate that earning investment income in a private corporation instead of a personal account provides a higher annual after tax rate of return over ten years of 12.5% compared to 6.9%.

Again crunching the numbers, this means that the after tax return for the average private corporation impacted by the changes will fall from about $4.5 million to $2.5 million per year. (This depends on the details of how the new cap is to be applied, which will be in future legislation.)

Minister Morneau is entirely correct to argue that his proposed changes to taxation of passive investment income will have no impact on genuine small businesses, and are squarely aimed at a very small group of wealthy Canadians seeking an unjustifiable tax advantage.

Categories: News for progressives

Update on Jimbo’s Minimum Wage Wager

Sat, 2017-10-14 11:57

It’s been over a week now since I challenged the authors of 5 business-friendly economic reports to a friendly wager over the future trajectory of employment in provinces that are raising their minimum wage to $15 per hour.  The challenge was issued in my Globe and Mail column of October 3.

I was responding to the several business groups and business-funded think tanks that had issued several reports predicting job losses from the higher minimum wage, in the run-up to the coming vote in the Ontario legislature on the policy.  I summarized some of the major flaws of the various studies: including their misreading and misapplication of recent economic research on the employment effects of minimum wages (which typically find very small, or even slightly positive, effects); their misleading arguments regarding the connection between minimum wages and poverty; and their spurious concerns about the supposedly undue pace of the increases in Ontario and Alberta (in fact, of course, business lobbyists stridently oppose higher minimum wages on any timetable).

My main concern, however, was not these methodological critiques, but rather that the headlines generated from these reports about “coming job losses” resulting from higher minimum wages were very misleading, and in fact misportrayed the reports’ actual findings.  The reports generally describe an implicit counterfactual simulation relative to some base case forecast (which presumably incorporates normal ongoing employment growth).  At worst, in their scenarios (even if we accept their pessimistic approach), employment would grow more slowly than would otherwise be the case.  That doesn’t really mean that “jobs are destroyed by higher minimum wages.”  But that is how the results were portrayed in media coverage.  The scale of potential job losses in even the more negative of these studies will almost certainly be overwhelmed by normal job creation, and hence employment will continue to grow even after minimum wages are raised.

It’s important to note that this is not because of higher minimum wages (the economic research suggests that the expansionary effects of higher minimum wages through stronger consumer spending roughly balance out potential contractionary effects experienced primarily through slower business investment).  I am not arguing that a higher minimum wage in and of itself creates new jobs; only that fears they will destroy jobs and reduce employment are not valid.  The small effects of minimum wages (in either direction) will be overwhelmed by the other, more important determinants of employment.  Meanwhile, the distributional effects of higher minimum wages (shifting income from capital to labour, and towards low-wage workers in particular) will be very positive.

To highlight this point, I challenged the authors of five different critical studies to a $500 wager (each) that total employment in the relevant province they analyzed would be higher (not lower) one year after the minimum wage is increased.  To propose this wager, I have corresponded personally with the lead authors of the studies published by the Ontario Chamber of Commerce, TD Bank, the C.D. Howe Institute, the Fraser Institute, and the Ontario government’s own independent Office of Financial Accountability.  (That last group is in a different category from the others: it is not a business-friendly think tank but rather a government-funded body meant to provide arms-length analysis of government fiscal policy matters; its mandate apparently allows it to wade into broader economic issues like this one. I remain deeply suspicious of the FAO’s decision to wade into this particular debate, and I think there should be a broader critical discussion of its mandate and governance.)  The C.D. Howe report was focused on Alberta – and hence my proposed wager is based on the change in Alberta’s employment.  All the others focused on Ontario, and the bet was defined accordingly.

In my correspondence I indicated that if I won the bet, I would donate both my winnings and my original ante to the Workers’ Action Centre (the fine organization which has spearheaded the Fight for $15 in Ontario), or in the case of the Alberta study to the Fight for Fifteen network based in Calgary.

To date I have heard back from three of the five authors.  Two of the authors (lead authors of the TD Bank and Ontario FAO reports) replied noting that their own research in fact indicates their expectation that total employment in Ontario will indeed grow after the minimum wage is increased (although more slowly, in their judgment, than it would have otherwise).  They were understandably puzzled why I would ask them to bet against their own forecasts!  The lead author of the Ontario Chamber of Commerce study sent me a pleasant but noncommittal reply, referring me to a posted response which restates their key arguments, expresses concern at “ideological” misrepresentations of their findings, and declines the proposed wager.  The reply (like the original study) makes no mention as to whether the authors expect total employment in Ontario to rise or fall after the minimum wage is increased (that is, whether the job losses they expect from the minimum wage will outweigh the normal expected increase in employment).  I repeated this explicit question to them in subsequent correspondence, with no reply.  I should note that all three of these authors also indicated they did not think betting on an important economic issue was appropriate or ethical.

I have not yet received a reply from the authors of the Fraser Institute and C.D. Howe reports.  I will update this blog post (in the Comments section below) if I have any subsequent correspondence regarding the proposed wager.

For now, this offbeat exercise has confirmed my argument in the original column that none of the minimum wage critics are actually arguing that employment is going to decline in any of the provinces lifting the minimum wage to $15. Highlighting this point – that employment growth has been relatively strong in all three provinces (Ontario, Alberta, and B.C.), and will almost certainly continue even as the minimum wage increases – is an important way of responding to the fear-mongering of the business critics.

Categories: News for progressives

New book on Indigenous homelessness

Sun, 2017-10-08 05:18

I’ve recently reviewed a new book on homelessness among Indigenous peoples. The book, published by the University of Manitoba Press, was edited by Evelyn Peters and Julia Christensen.

My review can be accessed at this link.

Categories: News for progressives

Stephen Clarkson: An Introduction to a special blog series

Sat, 2017-10-07 10:20

Stephen Clarkson: Political Economist with a Global Vision (1937 – 2016)

Marjorie Griffin Cohen and Daniel Drache

Stephen Clarkson died early in 2016 in Freiburg, Germany and Canada lost someone very special. Stephen was a Professor in Political Science at the University of Toronto and engaged in teaching, research and writing until his death. He has contributed, in an extraordinary way, to the public understanding of Canada and North America in the 20th and 21st centuries, Europe in the 21st century, and the politics of globalization in the Western World.  He was one of Canada’s leading experts on Canada/US relationships and in this, his absence is acutely felt now as we are in the midst of renegotiating NAFTA.

At the annual gathering of academics in Toronto at Congress 2017, we organized a series of panels related to Stephen Clarkson’s work. We constructed the panels with the idea of bringing together experts who work in the various areas related to what interested Stephen to understand Stephen’s impact in the area.  The papers that were presented at Congress will each appear in the PEF forum. The point of the papers was not necessarily to be a comment on or critique of his work per se, but to show his influence on the entire thinking in an area of political economy, relating to issues such as the mega-trade deals, the machine politics of the Liberal and Conservative Parties, corporate influence, North American integration, and the new issues arising for regional and world politics such as the investor state dispute settlement mechanism trade court.

Stephen’s work was centered on the leading issues of the day foremost of which was the erosion of national sovereignty facing the unstoppable, far-reaching invasiveness of globalization and WTO’s complex, difficult legal culture.  He authored 14 books, and edited four others.[1]  He was a gifted linguist and fluent in French, Russian, Spanish, Italian and German.  He could present in each of these languages (in their home countries) what many of us struggle to do in English in Canada – deliver an academic paper or lecture without notes.

He received many honours and awards – some of them the most prestigious this country can give, such as the Order of Canada.  Stephen was also a gifted teacher and loved that aspect of his life.  He particularly enjoyed teaching undergraduates (another departure from many colleagues).  He even managed, through his charm and determination to include undergraduates on panels at Congress (the yearly gathering of Canadian academics where undergraduates are not permitted to present papers).

He has had an exceptionally productive career with a great many significant publications that have affected thinking in this country. An Independent Foreign Policy for Canada, 1968 is an edited collection, in which he wrote a chapter that presaged Trudeau’s Third Option and began his life-long concern researching the Canada’s declining importance in the global economy.

Uncle Sam and Us,: Globalization, Neoconservatism, and the Canadian State 2002 provides a powerful study documenting the massive reorientation of Canadian state policy, the rise of North American corporate power and the increasingly toxic role of neo-liberal ideology as a separate commanding policy space. The Big Red Machine, 2005 delved into the exercise of power, disappointments, betrayals and leadership battles of Canada’s Liberal Party, once the country’s unchallengeable hegemonic political party whose grip on power seemed unassailable at the polls despite a string of minority governments and the shift of power regionally from Quebec to the West.

These massively documented volumes are an excellent example of his vast knowledge and deeply analytical approach to Canada-US relations.  Before this book, his earlier book, Canada and the Regan Challenge:  Crisis in the Canadian-American Relationship, 1985 was one of the best contemporary studies of Canada/U.S. relations available from a critical Canadian perspective. His book became a classic of the new critical nationalism of English Canada of the 1980s, along with Kari Levitt’s earlier work Silent Surrender (1970), and was used extensively in universities all over the country on the asymmetrical, nuanced relationship between the two countries.

Another major initiative was to undertake a two volume magisterial study of the career, personality, ideas and exercise of power of the protean Pierre Elliot Trudeau during his decade long, tumultuous time as Prime Minister. He wrote this with his wife, at the time, Christina McCall Newman, a well-known journalist.  The vibrancy of their exhaustive reckoning and biting assessment of the Trudeau years in part came from their finely-honed writing skills exemplified by their unforgettable opening line of the first volume of their biography, “He haunts us still”.  Its impact also, derived from the dozens of interviews carried out in Ottawa, London and Washington about Canada’s larger than life Prime Minister who transformed modern Canada linguistically, economically and constitutionally. As these volumes showed, for many Trudeau became the ideal love-hate polarizing actor, change-agent, activist, theoretician, global celebrity with a grand federal vision for a newly constituted English Canada. In the Clarkson/McCall authoritative account we relive the nail-biting excitement and high and low drama of Canada’s constitutional wars particularly through Trudeau’s struggle against René Levesque’s and later with Lucien Bouchard’s la grande stratégy pour l’independence. Stephen and Christine won the Governor General’s medal for the first volume.

After the liberalism of the Trudeau years Canada changed, and Clarkson continued to focus on power, ideology, and state policy. In addition to his broad knowledge of Canada/US relations, Clarkson published extensively on North American political economy along with a proliferation of studies and reports, with a special emphasis on NAFTA and its implications for Canada and Mexico. While working on issues related to free trade, he became fluent in Spanish, developed a close working relationship with significant scholars in Mexico, and spent considerable time in Mexico doing research for publications.

It is a tribute to his perseverance that he not only learned Spanish to be able to better communicate with Mexican scholars and government officials, but also shifted his focus of analysis to include the implications of North American trade relations on Mexico as well.  One large-scale project (and most of his books are what he called “his big book projects” e.g. Does North America Exist, 2008, running over 500 pages) is innovative analytically in that he examines whether North America is becoming a cohesive economic and political unit akin to the European Union, with its increasing integration of political, economic, sociological and cultural integration.  Because of the dominant power of the U.S. he felt it is incorrect to think North American integration was an embryonic form of European integration. There is no separate political center, and no governance equivalent to that in the EU.  He concluded with a sense that the asymmetrical power system in North America might be the template for the regionalism emerging in the twenty-first century.

In a book he co-authored with Matto Mildenberger, Dependent America?  How Canada and Mexico Construct U.S. Power, 2011, they turned the usual Canadian approach to the US on its head by examining the impact of Canada and Mexico on the U.S. policy making process.  This book contests the idea that US power is self-determined and a result of the autonomous actions of its own citizens’ industriousness.  Rather it shows the myriad ways that the US in both the past and present derives benefits from other states’ resources, but even more significantly they delineate and how both countries, rather than recognizing this power, constantly demonstrate dependent-country comportment toward the U.S.

Dependent America is a piece of bold scholarship that takes the entire continent and gives the current economic and political relationships an analytical and grounded historical context.  It also gives a framework for understanding the current NAFTA negotiations and the highly volatile political relationships post-Trump.

In all of Stephen Clarkson’s work, his expertise does not lose sight of the knowledge that institutions are grounded in the lives of people and communities. Throughout his work he is acutely aware that the pushback of social movement actors in search of large-scale political change can become change-makers, even when the institutional universe is heavily stacked against them. It comes as no surprise then, that for Clarkson there is no straight line of causality between the fatalism of  ”there is no alternative” to the powerful and  seemingly unstoppable forces of markets globally and the empowerment of citizens to act collectively and locally.

Stephen resumed his interest in the German language and Germany in the later years of his life.  With his wife, Nora Born, he spent about half the year in Canada and half in Germany, where he would lecture and pursue research and writing on subjects related to regionalism.

We very much miss him personally as a good friend but also as an intellectual presence in Canada.  He was forthright and fearless in his public commentaries, and was frequently heard on the CBC and Radio-Canada.

The papers to appear in this series in PEF are as follows:

  1. Andrew F. Cooper, “A Critical Appreciation of Stephen Clarkson: Looking Back at his ‘Foundational Text’ on Canadian Foreign Policy”
  2. Greg Inwood, “Nationalism versus Continentalism: Clarksonian Perspectives”
  3. Laura Macdonald, “When Will the Fiesta Start? Mexico-Canada Relations in a New North America”
  4. Louis W. Pauly, “Canadian Political Economy: The Legacy of Stephen Clarkson”
  5. Michele Rioux, “Globalization and the Neoliberal Trade Agenda @ Bay: New Challenges for Canada and North America
  6. Daniel Drache, “The Clarkson Story Up Until Now and The Uncertain Future Of The WT

 

[1] Among his many books are: An Independent Foreign Policy for Canada 1968, Canada and the Reagan Challenge: Crisis in the Canadian-American Relationship 1985, Trudeau and our Times (with Christina McCall two vols.) 1990 and 1994, Uncle Sam and us: Globalization, Neoconservatism and the Canadian State 2002,  The Big Red Machine: How the Liberal Party Dominates Canadian Politics, 2005, Does North America Exist?: Governing the Continent after NAFTA and 9/11, 2008, A Perilous Imbalance: The Globalization of Canadian Law and Governance (with Stepan Wood), 2010, Dependent America? How Canada and Mexico Construct US Power (with Matto Mildenberger), 2011.

 

 

Categories: News for progressives

Self-insurance for workers doesn’t work

Sun, 2017-09-24 22:35

This is a guest post from Rod Hill, a Professor of Economics at the University of New Brunswick, Saint John campus. A previous version of this post first appeared in the New Brunswick Telegraph Journal.

In a report this month for the Halifax-based Atlantic Institute for Market Studies (AIMS), entitled “An Alternative to Employment Insurance”, Justin Hatherly proposes replacing the Employment Insurance (EI) system. A look at the proposal quickly reveals how unsatisfactory it is.

Instead of EI, Mr. Hatherly wants individuals and employers to contribute to Personal Security Accounts (PSAs). These accounts would be the property of the individuals, which they could draw upon in certain circumstances in the event of unemployment. The funds would be invested in the stock market by an independent board.

In effect, he is proposing to eliminate EI while expanding the current Registered Retirement Savings Plan (RRSP) system with some compulsory contributions, while restricting the withdrawal of those additional funds.

He writes “Persons who lose work through no fault of their own can draw 55 percent of their wages [up to the insured maximum] for 24 weeks, provided they had contributed for 960 hours” (about 24 weeks of full-time work). “Those who left their prior employment voluntarily would be ineligible” – but why deny them access to their own savings? Quitting a job get a better one is something to be encouraged.

Crucially, “those with insufficient savings receive benefits from a common fund financed by general revenue. However, they incur a negative balance and must pay back the government before contributing to their PSA” to be eligible for further withdrawals or loans.

AIMS is proposing that individuals should rely entirely on their own savings or borrowed money to survive during a period of unemployment.

Every insurance system, public or private, has the feature that those who experience a bad outcome (a house fire, a car accident, a health crisis, layoff, and so on) have benefits that are paid by those who have not (yet) experienced a bad outcome. That is the whole point of insurance. Risk for everyone is reduced as risk is pooled across the whole population.

Instead, Mr. Hatherly is inviting people to ‘self insure’ like people do if they fail to buy house insurance. We all know how that turns out if your house burns down.

A few lengthy periods of unemployment would be no more pleasant. When people self-insure, they bear the entire risk themselves. Those with high and steady incomes may be able to shoulder that risk, but most people, particularly those with lower incomes, would not.

I did a calculation to see how this system would work. Someone earning $50,000 a year and making contributions of 4 percent could take 6 years to accumulate enough resources to cover the proposed maximum withdrawal from their Personal Security Accounts. (Under the current EI system, such a person would be guaranteed a minimum of 36 weeks of benefits, not the 24 in the AIMS scheme.)

This assumes that the invested funds would grow steadily. When the last recession began in 2008-2009, the national unemployment rate rose from 6.1 percent to 8.3 percent, while the Toronto Stock market index fell by more than 40 percent. If unemployed workers had been relying on Personal Security Accounts, their funds would have been decimated at the time they needed them the most.

In his report, Mr. Hatherly notes that even unemployment might not diminish the Personal Security Accounts very much because of “restrictive conditions on benefit withdrawal and duration” – a point which underscores the inadequacy of his proposal for maintaining income and spending after job loss.

An important feature of EI is that benefits and the spending they support kick in quickly where and when layoffs occur. This helps shorten recessions by maintaining total spending.

Mr. Hatherly is right about one thing. With workers left to support themselves during periods of unemployment, they will have an incentive to find employment quickly – assuming, as he seems to, that jobs are available. (Particularly in recessions, the number of people looking for work far exceeds the number of job openings.)

However it’s better for both workers and employers if people to take time to find a job well suited to their skills. As well, a lack of income support during unemployment would increase the bargaining power of employers and push down wages.

No one would argue that the existing EI system is perfect. A much criticized feature is its division of the country into regions where eligibility criteria and benefit duration vary greatly.

In those with the lowest unemployment rates, typically urban areas, a minimum of 700 hours of work are required to be eligible for only 14 weeks of benefits. A minimum of 1820 hours (about 46 weeks of full-time work) are needed for 36 weeks of benefits.
In regions with the highest unemployment rates, 420 hours of work gives eligibility for 32 weeks of benefits. The result is a permanent subsidy to regions of high unemployment and inadequate access to EI benefits for many in urban areas. Just because the unemployment rate is low does not mean that it is easy to get a job. Many people are increasingly stuck in ‘precarious work’, temporary or part-time with no job security.

Any change to this system towards one with greater national uniformity would have to be done gradually to avoid undue hardship in high unemployment regions. It would be best done in conjunction with other changes to income supports, such as guaranteed minimum incomes, an idea governments are now seriously considering.

However, but AIMS’ radical proposal to scrap Employment Insurance completely and to leave individual workers on their own to bear all the risk of unemployment is not an improvement.

Categories: News for progressives

Income and geographic distribution of low-income renters in Toronto

Wed, 2017-09-20 14:16

In this second of a series of housing-related posts I analyze the income and geographic distribution of renter-occupied households in the City of Toronto. My first post focussed on affordability and inequality trends by analyzing time series (2001-16) data for Ontario by household income quintiles. As a complement, this blog studies the income and geographic distribution of low-income and other renter households in Toronto based on census-tract (CT) data for 1996 and 2006. I expect to update and expand on this analysis after 2016 data is released later this year. This Toronto-specific analysis confirms the earlier provincial-level findings with respect to the broader structure and dynamics of the rental market. Based on this more disaggragate basis, I find that increased between-CT household income inequality is being driven by increases in inequality in owner households. The data shows significant income sorting by geography, so that higher (lower) income renters and owners tend to live in the same higher (lower) income CTs. Lower-income renters are concentrated in lower average income CTs, pay lower rents, but face a much higher rent burden. In subsequent posts I will update this analysis and discuss the policy implications and initiatives of these and other findings.

Census-tract rental data for Toronto

The Neighbourhood Change Research Partnership (NCRP) has been undertaking research on socio-spatial polarization trends in Canadian metropolitan areas for more than a decade. As part of this ongoing work, the NCRP purchased custom tabulations from Statistics Canada of census data at the CT level for a number of census metropolitan areas (CMA) and census years. The NCRP has kindly made the 1996 and 2006 tabulations available to me, including for the City of Toronto. The data includes over 520 CTs, which averaged about 1,725 and 1,865 households per CT in 1996 and 2006 (from 900,000 to 975,000 households in total), for an increase of just over 8% over the ten-year period. The number of renter households declined from 475,000 to 445,000 while owner household increased from 425,000 to 530,000 over the same period. Hence the proportion of renter households decreased from about 52% to 46% from 1996 to 2006.

The NCRP data tabulation is relatively detailed and includes average income for a a number of households per CT. However, the tabulation does not include quintile-specific income data. However, it does include disaggregate data for renters with a household income below 50% the median household income for the Toronto CMA (this measure is known as the Low Income Measure (LIM)). The number of LIM renter households was constant at around 200,000 over the period, which accounted for about 22% and 20% of all households and about 42% and 45% of all renters, respectively. For purposes of linking the current work to the quintile-based analysis of the first blog, I consider such LIM renters as approximating first quintile renters (in general, the LIM threshold is somewhat lower than the upper limit of the first quintile income group, but this is offset in this tabulation by renters not fully making up (70%) the first quintile or all households). Those “Other” renters with incomes above the LIM therefore approximate the renters in the second to fifth income quintiles. The number of Other renter households declined from 275,000 to 245,000 over the ten-yer period.

 

Renter Income Distribution

Table 1 includes average household income for renters and owners separately and for all households combined (in constant 2006 dollars) as well as the corresponding Gini coefficients. The table confirms that renter incomes are about half those of owners and that most average income gains over the 1996-2006 period accrued to owners. Between-CT income inequality increased over the period as well, as the corresponding Gini coefficient increased from 0.216 to 0.293. Table 1 shows that while between-CT owner income inequality increased (from 0.190 to 0.291), between-CT renter inequality decreased slightly (from 0.186 to 0.168), indicating that the overall between-CT increase in inequality was driven primarily by increases in between-CT owner inequality.

Figure 1 shows average household income for owners (green) and renters (blue) in each CT for 1996 and 2006, graphed against CT average household income (in constant 2006 dollars). The 1996 and 2006 trendlines for owners have very high R2, which indicates that there is a very strong correlation between owner and total income in each CT (this is expected at higher income CTs, given the generally very high proportion of owners in the CT). The shape and slope of the owner trendlines is very similar, suggesting that this correlation is relatively stable over time. The trendlines for renter households have relatively high R2, also suggesting a strong correlation. As a whole, Figure 1 shows that lower (higher) income renters tend to live in the same CTs as lower (higher) income owners. This shows that the well-known phenomenon of income sorting by geography by owner households is also applicable to renter households.

 

Renter Geographic Distribution

Figure 2 shows the percent of all renter (blue) and LIM renters (green) in each CT for 1996 and 2006, graphed against CT average household income, in constant 2006 dollars. For all renters and LIM renters the trendlines for both years show that the proportion of renter households decrease with average household income. As expected, the trendlines for LIM renters are below those of the the all renters, meaning that the former are more concentrated in lower-income CTs.

 

Table 2 shows the distribution of renters by CT income quintile for 1996 and 2006. An equal distribution would be 20% in each income quintile. However, Table 2 shows a considerable concentration in the lower quintile CTs, for example showing that 32% of all renters lived in the the first income quintile of CTs in 1996, increasing to 33% in 2006. However, the proportion of renters in the second quintile decreased from 24% to 22%, therefore lowering the concentration in that series of lower-income CTs. LIM Renters are even more heavily concentrated in the lower-income CTs, with 66% and 62% living on the first and second quintiles in 1996 and 2006, respectively. That decrease suggests lower concentration in lower-income CTs.

Table 3 provides the respective average and Gini coefficients for the the proportion of all and LIM renters and confirms that, overall, renters were indeed more unevenly distributed in 2006 compared to 1996 because the respective Gini coefficients increased from 0.275 to 0.304. As expected, the Gini for LIM renters declined somewhat from 1996 to 2006, indicating that they were less unevenly distributed.

 

Rent Expenditures and Rent Burden

Figure 3 shows the average rent paid by LIM renter households in each CT for 1996 and 2006, graphed against CT average household income (in constant 2006 dollars). In real terms, average LIM rents increased about 5% to about $775 per month. Figure 3 shows that rents generally increased with average CT income. Rents for Other renters (not shown) increased by about 1% to about $1,055 and thus tend to be about 40% higher than those for LIM renters. In my first post I noted that income cut-off data available for this analysis (such as quintile limits and LIM thresholds) does not adjust for household size and hence that there is an over-representation of smaller households in first quintile and LIM data. It is in this context that a significant proportion of the difference in rents paid by LIM versus Other renters may be explained by quantity differences (i.e. Other renters with an average of 2.45 persons/household, renting larger units than LIM renters with 1.90 an average of persons/household), with the residual rent difference being due to quality differences. I will explore this quantity/quality aspect of rent differences between LIM and Other renters in a subsequent blog.

 

Figure 4 presents LIM rents as a percent of household income for 1996 and 2006, graphed against CT average household income, in constant 2006 dollars. Other renters (not shown) paid a relatively steady average of about 19% of their income of rent for 1996 and 2006, suggesting these households geographically sort themselves by average CT income. On the other hand, LIM renters are generally struggling with rent, paying an average of about 57% of their income in 1996 and about 55% in 2006. This modest decrease is due to average real incomes increasing more (9%) than average rent (5%) from 1996 to 2006. This decrease is probably one of the main reasons that LIM renters become somewhat less concentrated in lower-income CTs over the period.

 

Concluding Thoughts

My first housing-related post presented provincial-level time-series data to conclude that over the 2001-2016 period rent expenditures for Ontario first quintile renter households increased faster than for other renters and exceeded income increases so that these households had to expend an increasing share of their income on rent. The current CT-level analysis for Toronto shows increased between-CT household income inequality is being driven by increases in inequality in owner households and significant income sorting by geography, so that higher (lower) income renters and owners tend to live in the same higher (lower) income CTs. Similarly, the proportion of LIM renters within CTs decreases as average renter incomes increase. The current work found that over the 1996-2006 period LIM rents also increased faster than for other renters, but that the average rent burden decreased slightly over the period because average incomes increased at a slightly faster rate. This slightly lower rent burden was one of the main reasons for slightly lower concentration of lower-income renters in low-income CTs. Statistics Canada released the income-related data from the 2016 Census last week, which suggests that the custom tabulation that corresponds to the current analysis may be available later this year. I look forward to being able to update this post with that data and discuss the policy implications and initiatives of these and other findings.

Categories: News for progressives

Some comments on the Financial Accountability Office of Ontario’s minimum wage commentary

Thu, 2017-09-14 00:05

The Financial Accountability Office of Ontario (FAO)—an independent, arm’s length, non-partisan research institute—released a paper on September 12th outlining the likely economic impacts flowing from the pending minimum wage increase (see here). The FAO’s findings are already garnering significant media attention and will almost certainly be used by the opponents of Bill 148 as further proof that the Ontario Government is economically reckless.

Contrary to the study commissioned by the Ontario Chamber of Commerce (which warned of 185,000 jobs lost over two years), the Financial Accountability Office is not institutionally or ideologically wedded to a particular political position. This non-partisanship is reflected in the FAO’s findings, which flagged the potential drawbacks associated with a higher minimum wage, yes, but also included many (though not all) well-documented benefits.

Before I provide my reflection on the study’s contents, I wanted to summarize some of the key findings, both positive and negative.

First the negative findings, which are bound to dominate the headlines:

  • The single largest and most potent prediction is that a $15 minimum wage will result in the ‘loss of approximately 65,000 jobs’ (50,000 when we take into consideration the job creation associated with greater consumer spending). This will be the headline-grabbing take away from the study. I will return to this claim below, but it is important to note that a $15 minimum wage will not mean that 50,000 workers will lose their jobs.
  • In response to higher payroll costs, business will try to reduce expenses by increasing automation and by substituting minimum wage workers for higher-paid, more productive workers, thus leading to job losses for workers presently at the minimum wage.
  • Job losses are expected to be concentrated amongst teens, young adults and recent immigrants.
  • Business will attempt to raise prices to deal with the higher payroll costs. This, in turn, is expected to reduce sales, which will trigger further job losses.
  • Consumer price inflation is expected to be ratcheted up by 0.5 percent, which will dampen consumer spending.
  • The FAO concludes that a higher minimum wage is not an effective tool for alleviating poverty because many people working at the statutory minimum come from affluent (above-median income) households. The FAO estimates that just 27 percent of the total gains in labour income will benefit low-income households, while another one-third will flow to households between the low-income threshold ($46,000) and the median-income households ($92,000), leaving 40 percent of the income gains for households with above-median incomes.
  • The overall conclusion is unfavourable: by targeting low-income workers instead of low-income households, the pending increase to Ontario’s minimum wage will fail to significantly reduce poverty, though it will cost many Ontarians their jobs.

On the positive side of things, the FAO’s study notes:

  • Roughly 1.6 million workers will be directly affected by the minimum wage increase (that is 22 percent of the labour market), while those currently making $15-$19 per hour will likely be indirectly affected.
  • Whereas the majority of people currently working at the statutory minimum wage (520,000 people, or seven percent of the labour market) are either teenagers (15-19 years of age), young adults (20-24) or part-timers, once the $15 minimum wage is brought in, most minimum wage workers will be adults and most will be full-time earners. This suggests that the main group benefitting from the minimum wage increase is the people who are most likely to be economically independent and/or have economic dependents (namely children). I raise this because, ordinarily, the group to be most directly benefitted by an increase to the minimum wage—an increase that would usually range from $0.25 to $1.00—would be the teens and young adults working directly at the statutory minimum. Because the proposed increase to the minimum wage is so large ($3.40/hr over the next 17 months) it will capture many more adults in its net (and many more low-income households, too).
  • The new minimum wage is expected to redistribute income from businesses to workers, raise total labour income by 1.3 percent by 2019 and, in turn, boost economic activity. The associated increase in consumer spending will stimulate economic activity and lead to 15,000 new jobs being created, thus partially offsetting the 65,000 expected jobs lost.
  • The scholarly research in Canada finds that higher hourly wages are associated with greater employee satisfaction, reduced turnover and associated training costs, and improved labour productivity, all of which was mentioned (or implicitly recognized) by the FAO study (unlike the study commissioned by the Ontario Chamber of Commerce, which focused only on the economic costs of Bill 148).
  • The scholarly research also suggests that there is no significant impact on adult employment from a higher minimum wage, which the FAO built into their framework.
  • There is expected to be a significant spillover effect arising from a $15 minimum wage. The FAO assumed that those currently earning between $15 and $17 per hour would experience a wage increase of 7.5 percent and those currently earning $17 to $19 per hour would see their earnings increase by three percent. So it’s not just those under $15 per hour who are scheduled to see an increase. Those currently between $11.40 and $19 per hour will likely see an increase. That’s a big portion of the labour market that is about to get a pay raise!

In what follows, I elaborate and assess the findings contained in the FAO report.

First, and most significantly, a $15 minimum wage is not expected to cause 50,000 people to be laid off. The language used by the FAO is ambiguous on this issue. They refer, variously, to ‘job losses’ and ‘reduced employment’, but in footnote #5 they refer to three dis-employment effects including outright job losses, decelerating job creation and a reduction in hours worked. In conversation with FAO economists, I asked for clarification on this matter and was told that 50,000 workers are not expected to lose their jobs. Rather, the combined dis-employment effects add up to 50,000 jobs equivalent lost.

I doubt the media will note this, and part of the problem flows from language selection, but there is a difference between an existing worker being laid off and the rate of (future) job creation slowing down. In in the former scenario an actual person is made materially worse off, while in the latter situation, a hypothetical worker—someone who is not presently employed, but who may seek work in the future—is not able to find a job. In public policy research there is a balance to be struck between terminological precision and conceptual clarity, on the one hand, and readability and accessibility on the other. I don’t fault the FAO for their choice of words, but the likelihood that their claim will be misinterpreted by large swaths of the public (and by public officials) will approach 100 percent.

Second, it is not clear that the job loss estimates for teens and young adults are in line with the latest economic research. The FAO explicitly references Morley Gunderson’s research on the interplay between teen and young adult employment and the minimum wage. Without citing them directly, though, in conversation with the FAO I learned that they also relied on a more recent inquiry by Pierre Brochu and David Green, who find a much weaker relationship between a higher minimum wage and the dis-employment effects among young workers. The FAO claims that their estimates are based on the ‘mid-point in the range’ of scholarly estimates, which implies that the negative employment effects may well be too high (or too low, as they note).

Third, the demographic makeup of those who may lose their jobs is surely significant, though it went unmentioned in the study. The FAO notes that the dis-employment effects will be most strongly felt by teenagers and young adults. The FAO also notes that many of the beneficiaries of the minimum wage hike will be workers in households with above-median incomes, some even from very affluent families. The implication, confirmed in conversation with FAO economists, is that 50 percent of the job losses are going to be felt by young workers coming from affluent households. From a policy perspective this is important. There is surely a social (and indeed, moral) difference between an individual losing a job who has significant financial responsibilities, including provision for economic dependents (including children), and someone unable to find work who, themselves, is economically dependent on another adult. If future job creation for affluent teenagers is one casualty of higher earnings for low-income working parents, that may be a policy trade-off that is worth making.

Fourth, the figure of 50,000 sounds high, but there was no timeline attached to this estimate. In correspondence with the FAO, I learned that the dis-employment effects will play themselves out in the ‘short to medium term’, meaning a few months to a few years. This is also significant. 50,000 ‘job losses’ in one month will have a very different macroeconomic effect than 50,000 jobs lost over a three-year period. Likewise, had the FAO not used absolute job loss numbers, relying instead on relative job losses, the public perception would be rather different. Just think of the headline: ‘50,000 jobs lost as a consequence of a $15 minimum wage’ in comparison with ‘0.7 percent of Ontario’s labour market likely to be negatively affected by $15 minimum wage’. Both headlines are equally true, but the public perception in the first will be very negative, while the perception in the latter would be indifference (0.7 percent amounts to a rounding error in the context of a labour market of 7.7 million people).

Fifth, there are significant omissions in the study, some of which were flagged but some of which were overlooked. For example, there is well-documented research linking a broad range of health outcomes with income and socio-economic status (see here and here, for example). Moving up the income ladder is associated with improved health outcomes, including life expectancy, and by implication reductions in health care spending and hospital budgets. The relationship between low-income and health outcomes was flagged in footnote #1, but was excluded from the study.

Likewise, recent research by Daniel Kahneman and Angus Deaton (two of the greatest living economists) finds that there is a positive relationship between income, on the one hand, and happiness, on the other. In this context, ‘happiness’ can mean either ‘emotional well-being’ or ‘overall life satisfaction’. And while these two dimensions of happiness differ in important ways, both rise with one’s income (though emotional well-being maxes out around $75,000 USD). The Government of Ontario has very few policy levers at its disposal that can directly and immediately improve either the emotional well-being or the overall life satisfaction of roughly two million Ontarian workers and their families. Surely this is a lever that should be pulled.

Similarly, while the economic cost associated with absolute poverty was not assessed, the very well-documented positive social consequences associated with reductions in relative poverty (read: income inequality) were completely overlooked. In its review of the literature, the Ontario Government’s 2014 Advisory Panel on the Minimum Wage noted that a higher minimum wage is associated with both reduced wage inequality and overall income inequality. This is a significant omission and, while it may not have fit inside the parameters of the study, policy-makers cannot remain deaf to the call of income inequality.

Sixth, the FAO’s study overlooked the issue of the gender wage gap (and labour market segmentation, generally). Women are over-represented in minimum wage jobs, including part-time status and in some industries that are heavily reliant on low-wage work, including retail and accommodation & food services. Given the policy significance of the gender wage gap for the Ontario Government’s political objectives, this seems like a considerable oversight. An increase to the minimum wage will likely help close the gender wage gap, as will other provisions with Bill 148, including facilitating access to union representation.

Seventh, poverty is a complex phenomenon with many causes. It must be noted that there is an important distinction between the poverty associated with unemployment and/or the absence of income and the poverty associated with a low-paying job. Clearly, an increase in the minimum wage will not help those who are poor because they do not have a job. A higher minimum wage (nor any single policy instrument, for that matter) cannot solve the problem of poverty as such, though boosting the minimum wage can help alleviate working poverty, both relative and absolute.

Eighth and finally, it is not clear to me that, even if we accept the FAO’s estimates as true, their conclusion necessarily follow from the evidence. The FAO states that 1.6 million people will be directly affected by a $15 minimum wage and that those currently working between $15 and $19 will benefit from the spillover effects. In other words, a very large proportion of Ontario’s labour market is set to receive a pay raise. The Ontario Government certainly has other policy options at its disposal when it comes to improving the economic station of the least well off (including the working income tax credit), but to conclude that a higher minimum wage is an ‘ineffective tool’ for dealing with poverty does not seem in line with the FAO’s findings. A more accurate conclusion, from my perspective, is that a higher minimum wage is not the only tool for dealing with poverty. It is one tool in a broad array of tools, but because the minimum wage will give a large chunk of Ontarian workers a pay raise, I fail to see how this tool could be deemed ‘ineffective’.

There is more to say about this study, but I leave it there for now. It is likely to cause quite a stir in the coming weeks. Let’s just hope the policy discussions that flow therein are factually-grounded.

 

 

 

 

Categories: News for progressives

The headline you didn’t see: $15 per hour will have a big net benefit

Wed, 2017-09-13 02:43

You wouldn’t know it from today’s headlines about impending job losses, but an analysis of the impact of Ontario’s move to a $15 minimum wage from the province’s Financial Accountability Office shows a net benefit for Ontario workers.

Overall, this is a much more cautious report than what the Ontario Chamber of Commerce and its allies had furnished, noting both the costs and benefits of $15. While the media is focusing on job loss figures (more on this below), the report predicts a big overall rise in incomes. Even if we assume its job loss estimates come true, the FAO says real labour income will go up by 1.3% after taking into account any negative effects, with over 60% of that going to the bottom 50% of households.

Anything raising wages (*cough* CEO pay) will create impacts elsewhere. The important point here is that this report admits that $15 is a poverty- and inequality-fighting shift. Some jobs will be lost, but others will be created. (Lagging) productivity will rise. Even a very modest bump in inflation could push growth upwards. Today’s growing but imbalanced economy is well-placed for a boost for low-wage workers.

Returning to the job loss figure, the FAO report is another in a long line to present a skewed picture of minimum wage research, relying exclusively on the old view that features high estimates of job losses focused on teens. The recent, landmark Canadian study from David Green and Pierre Brochu (2013) is not mentioned — using modern methods, the pair found lower elasticity estimates (the percentage effect on employment for every 10% increase in the minimum wage) that would predict far lower job loss. Nor do the FAO economists mention the extensive work of Arin Dube and colleagues from the US, today’s leading minimum wage researchers. Dube and co. reevaluated US teen studies and found employment effects either effectively zero or very, very small — even among teens!

(It’s surprising, given the FAO’s focus on poverty, that they ignore Dube’s recent work on this issue as well, which found substantial decreases in the number of people living in poverty coming from minimum wage increases. In fact, it will be very interesting how the FAO calculated the distribution of income impacts and what they imply about poverty rates.)

Today’s new minimum wage research, if applied to Ontario would predict job losses anywhere from half of what the FAO is putting out to ten times smaller to nil (some studies, including well-known papers, have even shown small but positive aggregate employment effects). In short, there has been a tectonic shift in the economic consensus towards negligible job loss. This leads one to wonder how 50,000 jobs lost is to be a mid-point estimate.

Here is my main take-away: the FAO shows a $15 per hour minimum wage having a net benefit for Ontario workers and reducing inequality; that it ignores new minimum wage research only means that its already positive conclusions should be much stronger and job loss estimates lower.

Categories: News for progressives

Book review: Social policy in Canada (second edition)

Tue, 2017-09-12 08:58

Oxford University Press has recently released the second edition of Social Policy in Canada, co-authored by the father-daughter duo of Ernie Lightman and Naomi Lightman. I recommend this book as an excellent resource for students of social policy. It will be useful for classroom instruction, while also being a handy reference for researchers, persons who design and administer social policy, and persons who advocate for improved social policy.

Here are 10 things to know:

1. The book does an outstanding job of explaining important ideas in very succinct ways. Chapter 1 explains that low-income earners benefit greatly from Canada’s ‘tax and transfer’ system—since our tax system taxes the rich more than the poor, and then redistributes this income in ways that tend to benefit lower-income households. Chapter 4’s discussion of the family—and why it can’t be relied on as the only source of poverty alleviation—is very good (but should appear much earlier in the book, and should have included a consideration of how some families are more effective than others at advocating for social services for their own family members).

2. Many of the visuals are very helpful. Figure 1.2 shows strong correlation between income inequality and social problems across wealthy countries. Figure 7.9 tells an important story about reduced rates of poverty for Canadian seniors over time (it shows that, since the mid-1970s in Canada, median income for seniors has risen steadily). Figure 10.2 (a line graph showing average charitable donations in Canada as a percentage of household income) is excellent—it suggests that lower-income households are more generous with their income than higher-income households. Figure 10.4 shows the percentage of household income (broken down by quintile) that is spent on games of chance in Canada; this makes it clear that spending on games of chance, as a percentage of income, is much higher for lower-income households than higher-income households. Further, many of the visuals found in the book’s three appendices are very helpful—incidentally, all three of the book’s appendices are excellent (one looks at the use of comparative data across different countries, and the other two introduce the reader to CANSIM).

3. The book provides excellent suggestions for further reading. It does this primarily in its Suggested Resources section at the end of each chapter. I was introduced to dozens of resources that I didn’t previously know about and am grateful for this. Along these lines though, I do have one criticism: the book makes no mention of Canadian Social Research Links, which I believe to be one of the most important resources on Canadian social policy.

4. The book doesn’t provide a succinct definition of social policy. Chapter 3, called “Defining Social Policy,” doesn’t actually define it. That chapter even includes a four-paragraph section that attempts to define the term, while acknowledging that the term lacks “an agreed-up meaning” (p. 64). Personally, I think it can safely be said that social policy refers to public policy pertaining to how people live and work together as a society. It includes a range of programs and other measures related to the regulation of marriage, family, children, birth, employment, unemployment, income, education, housing, illness, disability and death. It includes legislation and regulations established by all orders of government.[1]

5. I find some of the concepts introduced to be rather unhelpful. Speaking as someone with 10 years of front-line experience working directly with low-income persons and many more as a researcher, I found the following concepts unhelpful: primary distribution (p. 6); secondary redistribution (p. 7); vertical redistribution (p. 8); horizontal redistribution (p. 9); the public burden model of welfare (p. 67); the handmaiden model of welfare (p. 68); legitimation (p. 69); indifference (p. 72); interdependence (p. 72); horizontal and vertical equity in tax policy (p. 208); the non-excludability and non-rivalness of public goods (p. 238). To be blunt, I have not found occasions in either my front-line work or research where such concepts have been useful.

6. Chapter 5’s consideration of privatization is very good, but has a few shortcomings. The chapter does an excellent job of laying out the many arguments in favour of privatization, as well as the many shortcomings of privatization. In fact, that chapter on its own makes for a great stand-alone reading! But I found it disappointing that, as examples of privatization, it discussed road tolls (p. 123) and the privatization of garbage (p. 141); instead, the book should have discussed the privatization of long-term care for seniors in Canada (including the cases of British Columbia and Alberta). It could have also discussed the final report from the Mayor’s Task Force on Toronto Community Housing Corporation (TCHC), whose very first recommendation was to “[t]ransition to a new community-based non-profit housing corporation…at arm’s length from the City.”

7. Chapter 7’s discussion of universal vs. targeted benefits is excellent, even if it complicates the debate needlessly. I think a good distinction for the authors to have made would have been between universal benefits, on the one hand, and targeted (or means-tested) benefits, on the other. Regrettably, the authors also provide definitions of an “income test” and a “needs test” (neither of which will help most readers).

8. Chapter 8’s consideration of taxation is very comprehensive. I especially appreciate the explanation of the different goals of taxation, the important distinction between marginal tax rates and average tax rates, and the succinct discussion of tax expenditures. One criticism I have of this section, however, is that it states that “the values embedded in the Alternative Federal Budget (AFB) have not, as yet, made their way into the corridors of power in Ottawa…” (p. 230). Prior to the 2015 federal election, I would argue that this was an accurate statement. However, as I wrote earlier this year: “[I]t’s abundantly clear that the Trudeau Liberals’ 2015 campaign platform was strongly influenced by the previous year’s AFB. In fact, staff at the [Canadian Centre for Policy Alternatives] estimate that 30% of the previous year’s AFB found its way into the Trudeau Liberal platform.”

9. Chapter 10, titled “Volunteers, Charities, and Gamblers” tries to do too much. These three topics, while loosely connected, are too different to be combined into one chapter. I think this chapter should have put more focus on the charitable sector, and less on volunteering and gambling.

10. The book has omissions that I hope the authors correct in the next edition. For example, Chapter 2 states that the Conservative government of Stephen Harper “dismantled social programs incrementally…” (p. 47) but fails to note that, on an annual basis, the Conservatives spent roughly twice as much on affordable housing as the Liberals did before them. Chapter 2 discusses the importance of blogs in shaping social policy discussion, but doesn’t mention the blog of the Progressive Economics Forum (full disclosure: I’m a frequent contributor to that blog). Chapter 3 discusses various measures of poverty, but fails to note that the Low Income Cut Off (LICO) hasn’t been rebased since 1992 (which means it’s quite misleading when some people point to the declining proportion of Canadians who lie below the LICO over time as a success story). Chapter 6, in providing an example of stigma, should have discussed the stigma associated with social assistance (see point #8 of this previous blog post) rather than discussing the stigma of publicly-subsidized eyeglasses in England in the 1960s. And when discussing user fees in Chapter 9, instead of discussing user fees in Saskatchewan’s health care system in the 1968-71 period, the book could have discussed post-secondary tuition fees today.[2] Finally, Chapter 12, which focuses on the future of Canadian social policy, missed several important opportunities—it ought to have discussed Canada’s aging population and the impact this will have on Canadian social policy. Chapter 12 also should have discussed the social policy implications of the increase in one-person households across Canada; the evolving ethnic composition of Canada’s population; and the increase in Canada’s linguistic diversity.

In Sum. I used the first edition of this book when I taught a third-year undergraduate course at Carleton University in 2013. If I ever teach a similar course again, I’ll definitely assign this second edition as mandatory reading. The authors should be congratulated on a job well done!

I wish to thank the following individuals for assistance in preparing this review: Vicki Balance, Daniel Béland, Peter Graefe, Seth Klein, David Macdonald, Michael Mendelson, Kevin Milligan, Allan Moscovitch, Alain Noël, Michael Prince, Chris Roberts, Richard Shillington, Joel Sinclair and Donna Wood. Any errors are mine.

[1] My long-time social policy mentor, Allan Moscovitch, helped me come up with this definition.

[2] Tuition fees are discussed in Chapter 1, but in a different context.

Categories: News for progressives

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