Friday, May 18, 2007

There is a middle ground on MLA compensation

{A shorter, pithier version of this piece appeared in the Williams Lake Tribune on May 24, 2007---MC .}

The majority report of the Independent Commission to Review MLA Compensation, which recently came up with a new structure for paying provincial politicians in British Columbia, was perfectly competent within the terms of reference that it was given by the government, and it got the sort of result that the government was no doubt expecting. But, as Malcolm X once famously said, a chicken can't produce a duck egg. There is another perspective--one rooted in the theory of democratic and parliamentary government--which I think indicates a somewhat different outcome from the one recommended by two of the three commissioners and put into the legislation introduced last week by the B.C. Liberal government .

By "democratic" I do not mean simply the principle of majority rule. If everyone voted on what they thought everyone else deserved, the result would likely be a reduction in everyone else's pay check. (The fall in aggregate income would likely trigger a major recession.) It also helps little to refer to the mere fact that under a parliamentary form of government MLAs have both the right and the responsibility to vote on their own compensation. (For most of us, that would be highly inflationary.)

Instead, I refer to a sensibility that comes from an historical sense of how a parliamentary democracy is supposed to function, and of the spirit in which a candidate for elected office offers to be a representative of other citizens--i.e. sometimes as a delegate of constituents' wishes to the government; more often than not as representative of party/leader priorities to the constituents; and sometimes as a valued source of independent judgement concerning the public interest. It is difficult to place a market value on these services, since they are really duties of citizenship that we all share. There was no debate about rates of pay for the legislators of Ancient Athens; but today we concentrate the exercise of these duties in a few hands because it is impractical for all of us to engage in the practice of self government in a large and complex society. Hence a need to compensate those who do specialize as representatives, for the hard work and personal sacrifice that they acccept on our behalf.

The government's proposed base level salary of $98,000 per year is the first major increase since 1997, but at 29% is well above the approximately 10% increase in average hourly wages in the province since that time. The Commission was evidently making a different comparison --with legislators in other jurisdictions, and (particularly with respect to the premier and cabinet) senior managers and executives in both the public and private sector.

It is reasonable to ask whether our MLAs have been making enough. B.C.'s provincial MLAs in 2006 earned an annual basic salary of just $76,100 (in contrast, your federal MP earns a base salary of $150, 800), with the premier earning just 40% of what the federal prime minister earns and provincial cabinet ministers making about half of what their federal counterparts make. While the assumption of extra civic duties on our behalf ought not to be motivated principally by money, neither those who are beginning their careers and starting to raise families nor those who are already accomplished in other fields should have to make prohibitive sacrifices. At the very least, it is important that they be compensated for the work that they do in the public service.

So it is just possible that a one-time adjustment of 29% can be justified because an annual income in the $100,000 range reflects the value that we place, or ought to place, on the role of the elected representative in our system of government. The salaries earned by provincial MLAs in Alberta and Ontario are relevant to this determination, as is the old adage "you get what you pay for". To say that being a MLA ought to be like jury duty , composed of a cross section of ordinary British Columbians for low pay, is too extreme a view, unless we wish to discourage professionalism in political careers entirely. (Who wants to serve on a 8-or-12 year jury?) The notion that ordinary MLAs ought to be paid well is also buttressed by the traditional theory of parliamentary government, according to which premiers are merely "first among equals" and that cabinet ministers owe their authority to the legislature, and not the other way around.

On the other hand, the thinking of the "Independent Commission"--handpicked by premier Gordon Campbell, with the word "independent" apparently tagged on by the premier's office for the purposes of political spin--is dominated by standards of executive compensation and the growing gap that it sees between politicians and senior executives. Since this gap is perceived as being greatest at the level of the premier and cabinet, the Commission proposes even bigger raises for them-- to an additional 90% of basic salary and 50% respectively. But while the Commission is certainly right to recognize that "over the past six years, the salary gaps between legislators and other senior managers have widened", it totally omits saying that that is because the gap between senior managers and everyone else has widened. Nowhere does the Commission mention that there is a widespread debate about the justice and fairness of how much corporate executives are paid. Since politicians are not selling their expertise in the market, but rather representing everyone, this fact deserves more importance than the Commission gives it. From my point of view, it suggests that cabinet ministers may only be entitled to the same degree of increase that all members arguably merit. Unless, of course, you believe that Rich Coleman or David Zirnhelt are the public sector equivalents of bank vice-presidents or law firm partners, and that there is nothing wrong with recent trends in private sector executive compensation.

Rafe Mair and David Schreck both argue that since it is a myth that ordinary MLAs have power, they are not underpaid. But it is jarring to the democratic ear to suggest that premiers should be rewarded for concentrating power in their office or that MLAs should be punished for losing it. By that logic we would have to give premier Campbell a multi-million-dollar raise. I think that there are strong reasons for paying MLAs according to the theory of parliamentary democracy rather than according to its actual practice. To do so could help to bring the reality more in line with the theory, by encouraging more citizens to take pride in being an MLA instead of viewing it as a mere stepping stone to cabinet. To do otherwise would be to reinforce and entrench what is at best a regrettable and at worst a deplorable state of affairs.

The Commission does list a range of other factors that it considers relevant to the issue of compensation. These include: long hours, loss of family time and privacy (all of which MLAs surveyed indicated that they had failed to appreciate when they were first elected), loss of income and even job prospects, since "employment or contract work will be very difficult to find due to the stigma associated with having been in public office, this being particularly so if their return to private life follows a change in the governing party." Democratic principle suggests that we should compensate our elected representatives fairly for helping us govern ourselves, in full recognition of the frequently demanding nature of their work. However, that does not mean fully indemnifying politicians for the inherent uncertainty of elections, or for failing to do their homework before they decide to run for office, or for their own lack of prestige in the wider community. A balance must be struck.

Public opinion surveys could have been designed to guide the Commission's findings, but they are used in this Report principally to illustrate the public's "lack of understanding .... of both the duties and levels of MLA compensation." This, combined with the small number of submissions, caused the Commission to be "cautious in interpreting the opinions received when formulating [its] recommendations." Yet the experience of the five -member commission of ordinary citizens set up in 1996 by the Clark government to review MLA pay --to say nothing of the more recent Citizens' Assembly on Electoral Reform --illustrate perfectly how well ordinary citizens, when properly informed about the issues, can be trusted to give fair and valuable input.

It is probably significant that the lone academic member of the Commission, UBC Business professor Sandra Robinson, dissented from business lawyer Sue Paish and former judge Joseph Wood on the issue of pensions, with Prof. Robinson favouring a less generous package than did the other two. (Unfortunately, her specific reasons have not been published.) In place of the current "Group RRSP" scheme, to which the Government contributes 9% of basic salary (or $6,849) and to which MLAs may contribute up to a matching amount, the Commission recommended the "reinstatement of a defined pension benefit plan" based upon a benefit accrual rate of 3.5% of the highest 3-year average earnings, up to a maximum of 70% of the 3-year average earnings. The taxpayers' contribution would rise to 37% of the members' total current salary. There are also generous provisions for the "retroactive purchase of pensionable years" for MLAs back to May 2005, while "[d]etermination of buy-back provisions for service as an MLA for any years between the termination of the previous defined benefit pension plan [in 1997] and May 17, 2005 should remain within the jurisdiction of the Legislative Assembly Management Committee". According to the Commission, "[a]fter extensive consultation with various pension experts, we have concluded that this pension plan is fair both to members and to the public." According to several observers, this new plan is about twice as rich as the standard BC government pension for public servants working the same number of years.

One would think that the NDP Opposition would seize upon the Robinson dissent and show its solidarity with other public sector workers by explicitly vowing to bring in a standard pension plan for MLAs if it forms the next government. Instead, it has focused upon the least objectionable, but most visible, aspect of the compensation package, the basic MLA salary. Donating their salary increases to local charities may represent a pragmatic response to the "take it or leave it" corner that the Liberals have painted the NDP into, serves as a decent response to a law that probably shouldn't take effect until after the next election, and may help some New Democrats to get re-elected, but it hardly represents an adequate policy for the future. One must ask: if a large increase in deferred (pension)income is acceptable, why is a large increase in current salary income "obscene"?

I suggest that a good MLA salary of about $98,000--$100,000 (taking effect only after the next election), with an additional 30% for cabinet ministers and 60% for premiers, along with a standard public service pension plan appropriate to those levels of remuneration and a generous severance and transition package for politicians who lose their seats in elections, strikes the right balance. Such a package recognizes that we have been under-valuing the services that these citizens have provided, not because they have an expertise that could have been hired by a corporation or law firm at a higher rate of pay, but because they have been performing our duties of self-government for us. Any public-spirited citizen with political ambition--even those with young families-- should be able to accept these terms, whether they represent a financial sacrifice or not. Any public-spirited citizen who chooses not to run for office should see this as a reasonable price to pay for the representation which frees us for other pursuits.

Future revisions of MLA compensation should be linked to a number of factors, the most important being the average rise in incomes and real wages of British Columbians. (I suggest that the formula attach at least 50% of the weight to these variables.) They should also continue to be overseen by "independent commissions", though preferably not ones hand-picked by a premier who has swung wildly from the right-wing populism of his anti-pension days when he was Leader of the Opposition to a right-wing elitism that appears to be more sensitive to executive compensation and golden parachutes. They should be mindful of what the private sector pays and what federal MPs get, but not to the point that they de-link entirely from what is happening to average citizens or to the rest of the public sector. There is a middle ground here, and it also happens to be the one which is most congenial to a healthy democracy.

Monday, May 07, 2007

Government By Voucher?

Rethinking the Welfare State: The Prospects for Government by Voucher
By Ronald J. Daniels and Michael J. Trebilcock. (New York: Routledge, 2005

{The following piece appears in vol.33 no. 3 of Canadian Public Policy (September 2007). I felt that it was desirable to publish a review of Daniels' & Trebilcock's important book in CPP, where economists and members of the social policy community ought to feel equally at home. In addition, the current issue of The Economist contains an article touting new research from Colombia, Sweden, and several American states showing that education voucher schemes work in raising academic standards---"Free to choose and learn", May 5th pp. 73-74. But, as the following review makes clear, I remain skeptical about vouchers as a panacea that will work wonders without doing harm, at least in B.C. or Canada---MC}

Remaking the Welfare State: The Prospects for Government by Voucher will sit comfortably beside Milton Friedman’s Capitalism and Freedom; Arthur Okun’s Equality and Efficiency: The Great Trade-Off; and Osbourne & Gaebler’s Reinventing Government. It rests less comfortably with Janice Stein’s Cult of Efficiency, Joseph Heath’s The Efficient Society; or the critiques by Christopher Pollitt and Donald Savoie of New Public Management. Many students of social policy and the welfare state who think that they already know all of the pros and cons of this subject, or who are prone to dismiss vouchers out of hand, will benefit from a careful reading of this book, if only because it will force them to re-examine their assumptions and sharpen their arguments.

Daniels and Trebilcock begin by pointing out that vouchers (defined as “tied demand-side subsidies”) are simply a policy instrument. As such, they are compatible with any legitimate goal of the welfare state, such as regulation of public morality; building social solidarity; insuring individual risk; promoting economic stability, and providing an equitable distribution of resources. The authors provocatively assert that “a decision to invoke the voucher instrument does not in itself reveal much about the underlying character of the policies being pursued by the sponsoring government” (p.2), and that opponents who think otherwise routinely make an “illogical connection between means and ends” (p.12). Their primary claim is that choice by individual consumers of public services on the demand-side, coupled with competition on the supply-side, with explicit, targeted subsidies following consumers rather than suppliers, ensures that decisions regarding the consumption and production of public services will be made efficiently, and that citizen beneficiaries will be empowered. Their secondary claim is that, where their primary claim does not appear to be borne out by the evidence, “this is often because of design failures” (p.13).

Sharp-eyed skeptics may already see what they consider to be potential cracks in the argument. The authors admit “that is not to say that reliance on vouchers is bereft of any normative content whatsoever” since enabling citizen choice in the consumption of publicly funded goods and services increases “the scope for individual autonomy” (p.2). Could the autonomous citizen-consumers thus enabled (or their suppliers) make choices that are subversive of certain policy goals? While some critics of vouchers may confuse or elide means and ends, advocates of vouchers may too sharply distinguish them, over-simplifying what is an evolving and complex reciprocal relationship between citizens and between citizens and the state. Not all political “voice” is calculated to advance the entrenched interests of public-sector suppliers. And “design failures” could serve as a convenient carpet under which to sweep all kinds of problems—many relating to social inequities and asymmetries of information among putatively equal “consumers”, posing difficulties for regulators of voucher markets at least as daunting as those faced by bureaucrats under current arrangements.

Nevertheless, this book makes the interesting point that many of our existing policies already display degrees of “voucherness”. For example, Canada’s medicare system is in effect a tied demand-side subsidy paid by a single government payer directly to physician and hospital-suppliers on behalf of patients, making it a limited form of voucher which nonetheless restricts consumer choice and supplier competition. Targeted subsidies to students coupled with deregulation of fees could be one answer to perennial debates about how to maintain both quality and quantity of post-secondary education (which can be jeopardized if fees are frozen) and affordability and access to that service (which can be jeopardized if fees are not frozen). The authors tout the opportunity afforded by the “North American void in childcare provision [which] offers policy-makers a clean slate on which to work…comparatively free from the political impediments that often characterize the reform of established government services” (p.144). In these and five other policy fields (food stamps, low-income housing, legal aid, primary and secondary education, and labour market training), they do a thorough and creditable job of showing that “design challenges” can, in principle, be met.

For Daniels and Trebilcock, the identification of basic health care as essentially a Rawlsian primary good only strengthens the argument for vouchers, since “removing the provision of such services from the discipline of the market …introduces a number of perverse incentives for both providers and purchasers” , although they admit that these incentives “are not easily addressed” and that “striking the right balance between efficiency and equity is an extremely difficult enterprise” (p.102) . In general they prefer “managed competition” (i.e. the Clinton plan, or the Dutch system) to either the Canadian “fee for service” or the UK “purchaser /provider split” models, on the grounds that private health plan providers or insurers competing directly for the dollars of end-users, while still being obligated to provide a state-defined minimum level of services, are likely to be both more cost-conscious and better providers of consumer choice than either Canadian doctors and hospitals billing the government or British health care providers relying on historical relationships with District Health Authorities (p.114). They make a good case on the demand side for a universal health card with contributions paid on a sliding scale based on both usage and income, and on the supply side for capitation (lump sums for patient management, with improved incentives for preventative treatment) as the method of payment to physicians.

Yet they also state that “[w]e see no reason why for-profit entities should be prevented from participating in [hospitals] or indeed any other segment of the health care sector” [p.119, emphasis added]. This is a sweeping statement to make in the absence of any discussion of how a voucher-based welfare state might be more exposed to international trade rules (an ironic omission in view of Trebilcock’s recognized expertise in international trade law). My best guess is that the WTO General Agreement on Trade in Services (GATS) Article I:3 exemption for services “supplied in the exercise of governmental authority” would be much less likely to extend to Canadian public services under voucher-based policy regimes because of the way that that GATS provision is defined in Article I:3 (c) in terms of the conditions of supply, i.e. “supplied neither on a commercial basis, nor in competition with one or more service suppliers”. Would Canadian public health and education measures still be exempted from NAFTA national treatment provisions under Annex I of NAFTA after they have been “revolutionized” in the way that Daniels and Trebilcock advocate? A single payer voucher scheme serving clearly defined public ends might meet the Annex II definition of a “social service established or maintained for a public purpose”, although the U.S. Office of the Trade Representative has already made statements which indicate that it would likely have an opposing view. In addition, the NAFTA Chapter Eleven expropriation clause enables U.S. or Mexican companies to bring compensation claims for any “indirect expropriation” of their investments in violation of Canada’s national treatment obligations.

These concerns illustrate the larger point that foreign corporate for-profit suppliers of public services would not just become efficient “instruments” of competitive delivery. They would also become powerful rights-bearing political actors , who would use legal and political channels to advance their own ends, making attempts by government to reverse competitive and private provision or extend public provision more expensive and difficult to do.

In sum , the analysis and evidence presented in Reinventing the Welfare State is sufficiently persuasive to warrant a second look at voucher experiments in post-secondary student aid, labour market training, legal aid, and perhaps daycare. Nevertheless, the case for the over-all superiority of a pure voucher system in the more complex and multivalent areas of K-12 education and healthcare remains unconvincing. Daniels and Trebilcock give an honest accounting of the challenges of avoiding socially negative “tipping points” in program design, calibrating voucher schemes to minimize cream-skimming, extra-billing, opting out, various moral hazards and so on; but perfecting the welfare state may require something more than economic or regulatory acumen. It may take a sense of common destiny and purpose, and an ability to enforce and revise collective will in the public interest. These are democratic qualities, not just political ones, and they could be even harder to come by in a voucher world.

Mark Crawford
Assistant Professor, Centre for State and Legal Studies
Athabasca University