RecentReleases Economic Freedom of North America by Amela Karabegovic, Fred McMahon, F e a t u r e s and Dexter Samida. Monograph: $19.95 Barry Cooper 4 Like Lipstick on a Pig… The Politics of Kyoto David Anderson might think we should put the debate over Kyoto The Fantasy of Reference behind us, but just who is going to pay for his commitments? Pricing and the Promise of Kenneth Green 6 Kyoto Krazy Choice in BC’s Pharmacare The Kyoto Protocol is a poor idea that will generate a great deal of by John R. Graham. Public pain, but little or no gain, in terms of making the world safer. Policy Sources no. 66: $5.00

Kimble F. Ainslie 8 Ontario Manufacturers Kept in the Dark on Kyoto Welfare Reform in British By a 3:1 margin, survey respondents opposed early ratification of the Columbia: A Report Card by Kyoto Protocol and did not understand the Prime Minister’s haste. Chris Schafer and Jason Willie Soon & 11 The Varying Sun and Climate Change Clemens. Public Policy Sallie Baliunas Several factors influence climate, and they must be accurately known Sources no. 63: $5.00 to determine whether or not humans cause climate change. Canada’s Immigration Policy: Ross McKitrick 14 Emission Scenarios and Recent Global Warming Projections The Need for Major Reform This article explains why the current emission scenarios are almost by Martin Collacott. Public certainly too high and ought to be revised as quickly as possible. Policy Sources no. 64: $5.00

Sylvia LeRoy 17 A Constitutional Firewall Against Kyoto Taken by Storm: The federal government’s aggressive approach to ratification of the The Troubled Kyoto Accord has given the constitutional firewall strategy new appeal. Science, Policy, and Politics of A r t i c l e s Global Warming by Christopher Neil Seeman 3 Classless Action Essex and The author proposes a solution to the expansive class-action litigation Ross McKitrick that is making federal liabilities rise. Book: $26.95

Barry Cooper 19 Canada’s Unlikely Freedom Fighters The Governance of the Ontario Prairie farmers are fighting Canada’s secretive and powerful Wheat Board. Securities Commission: Lessons from International Amela Karabegovic 21 Weak Economic Freedom Haunts Canada Comparisons by Neil & Fred McMahon A lack of economic freedom keeps Canadians poorer than necessary. Mohindra. Public Policy Niels Veldhuis 23 January Questions and Answers Sources no. 61: $5.00 What are federal and provincial spending priorities? To Order: Laura Jones 25 Changing Fisheries Management for the Better E-mail [email protected] Management changes that have saved many of Canada’s smaller fisheries. Here is just one example. or call our toll-free order line: 1-800-665-3558, ext. 580; Chris Sarlo 28 The Concept of Social Exclusion in Vancouver, call The social exclusion concept represents a dramatic break in the way (604) 688-0221, ext. 580. There we have traditionally understood the human predicament. are additional charges for Nadeem Esmail & 29 Extending Government Monopoly Health Care: The Romanow taxes, shipping, and handling. John R. Graham Report These publications are also Roy Romanow’s commission was a costly mistake that invites available through our website Canadians to wander into a 1960s socialist utopia that never existed. at www.fraserinstitute.ca. Filip Palda 32 The High Price of Natural Wealth Natural resource abundance seems to be a curse for many nations.

January 2003 | 1 Editor’s notes Fraser Forum is published 12 times a year by The Fraser Institute, Vancouver, British Columbia, Canada. The Fraser Institute is an independent Canadian economic and social he other day, one of our distinguished Senior research and educational organization. It has as its objective the redirection TFellows who immigrated to Canada more than of public attention to the role of competitive markets in providing for the 30 years ago said that with the signing of the Kyoto well-being of Canadians. Where markets work, the Institute’s interest lies in Protocol, he’d never felt more disappointed in trying to discover prospects for improvement. Where markets do not work, Canada’s policies. He sees the ratification of the its interest lies in finding the reasons. Where competitive markets have been accord as the latest and most egregious in a long replaced by government control, the interest of the Institute lies in docu- string of short-sighted, ill-thought-out, expensive menting objectively the nature of the improvement or deterioration resulting schemes dreamed up by our governments. from government intervention. The work of the Institute is assisted by an I won’t go into the costs of Kyoto here; the rest of Editorial Advisory Board of internationally renowned economists. The Fra- ser Institute is a national, federally chartered non-profit organization this issue of Fraser Forum does a fine job of financed by the sale of its publications and the tax-deductible contributions explaining why Kyoto could prove to be an eco- of its members, foundations, and other supporters. nomic nightmare. The issue also explains, in as clear and non-technical a language as possible, the For additional copies, or to become a member and receive Fraser Forum, scientific reasons why the Kyoto Protocol is write or call The Fraser Institute, 4th Floor, 1770 Burrard Street, Vancouver, unsound. Not that these explanations or concerns B.C., V6J 3G7 Telephone: (604) 688-0221; Fax: (604) 688-8539 should come as a surprise to anyone. The Fraser Toll-free order line: 1-800-665-3558 (ext. 580—book orders; ext. 586— Institute and others have been demanding the gov- membership). Visit our Web site at www.fraserinstitute.ca  ernment explain its reasoning behind its desire to Copyright 2003 The Fraser Institute; (ISSN 0827-7893) sign the accord and its plans for implementing it Date of Issue: January 2003. Printed and bound in Canada. for some time. Canadian Publications Mail Sales Product Agreement #0087246 Return postage guaranteed. But the federal government has chosen to ignore Publisher: The Fraser Institute our concerns, just as it did when Gary Mauser Chief editor: Michael Walker warned in a Fraser Institute publication in 1995 Managing editor/Layout and design: Kristin McCahon that the gun registration plan was going to cost up Art direction and cover image: Mike Miller Design + Art Inc. to a billion dollars (Gun Control is Not Crime Con- Advertising Sales: Advertising In Print, 710 – 938 Howe Street, Vancouver, trol, p. 28). Yet here we are now, with a boondoggle BC V6Z 1N9 Tel: (604) 681-1811, e-mail: [email protected] whose costs, which have skyrocketed from the esti- Co-ordinating editor: Kenneth Green mated $2 million to nearly $1 billion, are showing Contributing editors: Jason Clemens, Peter Cowley, Nadeem Esmail, no signs of abating. If anything, Professor Mauser Liv Fredricksen, John R. Graham, Sylvia LeRoy, Fred McMahon, Neil was too conservative in his estimates. The govern- Seeman, and Niels Veldhuis ment’s wild inaccuracy on gun registration gives Copyediting: Mirja van Herk little reason to be confident in its current assertion Finance and Administration: Michael Hopkins that the Kyoto Protocol will be a bearable expense Media Relations: Suzanne Walters and that no single region or group of taxpayers will shoulder the bulk of the burden. FRASER INSTITUTE BOARD OF TRUSTEES Presumably the folks who conceive of government Chairman Alex Chafuen Gwyn Morgan training programs, firearms registries, and plans to R.J. Addington, OBE James Chaplin Roger Phillips lower CO emissions do so with the best possible Serge Darkazanli Herbert Pinder, Jr. 2 Vice Chairmen John Dobson intentions. The problem is, the legacy that they are R. Jack Pirie T. Patrick Boyle Greg Fleck trying to leave to benefit “our children and grand- Peter Pocklington William Korol Arthur Grunder David Radler children” will end up costing those same children John Hagg Mark Mitchell Conrad Riley and grandchildren. They are the ones who will Raymond Heung Mark Scott experience the long-term consequences of an econ- Board Members Paul Hill John Scrymgeour omy staggering under the heavy weight of such Keith Ambachtsheer Stephen Hynes David Asper Peter Kains William Siebens grandiose schemes. We all want to be remembered Charles Barlow Hassan Khosrowshahi Michael Walker after we are gone. We all want to leave a “legacy.” Sonja Bata Robert Lee Peter White It’s just that most of us have to leave what we leg- Edward Belzberg Brandt Louie Catherine Windels acy can with our own money and what talents we Everett Berg William Mackness have. It’s a message our politicians should heed. Tony Boeckh Jim Main Secretary- Peter Boyd Fred Mannix Treasurer —Kristin McCahon Peter Brown David McKenzie Michael Hopkins Fraser Forum

children do not have “adequate” social-support services (Autism Society Classless Action of Canada, 2002).

Some class-action lawsuits are more deserving than others. Not all class- by Neil Seeman than on the traditional tort law action proceedings run counter to the principle of remedying past wrongs (i.e., traditional tort law principle of corrective here’s lots of work for lawyers in Ot- corrective justice). T justice. Last March, the Ontario Court tawa these days. More than 2,000 of Appeal ruled in favour of thousands lawyers work for the Justice Department If courts reward class-action lawsuits of disabled Canadian veterans (either on staff or on contract). That’s a based on the principle of redistributive (Authorson v. Attorney General of Can- 44 percent jump in legal personnel from justice, they will overturn political ada). The veterans are members of a 1997 (Blackwell, 2002). Why are taxpay- choices made at the ballot box. In multi-billion dollar lawsuit launched ers paying for so many lawyers? December, the Supreme Court considered a Quebec rule that reduced against the federal government. The class-action lawsuit, certified in October Ottawa needs all that high-priced legal welfare payments in the late 1980s from 1999, was brought against the federal talent to cross swords with the growing $434 to $163 per month for able-bodied government for its failure to pay interest army of litigants bent on suing the fed- adults under 30 unless they entered job on millions of dollars that it held in trust eral government. ottawa’s contingent training, community work, or school since the First World War on behalf of liabilities (the money it would have to (Louise Gosselin v. The Attorney General disabled veterans who had been deemed pay out if it lost all the pending litiga- for Quebec). The class-action lawsuit unable to manage their financial affairs. tion), was $9.3 billion in 2001-2002 requested $388,563,316 in compensa- (Public Accounts of Canada, 2001-2002). tion, the amount the lead plaintiff said all young-adult welfare recipients in the The veterans’ lawsuit exemplifies some “In recent years, the federal government province were denied under the rule. In of the best arguments in favour of has experienced a large growth in the the end, the court properly dismissed class-action proceedings. That is, class volume, complexity, cost, and risk of its the suit, but didn’t penalize the plaintiff actions may permit the pursuit of claims civil litigation,” says the Justice Depart- for launching the frivolous claim. The that individually would have been ment’s 2002 annual performance report. Court left open the possibility that simi- uneconomical to pursue, and they may lar claims might succeed if politicians reduce the amount of judicial resources At the root of this phenomenon is the impose welfare rules that appear “ste- required to resolve such disputes. More class-action lawsuit: Although legisla- reotypical or arbitrary.” important, the veterans’ lawsuit stakes tion allowing class actions is not new its legal claim on the traditional grounds (until 1993, class actions were not per- Aggressive class-action lawyers now seek of corrective justice: it alleges a past mitted in Canada outside the province to engineer social policy through the injustice, enumerates precise damages, of Quebec), the types of proceedings courts. In October, a group representing and identifies specific action on the part that have been certified as class actions hundreds of families with autism disor- of the government that allegedly gave have evolved in two critical ways: (a) ders said it would sue the Quebec gov- rise to the present circumstances in federal and provincial governments are ernment for “systematic discrimination” which the veterans now find themselves. increasingly the targets of such proceed- in its denial to children of a “medically ings, and (b) the economic claim leveled necessary” treatment, i.e., intensive When deciding whether to allow such a against the government is increasingly behavioural early intervention. Last class action to proceed, courts look to based on a social theory of what govern- April, a $500-million lawsuit was lodged see if the claim satisfies the objectives of ments “should do” in the name of against the Ontario government on all class-action legislation: increased equity (i.e., redistributive justice), rather behalf of families whose special-needs access to justice, an efficient use of judi- Neil Seeman ([email protected]), a lawyer, directs the CANSTATS cial resources, and deterrence of future project in The Fraser Institute’s Toronto office. He earned his Juris Doctor wrongs. The judge must also confirm from the University of Toronto Law School and his Master’s in public that the facts alleged seem to justify the health sciences from Harvard. conclusions sought (McKee, 1997).

January 2003 | 3 Fraser Forum

There should, however, be a further consideration when the target of the Like Lipstick on a Pig… suit is the government. It is this: does the claim seek to radically change the intent or the effect of legislation? If the answer is yes, then judges should be The Politics of Kyoto hesitant to allow the claim to proceed. This would create a legal presumption that class actions designed to alter leg- islation are unmerited, which would then trigger an adverse cost award against the representative plaintiff. This would create an economic disin- by Barry Cooper too high, so the numbers were kept centive to sue governments on baseless secret even from his cabinet colleagues grounds. bout a year ago the federal until they were leaked to journalists. In A October 2002, a further set of estimates government distributed a None of this means governments should colourful announcement in newspapers was released: Kyoto would cost between be pardoned for overt negligence or dis- across the land proclaiming that “the $5 billion and $21 billion and between crimination. Rather, it is to point out earth is getting warmer” and that imple- 61,000 and 244,000 lost jobs. And that class actions related to a govern- menting the Kyoto Protocol would fix finally, late in November, the estimates ment denial of benefits are different things. At around the same time, the fed- were repackaged as a mere 0.4 percent from class actions related to defective eral energy minister, Herb Dhaliwal, ob- of GDP and 60,000 jobs. toilets or exploding toasters. served that “some important details Alberta’s environment minister, Lorne have to be worked out before Canada Taylor, was particularly scathing in his The media share some of the blame for ratifies the Kyoto Protocol.” He pru- commentary on the last announcement. not making this distinction. Too often dently added, “I wouldn’t sign a con- “It’s a clear breach of trust,” he said. class-action lawsuits, no matter how tract in business unless I knew exactly “It’s like lipstick on a pig. They’re not frivolous, are sympathetically portrayed what it meant.” One of the central un- working in collaboration with the prov- as David-versus-Goliath stories. The knowns is the cost of implementing inces when they release [their unilateral economic and political implications of Kyoto and who will bear it. class actions deserve more scrutiny. position] to the press and the public Several estimates of the costs of imple- without even discussing it.” The mentation have appeared. Late in 2001, resource and industry minister of Sas- References Natural Resources Canada sponsored a katchewan, Eldon Lautermilch, the study that indicated the costs would be Nova Scotia energy minister, Gordon Autism Society of Canada (Oct. 21, 2002). high, equivalent to a one-year recession. Balser, and Alberta Premier Ralph Klein “Quebec Human Rights Commission About half a million current and future joined Taylor in criticizing Ottawa for Supports Class Action by Children with jobs would be lost, and the dollar value having proceeded unilaterally. Indeed, Autism to Halt Systemic Government Klein is on record for having compared Discrimination.” Press Release. Further was in the range of $45 billion over 10 information available at http://www.aut- years. A few months later, the Canadian Kyoto to the detested National Energy ismsocietycanada.ca/en/index.html Manufacturers and Exporters associa- Program of the Trudeau years. tion estimated the costs in the $40 bil- Blackwell, Tom (2002). “Lawsuits put David Anderson responded to the pre- Ottawa under Pressure.” National Post lion and 450,000 job ranges, and a few miers’ criticism in November 2002 by (Nov. 16): A6. days later the Government of Alberta saying that “it’s time to put the debate McKee, S. Gordon (1997). “Class Actions in said costs would be between $40 and Canada.” In Law and Markets, John $60 billion. Over the summer, the fed- Robson and Owen Lippert, eds. Vancou- eral environment minister, David Barry Cooper ([email protected]) ver: The Fraser Institute, pp. 53-66. Anderson, came up with the figure of is Professor of Political Science at the Public Accounts of Canada, 2001-2002. $16 billion and 200,000 foregone jobs. University of Calgary and Director of The Department of Finance: Canada. & This was thought by Anderson still to be Fraser Institute’s Alberta office.

4 | Political Effects

over ratification behind us,” adding American investment, as the Alberta Finally there is the desire of Jean that, “the government of Canada has energy minister, Murray Smith, has Chretien to provide himself with a “leg- exclusive constitutional authority to rat- pointed out time and again. acy.” But here as well, the prime minis- ify international treaties, including, of ter is directly on a collision course with course, the Kyoto Protocol.” Anderson Third, there is the little matter of consti- the provinces, especially Alberta. “I tutional responsibility. The framers of added that granting Parliament leave to don’t know what’s driving this. Is it an the Canadian constitution never antici- discuss Kyoto was purely discretionary obligation to the international commu- pated the major new areas of govern- on the part of the government and nity? Does he want to look good in the ment action and regulatory initiative Prime Minister Chretien because the international community? His obliga- that resulted from technological change. government can commit the country to tion is to Canada,” said Klein. In the international agreements simply by As a result, fundamental constitutional view of the Alberta premier, it would be issuing an order-in-council. highly improper for Chretien to damage Several reasons have been advanced his own country in order to create an to account for the decisiveness of the Chretien has international reputation for himself. government of Canada on the Kyoto file, and many are centred on the disagreed with the There is more to the politics of Kyoto prime minister. than the future of Jean Chretien and the Americans in prospects for the electoral success of the First, ratifying Kyoto will cause Liberal Party of Canada in the energy- trouble for his most likely successor producing western provinces. The and the man who hastened his public, as often as colourful words, frayed tempers, and departure, Paul Martin. Martin has bitter animosities that have arisen over said he favours Kyoto, but his stance possible, and on the existence—or non-existence—of cli- is bound to offend his own support- ers in the business community. many issues. Kyoto mate change and its relationship to However, because Kyoto has been human activity taints the whole inter- ratified, by the time Martin is is just another governmental agenda. crowned, the onus will then be on him to proceed with the much more Whatever the impact of the Romanow difficult step of implementing or opportunity. Commission’s report on health care, repudiating an international agree- federal-provincial cooperation is neces- ment in the light of global publicity. sary if any changes to the system are to Either way, Kyoto hurts Martin. battles in the 1920s and 1930s between be made. Certainly the goodwill built up Ottawa and the provinces took place to by Health Minister Anne McLellan, who Second, there are the Americans. As for- decide which level of government would is also MP from Edmonton West, and mer foreign affairs minister Lloyd regulate, for example, air transport and her Alberta counterpart, Gary Mar, has Axworthy put it, even though “we are broadcasting. The federal government dissipated amidst the enmity caused by living in a carbon-induced climate won both these battles. Today Ottawa Kyoto. This will make any agreements maelstrom,” we can still “plot a course has decided the time is ripe to pick a more difficult to reach. Likewise, the co- distinct from our southern neighbour operative spirit between Edmonton and fight over environmental jurisdiction. and fire up the political system for a Ottawa that emerged after the G-8 sum- Kyoto is the key to the kingdom, and for major mobilization.” Likewise, Chretien mit in Kananaskis has disappeared. The some of the more ambitious centralizers has disagreed with the Americans in most lasting political legacy of Kyoto in public, as often as possible, and on in the government of Canada, Kyoto Canada is likely to be an atmosphere of many issues. Kyoto is just another looks like a splendid opportunity to acrimony and deadlock because mutual opportunity. The consequences, how- transfer a significant portion of distrust makes federal-provincial coop- ever, have been made plain: Canada will Alberta’s resource revenue to the federal eration impossible. Nowhere will that be be a much less attractive place for government. more apparent than in Alberta. &

January 2003 | 5 Fraser Forum

from the sun (Soon, Baliunas et al., Kyoto Krazy 2001). But even if one believes that global warming poses significant risks for future generations, the science of green- house gas reductions suggests that implementing the Kyoto Protocol is largely a waste of effort. On a global impacts that will negatively affect the by Kenneth Green basis, Canada only emits about two per- well being of Canadians (McKitrick and cent of the gases accused of causing Essex, 2002). Indeed, when examined Canada’s ratification of the Kyoto global warming. If Canada managed to from a public policy perspective, signing Protocol on Climate Change is achieve the Kyoto Protocol targets, and implementing the Kyoto Protocol is now a done deal. Prime Minister Jean Canadian emissions would decline to a profoundly poor idea that will gener- Chretien has forced ratification of the about 1.4 percent of global emissions by Protocol, committing Canada to return ate a great deal of pain, but lit- emission levels for carbon dioxide and tle or no gain, in terms of other gases suspected of warming the making a safer world for our- ... electricity costs earth to 6 percent below the levels emit- selves and our grandchildren. ted in 1990. Because emission rates have grown since 1990 and are predicted to First, consider the science would likely rise up to continue doing so, Canada’s target of 6 behind the proclaimed benefits percent below 1990 levels equates to a of Canada’s ratification of the 85 percent in some 30 percent reduction from predicted Kyoto Protocol. Canada’s fed- emission levels by about 2012. eral government has justified provinces; natural gas ratification of the Kyoto Proto- As always seems to be the case in these col by citing groups such as the prices by 40 to 90 situations, environmental pressure United Nation’s Intergovern- groups such as the David Suzuki Foun- mental Panel on Climate dation have joined the government in Change, which has published percent; and the after- claiming that their support of the Proto- reports suggesting that a col rests on the most robust scientific warmer climate would cause tax price of gasoline evidence. They believe that the law is on major ecological disruption their side, that they’ve been terribly con- necessitating urgent action by 50 percent. scientious about consultation and coop- (IPCC, 2001). But other scien- eration, that there really is a free lunch, tists, in both Canada and the United States, have shown that and Canada can achieve draconian 2012, while emissions of countries like the threat of global warming is over- reductions in energy use at low cost—or India and China continue to grow rapidly. stated by the United Nations (McKitrick even at a profit (Torrie et al., 2002). That is not a significant difference when and Essex, 2002). Indeed, scientists such one considers that the world’s biggest But as more pragmatic researchers in as Harvard University’s Sallie Baliunas emitters have not endorsed the protocol, the private sector and academia have explain that most observed global and are unlikely to do so in the foresee- shown, Kyoto Protocol ratification will warming has been a natural, and largely provide little benefit, and will likely lead beneficent phenomenon, primarily able future. Even NASA scientist James to real and wrenching economic related to the increase of energy output Hansen, who some consider the modern “father of climate change” agrees that it would take 30 Kyoto-like reduc- Kenneth Green, D. Env. ([email protected]) is Chief Scientist and tions—with full global compliance—to Director of the Centre for Studies in Risk, Regulation and Environment at The Fraser Institute. He most recently wrote Global Warming: negate what the United Nations climate Understanding the Debate, a textbook for middle-school students, panel sees as the threat of manmade published by Enslow Publishers. global warming (Hansen, 2000).

6 | Environment

Second, consider the cost. Cost and year in additional natural gas costs, and ments claim; given that the costs of job-loss estimates vary tremendously, about $800 per year in added gasoline reducing greenhouse gas emissions are but Canadian university research econ- costs. That puts the total Kyoto bill for a likely to be far higher than government omists Mark Jaccard, John Nyboer, and moderate-income family of four at over claims; and given that compliance with Bryn Sadownik estimate that Kyoto $3,300, or nearly 10 percent of total the Kyoto Protocol will make Canada a implementation could cost 3 percent of pre-tax income. less competitive country, the answer is Canada’s gross domestic product, could clearly no. In fact, rather than make cost the average Canadian family four Finally, there is the question of interna- Canadians safer, as its proponents claim percent of its annual disposable income, tional trade. About 87 percent of Can- it will, the weight of the evidence sug- and could cause energy prices to rise ada’s exports go to the United States, gests that Kyoto compliance will make substantially (Jaccard, Nyboer and accounting for over 40 percent of Can- Canadians less safe. Though it will pro- Sadownik, 2002). Presuming that ada’s gross domestic product. US Presi- vide virtually no environmental, health, energy producers pass on increased dent George W. Bush has refused to or safety benefit, Kyoto compliance will costs to consumers (a good assumption ratify the Kyoto Protocol on Climate deprive future Canadians of the even for Canada’s heavily-regulated Change, and the United States is mov- resources and economic resilience they energy sector), Jaccard et al. predict that ing ahead with an alternative green- will need to face the unpredictable chal- electricity costs would likely rise up to house gas control plan that avoids the lenges they will invariably confront. 85 percent in some Canadian provinces; kind of economic losses that Canada natural gas prices would likely rise by 40 will soon inflict upon itself. Meanwhile, to 90 percent; and the after-tax price of other countries, such as Mexico, are not References gasoline would likely rise by 50 percent. bound by Kyoto, and will offer more attractive options for importing goods Hansen, James (2000). “Global Warming in Applying the Jaccard et al. estimates to and exporting services. the 21st Century: An Alternative Sce- the household economy of a Canadian nario.” Proceedings of the National Acad- The overarching question in a public emy of Sciences USA. Vol. 97, Issue 18 family of four earning $40,000 per year, (September 12): 9875-880. Available digi- and living in a modest 1,200 square-foot policy sense regarding the Kyoto Proto- tally at http://www.pnas.org/cgi/con- single-story home in Toronto, the total col is straightforward: “Has signing the tent/full/97/18/9875. Kyoto Protocol made Canadians better annual cost of Kyoto would include Jaccard, Mark, John Nyboer, and Bryn $1400 in lost income, $400 per year in off?” Given that the threat of climate Sadwonic (2002). The Cost of Climate Pol- additional electricity costs, $700 per change is far more modest than govern- icy. Vancouver: UBC Press. McKitrick, Ross and Christopher Essex (2002). Taken by Storm, the Troubled Sci- ence Policy and Politics of Global Warming. Toronto: Key Porter Books.

Michaels, Patrick J. and Robert C. Balling Jr. (2000). The Satanic Gases: Clearing the Air About Global Warming. Washington DC: Cato Institute.

Soon, Willie, Sallie L. Baliunas, Arthur B. Robinson, and Zachary W. Robinson (2001). Global Warming, a Guide to the Science. Vancouver: The Fraser Institute.

Torrie et al. (2002). Kyoto and Beyond, the Low Emission Path to Innovation and Effi- ciency. Vancouver: David Suzuki Founda- tion. United Nations Intergovernmental Panel on Climate Change (2001). Climate Change 2001: Impacts, Adaptation, and Vulnera- bility. Cambridge, UK: Cambridge Uni- versity Press. &

January 2003 | 7 Fraser Forum

identified in the Canadian Trade Index, Ontario Manufacturers 2002. Respondents came from all across

Table 1: Demographic Kept in the Dark Characteristics of Corporate Respondents,n=100 Sector on Kyoto Chemical/Petrochemical 9% Auto parts/auto assembly 18 Product Manufacturers 66 Others 7 Employee Size by Kimble F. Ainslie agreement of most provincial govern- <20 1% ments, including the province of Ontario. 21-50 0 hile Alberta Premier Ralph 51-100 0 W It also became evident that the federal Klein has led national forces government, and even the Ontario Min- 101-200 4 in an attempt to mitigate economic dam- istry of the Environment, had left the 201-500 39 age from the Kyoto Protocol, a key bat- manufacturers out of the loop in terms tleground in the next several months >500 56 of receiving basic information on the and years on the implementation of the Executive type Kyoto Protocol. Most Ontario manufac- Protocol will be in Central Canada. On- turers had been caught short on opera- General Manager/ 27% tario’s industrial heartland has much at Plant Site Manager/CEO tional and financial planning for Kyoto stake in terms of unstated, unknown, implementation, even though a large Engineering Manager 29 and hidden economic costs for the fu- majority had been collecting air emissions Finance Manager 4 ture. With this in mind, The Fraser Insti- information for various federal, provin- tute commissioned Nordex Research, a Environmental/Energy Officer 36 cial, and municipal government agencies London, Ontario market research and Other Manager/Executive 4 for many years. Most large manufactur- public opinion polling company to sur- ers revealed that they had hired environ- Geographic Area* vey Ontario’s largest manufacturers on mental officers some time ago (see table Metro Toronto 22% the impact of Kyoto. The survey focused 7) to monitor their firm’s environmen- on respondents’ evaluation of the early 905/Golden Horseshoe/Niagara 27 tal activities, and keep tabs on what fed- ratification of Kyoto, the level of infor- Central Ontario 8 eral, provincial, and local environmental mation received and pursued on Kyoto, Eastern Ontario 8 statutes and regulations required. how closely respondents were following Southwestern Ontario 30 the national debate, likely economic im- Northern Ontario 5 pacts, and the underlying reasons for ac- The survey ceptance or rejection of the Protocol. *Metro Toronto included the metropolitan area of the new City of Toronto. The area The survey, taken by telephone from called 905/Golden Horseshoe/Niagara cap- The Fraser Institute survey found by a November 13 to 25, 2002, sampled 100 tured just west of Metro Toronto to the Es- 3:1 margin that respondents opposed large and medium-sized manufacturers carpment and around south to the Niagara early ratification of the Kyoto Protocol. out of a total population of 748 firms River in the 905 area code. SW Ontario was defined as the area from Guelph to Indeed, they did not understand the Windsor. Central Ontario was considered reason(s) for the Prime Minister’s haste Kimble Fletcher Ainslie, Ph.D., is as the area and north of Metro Toronto up on ratification. Moreover, by a very to Barrie. Eastern Ontario was defined as President of Nordex Research, a London, Oshawa to Ottawa. Northern Ontario large majority they said that a made-in- Ontario, market research and polling Canada climate change plan was crucial started at Huntsville/Bracebridge and con- company. Complete polling results are tinued over to Sudbury and Thunder Bay. and that such a plan had to have the available from The Fraser Institute.

8 | Survey Results

Table 2: Do you favour or Table 5: How important is it for Table 6: Have you or your oppose Prime Minister you and your company to have company received any official Chretien’s proposal to have a detailed plan identified by information from the federal Parliament ratify the Kyoto the federal Department of the Department of Environment or Protocol before the end Environment before the Parlia- Ontario government agencies of 2002? (n = 100) ment of Canada ratifies the on the Kyoto Protocol? (n = 100) Favour 20% Kyoto Protocol? (n = 100) Oppose 62 Very important 79% Yes No Don’t Know Don’t know 16 Somewhat important 15 Federal Dept. of 8% 90% 2% Don’t care 2 Not so important 3 Environment Not important at all 0 Provincial 7912 Table 3: To what extent do you Don’t know/can’t say 3 agencies and your company favour or oppose federal government cers who were primarily attached to charge ahead without a detailed plan climate change regulation product manufacturing firms, chemi- before ratification (see tables 4 and 5). Of to control green house gas cal/petrochemical producers, auto course, we now know that ratification emissions, which some believe assembly plants, and auto parts firms. occurred without a detailed action plan. contribute to global warming? Very much favour 14% Why are respondents so unhappy about Somewhat favour 29 Findings the prospect of early ratification? The most obvious answer is they have been Somewhat oppose 14 The most basic finding of the survey— kept in the dark on federal planning for Very much oppose 19 solid opposition to early ratification of Kyoto implementation. Up to 91 per- Don’t know/can’t say 24 the Protocol—was expected. Indeed, 62 cent of those sampled reported that they percent of respondents opposed “the had received no official government Prime Minister’s proposal to have Par- information on the Kyoto Protocol (see Table 4: (Whether you favour or liament ratify the Kyoto Protocol before table 6). This finding occurred notwith- oppose), how important is it to the end of 2002”; only 20 percent standing the fact that most respondent you and your company for the favoured such ratification (see table 2). firms ordinarily collected environmen- federal government to have a This meant that by a 3:1 ratio, the sector tal information for federal, provincial, “made in Canada” greenhouse of the economy most responsible for and municipal governments on emis- gases emissions program that implementing the accord in Canada’s sions and effluents (see table 7). More- has the agreement of most of industrial heartland was solidly opposed over, more than one-third of the provincial governments to going ahead. This finding is respondents had “very closely” followed including Ontario? (n = 100) somewhat surprising because the major- the national debate on Kyoto before Very important 62% ity of respondents who were prepared to Christmas (see table 8). Somewhat important 25 offer an opinion actually thought that the federal government had a legitimate Perhaps as upsetting as being kept in the Not so important 6 role in “climate change regulation to dark, respondents were also anxious Not important at all 1 control greenhouse gas emissions” (see because they had insufficient time to Don’t know/can’t say 6 table 3). Forty-three percent of respon- plan for Kyoto’s implementation. They dents favoured some sort of federal role were caught unprepared last summer on air emissions, yet 62 percent stated when the Prime Minister made his the province, but most were located in that it was “very important” not to rush Kyoto ratification announcement and the industrial corridor from Windsor to into activating the Kyoto agreement, seemed bewildered by the speed and Metropolitan Toronto. There were two particularly if no national consensus ambiguity of successive draft plans pro- main groups of representatives: upper could be obtained. And 79 percent duced by the federal government management, and environmental offi- thought it to be very imprudent to throughout the autumn. By mid to late

January 2003 | 9 Fraser Forum

Table 7: As far as you know, Table 10: To what extent do Table 11: Developing countries does your company currently you think a ratified Kyoto currently are not participants collect information, and keep Protocol undertaken by Canada in the Kyoto Protocol. How an inventory of air emissions will place your business at satisfied are you with this for purposes of submitting to a disadvantage compared to arrangement? the federal, provincial, or local American businesses, which Very satisfied 1% governments? are not required to comply? Somewhat satisfied 16 Yes it does 77% A great disadvantage 22% Not so satisfied 16 No, it doesn’t 20 Modest/minor disadvantage 34 Not satisfied at all 56 Don’t know 3 No disadvantage 19 Don’t know 11 Advantaged by Protocol 2 Table 8: How closely have you Don’t know/can’t say 23 Another 32 percent had serious to been following the current na- modest reservations on this competitive tional public debate over the disadvantage (see table 11). Kyoto Protocol? Respondents were also uncertain about Very closely 35% possible economic injury to their firms arising from the Protocol, particularly Only intermittently 55 Conclusion in reference to competition with Ameri- Not at all 10 can businesses. Up to 56 percent cited The results of this poll reveal a failure of some disadvantage was likely to accrue political legitimacy on the Kyoto file for to their firms in competitive terms; 22 Table 9: As far as you know, the prime minister and his government. percent indicated there could be “great Several indicators show that the federal has your company undertaken disadvantage,” and 34 percent stated a study or calculated the direct government has been unable to secure they would experience “modest to basic political support in the industrial and/or indirect costs of minor disadvantage.” Only a miniscule complying with the Kyoto heartland for early ratification of the 2 percent stated that they would be accord. Indeed, when such results show, Protocol? “advantaged” by the Protocol—an by a 12:1 margin, that large manufactur- Study completed or deliber- 12% improbable assertion often made by ers in Ontario have demanded a ations undertaken many Kyoto supporters—and 19 per- made-in-Canada climate change agree- Studies and/or deliberations 15 cent saw no pending disadvantage ment and provincial government likely in the future attached to the Protocol (see table 10). approval, one would have thought the No studies or planning an- 66 federal government would have adopted ticipated Finally, and probably the sleeper issue a consultative and accommodating pos- Don’t know/can’t say 7 underscoring dissatisfaction in pursuing ture. Forcing an artificial deadline and early implementation, was resentment ramming the Kyoto initiative through toward the tilted playing field Canadian Parliament did not sit well with this November, respondents still had not industry must face in worldwide com- important industry segment. received a final, detailed, unambiguous petition as a result of Kyoto. Developing plan, and as a result they simply did not countries are not required to adhere to The government’s pre-Christmas, know how to respond appropriately (see the strictures of the accord, and a fast-track Kyoto approach is currently table 9). In fact, until they do receive a majority of large manufacturers in in real danger of permanently alienating definitive statement from the federal Ontario strongly dislike this outcome. the very industrial sector that will be government on their presumed obliga- Up to 56 percent indicated they are needed to implement any reasonable tions under Kyoto, most firms do not “very dissatisfied” that Canada is taking climate change plan in the future. This intend to engage in serious economic the lead on Kyoto, which will cause eco- poll reveals that large manufacturers in impact analyses, nor will they commit nomic sacrifices, while similar sacrifices Ontario are mystified as to why Prime to serious, long-term investment plans are not required in the developing Minister Chretien has pushed ahead related to the Protocol. world, such as India and China. without their support. &

10 | Fraser Forum

voyage to Laputa, nothing so ridiculous has ever been offered to the world” The Varying Sun & (Edinburgh Review, 1803).

Since Herschel’s report, the nature of the sun and its spots has been refined. Climate Change High numbers of sunspots appear approximately every 11 years, with few sunspots seen at times between the 11-year peaks. In 1908 at Mount Wilson Observatory, George Ellery Hale (1868-1938) discovered that sunspots were relatively tiny regions of densely packed magnetic fields on the sun’s sur- by Willie Soon & spots would remain mysterious until the face, shaped in large loops, similar to that of one end of a bar magnet’s field Sallie Baliunas twentieth century. lines. In the last two decades, NASA sat- By Herschel’s time, 200 years later, it ellites have monitored changes in the He had been Eight Years upon a had been seen that the quantity of sun- sun’s energy output that vary in step Project for extracting Sun Beams out spots on the solar disk varied. Herschel with changes in the number of sunspots. of Cucumbers, which were to be put examined available historical records The sun’s total energy output is higher into Vials hermetically sealed, and and noted periods of sustained high at sunspot or magnetic maximum in the let out to warm the Air in the raw numbers of sunspots, and also periods 11-year cycle, while the energy output is inclement Summers. of low numbers of spots. Herschel spec- lower at sunspot minimum. As a result, —“A Visit to the Grand Academy ulated in 1801 that when the sun was the amount of energy that the earth of Lagado,” Jonathan Swift, 1726 highly spotted, it “may lead us to expect receives varies, with slightly more copious emission of heat and therefore energy received at sunspot maximum mild seasons,” while few spots suggested than sunspot minimum. According to “spare emission of heat” accompanied two decades of satellite measurements, Early in the nineteenth century, by “severe seasons”(Herschel, 1801). In the difference in energy delivered to the William Herschel (1738-1822), order to test his speculation that the earth between sunspot maximum and discoverer of Uranus and one of the observed changes on the sun might minimum is a scant one-tenth of one greatest minds in astronomy, wondered affect climate, Herschel turned to percent. if the sun could vary in ways that would records of the price of wheat in England affect the climate of earth. He did so while as a proxy for climate, because meteoro- That variable one-tenth of one percent uncovering the first proof for “invisible logical measurements were lacking. of the sun’s total energy output, and the light,” or infrared radiation, through an Herschel imagined that costly wheat long duration of the period of change, ingenious study of the solar spectrum. would result from “severe seasons,” are thought to be too small and too while the “mild seasons” would moder- Starting around late 1610, Galileo ate the price of wheat. Herschel found Willie Soon ([email protected]) Galilei in Italy, Johann Goldsmid (or in records of wheat prices support for and Sallie Baliunas are both with the Johann Fabricius) and his father in Hol- his speculation—five lengthy periods of Harvard-Smithsonian Center for land, Thomas Harriot in England, and few sunspots were tied to costly wheat. Astrophysics. Opinions expressed are not Christoph Scheiner in Germany, had When Herschel, a first-class, imagina- necessarily those of any institution with begun recording the dark sunspots on tive scientist, presented his care- which they are affiliated. For more information on the history of observations the disk of the sun through early tele- fully-worded report to the Royal of the sun and their link to climate scopes. The maculae could emerge, Society, Lord Brougham (1778-1868; of change, see W. Soon and S. Yaskell, The evolve in shape, migrate across the disk the brougham carriage fame) scoffed, Maunder Minimum and the Variable of the sun as they were carried by rota- and called them a “grand absurdity” for Sun-Earth Connection, World Scientific tion, and disappear. The nature of sun- “[s]ince the publication of Gulliver’s Publishing Company, in press (2003).

January 2003 | 11 Fraser Forum

short in duration to modify the glob- and 10Be. The amount of radioactive some of the observed climate change in ally-averaged temperature at the earth’s isotopes in tree rings or ice cores is an the last millennium. surface. At first glance, one might expect inverse indicator of the sun’s magnetic that the earth’s surface temperature is field strength. Because satellite measure- Figure 1 shows a connection of this secure from a variable sun. ments suggest that the sun’s energy out- type. The sun’s increasing and decreas- put varies in step with the changes in ing magnetism over the decades is cor- However, the measurements of the sun’s the magnetic field over decades to cen- related with terrestrial temperature energy output only extend back two turies, the tree ring and ice core mea- change. In figure 1, estimates of the decades. The sun varies more dramatically surements imply that the sun’s energy northern hemisphere land temperature over centuries. And, as with Herschel’s output also changes over decades to are shown because global temperature lack of temperature records, researchers centuries. In the last several hundred estimates do not go back beyond the lack direct measurements of the sun’s years, the sun’s magnetism has been low mid-nineteenth century; however, the energy output over centuries. As in the nineteenth, seventeenth, fifteenth, two records agree well when they over- Herschel did, modern researchers turn and fourteenth centuries. lap. Changes in the sun’s magnetism, if to proxies of the sun’s energy output. accompanied by modest brightness The coldest century of the last millen- changes of a few tenths of a percent, As noted above, the sun’s total energy nium, with worldwide evidence for sig- could explain the reconstructed temper- output varies in step with changes in its nificant advances of glaciers, coincides ature change of the past 200 to 250 2 magnetism, as contained in the sunspot with the Maunder Minimum of the sev- years. record that goes back nearly 400 years enteenth century. Thus, periods of low since the times of Galileo and those solar magnetism and cold spells are The chart stops around 1980 because early solar astronomers. linked. Gradual changes in the sun’s the sun’s changes are presumed to oper- magnetism over decades or longer may ate over two decades or longer. Yet the The centuries-long view of the sun differs correspond with changes in the sun’s period beyond 1980 is interesting significantly from that seen in the short, total energy output, and contribute to because it corresponds to the period two-decade window afforded by satellites. About 100 years ago, E. Walter Maunder (1851-1928) reawakened the early idea, Figure 1: A Sun-Climate Link? based on early sunspot sightings, that the sun had displayed unusually low magnetism during most of the seventeenth century. This period of low magnetism, along with the almost total disappear- ance of sunspots for the extended inter- val from about 1620 to 1720, is now called the Maunder Minimum.

Information on the sun’s magnetism stretching back 10,000 years or so can be derived from measurements of radio- carbon, or carbon 14, in tree rings of old and dead trees. (Another, independent estimate of the sun’s magnetic history comes from trace amount of Beryllium 10 (10Be) in ice cores.1) During the Changes in the sun’s magnetism and in the reconstructed northern hemisphere’s land temperature Maunder Minimum, the sun’s weak are highly correlated over the last 240 years. The sun’s magnetic changes are associated with magnetic field allows more energetic changes in its total energy output, and may explain the close connection to terrestrial temperatures charged particles from the galaxy, called on time scales of decades to centuries. The changes in the sun’s magnetism are represented by cosmic rays, to hit the earth’s atmo- changes in the length of the “Hale polarity” or 22-year cycle, which is closely linked to the 11-year sunspot cycle. (Source: Baliunas and Soon, 1995, p. 896.) sphere, and create more radiocarbon

12 | Cover Story

when the air’s carbon dioxide content Forum). Other fluctuations of the sun Note rose, and also shows a major surface (for example, its speedy wind of charged 1 warming trend. Some say this indicates particles, its magnetic field, and ultravi- Beryllium 10, or 10Be, is a cosmogenic iso- that carbon dioxide is responsible for olet light) may also affect terrestrial cli- tope (it has a half life of 1.5 million years, the warming of the last 20 years. But for mate. For instance, fast-moving instead of the some 5,730 years of carbon 14) of 9Be, which is the dominant beryllium this to be true, the raised carbon dioxide particles from the sun may alter the element on Earth. concentration in the air must, according properties of terrestrial clouds or strato- 2 to computer simulations of climate, also spheric ozone, or both, and so affect the Brightness refers to the total wave- produce a warming trend in the low pattern of air circulation in the tropo- length-integrated amount of solar light layer of air, from about 2 to 8 km in energy. Measurements of the total wave- sphere below, and hence air tempera- length-integrated amount of solar light height. NASA/NOAA satellite- and bal- ture near the earth’s surface. energy or solar brightness changes are done loon-borne instruments, however, show with very precise, satellite-borne radiome- little evidence for the human-made ters. The difficulties with these measure- warming trend forecast by computer The cold periods of the last 1,000 years, ments are related to the small amount of simulations. often seen in conjunction with periods change and the requirement that the mea- of low magnetism on the sun, may be a surements be sustained for at least 10 to 20 years. Instead, the surface warming, as dis- clue to one of several factors influencing played in figure 1, may be largely natu- climate. Those natural factors must be accurately known in order to under- ral and result from the varying total References energy output of the sun. In this sce- stand the backdrop against which nario, a persistent and systematic human-caused climate change would be seen. As new discoveries of natural cli- Baliunas, Sallie and Willie Soon (1995). impact of the changing solar light Astrophysical Journal, 450. energy may modify the sea surface tem- mate factors are determined, in part perature and evaporate more or less from advanced space technology, Brougham, Lord (1803). Critique. Edinburgh water vapor to the air, and thus, in turn, researchers hope to improve climate Review (January). warm or cool the near-surface tempera- forecasts so that they can understand Herschel, W. (1801). “Observations the human-made global climate factor. ture through the greenhouse effect (for Tending to Investigate the Nature of the a short, but accurate, explanation of the In the case of the sun and climate Sun, in Order to Find the Causes and greenhouse effect, see our article “Can change, Herschel may have made an Symptoms of its Variable Emission of Climate Models Predict Future interestingly correct guess, backed with Light and Heat ...” Philosophical Transac- Weather?” in the January 2002 Fraser scanty but intriguing evidence. tions of the Royal Society of London. Vol. 91, pp. 261-331. &

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January 2003 | 13 Fraser Forum

widespread increase in real per capita Emission Scenarios & income: 60 percent in the US, 74 per- cent in the UK, 77 percent in Canada, 112 percent in Japan, etc. (Easterly and Sewadeh, 2001). Nonetheless, average Recent Global carbon dioxide emissions per capita did not rise for the world as a whole.

So there is reason to believe that per Warming Projections capita CO emissions are somewhat 2 invariant to economic growth, at least at a globally-averaged level. We could likely rule out, for instance, the possibil- ity that per capita emissions will exceed 2 tC in the next few decades.

by Ross McKitrick 0.8 tC to 1.2 tC from 1960 to the early Currently there are about 6.1 billion 1970s, and fell thereafter to about 1.15 people in the world. The United In the ongoing debates about the nature tC. Since 1970, the average has been just Nations currently projects world popu- of the global warming threat there has below 1.14. lation will reach about 9.3 billion per- been a lot of attention paid to some core sons by 2050 (UN, 2002). Population scientific issues such as natural variabil- The steadiness of this average during the projections have tended to fall because ity, the validity of climate models, the interval from 1970 to 1999 is quite strik- fertility rates are dropping more quickly quality of atmospheric temperature ing since global per capita income grew than demographers expected in the data, the connection between climate during this period. The growth was not 1970s and ’80s. But taking this projec- evenly felt, especially in developing and extreme weather, and so forth. One tion as given, if CO2 emissions per area that is receiving increasing atten- regions. For instance, Brazil’s per capita capita are 1.14 tC for the next 50 years, tion is the socioeconomic modeling that income rose 80 percent while Nigeria that would imply total global emissions underpins the emission projections that experienced no real growth at all. But in of 10.6 billion tC by 2050. If emissions in turn gave rise to the famous warming the developed countries there was a per capita range from 1.09 to 1.31 tC by projections of +1.4 to +5.8 degree C that have so alarmed policymakers. This Figure 1: CO2 Emissions in Tonnes Carbon Equivalent per Capita article explains why the emission scenar- ios are almost certainly too high and 1.4 ought to be revised as quickly as possible. 1.2

A back-of-the-envelope 1.0 projection 0.8 Figure 1 shows the globally-averaged 0.6 per-person emissions of carbon dioxide in tonnes per capita (tC) since 1960. 0.4

The average grew steadily from about per person tons Metric 0.2

Ross McKitrick is Associate Professor, 0 Department of Economics, University of 1960 1965 1970 1975 1980 1985 1990 1995 Guelph. He is author of the recent Key Porter book Taken by Storm, distributed Source: Marlandet al. (2002). by The Fraser Institute.

14 | Climate Change

2050, the total emissions range will be period, emissions per person exceeded tion to climate. However, the important 10.2 to 12.2 billion tC. 1.2 tC only once, in 1979 (reaching point here is that the low end of the 1.23). The SRES projects that by 2020 emission scenarios is the only one that the average annual emissions per person looks plausible, and its “warming” range The official projections will be, at a minimum, 1.2 tC from fossil is very small, about 0.1 degree C per fuel consumption. decade. The attention to the IPCC For the purposes of the Third Assess- report focused on the upper end of the ment Report of the Intergovernmental By 2050, the SRES is projecting emis- warming forecast. It is obvious, though, Panel on Climate Change (IPCC, 2001), sions per capita will be even higher, that the emission figures are unrealisti- a set of emission scenarios were devel- between 1.2 and 2.5 tonnes per person. cally high at the upper end. If the eco- oped in the Special Report on Emission This would require a sharp departure nomic growth of the past three decades Scenarios or SRES (IPCC, 2000). The from what has been observed histori- did not cause per capita emissions to emission scenarios were developed cally. If, however, the pattern over the rise at all, it is unlikely that growth over based on the work of “storyline” teams previous decades persists, emissions will the next few decades could cause global that wrote scenarios about possible fall in the range of 10.3 to 12.1 per capita CO2 emissions to suddenly future states of the world as of 2100, then gigatonnes. double. It is not impossible, of course, devised growth paths that would lead to but it would require quite a change in those future outcomes. The scenarios the way many economies function. If we thus developed were dated to begin at Implications for rule out this doubling, much of the 1990 and run to 2100. Table 1 shows the climate forecasts warming range presented in the Third range of emissions using UN population Assessment Report is in doubt. projections and a 1.1 to 1.3 assumed tC These sorts of calculations matter emissions per capita figure, compared because the SRES emission scenarios To the extent that we can evaluate them, with the emissions projected by the were used as inputs for climate models the SRES Marker scenarios are known SRES group, at years 2020 and 2050. in the recent Third Assessment Report to be overstated already. For example, of the IPCC. The famous conclusion they assumed global coal consumption The first column shows the central UN from that report was the forecast would rise between 4 and 31 percent population projection in billions. The increase in the “global temperature” over the 1990s, whereas actual con- second column assumes per capita from +1.4 to +5.8 degrees C. sumption fell by over 10 percent during emissions of 1.1 tC to 1.3 tC and shows this period. The SRES scenarios pre- the implied range of emissions from In Taken by Storm (Essex and dicted fossil fuel-based CO emissions fossil fuel use, in billions of tonnes. In McKitrick, 2002), we explain at length 2 of 6.9 billion tonnes as of 2000. But 2020 these estimates are below 10 what is wrong with the notion of a observed emissions in 1999 were just gigatonnes. The numbers from the 6 “global temperature.” To begin with, under 6.5 billion tonnes (Marland et al., main SRES (called “Marker”) scenarios there is no such thing. There are, 2002) and there has been no net emis- range from 9.0 to 12.1 gigatonnes, instead, statistical indexes constructed sions growth since 1996. implying per capita emissions will rise by averaging some highly processed to between 1.2 and 1.6 tonnes per per- temperature observations, but such Note that the lowest of the SRES Marker son. For the whole of the 1970 to 1999 indexes have no clear physical connec- scenarios implies 1.2 tC per person to be emitted as of 2050. Even this may be an Table 1: Comparison of Emission Scenarios using Relatively Steady exaggeration. In the summer of 2002, per Capita Emissions versus SRES Projections economist Dr. Ian Castles, former Chief Statistician for Australia and now a Fel- Year UN Population Range of emis- SRES Marker Implied per Projection sions assuming scenario capita emissions low of Australian National University, (billions) 1.1 to 1.3 tC per projected range under SRES wrote a letter to the Chairman of the capita (billion (billion tonnes range Intergovernmental Panel on Climate tonnes carbon) carbon) Change, Dr. Rajendra K. Pachauri, rais- 2020 7.579 7.6-9.9 9.0-12.1 1.2-1.6 ing some concerns about the SRES sce- narios. Dr. Castles had looked at the 2050 9.322 10.3-12.1 11.2-23.1 1.2-2.5 SRES methodology and concluded that

January 2003 | 15 Climate Change

the IPCC had made material errors in more than double those observed Conclusions their projections. They had gone about historically. Yet the B1 scenario yields the the scenario constructions backwards. lowest emissions path as of the end of There are clear problems with the SRES They had computed some ratios of the twenty-first century. If it is over- scenarios. IPCC Chairman Dr. Pachauri developed country- to developing coun- stated, the whole body of conclusions raised the matter at a meeting of the try-incomes as of 2100, then worked in the Third Assessment Report are in IPCC Bureau in December 2002, and backwards to figure out what growth doubt. has asked Castles to attend the next rates needed to be assumed between Bureau meeting in January to make a now and then in order to get there. Another group of emissions forecasters further presentation on the matter. For These growth rates then determined the are at the Massachusetts Institute of the sake of providing more reliable emission paths. Technology in the MIT Joint Program future projections, we ought to hope on the Science and Policy of Global that the IPCC takes seriously the con- Unfortunately, the SRES team used Change. A recent paper from this group cerns being raised, and implements cross-country comparisons based on and coauthors elsewhere (Webster et al., measures to correct the apparent exag- market exchange rates rather than Pur- 2002) projects a distribution of emission gerations in the emission projections. chasing Power Parity (PPP) rates. scenarios, with median emissions out to Exchange rates tend to amplify 2050 tracking the lowest of the IPCC cross-country differences. For instance, SRES group. John Reilly of MIT’s Joint References the average income in Canada in 1998, Program commented recently converted to US dollars using market (Corcoran, 2002) that the SRES exercise Chakravorty, Ujjayant, James Roumasset, exchange rates, was about $19,600, was “in my view, a kind of insult to sci- and Kinping Tse (1997). “Endogenous Substitution among Energy Resources compared to about $486 for Paki- ence” and the method was “lunacy.” He and Global Warming.” Journal of Political stan—a 40:1 ratio. But local prices in noted that the MIT lab refused a request Economy 105(6): 1201-1234. Pakistan are not as high as they are in from the SRES team to let their models be Corcoran, Terence. (2002) “An ‘Insult to the US, so income in US dollars would “tweaked” to support the IPCC scenarios. Science’.” National Post (Nov. 27): FP19. go further in Pakistan. On a PPP basis, income in Canada was only about 16 Beyond 2050, anything can happen. Essex, Chris and Ross McKitrick (2002). Taken By Storm: The Troubled Science, times that in Pakistan. Consequently, Reilly and coauthors find in their mod- Policy and Politics of Global Warming. the amount of growth needed in Paki- els that if some current trends continue, Toronto: Key Porter Books. stan to converge towards Canadian real then emissions could be in the range Intergovernmental Panel on Climate Change income (on a PPP basis) would be projected by the IPCC at the end of the (IPCC) (2001). Climate Change 2001: The much lower than that implied using century. By contrast, Chakravorty et al. Scientific Basis. Cambridge Univ. Press. exchange rate-based comparisons. (1997) have argued that market mecha- Intergovernmental Panel on Climate Change nisms must be better taken account of (IPCC) (2000). Special Report on Emission Dr. David Henderson, former Chief in these models, because technical sub- Scenarios. Cambridge University Press. Economist of the Organization of Eco- stitution possibilities will drive fuel con- Marland, G., T.A. Boden, and R. J. Andres nomic Cooperation and Development sumption. In particular, if fossil fuel (2002). “Global, Regional, and National also voiced concern over these exagger- prices follow what economists call the CO2 Emissions.” In Trends: A Compen- ated growth scenarios. In a letter to “Hotelling rule” (increasing, on average, dium of Data on Global Change. Carbon Pachauri in October 2002, he called at a rate equal to the real interest rate), Dioxide Information Analysis Center, upon the IPCC to review “the whole and alternate energy sources like solar Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, Tenn. scenario exercise” since the famous cells continue to decline in price at even warming forecasts are put into doubt if half the observed historical rate, global United Nations Population Information the underlying emission scenarios are fossil fuel use will drop to zero by the Bureau (2002). Web site www.un.org/popin/ wrong. In their correspondence with the end of the century. They conclude that IPCC, Castles and Henderson have global warming is a short-run problem, Webster, M.D., M. Babiker, M. Mayer, J.M. focused on the B1 scenario, showing and beyond a planning horizon of 100 Reilly, J. Harnisch, R. Hyman, M.C. Sarofim, C. Wang (2002). “Uncertainty in how the use of market exchange rates years “the problem declines over time Emission Projections for Climate rather than PPP-based comparisons leads under any reasonable scenario of tech- Models.” MIT Joint Program on the Science to untenable growth projections at rates nological change.” and Policy of Global Change, mimeo. &

16 | Fraser Forum

ment’s constitutional powers, was easily A Constitutional pushed through the House of Com- mons on December 10 in a confidence vote usually reserved for money bills. It was a simple and superficial move, an Firewall Against Kyoto empty rhetorical flourish to accompany the Liberal government’s professed commitment to the environment.

Implementation, on the other hand, will be nasty, brutish, and long, requiring new federal legislation and the coopera- by Sylvia LeRoy ince is unnecessary,” (Klein, 2001) the tion of the provinces whose jurisdiction aggressive and hostile manner with will be infringed (LeRoy and Frank, 2002). While the federal government “It is imperative to take the initia- which the federal government has been notoriously slow to give any tive, to build firewalls around Al- approached the ratification of the Kyoto indication of what such legislation berta, and to limit the extent to Accord at the end of 2002 has given the which an aggressive and hostile fed- strategy broad new appeal. might look like, the new Climate Change eral government can encroach upon Plan for Canada makes it clear it has yet legitimate provincial jurisdiction.” Indeed, Alberta’s Bill 32, the Climate to arrive at a solution that avoids plac- —From the Alberta Agenda, writ- Change and Emissions Management Act, ing an undue burden on Alberta’s oil ten by six prominent Calgary aca- can perhaps best be described as a con- and gas economy. demics in January 2001.1 stitutional firewall against Kyoto. Intro- duced into the Alberta legislature It has been two years since 6 Calgary ac- on November 19, 2002—two days ademics, inspired by the Prime Min- before the federal government Implementation of ister’s “tough love” campaign for the unveiled its Climate Change Plan for West leading up to the 2000 general elec- Canada—Bill 32 provides frame- tion, penned an open letter to Alberta work legislation for a climate the Kyoto Accord Premier Ralph Klein urging him “to change plan of Alberta’s own.2 build firewalls around Alberta,” and reaf- Moreover, the bill clearly stakes out will be nasty, firm the province’s authority in areas the province’s ownership of natural over which it has jurisdiction. The letter resources, defined to include both brutish, and long. laid out an “Alberta Agenda” that called carbon dioxide and methane, claims for the province to reclaim its legitimate property rights to carbon sinks, and jurisdictions under the Constitution of ultimately sets the terms of refer- Canada by having Alberta opt out of the ence for what could turn into an Canada Pension Plan, collect its own in- ugly constitutional battle with Ottawa. The federal plan come tax, create its own provincial po- Reading Alberta’s proposed climate The federal government’s Climate lice force, reaffirm provincial change legislation in light of the federal Change Plan for Canada is supposed to responsibility for health care, and use plan gives us a preview of the constitu- explain how Canada will meet its Kyoto the “duty to negotiate” described in the tional arguments we may eventually target of a 6 percent reduction of green- Supreme Court’s 1998 Quebec Secession hear. house gas emissions by 2012. Claiming Reference to force Senate reform back on that actions already underway will the national agenda. Ratification versus Sylvia LeRoy ([email protected]) While Premier Klein responded coolly implementation is a research analyst in The Fraser to the letter, arguing that “the sense of Institute’s Alberta office and Project defeatism underlying the notion of Ratification of the Kyoto Accord, an Manager for the Donner Canadian building a ‘firewall’ around this prov- action well within the federal govern- Foundation Awards.

January 2003 | 17 Canada‘s Constitution

reduce emissions by 80 megatonnes opment and strategic capital turnover tion the province’s commitment to (MT) of Canada’s 240 MT target, the implicit in their plan, “the government reducing greenhouse gas emission November plan looks to achieve an is prepared to discuss an approach intensity by 50 percent below 1990 lev- additional reduction of 100 MT using whereby a pre-approved commitment els by the 2020, and lays out the legal various tax, spending, and regulatory to larger emissions reductions over the framework to support its action plan. measures in five key areas (Government somewhat longer term could be of Canada, 2002, p. 5). accepted in lieu of reductions in the The heart of the bill, however, is the nearer term” (Government of Canada, reaffirmation of provincial ownership of Large industrial emitters will bear the 2002, p. 32). natural resources, protected under sec- burden for almost half of new tion 92(a) of the Constitution of Canada. reductions, cutting emissions by As the preamble to the bill plainly states: 55 MT through covenants with Because companies “the Government of Alberta owns natu- mechanisms to limit losses and ral resources in Alberta on behalf of all costs, and through emissions are forced to buy Albertans and manages the exploration, trading. Because such emissions development, and production of renew- trading schemes force companies international permits able and non-renewable resources in to buy domestic offsets and Alberta.” It goes further, stating that international permits as a new “carbon dioxide and methane are natu- cost of doing business, the as a new cost of doing ral resources, are not toxic under atmo- scheme has been equated with a spheric conditions and are inextricably carbon tax. About another 15 business, the scheme linked with the management of other MT will be addressed through renewable and non-renewable natural the technological, infrastructure, has been equated resources, including sinks.” and efficiency gains in other industrial emmissions and with a carbon tax. The latter point is significant. Section 8 another 20 MT reduced by of the Climate Change and Emissions improved energy efficiencies in Management Act affirms property rights buildings. The remaining 10 MT This reinforces what appears to be the in carbon sinks (areas and agricultural will be addressed through the purchase prime minister’s confusion over lands said to absorb greenhouse gasses), of international permits. One quarter whether ratification of the treaty obliges vesting title and benefit to the owner of (60 MT) of Canada’s commitment Canada to actually hit its targets, or just the land to which the sink is affixed or remains unplanned for (Government of develop a plan by 2012, evidenced in his of which it forms a part. These sinks Canada, 2002, p. 11). September statement that “the develop- account for 38 MT of the federal gov- ment of a plan will take 12 years. Ten ernment’s Climate Change Plan, putting According to the federal government’s years… We have a 10-year period to any attempt by the federal government own press release, these are “the best develop the appropriate plans to meet to regulate them directly in conflict with ideas to come out of consultation and these international obligation that the Alberta’s legislation. collaboration.” These “best ideas,” how- Canadians want us to commit to” ever, fall short of providing the sub- (Toulin, 2002). In other words, the gov- The federal government has promised stance of legislation that could both ernment has ratified Kyoto, but does that no region will bear an unreasonable meet Canada’s Kyoto commitments and not necessarily intend to comply with its burden of the costs of implementing withstand a constitutional challenge terms within the prescribed time frame. Kyoto. Under Alberta’s Climate Change from the provinces. and Emissions Management Act, “the determination of undue burden must be Ironically, it is the federal government Pre-emptive strike made by the jurisdiction accepting the itself that has given the most damning burden, as a fundamental matter of testimony to the international treaty’s Alberta, at least, has been more trans- responsible government.” In simple empty symbolism. Recognizing that the parent in its climate change planning. terms this commits the Alberta govern- two-year time frame may be too short Alberta’s Climate Change and Emissions ment to challenging—if necessary, in to allow for needed technological devel- Management Act will set out in legisla- court—any federal plan that fails this test.

18 | Fraser Forum

A constitutional firewall

Two years ago, Ralph Klein called the Canada’s Unlikely firewall strategy “defeatist.” Others called it inflammatory—separatism in disguise. Given the federal government’s approach to Kyoto ratification, how- Freedom Fighters ever, it looks more like common sense. As Ken Boessenkool, one of the authors of the Alberta Agenda put it, “good fire- walls make good policy” (Boessenkool, 2002). While politics, rather than law, will no doubt play the pivotal role in by Barry Cooper any constitutional challenge of Kyoto, Unlike farmers in Ontario, western the importance of Alberta’s reaffirma- hirteen shackled men entered Canadian wheat and barley producers tion of its provincial jurisdiction under T are subject to a unique and unaccount- the dark confines of the the Constitution of Canada should not Lethbridge Correctional Centre early in able regulatory regime. Alone among be underestimated. December 2002. They were not danger- Canadian farmers, prairie wheat and ous criminals who had violated the laws barley producers must, by law, market their product through the Canadian Notes of society or the morals of civilization as we know it. Their crime had taken place Wheat Board (CWB). They have no 1 choice. Even though they plant the Stephen Harper, Tom Flanagan, Ted Mor- some six years earlier. They had taken ton, Rainer Knopff, Andrew Crooks and Ken grain, which they had grown on their crops, nurture them, harvest them, and Boessenkool. own farms, and loaded it onto their own assume the many risks associated with 2 raising grain, the second it moves Climate Change and Emissions Management trucks. Then they drove across the bor- Act (2002), Bill 32. The Bill passed second der into Montana, where some of them through the farm gate, it effectively reading one week after its introduction, on sold their grain to private American deal- belongs to the CWB. This happens November 26, 2002. ers at market prices. Jim Chatenay, from nowhere else in Canada. The Wheat Red Deer, donated his grain to a local Board, which began as a voluntary mar- Four-H Club. keting board during the late 1930s, has evolved into a compulsory monopoly References Whether they sold their wheat or gave it run by and for the people who staff it. Boessenkool, Ken (2002). “Good Firewalls away made no difference: by removing Make Good Policy.” National Post (May wheat or barley used for human con- Since the late 1960s, the CWB has been 3): A19. sumption from Canada, on their own exempt from Parliamentary oversight. Like CSIS, the spy agency, the CWB is Harper, Stephen, Tom Flanagan, Ted Mor- initiative, they were in violation of the ton, Rainer Knopff, Andrew Crooks and Customs Act. But the farmers, the also exempt from the Access to Infor- Ken Boessenkool (2001). “An Open Let- RCMP, and customs officers on both mation Act, and farmer-adversaries of ter to Ralph Klein.” National Post, Jan. 24. sides of the border know well the Cus- the Board are compelled to pay to keep Government of Canada (2002). Climate toms Act is a front. The real crime of the its operations secret. What little infor- Change Plan for Canada. Ottawa: Nov. 21. 13 men was to have defied the bureau- mation trickles into public regarding Klein, Ralph (2001). “Klein Responds to the cratic sway of the Canadian Wheat CWB activities comes from Access to ‘Firewall’ Proposal.” Edmonton Journal Board, the last remnant of what was Information requests served on allied (February 9): A17. once total wartime control of the mar- departments. LeRoy, Sylvia and Jillian Frank (2002). ket in agricultural products. “Kyoto and the Constitution.” Fraser Andy McMechan is a Manitoba farmer Forum (October). and member of an organization called Barry Cooper ([email protected]) Toulin, Alan (2002). “Kyoto Cost Hidden is Professor of Political Science at the Farmers for Justice. In 1996 he served From Cabinet.” National Post (Septem- University of Calgary and Director of The 155 days in jail for selling his own wheat ber. 25): A1. & Fraser Institute’s Alberta office. in North Dakota. More recently, he

January 2003 | 19 Farmer– Activists

obtained some 40,000 pages of informa- It is hard for most Canadians to under- ple, bind all members of the group tion dealing with Canada Customs stand that for these entrepreneurial against their will. Democracy has never under the Access to Information Act. prairie farmers the implications of the meant the tyranny of the majority, espe- Even though 10,000 of the pages he Wheat Board monopoly are offensive cially a manipulated majority voting in requested were blanked out, one Cus- enough that they are willing to go to jail gerrymandered constituencies that cross toms memo detailed that $1.5 million rather than pay what they consider an provincial boundaries. In practice, the was spent between July 1994 and April arguably illegal and certainly unjust 13 jailed farmers are eloquent witnesses 1996 for extra personnel “to deter fine. Some of them have compared their to the continuing power of the CWB. offenders, mainly farmers associated actions to the acts of civil disobedience under the name Farmers for Justice” undertaken 50 years ago in the Ameri- Ike Lanier is 72. He was bailed out of (McLean, 2002, p. 11). Among other can South. On leaving the Lethbridge the Lethbridge jail by his wife after she things, Canada Customs purchased jail John Turcato, who farms near couldn’t sleep, so worried was she about Taber, Alberta, observed, “I think that body armor ($17,000), secure radios her husband. “When your wife decides there is a time and a place for peaceful ($184,000), and several types of surveil- to spring you,” he smiled, “why fight demonstration and civil disobedience. lance cameras ($40,000). Clearly they it?” He added, more soberly, “at night, My hope is that the next time the need your cell door clangs shut with the lights were mounting a major operation arises, there are not 13 but 1,300 or left on. No phone. You can’t go any- against people whom they considered 13,000” (Scott, 2002, p. B-3). where. What we were protesting became dangerous. quite obvious. It became a very tangible The Canadian Wheat Board has thing. Freedom.” In the event, both the Manitoba and the changed in many ways over the past few Alberta farmers had their vehicles seized years as a result of civil disobedience This compulsory and geographically without serious incident. The legality of and litigation. For example, the Board discriminatory monopoly is probably those seizures, however, remains uncer- now operates with seven farmer repre- the last fundamental human rights issue tain. The Opposition Wheat Board sentatives elected to its 15-person gov- that remains largely ignored by govern- critic, Maurice Vellacott, noted in Par- erning body. Wheat Board supporters ments, by the courts, and by the media. liament that ministerial directives and claim recent changes have made the An individual who is determined to the opinion of the trial judge in the board more responsive. They also point grow wheat or barley on the prairies is McMechan case, namely that the intent to the referenda conducted during the an economic serf whether or not he or of Parliament was to ensure harmony late 1990s by the federal government. A she favours serfdom. The Wheat Board between the Wheat Board Act and the slim majority of wheat and barley grow- issue is not about to disappear because ers voted to market their grain through Customs Act, is not law. Yet it was the it not simply about choice. Nor is it the board. And, of course, the Wheat basis for issuing an order to another about secret prices set by unknown Board claims that it can command pre- farmer, Ken Dillen, a former NDP MLA bureaucrats, or what benefits the farmer mium prices because it is a single-desk in Manitoba, compelling him to forfeit and what does not. The basic issue is seller. his truck to Canada Customs. Crown whether or not prairie grain producers Prosecutors were then in a position to can be responsible citizens, and raise In fact, there has never been any public and dispose of their own crops as they declare that they had the necessary juris- audit of the CWB, so no one knows wish. As Ike Lanier said, it is about prudence to convict and seize the vehi- whether its secret prices benefit anyone freedom. cles of the “Lethbridge Thirteen.” other than the officials whose job it is to Moreover, most of those trucks are still negotiate or set them. Secrecy does, in customs compounds because they however, intensify the suspicions of crit- References were apprehended under what is known ics. Besides, the economic effectiveness as a “civil seizure.” Civil seizures are not of the monopoly is secondary to its McLean, Candis (2002). “Against the appealable to the courts, but to the Min- compulsory nature. In no other sector Grain.” The Report (November 18): ister of National Revenue, who has of Canadian society or of the Canadian 10-14. refused to rule whether the seizures economy would a majority vote of man- Scott, Peter (2002). “Freed Farmers Thinner, were legal or not. And so the vehicles ufacturers, of merchants, of poets, of but Unbowed by Jail.” Calgary Herald remain out of service. fishers, or of any other category of peo- (December 6): B-3. &

20 | Fraser Forum

As a result of low levels of economic freedom, Canadian provinces have Weak Economic experienced low levels of economic activity and economic growth in their jurisdictions.1 In Economic Freedom of Freedom Haunts North America, econometric testing indicates that economic freedom has a substantial effect on economic activity and growth.2 However, even a simple Canada graphic demonstrates the vital link between economic freedom and pros- perity. Figure 1 splits North American jurisdictions into quintiles at an all-gov- ernment level where “Bottom” stands by Amela Karabegovic & index measures government restrictions for jurisdictions in the lowest fifth of the Fred McMahon on economic freedom at a state/provin- economic freedom ratings. As the figure cial and local/municipal level. The indicates, more economically free juris- anadians are poorer than they all-government index measures the dictions have higher per capita incomes. C restrictions of all three levels of govern- need to be because of a lack of Not surprisingly, 9 out of the 12 juris- economic freedom. That’s the conclu- ment—federal, state/provincial and dictions in the bottom quintile are sion of Economic Freedom of North Amer- local/municipal. Canadian provinces—all provinces ica, the first comprehensive economic except Alberta are in this quintile. The Of the Canadian provinces, only Alberta freedom rating for US states and Cana- jurisdictions in the bottom quintile have consistently scores well in economic dian provinces. an average per capita GDP of $31,265, freedom. It gets a middling rank in whereas the 12 freest jurisdictions in North America and enjoys a middling The study, prepared by Fraser Institute North America (Top 20% quintile) have level of prosperity. Ontario is the second researchers, was released last month by an average per capita GDP of $55,337. the Institute in Canada and the National freest Canadian province, but in 2000, Center for Policy Analysis in the United the most recent year for which data are What is it that makes Canadians less States. It will also appear in a special available, it scores below all states on the economically free and thus less prosper- issue of the European Journal of Political all-government index, and ahead of ous than Americans? There are three Economy devoted to economic freedom. only West Virginia on the sub-national areas that this study looks at when mea- index. As a result, Ontario is poorer suring economic freedom: 1) size of The index measures the extent of than all US states except for West Virginia, government, including government restrictions on economic freedom Mississippi, and Montana, which also expenditures and transfers relative to imposed by governments in North score very poorly on economic freedom. GDP; 2) takings and discriminatory tax- America. Economic freedom is freedom ation; and 3) labour market freedom, Quebec and PEI are the least free prov- to make personal choices and use pri- specifically, labour market rigidity, i.e., inces. Although Quebec enjoys the same vate markets to answer the basic whether or not there are minimum benefits of geography and resource economic questions: what is to be pro- wages, how many licensed occupations wealth as Ontario, Quebec’s even lower duced, how much is to be produced, there are, and government employment level of economic freedom has left it and for whom is production intended? relative to total employment. economically well behind Ontario and The study uses two indices, sub-national even the poorest, most disadvantaged Canadian provinces are at or near the and all-government. The sub-national US states. bottom in all three areas at both the

Amela Karabegovic ([email protected]) is a Research Economist at The Fraser Institute. She has an M.A. in Economics from Simon Fraser University. Fred McMahon ([email protected]) is Director of the Centre for Globalization Studies at The Fraser Institute. Formerly with the Atlantic Institute for Market Studies, his most recent book is Retreat from Growth: Atlantic Canada and the Negative Sum Economy.

January 2003 | 21 Economic Freedom

all-government and subnational levels, dom by reducing taxes and government that were once lagging are now catch- which implies that Canadian prov- spending and by making their labour ing up with old centers of affluence, inces—except Alberta and, to a lesser markets more flexible. and often surpassing them—much extent, Ontario—have consumed and more quickly than Canada’s have-not transferred more resources, imposed Fiscal federalism mutes the impact of provinces. higher tax rates, and created more rigid economic freedom by, in effect, trans- labour markets than have the US state ferring money from economically free Imagine a school where parents were governments.3 to economically unfree provinces. If, for example, Alberta decreased its taxes, its fined if their children worked hard, and More alarming is the fact that provinces economic freedom would increase, as where they received a cheque from the with relatively high levels of economic would its GDP. However, because of the school board when their children didn’t freedom within the Canadian context increase in GDP, Ottawa would transfer do their homework. That’s the perverse are not positioned to take full advantage more tax money out of Alberta to structure of fiscal federalism. Provinces of that freedom due to Canada’s system “have-not” provinces, which are typi- with good economic policy are fined. of fiscal federalism.4 cally have-not because they have limited Provinces with bad policy get a cheque. their economic freedom. This explains a puzzle in the economet- ric results. The positive impact of eco- Even worse, provincial politicians are Notes nomic freedom on Canadian provinces, rewarded for suppressing economic while substantial, is less than the impact freedom. Low economic freedom weak- 1 A number of papers that link economic of it on US states. Econometric testing ens the provincial economy and attracts freedom and prosperity on an international shows that a one-point increase in eco- a rich menu of federal transfers con- basis can be found at www.freetheworld.com. nomic freedom on the all-government trolled by the policymakers who created 2 See Economic Freedom of North America at index’s 10-point scale would increase a the problems in the first place. This is www.freetheworld.com. province’s prosperity by $3,800 per per- like handing out prizes for bad policy. 3 son. But a one-point increase in eco- Canadian data were adjusted to take into nomic freedom in a US state increases Worldwide economic research shows account the fact that Canadian provinces and US states have different fiscal responsi- prosperity by over $10,000 per person, that domestic policy—not outside help or resource wealth—is the key to build- bilities (see Economic Freedom of North nearly three times the effect in Canada. America). Provinces and states can achieve a ing prosperity and jobs. Regions across 4 one-point increase in economic free- the United States, Europe and Japan A discussion of fiscal federalism can be found in McMahon, 2000b, ch. 3. The US fiscal structure is discussed in McMahon, 2000a, ch. 4. Figure 1: Economic Freedom Levels and Per Capita GDP

$60,000 References $50,000 Karabegovic, Amela, Fred McMahon, and Dexter Samida, with Glen Mitchell and $40,000 Chris Schlegel (2002). Economic Freedom of North America. Vancouver, BC: The $30,000 Fraser Institute.

$20,000 McMahon, Fred (2000a). Retreat from Growth: Atlantic Canada and the Negative Per Capita GDP (2000$Cdn.) Sum Economy. Halifax, NS: Atlantic Insti- $10,000 tute for Market Studies.

$0 _____ (2000b). Road to Growth: How Bottom 20% 2nd Quintile 3rd Quintile 4th Quintile Top 20% Lagging Economies Become Prosperous. Halifax, NS: Atlantic Institute for Market Economic Freedom Quintiles Studies. &

22 | January ? ? QUESTIONS? ? ? ?ANSWERS&

by Niels Veldhuis The percent of federal expenditures for to 22.3 percent in 2001/02, largely due debt charges (interest payments on gov- to the decrease in gross federal govern- : Which programs account for ernment debt) shows the most signifi- ment debt by $11.8 billion since 1997. Qthe majority of federal govern- cant change over the past 30 years, ment spending? How have the spending accounting for over twice as much of to- The share of federal government spend- priorities of the federal government tal spending in 2001/02 as it did in ing devoted to the protection of person changed over the past 30 years? 1971/72 (22.3% versus 11.0%). Over the and property, costs associated with na- last decade, however, the portion of fed- tional defense, the courts of law, correc- eral spending on interest payments has tion and rehabilitation services, : In 2001/02, social services ac- decreased from 24.4 percent in 1991/92 policing, and firefighting, has fallen Acounted for 30.7 percent of total federal government spending, by far the largest share among the programs of the Table 1: Composition of Federal Government Spending federal government. Statistics Canada’s (percentage of total) Financial Management System (FMS) defines social services as, “actions taken 1971/72 1981/82 1991/92 2001/02 by a government to offset or forestall Protection of Persons and Property 12.0 9.4 9.6 10.9 situations where the well-being of fami- lies is threatened by circumstances be- Transportation and Communication 3.9 2.9 2.7 1.1 yond their control.” It includes Old Age Health* 9.2 6.0 4.8 1.2 Security (OAS), the Guaranteed Income Supplement (GIS), Employment Insur- Social Services 29.9 27.6 32.2 30.7 ance (EI), Worker’s Compensation, Education 4.7 3.4 3.3 2.6 Family Allowances, Veterans Benefits, welfare, and other social assistance ser- Debt Charges 11.0 19.0 24.4 22.3 vices. The percent of federal expendi- General purpose transfers to other 6.9 6.7 5.7 15.4 tures allocated to social services has levels of governments remained remarkably stable over the past 30 years, increasing from 29.9 per- Other 22.4 25.1 17.3 15.9 cent in 1971/72 to 32.2 percent in Total 100.0 100.0 100.0 100.0 1991/92 and decreasing to 30.7 percent Total Expenditures (millions of 85,893 156,875 199,378 181,902 in 2001/02. 2001 dollars)

*Note: Federal health expenditure drops sharply 2001/02 due to changes the structure of fed- Niels Veldhuis ([email protected]) eral funding; most federal health spending now shows up as transfers to provinces. is Senior Research Economist at The Sources: Statistics Canada, Public Finance Historical Data 1965/66 - 1991/92, cat. # 68-512; Fraser Institute. He has an M.A. in Statistics Canada, Public Institutions Division, FMS accounts; calculations by the author. Economics from Simon Fraser University.

January 2003 | 23 Questions & Answers

from 12.0 percent in 1971/72 to 10.9 percent in 2001/02. Federal health spending, including all ex- January penditures related to hospital and medical insurance programs, dis- ease control and prevention, and laboratory services, was 1.2 percent of total spending in 2001/02, a sharp drop from 4.8 percent in Graph 1991/92. This decrease was caused by a change in the cost-sharing sys- Government Spending Priorities, 2001/02 tem of health programs by federal and provincial governments. Since Federal Provincial the introduction of the Canada

Health and Social Transfer (CHST) Protection of Persons Protection of Persons in 1995/96, most of the federal and Property 11% and Property 4% General purpose health spending shows up as flexi- Transportation and Other Other 16% transfers ble transfers to the provinces. Fed- Communication 1% to other levels of 11% Transportation and General Health* 1% governments 1% Communication 4% eral transfers to other levels of purpose governments increased dramati- transfers Debt to other Charges cally from 5.7 percent to 15.4 per- levels of 13% cent of federal spending in the past governments 15% decade. Spending on social services Social Services and education were also affected by Debt Charges 31% Education Health* 22% 20% 31% the CHST, although to a lesser de- Education 3% gree. In 2001/02, spending on so- Social Services 16% cial services, health, education Source: See table 1. (including elementary, secondary and post secondary as well as skills Table 2: Composition of Provincial Government Spending retraining and upgrading), and (percentage of total) general purpose transfers to other levels of government accounted for 1971/72 1981/82 1991/92 2001/02 49.9 percent of total federal expen- Protection of Person and Property 3.3 3.3 3.9 3.8 ditures, down from 50.7 percent in Transportation and Communications 9.8 7.1 5.1 4.1 1971/72. Table 1 shows the spend- ing priorities of the federal govern- Health* 26.2 24.9 26.8 31.6 ment from 1971/72 to 2001/02.1 Social Services 12.4 13.7 17.9 15.9 The January graph shows the com- Education 26.9 21.9 20.0 20.1 position of federal spending for Debt Charges 6.6 8.6 12.1 13.0 2001/02. General purpose transfers to other levels 2.1 2.2 1.4 0.6 of governments Other 12.8 18.3 12.8 10.9 : Which programs account Total 100.0 100.0 100.0 100.0 Qfor the majority of provin- Total Expenditures (millions of 2001 82,450 143,685 195,414 213,148 cial government spending? How dollars) have the spending priorities of the provincial governments changed over Sources: Statistics Canada, Public Finance Historical Data 1965/66 - 1991/92, cat. # 68-512; Statis- tics Canada, Public Institutions Division, FMS accounts; calculations by the author. the past 30 years?

24 | Fraser Forum

: Table 2 shows the spending Apriorities of the provincial gov- ernments from 1971/72 to 2001/02. Changing Fisheries Spending on health accounts for the largest share of provincial expenditures in 2001/02 at 31.6 percent, up from 26.2 percent in 1971/72. As with the federal Management for government, the most significant growth in the percent of expenditures occurred in debt charges. While the the Better proportion of provincial budgets allo- cated to servicing the debt is smaller than that for the federal government, debt charges as a share of the provincial budget has grown as fast as have debt charges in the federal budget, nearly by Laura Jones prices. Production costs escalated as doubling from 6.6 percent in 1971/72 to fishermen put more resources into 13.0 percent in 2001/02. Expenditures eadlines shouting about fish- catching as much as possible during the on the protection of people and prop- H eries fiascos in Canada are short season. Fishermen had two other erty as a percent of provincial spending nothing new. The collapse of cod stocks concerns about the short season: safety have remained relatively stable during on the East coast and bickering over and foregoing a substantial portion of the past 30 years, increasing from 3.3 salmon allocations on the West coast income if unforeseen circumstances percent in 1971/72 to 3.8 percent in have brought the competence of our forced them to miss an opening (Muse, 2001/02. Spending on social services, fisheries managers into question. But 1998, p. 7). health, and education accounted for what haven’t made the headlines are 67.6 percent of total provincial expendi- management changes that have saved The geoduck fishery’s problems were tures in 2001/02, up from 65.5 percent many of Canada’s smaller fisheries. The not unique. Fisheries managers in many in 1971/72. The January graph shows geoduck (pronounced gooey duck) other Canadian fisheries and around the the composition of provincial spending clam fishery is one such example. world were having trouble controlling for 2001/02. catches. Fishermen were struggling to By the late 1980s the geoduck fishery make profits in an industry where costs was in serious trouble. To control were escalating and product quality and catches, managers had shortened sea- prices were falling. These problems were Note sons to the point that fishermen called symptoms of a fundamental manage- geoduck a “shotgun” fishery. Despite ment flaw: ignoring the power of incen- 1 The “Other” category includes spending on short openings, actual catches consis- tives. general services, resources conservation and tently exceeded those allowed by the industrial development, housing, the envi- Department of Fisheries and Oceans A brief history of fisheries management ronment, foreign affairs and international (DFO)—in one year by 80 percent (see clarifies this idea. If there is no fisheries assistance, regional planning and develop- management, an obvious problem ment, recreation and culture, research estab- figure 1). The “shotgun” fishery led to arises: too many fishermen chase too lishments, and labour, employment, and supply gluts and reduced the availability immigration. of live product throughout the rest of few fish, which sooner or later depletes the year, which meant lower product stocks. Initially, the geoduck fishery had virtually no management. In 1977, Reference Laura Jones ([email protected]) is a Fraser Institute Adjunct Statistics Canada, Public Institutions Divi- Scholar. She received her MA in Economics from Simon Fraser sion (2001). Financial Management Sys- University. More information on the geoduck and the impact of quotas tems, catalogue no. 68F0023XIB on other fisheries will be available in a forthcoming book to be published (January). & by The Fraser Institute.

January 2003 | 25 Fraser Forum

Figure 1: Actual Catch and TAC for BC Geoduck Figure 2: Survey of License Holders on the Effect (1979-2000) (all weights reported in round weight) of IQs on Geoduck Fisheries Management

14000 TAC Landings 12000 10000 8000 6000

Weight (000 lbs) 4000 2000 0 1976 1979 1982 1985 1988 1991 1994 1997 2000 Year

Note: Limited entry was introduced in 1979; individual quotas in 1989. Source: Personal Correspondence with Michelle James, Executive Director of the BC Seafood Alliance, July 5th, 2000 ; for 2000 TAC: F&O 2001, A Geoduck Management Plan; for 2000 catch: Underwater Harvesters Association website Note: 22 individuals representing 38 of the 55 licenses in the fishery filled out (www.geoduck.org/). the survey in 2001. shortly after the fishery was opened, Why doesn’t controlling the number of While these problems are well under- licenses were available to all comers and fishermen in the fishery work? Because stood by academics, fisheries managers, there were no catch limits (Heizer, 1999, fishermen still operate under the same and fishermen, many fisheries continue p. 2). The number of licenses rose basic incentive: catch as many fish as to hobble along from crisis to crisis (and quickly under this system from 30 in possible, before someone else gets them. headline to headline) by trying varia- 1977 to 101 in 1979. Harvests rose even tions of the same management theme. Regulating effort by shortening open- more dramatically—over 5,000 per- Buying back fishing licenses, for exam- ings or implementing gear restrictions cent—from 97,000 pounds in 1976 to ple, was recently done in the salmon doesn’t work either. Fishermen have 5,430,000 pounds in 1979 (Heizer, fishery. Management of the geoduck strong incentives to work around new 1999). Without management, there was fishery, however, followed a different regulations and they are very good at it. no incentive to conserve. Each fisher- path. man caught as many geoducks as possi- If boat lengths are restricted, for exam- ble before someone else did. ple, boats get wider. This type of regula- In 1988, the geoduck industry associa- tion does, however, introduce a new tion asked DFO to alter radically the problem: to catch fish even more way the fishery was managed by imple- The next stage in the evolution of many quickly during a short opening, fisher- menting an individual quota (IQ) pro- fisheries is the introduction of catch men invest in more powerful equip- gram. Under the program, the allowable limits, a moratorium on new licenses, ment. This investment, which some catch is allocated in equal shares to and regulations that limit fishing times, refer to as “capital stuffing” is ineffi- license holders—property rights to the fishing techniques, and/or fishing areas. cient. It doesn’t increase the total num- clams are allocated before fishermen While these ideas sound sensible, they reach the fishing grounds. The shares ber of fish caught in the entire fishery; it provide only a short-term fix. In the can be transferred, but not subdivided just enhances an individual fisherman’s geoduck fishery, DFO introduced catch (Heizer, 1999). Individual quotas ability to catch fish before someone else limits in 1979. In 1980, the number of change incentives in fisheries by essen- licenses permitted in the fishery was does. In other words, the same number tially eradicating the race for fish. If you reduced to 95. These measures initially of fish could be caught more cheaply. In know how many clams you can catch stabilized catches, but by the mid 1980s the geoduck fishery, catches continued before unmooring your boat, you are no actual catches consistently exceeded to increase and continued to exceed longer competing with other fishermen allowable catches (see figure 1) despite allowed catches despite this kind of reg- to catch as much as possible as quickly shortened seasons. ulation. as possible.

26 | Transferable Quotas

It has been over 10 years since IQs were ual quotas, industry revenues increased license holders in the fishery revealed introduced in the geoduck fishery, and to $16 million. In 2000, revenues that since the introduction of individual evidence suggests the fishery has reached $41 million (James, 2000). The quotas, 88 percent believe the quality of changed for the better. Conservation increase in profitability was not only scientific research in the fishery has has improved. In 6 of the 10 years pre- due to higher prices, but also to lower improved, 92 percent believe that over- ceding the introduction of IQs, harvests fishing costs. According to a 1991 DFO all monitoring in the fishery has exceeded allowable catches by an aver- report evaluating the impact of IQs, improved, 92 percent believe that over- age of 30 percent. In the 12 years follow- “cost savings have been identified in the all conservation has improved, 100 per- ing the introduction of IQs, harvests areas of vessel fuel consumption and cent believe that profitability has exceeded allowable catches in 4 years, labour/material used in harvesting improved, and 100 percent believe that but these overages (overage is the tech- (DFO as cited in Muse, 1998, p.12). the overall impact on the fishery has nical term in fisheries parlance for been positive (see figure 2). exceeding the allowable catch) have The increased profitability of the indus- averaged less than 1 percent of the total try was good news for taxpayers too. It Allocating individual fishermen a share allowable catch (figure 1). The intro- meant that harvesters were willing and of the catch through individual quotas duction of catch IQs was accompanied able to pay for more of the management has transformed the geoduck fishery. by a reduction in catch limits, resulting costs. Prior to the introduction of IQs, Prior to the change, the fishery was in fewer geoducks harvested. Moni- the only fee geoduck harvesters paid was described by fishermen as a “shotgun” toring and enforcement have also a $10 annual license to DFO, which, fishery with short seasons, supply gluts, changed dramatically. Prior to the according to Andrew Milne, a Director harvests exceeding the total allowable change in management, DFO’s moni- and former President of the geoduck catch, and unsafe fishing conditions. toring and enforcement were inconsis- industry association, was “barely cover- Today, it is considered a model for tent and ineffective (Muse, 1998, p. 17). ing the cost of issuing the license, let other fisheries. Harvesters in the indus- Once quotas were introduced, geoduck alone covering the costs of managing try should be commended for suggest- harvesters paid an independent third the fishery” (Milne, 2000). With the ing the management change. The party, Archipelago Marine Research, to introduction of IQs, industry agreed to Department of Fisheries and Oceans enforce policy, monitor catches at the pay additional third-party monitoring should be commended for having the docks, and enforce proper fishing prac- costs and pay for additional manage- vision to implement it. tices in the remote north coast region, ment and research (Muse, 1998, p. 11). where the DFO had identified compli- In addition, license fees increased from ance violations (Harbo, 2000). Since $10 per year to $3,615 in 1996 and References license holders pay directly for monitor- $7,345 per year in 2001. Although the amount license holders are contributing ing and enforcement under the individ- Harbo, Rick (2000). Personal correspon- ual quota system, they have a strong to management costs has increased dra- dence. July 28. incentive to ensure its effectiveness. matically, exact estimates of DFO expenses on managing the geoduck fish- Heizer, Stephen (1999). The Commercial ery are unavailable, making it impossi- Geoduck (Panopea Abrupta) Fishery in British Columbia, Canada—An Opera- The fishery became more profitable ble to say whether these fees cover all tional Perspective of a Limited Entry Fish- after quotas were introduced. Prices for fisheries management costs. According ery With Individual Quotas. Canada: geoduck increased, likely as result of to Michelle James, Executive Director of Fisheries and Oceans. longer openings which allowed fisher- the geoduck industry association, a con- men to sell more of their product fresh. servative estimate is that industry is cov- James, Michelle (2000). Personal correspon- dence, July 5. The increase in geoduck prices ering between 75 and 90 percent of increased revenues for geoduck fisher- management costs. Milne, Andrew (2000). Personal correspon- men, despite lower catches. In 1988, the dence, August. year prior to the introduction of indi- The strongest evidence that the manage- vidual quotas to the fishery, industry ment change has been successful comes Muse, Ben (1998). Management of the British Columbia Geoduck Fishery. Document revenues were approximately $13 mil- from fishermen themselves. A survey of #CFEC 98-3N. Juneau, Alaska: Alaska Com- lion. The following year under individ- individuals representing 38 of the 55 mercial Fisheries Entry Commission. &

January 2003 | 27 Fraser Forum

way we arrange and structure “the sys- tem”; in the way we make rules and The Concept of establish norms. No one is really to blame. In addition, if someone is or feels excluded, it is not due to anything they themselves might be doing. British Social Exclusion sociologist Anthony Atkinson points out that social exclusion is something that happens to you rather than some- thing you have chosen for yourself (1998, p. 14). If no one is at fault and exclusion can happen without intent, by Chris Sarlo and choosing. Personal outcomes are, this clearly puts the state in a central for the most part, the result of a series of position in terms of amelioration. It has n recent years in Europe it has become choices made by the person himself over an obligation to remove exclusion and I promote inclusion. common to hear and read about “so- time. In North America, we make our cial exclusion” rather than about pov- own lives. This viewpoint is not so nar- erty. The basis of this new concept flows row as to exclude random events and While to those who favour markets the out of a strong “entitlement” political luck playing a role in shaping who we philosophical basis of “social exclusion” perspective. Essentially, the view is that are. However, it emphasizes the impor- and the concomitant expansion of the every person has a fundamental right to tance of personal freedom and personal role of the state that is implied is full participation in society and that any responsibility as the primary factors in troubling, there are also some practical barriers to that full participation must determining where we end up. measurement issues that must be raised. be removed. Defining and measuring poverty is diffi- The social exclusion perspective, how- cult enough, but the concept of exclu- On one level, the social exclusion con- ever, is quite different. It says that struc- sion gets us into a whole other set of cept can be viewed as merely an attempt tures in place in society largely problems. For example, some research- to examine a wider range of consider- determine who you are. The way we ers have suggested that children suffer ations than just material poverty in the arrange things (our laws, institutions, social exclusion if they have poor rela- study of human deprivation. On this and norms) may, deliberately or not, tions with peers and feel isolated level, the concept might appear to be a exclude some people. Being and feeling (recreationally and socially). However, straightforward effort by social scientists a part of one’s society is of central we know that there are myriad explana- to get a deeper understanding of poverty importance to human happiness, tions for such outcomes. Poor relations and disadvantage. However, on another according to this view. Therefore, care with peers might be the result of sadness level, the concept represents a dramatic must be taken to ensure that our social and withdrawal brought on by parental break in the way we have traditionally arrangements are structured so that divorce, absence, neglect, or even abuse. understood the human predicament. everyone has an equal opportunity to It may have little to do with government have full participation in society and cutbacks in areas involving children. In North America, our laws, relation- that everyone has a basic right to it. Any Recreational isolation may be the result ships, and institutions are based on the departure from full participation can be of the lack of parental oversight relating notion that people are responsible for viewed as a denial of this basic right. to limits on television, video games, and their actions and for their outcomes. While the term “full participation” is other passive activities and the failure by Your situation and your involvement in often left undefined, inequality in a range parents to actively promote healthy society is largely of your own making of conditions and capabilities would rep- alternatives in the area of diet and phys- resent clear evidence of exclusion. ical activity. Chris Sarlo teaches economics at It is important to emphasize that social Nipissing University in North Bay, ON. He is the author of Measuring Poverty in exclusion may happen even if no person Canada, published by The Fraser or group is deliberately doing the Institute. excluding. It is all, apparently, in the continued on page 31

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such as unions, physicians, nurses, and Extending Government others, with patients’ voices nary heard. Such a centralized solution can only result in a single model of health deliv- Monopoly Health Care: ery in Canada. Regrettably, the only reforms possible within such a straight- The Romanow Report jacket are almost inconsequential. Another unfortunate assumption is that adherence to Canadian values prevents increased private choice in health care through, for example, user fees or pri- vate insurance (Romanow, p. xx). This by Nadeem Esmail & is very odd, because while his report John R. Graham One assumption is that only a national recognizes that our system shares many plan with federal oversight can solve the characteristics of those in Australia, health care ills of a “country as geo- anada’s first ministers will meet New Zealand, and countries in the C graphically, economically, regionally, European Union, all of these countries later this month to discuss and culturally diverse as ours” health care. Hopefully, they will not employ just such options (Romanow, (Romanow, p. xvii), characteristics move in the direction proposed by Roy pp. 24-5, 89). Mr. Romanow even which should demand quite the oppo- Romanow’s $15 million Commission on understands that the United States does site prescription. His Ottawa-based the Future of Health Care in Canada. not have a fully private, or free market, Health Council would not only measure The commission was a costly mistake system, reporting accurately that gov- the effectiveness of health care in Can- that invites Canadians to wander into a ernment spending accounts for almost ada, but also establish benchmarks for 1960s socialist utopia that never existed. half of health expenditures in the US provinces to follow, co-ordinate the Canadians have already had the opportu- (Romanow, p. 27). Curiously, he then health planning process throughout nity to choose this vision. It is, with uses that country’s failure to control Canada, and resolve disputes arising some more intellectual window-dress- health spending as the only example under the Canada Health Act (CHA). ing, not far removed from the federal supporting his advocacy of the state as The proposed Council would have 14 New Democratic Party’s 2000 election monopoly provider of health insurance board members appointed by consensus platform (NDP, 2000). (Romanow, p. 61). He also suggests of federal, provincial, and territorial that a non-universal system such as Mr. Romanow envisions a government health ministers and comprising 3 pub- that in the United States is the only monopoly over almost all aspects of lic representatives, 5 provincial repre- possible outcome that could result health care, which will continue to sentatives (1 each from the West, the from the availability of parallel private restrict patient choice and innovation. territories, Ontario, Quebec, and the health insurance (Romanow, p. xx). The assumptions supporting this vision Atlantic), 4 providers or experts, and 2 are more important than the recom- federal representatives (Romanow, p. Most other members of the Organiza- mendations themselves, which are 59). The real functions of this undemo- tion for Economic Co-operation and unlikely to survive the provinces’ cratic Council would be to force recalci- Development (OECD) have health sys- unwillingness to subject themselves to trant provinces to toe the party line in tems wherein health care is provided the stringent federal conditions that Mr. return for federal funds, as well as look according to residents’ needs (Wagstaff Romanow proposes. after the interests of supplier groups et al., 1992). However, contrary to the

Nadeem Esmail ([email protected]) completed his BA in Economics at the University of Calgary, and his MA in Economics at the University of British Columbia. He is a Health Policy Analyst at The Fraser Institute. John R. Graham ([email protected]) is Director of Pharmaceutical Policy Research at The Fraser Institute. He earned his BA (Hons) in Economics and Commerce at the Royal Military College of Canada and his MBA at the London Business School, University of London.

January 2003 | 29 Health Care

claim that “The evidence has not been not-for-profit institutions” (Devereaux The changes necessary to get more and forthcoming” (Romanow, p. xx, empha- et al., p. 1400). better care for our dollar in Canadian sis in original), there is plenty of inter- health care are fundamental, but do not national evidence from those countries Another dangerous assumption is that require abandoning the principles of that market-based health policy solu- individual hardship in obtaining health universal and accessible health care. A tions work. All of the OECD countries services not already under government change in practice from the “free ser- with universal access to health care that monopoly, namely, care at home and vices” monopoly we have to one that get better health care outcomes for their prescription drugs, implies that the state includes user fees, private health care citizens and provide better access to should extend its control over them. providers in competition with the pub- high-tech diagnostic machinery and lic, and availability of real choice for physicians do so without forbidding pri- Mr. Romanow recommends including patients both inside and outside public vate choices to patients. homecare in the CHA. This would only insurance would save both money and result in fewer options for patients who lives in Canada. Canada would then no wish to have a higher level of homecare longer be pursuing a unique set of health Sweden, France, Australia, and Japan all than that provided by the state, or who care policies when compared to other outperform Canada on the combined wish to choose some other form of OECD countries with universal access measures of potential years of life lost to end-of-life care, and the inability to to health care (Esmail and Walker, disease, disability free life expectancy, finance their special needs through 2002), but would join countries that and breast cancer mortality while offer- extant private insurance plans that have have been more successful than we have ing better access to high-tech diagnostic been designed to cater to certain groups in the search for better health outcomes. machines and doctors. In addition, none of patients or illnesses. Though adding of these countries has a more expensive the service to the CHA might save a few None of the Romanow report’s recom- health care system than does Canada on people some money, it would likely mendations will address the issues sur- an age-adjusted basis. They also have result in all of these patients facing a rounding the present lack of choice and user fees, private insurance, and private lack of choice in the type of services they accountability in the health care system. clinics or hospitals (Esmail and Walker, wish to receive, a reduction in quality These deficiencies result from the cur- 2002). Similar market-based reforms to resulting from a lack of competition, rent structure of central management Canadian health care would cost us less and the inability for patients to choose and control and will not be solved by in the long run, both in terms of money for themselves what makes them most further centralization of decision-mak- and undesirable health outcomes. comfortable. ing. The solution to each of the problems perceived by Mr. Romanow is less gov- Mr. Romanow is especially confused While stopping short of recommending ernment control, less centralized plan- about private hospitals. This is perhaps an all-encompassing National ning, and more choice and competition. forgivable, since his principle source of Pharmacare, Mr. Romanow’s National information is an especially bewildering Drug Agency idea results from the fal- Mr. Romanow has spent over a year and article claiming that mortality rates in lacy that the state can exercise leverage about $15 million pretending to investi- American private for-profit hospitals through group purchasing, despite evi- gate alternatives to the status quo. Prov- are worse than in American private dence that government intervention as inces that have decided to ignore his pro- not-for-profit hospitals (Romanow, p. 7; pharmaceutical purchaser or price con- cess and get on with their own reforms Devereaux, et al.). Two authors have troller raises prices, whereas prices are have made the right choice. Let’s hope already criticized the article, but Mr. lower when patients are able to shop the federal government does the same. Romanow ignored them (Graham around for themselves (Graham, 2000; 2002a; Seeman 2002). The article in 2002b; Tabler, 2002). It also embraces question muddles American private, the notion that the state can exercise References not-for-profit hospitals with Canadian better judgment than patients and doc- Esmail, Nadeem, and Michael Walker public hospitals, by emphasizing the tors over appropriate medicines, a (2002). “How Good is Canadian Health trivial distinction that: “Public funding notion disproved by the failure of Brit- Care?” Fraser Forum (August). is the main method by which Canadian ish Columbia Pharmacare’s Reference Devereaux, P.J., et al. (2002). “A Systematic hospitals obtain revenue. However, 95% Drug Plan, an ineffective attempt to do Review and Meta-analysis of Studies of Canadian hospitals are private just that (Graham 2002c). Comparing Mortality Rates of Private

30 | Fraser Forum

For-profit and Private Non-for-profit The Concept of Social Exclusion continued from page 28 Hospitals.” Canadian Medical Association Journal 166, 11 (May 28): 1399-1406. The November 2000 issue of the Canadian Medical Association Journal included an Graham, John R. (2000). Prescription Drug article by Tremblay and Willms about childhood obesity. The authors point out that Prices in Canada and the United States – for Canadian children in the 7 to 13 age group, 35.4 percent of males were over- Part 2: Why the Difference? Public Policy weight and another 16.6 percent were obese, and 29.2 percent of females were over- Source No. 43. Vancouver: Fraser Institute. weight and another 14.6 percent were obese. These numbers are up markedly from Graham, John R. (2002a). “Misreported 15 years earlier. A World Health Organization-sponsored study of these trends sug- Mortality and Cataract Confusion.” Fra- gested that diet and lack of physical activity were clear “modifiable” causal factors. ser Forum (July): 20-22. Graham, John R. (2002b). “The Myths of All of this raises serious measurement questions. If a social exclusion index for chil- Medical Monopoly and Monopsony.” dren (composed of such indicators as peer relationships, recreational isolation, health Fraser Forum (June): 17-18. status and educational success) shows an increase over time, how do we interpret Graham, John R. (2002c). The Fantasy of that? Can we easily conclude that our governments and social institutions are failing Reference Pricing and the Promise of children? Or is it possible that most of the change is due to increasing problems in the Choice in BC Pharmacare. Public Policy Source No. 66. Vancouver, BC: The Fra- home? And we know that what goes on in the home is absolutely central to children’s ser Institute. healthy development. Susan Meyer, in her brilliant book What Money Can’t Buy: Family Income and Children’s Life Chances maintains that the empirical evidence, in NDP (2000). The NDP Commitment to Canadians. Ottawa, ON: New Democratic America at least, demonstrates that it is largely the qualities and characteristics of Party of Canada. parents, and not family income or other external considerations, that determine chil- dren’s outcomes. Romanow, Roy (2002). Building on Values: The Future of Health Care in Canada. Final Report. Ottawa, ON: Commission The concept of social exclusion is of questionable value to social scientists and to pol- on the Future of Health Care in Canada icy makers. If we begin to focus attention on such a flimsy and ambiguous idea, it is (November). likely that we will divert energy and resources away from real problems such as hun- Seeman, Neil (2002). “Medical Research and ger, inadequate housing, and lack of opportunity. Media Hype.” Fraser Forum (July): 22-23. Tabler, Tanya (2002). “Prescription Price: Does the Payer Matter?” Fraser Forum References (October): 18-19. Atkinson, Anthony (1998). “Exclusion, Employment and Opportunity.” A CASE (Centre for Wagstaff, A. and E. van Doorslaer (1992). the Analysis of Social Exclusion) paper. London: London School of Economics (January). “Equity in the Finance of Health Care: Some International Comparisons.” Journal Tremblay, M.S. and J.D. Willms (2000). “Secular Trends in the Body Mass Index of Canadian & of Health Economics 11(4): 361-387. & Children.” Canadian Medical Association Journal 163(11):1429-33.

The High Price of Natural Wealth continued from page 32

Win-win is a mindset that resists cor- easy cash froze the Voisey’s Bay project We used to think that trade meant help- ruption and prevents its spread. until recently. ing people to help themselves. Kronenberg’s research suggests that for- The absence of the win-win perspective If natural resources are at the root of eign trade means helping people to stop shows up sometimes in Canada. After corruption in developing economies, preying on themselves. By opening our Inco took over the Voisey’s Bay nickel should a country burn its forests and agricultural and manufacturing markets finds, then-premier of Newfoundland blow up its oil wells? After all, Shake- to Africa and former East Bloc coun- Brian Tobin insisted Inco build a speare warned: “If thine eye offend thee, tries, we create in them markets where $180-million experimental hydro-met- pluck it out.” A less drastic solution is to allurgical plant. When the company did keep the TNT on the shelf and encour- people can compete freely. Predators not agree, Tobin threatened to expro- age trade. Instead of giving handouts to have more trouble intruding on a thou- priate the Voisey’s Bay project through struggling economies, we should be sand businesses with diverse activities annual escalating provincial royalty pay- opening our manufacturing markets to than they have in sending men with ments. Tobin and his party’s lust for them. guns to occupy an oil field. &

January 2003 | 31 Fraser Forum

An economy might survive if the natu- ral resource barons kept to their fiefs. The High Price of The experience of the former East Bloc suggests that these barons seek to extend their power over labour and commerce in other sectors of the economy, with Natural Wealth devastating consequences for their country’s wealth. Educated Russians are fleeing their country, as are the middle classes of almost every place cursed with oil and gold. Only predators and those by Filip Palda resources, such as Poland, the Czech without the means to protect themselves Republic, and Hungary, saw their econ- stay behind to hash it out with each omies grow in the 1990s. Russia, which If any good comes of the attempt to other in a landscape where one man’s gets 57 percent of its export revenue hold the Miss World Pageant in Nige- gain is the other man’s loss. ria it will be to alert the world to a para- from natural resources, saw its economy dox. Television showed us crowds with shrink between 1990 and 1998, as did There is little room for humanity or civ- rags on their backs looting stores for the resource-rich Central Asian countries. ilized existence in a country where no food, and humans beating each other to one sees the advantage of working with death and setting each other on fire. The Why should natural resources be a his fellow man towards a common media explained the battles as a clash be- curse? According to Kronenberg, “The good. It is little wonder that countries tween Christians and Muslims, but pov- revenue from natural resource abun- rich in natural resources are among the erty and frustration may be the stronger dance induces rent-seeking behaviour most energetic abusers of human rights. forces at work. By rights, Nigerians and corruption across the bureaucracy should not be poor. Their country sits and business elite. This increased cor- Of course some countries rich in natural on one of the world’s richest reserves of ruption [as measured by the World resources have managed to prosper. oil. But Nigeria’s plight is common to Bank’s State Corruption Index] slows Norway spends 90 percent of its hefty members of OPEC. Countries belonging down economic growth.” oil revenue on social services. The coun- to OPEC saw their gross domestic prod- try has chosen this way to distribute the uct per person shrink at an annual rate To understand this statement, it helps to benefits of its oil revenues to all. Norway of 1.5 percent between 1965 and 1998. look at what happened to Russia’s natu- has a strong respect for property rights Libya has the third largest reserve of pe- ral resources since 1992. Businessmen and an aversion to corruption and abuse troleum, and a population no larger with contacts in the Kremlin bought of power. During World War II, Norwe- than London’s, but its people live in cir- Russia’s forest and mineral reserves at gians were among the most ardent oppo- cumstances few Canadians would care bizarrely low prices. In his book Godfa- nents of German occupation. to sample. Oil, it seems, can pave the ther of the Kremlin, Forbes magazine’s The lesson from Norway is that a coun- road to poverty. Russian correspondent Paul Klebnikov try needs to respect property rights in explains how a few “oligarchs” bribed Forests and minerals can also be bane to order to enjoy the benefits of natural and threatened to nab a good chunk of an economy. In an important study wealth. Respect for property rights Russia’s wealth. released this year, economist Tobias means that people do not gain control Kronenberg looked at how former East of an oil patch because of their contacts Natural resources were the obvious target Bloc countries have thrived since the fall in government, but because they bar- for post-Soviet businessmen with flexi- of communism. The central European gain with the owners of the patch in an ble morals and dreams of quick riches. countries that were poor in natural agreement acceptable to all. The idea It does not take a genius to understand that economic exchange is a win-win that a gold mine can make you rich. All Filip Palda is Professor at l’École proposition has taken a thousand years it takes to get rich is the backing of gov- Nationale d’Administration Publique in to set in the mind of Western man. Montreal, and Senior Fellow of The Fraser ernment officials, and groundwork by a Institute. He received his PhD in private army of unemployed KGB and Economics from the University of Chicago. special forces men. continued on page 31

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