APRIL-MAY 2006 Lars Osberg

PULLING APART — THE GROWING GULFS IN CANADIAN SOCIETY Lars Osberg Canadian society has become “increasingly unequal in recent years,” writes Lars Osberg of Dalhousie University. “While the poor became poorer, the rich have become much richer,” he writes, citing an absolute decline in provincial welfare benefits for single parents with one child. In oil-rich Alberta, such benefits in real 2004 dollars have fallen by 38 percent since 1986, while in Ontario they have fallen by 26 percent. If our richest provinces aren’t looking after their neediest citizens, including the homeless at the extremes of society, then these people’s situation is even more precarious in the have-not provinces. Yet Alberta, he writes, “is resentful of any suggestion for sharing,” and Ontario has become a demandeur, claiming a $23 billion shortfall from Ottawa. “The policy challenge,” he concludes, “is to establish and maintain ‘winning conditions’ in which citizens in all parts of the country would prefer to be part of Canada as a political, social and economic union.” f the objective of Canadian public policy is to increase the at the top and bottom of the income distribution. The real well-being of Canadians, then increasing the growth rate income (as reported for income tax purposes) of the top 1 per- I is not enough — the utility that citizens derive from eco- cent of Canadian income earners increased by 65.7 percent nomic life is affected by both the growth in average incomes (from $239,550 in 1986 to $396,880 in 2000, both measured and by changes in the distribution of those incomes. As well, in year 2000 dollars). By contrast, the real income of Alberta in recent years the economics literature has increasingly rec- single parents on social assistance decreased by 22.8 percent. ognized that “social capital” matters —because it is both a direct influence on the utility of individuals and because it is growing body of research has found that localities with a an indirect determinant of well-being through its impact on A more active associational life, a denser network of social other variables (like crime or the rate of growth in personal ties and a higher level of trust have higher growth rates of GDP incomes) that influence individual utility. Income distribution per capita — partly because of lower transactions costs and therefore matters for national well-being in two ways — first partly due to lower crime rates (particularly violent crime because of its direct impact on economic inequality and sec- involving firearms). Increasing inequality corrodes social ties ond because of its impacts on the depreciation over time of and thus has both a direct and an indirect effect on well-being our national stock of mutual trust, forbearance and civility. — even after controlling for social capital, income inequality Canadian society has become increasingly unequal in is a robust determinant of the incidence of violent crime. recent years, as incomes at the top have grown dramatically, More generally, social capital is the glue that holds while the least fortunate members of Canadian society have social institutions together — Berger-Schmitt’s “shared val- faced a substantially nastier economic reality. Although ues and rules for social conduct expressed in personal rela- Canada’s GDP per capita grew by 36 percent from 1986 to tionships, trust and a common sense of ‘civic’ 2004, social assistance recipients in all Canadian provinces responsibility” that enable society to function, either well or now have, after inflation, lower real incomes than comparable poorly. There are many ways in which the quality (and individuals did 20 years ago. Figure 1 is taken from the often the efficiency) of day-to-day life depends on the daily National Council on Welfare and presents the Alberta case. manifestation of a certain amount of consideration for the While the poor became poorer, the rich have become well-being of anonymous strangers. Individuals can, for much richer. Figure 2 graphs the changes, relative to a 1986 example, choose to let other cars into traffic (or not) and base, in inequality and average incomes. It plots the Gini they can choose to jump queues (or not). In making those index of inequality as a measure of the overall inequality of choices, they affect directly the quality of other people’s incomes (which increased from 0.388 to 0.425 — i.e., by lives. Tim Hazledine remarked that “social capital may be about 10 percent) and it presents real GDP per capita. As well, the stock, but forbearance is the flow” — and it is in the since the Gini index is most sensitive to variations in inequal- civility of daily social intercourse that social capital provides ity among middle class Canadians, figure 2 also plots changes some of its direct benefits for individual well-being. POLICY OPTIONS 51 APRIL-MAY 2006 Lars Osberg How, then, can we prevent erosion (Alberta) and $14,652 (Ontario) in 1986 urban problems facing middle class of the civility and mutual considera- to $8,784 (Alberta) and $10,784 Canadians. Canada now has both more tion on which our own daily well- (Ontario) in 2004 — a 38 percent cut in “monster homes” and more homeless. As being depends? Alberta and a 26 percent cut in Ontario, the extremes of the income distribution A particularly visible indicator of which was only partly offset by increased pull away from each other, the casualty is increasing economic inequality in federal transfers. Meanwhile, the per a common interest in the maintenance Canada is the growth in homelessness, capita real incomes of the top 1 percent of the social infrastructure, despite its with its implied social message that rose by an average of $157,330 between importance to a broadly based prosperity. Canadian society clearly does not care 1986 and 2000 — i.e., from $239,550 to what happens to some of its citizens. In $396,880. “Dropping out from the top” he policy challenge is to prevent the same way as broken windows and has become the new normal for these T social exclusion and poverty, and graffiti are a socially visible indicator of upper income groups, and whining for to maintain the sense of social cohe- the physical neglect of a neighbourhood, new forms of tax relief has risen to a sion upon which effective public poli- the homeless are a highly visible indica- crescendo, as the unprecedentedly afflu- cy depends. Specific and feasible policy tor of our social neglect of the less fortu- ent look for private sector alternatives levers that address this set of general nate. Canada may have signed a series of which can enable their disengagement issues might include: international treaties on human rights, from the educational, health care and G the level, accessibility and adminis- starting with the UN Universal Declaration of Human Rights (1948), FIGURE 1. ALBERTA WELFARE INCOME, SINGLE-PARENT, ONE-CHILD FAMILIES, that declare adequate housing to be a 1986-2004 (2004 C$) basic human right — but in reality we do $25,000 not care. Canada may have a constitu- Federal Provincial tion which presumes a “right to privacy” $20,000 — but the homeless have no personal space over which they could exercise a right to privacy, and we do not care. The $15,000 homeless may occasionally freeze to death in winter, but we do not care — at $10,000 least not enough to spend money to fix the problem. And when it can plainly be seen that Canadian society does not $5,000 much care about the rights or well-being of its least fortunate citizens, the question may well occur to others: “Why should $0 1986 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 any individual care much about the Source: National Council of Welfare, Welfare Incomes 2004 (2005). rights or well-being of other citizens?” s an empirical matter, homelessness FIGURE 2. INEQUALITY IN CANADA, TRENDS, 1986-2004 is the extreme end of a continuum. A 170 Although literal homelessness is a condi- tion of extreme deprivation, it is only a 160 step away from being precariously 150 housed — having a tenuous hold on 140 housing of the lowest quality. Like the GDP per capita 130 literally homeless, those with precarious Top 1% 120 homes are extremely poor. Poverty is at (including capital gains) Gini the root of both literal homelessness and Index value 110 being precariously housed, and home- 100 lessness affects both those who have no Alberta total social assistance, 90 shelter from the elements and the much single parent, one child larger number who have to worry about 80 the prospect of being on the streets. 70 Measured in real 2004 dollars, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 provincial welfare benefits for a single Sources: Gini coefficient and GDP per capita: Statistics Canada; Top 1 percent of earners: National Bureau of parent with one child fell from $14,157 Economic Research working paper number 9607; Alberta social assistance: National Council of Welfare. 52 OPTIONS POLITIQUES APRIL-MAY 2006 Pulling apart — the growing gulfs in Canadian society tration of social assistance transfers, tections of the welfare state. The combi- the rich to the poor. Although the life- including “workfare,” supported nation of an increased rate of labour mar- time income poor do benefit dispropor- employment and counselling and ket change and decreased protections tionately from insurance against risks retraining initiatives; from the adverse consequences of (like unemployment or workplace G the design and funding of social change has had a clear consequence — injury) to which they are disproportion- housing programs, which range greater economic insecurity.

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