PULLING APART — THE GROWING GULFS IN CANADIAN SOCIETY

Lars Osberg

Canadian society has become “increasingly unequal in recent years,” writes Lars Osberg of . “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 , 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 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 $396,880. “Dropping out from the top” he policy challenge is to prevent the same way as broken windows and has become the new normal for these T and , and graffiti are a socially visible indicator of upper income groups, and whining for to maintain the sense of social cohe- the physical neglect of a neighbourhood, new forms of tax relief has risen to a sion upon which effective public poli- the homeless are a highly visible indica- crescendo, as the unprecedentedly afflu- cy depends. Specific and feasible policy tor of our social neglect of the less fortu- ent look for private sector alternatives levers that address this set of general nate. Canada may have signed a series of which can enable their disengagement issues might include: international treaties on human rights, from the educational, health care and the level, accessibility and adminis- starting with the UN Universal Declaration of Human Rights (1948), FIGURE 1. ALBERTA WELFARE INCOME, SINGLE-PARENT, ONE-CHILD FAMILIES, that declare adequate housing to be a 1986-2004 (2004 C$) 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 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. ately exposed, and although social insur- from assisted living arrangements ance programs (like unemployment and low income public housing to f course, those who can avoid insurance or workers’ compensation) are assisted home ownership plans; O hazards, or who can purchase pri- typically pro-poor in redistributive municipal zoning and land use vate insurance against their conse- impact, their primary motivation is risk regulations; quences, or who can rely on others for management for all citizens.

A particularly visible indicator of increasing economic inequality owever, in recent years in Canada is the growth in homelessness, with its implied social H Canadians have seen a message that Canadian society clearly does not care what substantial erosion of the happens to some of its citizens. In the same way as broken social safety nets of (Un)Employment Insurance windows and graffiti are a socially visible indicator of the and Social Assistance. The physical neglect of a neighbourhood, the homeless are a highly debate over the benefits visible indicator of our social neglect of the less fortunate. claimed for these cuts has revolved round whether initiatives aimed at the help, may have less reason to feel anx- there have been any “incentive effects” lower tail of the wage distribution ious about the future. But private on labour supply which might accelerate — from pre-school to remedial to insurance and family support may not , and how large such school-work transitions and life- always be available — so in the absence effects might be. There has been little long learning; of a social safety net, the unlucky of the consideration at all of the corresponding maintenance of an adequate tax labour market must take the hit. costs in economic insecurity. The focus base for the social infrastructure. Because each job loss means a loss of in policy circles on supposed benefits in accumulated seniority and savings, the economic growth should be surprising, owever, R.H. Tawney, writing in the chances and the adverse consequences because when it comes to health and H 1930s, noted that “Contrasts of of future job loss increase. A string of happiness, the impacts of personal secu- economic security, involving, as they do, bad luck can thus easily produce rity and supportive relationships are pos- that, while some groups can organize extreme deprivation — and the costs of itive, large and clearly established by their lives on a settled plan with a rea- such deprivation are not limited to the research. Personal security and support- sonable confidence that the plan will be costs incurred by the unfortunate few, ive relationships depend directly on “the carried out, others live from year to year, since the avoidance strategies and anx- ability to organize one’s life with a rea- week to week, or even day to day, are iety incurred by others are also costly. sonable confidence that the plan will be even more fundamental than contrasts It is rational for risk-averse individu- carried out,” but are increasingly at risk. of income.” Because such economic als to want to avoid hazards, but in doing By contrast, in affluent countries like instability undermines the personal rela- so they may behave in ways that are Canada, positive impacts on health and tionships which are fundamental to indi- socially inefficient, even if privately opti- self-reported happiness of further growth vidual well-being, a sense of security mal. The choice between specialized or in average incomes are estimated to be about the future and “the ability to generalist training is an example, since (at best) small — and those estimates are organize one’s life with a reasonable con- acquiring a diversified portfolio of skills hotly contested in the literature. fidence that the plan will be carried out” may be individually optimal for risk- is important for all citizens. Nevertheless, averse individuals, but national produc- he policy challenge is to enable over the past 25 years a cluster of policies tivity growth is likely to suffer if everyone T Canadians to have a sense of per- in Canada have aimed at encouraging decides to be jack of all trades, but master sonal security in their economic “structural adjustment” and increased of none. Social insurance programs have futures, in a context of ongoing rapid “labour market flexibility.” Acceleration therefore historically had both equity technological, social and market of computer-based technological change and efficiency rationales, and from the changes. The existing policy levers and greater globalization of trade would, origins of the welfare state in Bismarck’s that need to be re-addressed are: in any event, have increased labour mar- Germany to the present day, most of the (Un)Employment Insurance ket risks, but in recent years there has also expenditures of the welfare state have Social Assistance been a trend to reducing the social pro- not primarily redistributed resources from Workers’ Compensation

POLICY OPTIONS 53 APRIL-MAY 2006 Lars Osberg

Canada Pension Plan remain at the centre of Canadian poli- likelihood of more effective policy In addition, the design of tax tics — either in continuing debates design or coordination. incentives for savings, “personal about the role of Quebec within Increasingly lost in the chorus of accounts” and private insurance Canada or in a long period of acrimony provincial grievances is any sense that a strategies — i.e., the meshing of pub- about the terms of the divorce. Within common Canadian citizenship has lic policy and private mechanisms — the last few years, however, two much practical implication, other than needs careful analysis. (linked) new elements have also been an increasingly disparate medicare and The inequality and insecurity of added: (1) the extraordinary affluence interprovincial labour mobility. Because individual Canadians affects our of Alberta, awash in a sea of petro-dol- some sense of shared commitment to a national well-being, and there is also a lars but resentful of any suggestion for Canadian polity can be seen as a gener- growing gulf between localities within sharing, and (2) the new complaints of al precondition for the give-and-take Canada. Over 65 years ago, the Rowell- the Ontario government about the $23 that effective democratic governance Sirois Commission noted that billion that it alleges the federal gov- requires, many of the impacts of greater The quality of education and wel- ernment transfers from Ontario to less provincialism are hard to distinguish fare services is no longer a matter deserving regions of the country. from the general dysfunctionality of the of purely provincial and local con- Canadian federation. However, the cern. In Canada today, freedom of n Canada, there has always been a most specific immediate consequence of movement and equality of oppor- I cacophony of provincial voices current trends has been the further mar- tunity are more important than demanding additional powers and the ginalization of the smaller provinces. ever before, and these depend in transfer of tax room, and there has part on the maintenance of at always been a particular sense of griev- he policy challenge is to establish least minimum national stan- ance in each individual province — T and maintain “winning condi- dards for education, public health e.g., the historic sense of alienation in tions” in which citizens in all parts of and care of the indigent. The most British Columbia. The new element in the country would prefer to be part of economically distressed areas are Canadian disunity is the unanimity of Canada as a political, social and eco- the ones least capable of support- the largest and most affluent provinces nomic union. The alternative is increas- ing these services, and yet are also in considering themselves to be partic- ing dissension and dysfunction — and the ones in which the needs are ularly victimized. And since no recent the prospect of eventual disintegration. likely to be greatest…Not only federal government has dared use the Specific and feasible policies that could national duty and decency, if term “nation” or “national standards” affect this trend include: Canada is to be a nation at all, for years (for fear of offending soft Renewal of equalization and but equity and national self-inter- Québécois nationalists), the idea of national programs of federal- est demand that the residents of national citizenship has had no coun- provincial transfers these areas be given average serv- terbalancing advocate. Renewal of national cultural ices and equal opportunities. Since most of the federal dollars that institutions leave Ontario are in fact received by The common denominator in all he Rowell-Sirois Report was writ- Quebec residents, the fact that Ontario these issues is the importance — both T ten during a period of emerging and Quebec now share the rhetoric of for individual well-being and for effec- Canadian nationalism, and formed an “fiscal imbalance” disguises their diver- tive governance and efficient econom- important part of the intellectual gent interests in the size and funding of ics — of our social capital and our sense framework for the role of government federal-provincial transfers. The new of common Canadian citizenship. Flag in that nation-building exercise. common front of Alberta and Ontario waving and fine speeches may partially However, our current political reality is (the two richest provinces) in demand- paper over cracks for a time, but one of province-building, and the con- ing a smaller fiscal role for the federal Canada’s growing gulfs in income and sequent erosion of an idea of common government masks their conflicting insecurity need real attention. Canadian citizenship. macro-economic interests in exchange Canadian politics has been trans- rate policy. The shared concern of Lars Osberg is the McCulloch Professor of fixed for at least 30 years by the prob- Alberta and Quebec for provincial auton- Economics at Dalhousie University. He is lem of the relationship of Quebec to omy hides their many disagreements the author of Economic Inequality in the rest of Canada, and in particular to about language and social policies. Canada (Toronto, Butterworth, 1981) the federal government. The continu- Unanimity in Ottawa-bashing does not and editor of The Economic ing nationalism of many Québécois, necessarily imply agreement on any spe- Implications of Social Cohesion and the continuing ambivalence of cific alternative — so the prospect of (University of Toronto Press, Toronto, many others about Canada, virtually greater of the Canadian 2003). He is a former president of the guarantee that the Quebec issue will federation does not imply any greater Canadian Economics Association.

54 OPTIONS POLITIQUES APRIL-MAY 2006