Friday, December 05, 2008

A Keynesian Moment, Without a Keynesian Government

The problem with the Conservatives' economic update of a couple of weeks ago is that Finance Minister Jim Flaherty and Prime Minister Stephen Harper didn't seem to be either inclusive of opposition opinion or in tune with international trends. Instead, they talked about restraint--starting with restricting public sector workers' right to strike, eliminating the right to appeal pay equity rulings and and eliminating taxpayer funding for political parties. And the need to balance budgets, possibly by selling off public assets, no doubt at a discount. Were those the right priorities in the face of our economic problems?

The conventional wisdom since the halcyon days of Reagan and Thatcher has been to rely on monetary policy to deal with cyclincal fluctuations: fiscal stimuli were often deemed to be either ill-timed in terms of their effects or difficult to turn off for political reasons, and hence inflationary. The Bank of Canada recently lowered its interest rates another 3/4 of a percent, partly in response to the federal government's lack of fiscal policy: no doubt the prime minister, a monetarist, feels good about himself for that. But what really is the scope for relying on looser monetary policy under these conditions? Even The Economist (on the whole a very neoliberal newspaper) has admitted that it is quite limited, and has called on Western leaders to agree on a fiscal jolt that follows President Obama's lead.

We are in what I call a "Keynesian moment"--a financial crisis (i.e. shortage of capital and liquidity for financing in the private sector, a credit crunch), combined with what is expected to be high unemployment, the worst recession since the 1930s, plus an aged and crumbling public infrastructure that is best attended to while resources are unemployed in the private sector.

All these things point to the need to spend more, and to not be afraid to run 2 or 3 deficits in a row in the neighbourhood of $20-30 billion each. That is roughly the equivalent of what Barack Obama and most of the G-20 countries are committed to doing, but all his adult life Harper has been ideologically convinced that Keynesianism was dead and his reluctance to get with the program is palpable. His talk about "doubling infrastructure spending", for example, is just pure spin. That is only impressive if current levels of spending on infrastructure are close to half of what they need to be---and they aren't. They are there for P.R. during the holidays and leading up to the January 27 budget and confidence vote.

A temporary extension of EI benefits would put money right back into the economy (given the high propensity to consume of EI recipients). I would consider it an essential part of an acceptable budget.

Thursday, December 04, 2008

The Governor-General's Decision to grant the p.m.'s request for prorogation

Governor-General Michaelle Jean was put in a difficult position, and probably made the best decision she could under the circumstances. She felt uncomfortable saying no the the prime minister, because there is no clear precedent for doing so on a request for prorogation. Since the government had not actually been defeated yet, she had one formal advisor to listen to: the prime minister and his government.

But here is the problem. She will have another difficult decision to make at the end of January if the budget is defeated and the prime minister requests dissolution because he wishes to go to the people for another election rather than hand power to the "separatist coalition". If on that occasion she says "yes", then Harper will have succeeded in doing in two steps what he was unable to accomplish in one step (assuming that he would not have been granted dissolution today). Can that be right? That could be a dangerous precedent, one that seriously erodes the constitutional check on the prime minister that the Royal refusal to request for dissolution has been through out the history of British responsible government. Clearly, the Governor-General will need to take steps to limit the scope of this precedent for future prime ministers in minority governments: she can do so by treating the constitutional clock as having stopped on December 4, and by refusing dissolution when the prime minister asks for it 7-8 weeks from now.

Re: Carbon Taxes, including ones on gasoline: I TOLD YOU SO

{Note: you may have heard on the news today that car sales fell 9% in October, due to the looming recession. You may have also heard that SUV and truck sales were UP due to falling gas prices!--MC}

Now that gas is back down to a dollar per litre, and no doubt that worrisome backlog of RVs, SUVs and light trucks are again moving off of car lots, and people are breathing a sigh of relief at being able to heat their homes for the winter without undertaking extensive renovations, I WOULD LIKE TO TAKE THIS OPPORTUNITY TO REMIND PEOPLE OF THE KIND OF CARBON TAX THAT I WOULD LIKE TO SEE.

First, UNLIKE THE NDP, let's acknowledge that small emitters are responsible directly for one half of all greenhouse gas emissions, and indirectly responsible (as the ultimate consumers of aluminum, concrete, plastic, forest and aluminum products) for a lot more. And don't give me that "North America is not Europe" crap. Yes, we are more sparsely populated and probably need to burn a little more fossil fuel. But that doesn't mean that we should be protected from spending just as much of our incomes on energy as Europeans do.

Second, UNLIKE GORDON CAMPBELL, we should not have a carbon tax that simply makes fuel a little more expensive. Instead, it should be used to set a FLOOR PRICE that is high enough to ensure continued modification of consumer behaviour. This policy would actually raise additional revenue that could be spent on fighting climate change. But above that floor price, additional carbon taxes would NOT make gas or home heating fuel more expensive at all; instead, they would merely replace EXISTING EXCISE TAXES. (That would mean that consumers would only pay more than they currently do if they chose dirtier fuels, less if they chose cleaner ones).

Such a carbon tax could in effect be 'revenue positive' to some extent when prices are low (because the floor price would be raising revenues ) and be 'revenue negative' when prices are high (because many consumers would be able to use it to reduce the excise taxes they pay on gasoline, home heating, diesel, etc.). The effect would be counter-cyclical, and stabilizing, in terms of moderating swings in prices and in terms of the income effects on consumers of energy price changes.

I am not a professional economist, and I know that we need to be mindful of prices in neighbouring jurisdictions, so I don't know exactly where that floor price should be. But under current conditions, I imagine that for gasoline I would like it to be in the $1.20-$1.30 range.

My understanding is that about half of existing taxes on gasoline and home heating fuels are spoken for (i.e. are currently dedicated to raod and highway infrastructure and maintenance); the rest goes into general revenue, and it is that latter portion that I am proposing be converted, at least in part, to carbon taxes.

It is unfortunate that we tend to punish well-intentioned and useful experiments in public policy, when we should simply be learning from them. Gordon Campbell and Stephane Dion may have given carbon taxes a bad name, but I am confident that in the long run, we might just get it right.

Wednesday, December 03, 2008

Harper Stumbles

Canadians for Democracy?

Look at this website and ask yourself (1) whether it accurately describes the nature of the coalition being proposed by Stephane Dion and Jack Layton; or (2) whether the coalition constitutes "the overthrow of a democratically-elected government?" This is the kind of misinformation that is rapidly being disseminated all over the country.


Re: The Conventions of Parliamentary Government....

As someone who tries to educate people about the logic of parliamentary government as part of his job, it is frustrating to have a prime minister and a governing party aggressively running ads that play upon people's lack of familiarity with parliamentary coalitions and vague familiarity with American style government in order to paint a deliberately misleading picture of the Liberal-NDP 's supposedly "undemocratic takeover". And probably exacerbating regional tensions in the process.

Prime Minister Harper's televised address of December 3rd made made 4 or 5 references to a "power-sharing coalition with a separatist party", when in fact the Bloc is not part of the coalition government. All the Bloc did was agree not to vote against the coalition in a non-confidence motion for 18 months. This is quite similar to what Mr. Harper was contemplating when he sent a letter to the Governor General trying to replace the Martin government when the Tories were in Opposition in 2004. Mr. Harper has relied on the Bloc for confidence motions (at last count) 14 times, and if he remains in power he will likely do so again.

Mr. Harper should just admit that he blundered, and in addition to withdrawing his ill-timed cancellation of political party subsidies (a strange priority for a budget update by a new government ostensibly trying to set the tone for a conciliatory parliament), he should commit to a program of aggressive fiscal stimulus in line with what Barack Obama and most of the G-20 are already committed to.


Speaking of the Economy.....

Facing the Worst Recession since the 1930s? A country with an ageing, crumbling infrastructure? A financial crisis and shortage of liquidity in the private sector?

It should be obvious to anyone what, in general terms, needs to be done. It is what the leaders of practically every G20 country have already agreed to do--commit at least 2% of GDP to good, old-fashioned Keynesian economic stimulus, even if it means running a temporary deficit.

Obvious to anyone, except perhaps a right-wing ideologue with a Master's Degree in Economics. Proof once again, that a little bit of knowledge can be a dangerous thing......

Sunday, November 30, 2008

Another Plug for Bob Rae as Liberal Leader


Many Liberal partisans dislike him because he is a former NDP leader. Many New Democrats dislike him for the same reason. But I happen to think that at this particular juncture, he is the most qualified person to be the next Leader of the Opposition--or, if it turns out that way, the best person to lead a Liberal-NDP coalition government. With most erstwhile Dion and Kennedy people falling behind Ignatieff like the good "True Grits" they are, it is indeed more likely than not that Micheal Ignatieff will be the next Liberal chief. But I have been more impressed by the particular combination of character, intellect, as well as political skill, of Bob Rae. I relished the prospect in 2006 of him skewering Emerson and Harper over Softwood Lumber and besting Harper in political and parliamentary debate. I liked the idea of somebody finally committing to a national plan for drugs and (eventually) home care. I liked the idea of someone with Rae's qualities having governed the nation's largest province under the most difficult of circumstances, and then going on to be prime minister--something that never happens in our country, which punishes such "baggage". And I also liked the story of the Comeback Kid, which apparently has greater resonance in America than it does here in Canada. And if the Harper government government is defeated in the first sitting of the new Parliament, it would make sense for Stephane Dion to take over the reins as prime minister until the Liberals have their leadership convention in May. And, for that coalition to persist, it would probably make the most sense to have Bob Rae as the new leader.


---A Decima Survey in released November 18, 2006 showed that 37 per cent of respondents said they would vote Liberal or consider doing so if Mr. Rae were the leader, compared with 34 per cent for Stéphane Dion, 33 per cent for front-runner Michael Ignatieff and 31 per cent for Gerard Kennedy. Mr. Rae appeared to have pulled even among Ontarians, who had apparently forgotten or forgiven his rocky tenure as an NDP premier in the province. Will all of those left-leaning voters who liked Kennedy and Dion actually vote now for Ignatieff?

---The battle-ready former NDP premier of Ontario was feared by Conservatives as someone who already had experience bringing down Conservative minority governments. Conservative Senator Hugh Segal, The Order of Canada recipent, chief of staff to Progressive Conservative Prime Minister Brian Mulroney, and former President of The Institute for Research on Public Policy, had this to say on CBC Radio after the Convention: “My feeling, and the feeling of most Conservatives, was that we dodged a bullet when the Liberals failed to choose Bob Rae as their leader”

--- My former boss in the Ontario Ministry of Labour, Tim Armstrong, was a Deputy Minister under 4 Ontario premiers from 3 different parties. Uniquely qualified to compare and assess their leadership qualities in context, he had this to say(I reproduce the article in full) :

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Political mythmaking, Ontario style

The drumbeat theme of those opposing Bob Rae's Liberal leadership candidacy is, "A smart guy, with a terrible record as premier of Ontario." It's difficult to fathom whether this myth is the product of ignorance, malice, or both.

I was appointed as a Deputy Minister by Premier Davis and served under him and his three successors, Premiers Peterson, Miller and Rae. None of those premiers would claim to have achieved perfection. But the suggestion that the Rae government did not live up to -- and in some areas exceed -- the standards and accomplishments of its predecessors on behalf of the people of Ontario is untrue.

When Bob Rae assumed office, the province was faced with an economic crisis -- a deepening recession, unprecedented competitive challenges from a Free Trade Agreement with the U.S., high interest rates, an overvalued dollar and a budget deficit of several billion dollars rather than the surplus predicted by the prior administration. Over 300,000 manufacturing jobs were lost between 1989 and 1992.

When the Rae government approached the end of its term, Ontario led the way in growth among the provinces and had one of the strongest economies in the G7. Surveys showed strong consumer and business confidence.

Private sector investment was back with billions in capital spending. Labour productivity was at an all-time high, as were manufacturing exports. Health-care costs were under much improved control as part of a broader strategy that was reducing the deficit.

My most memorable work with Premier Rae involved the restructuring of Algoma Steel in Sault Ste. Marie and Dehavilland Aircraft in Downsview. From the outset, the premier made it clear that he was determined, in the interests of the employees, the affected communities, and the provincial economy, that both companies would survive. His personal efforts in achieving success exceeded, in dedication, intelligence and shrewd negotiating skills, anything that I had previously experienced.

The costs incurred by Ontario in these restructurings, as well as those extracted from the federal government, have been recovered, many times over, in tax revenues alone. And the dismal alternatives to success -- weeds in the companies' parking lots, padlocks on their gates, and thousands of discouraged unemployed workers, their families on welfare or seeking social assistance -- were all avoided. These achievements were repeated, at Spruce Falls Pulp & Paper in Kapuskasing and other communities across the province, under the Manufacturing Recovery Program, a program designed and implemented with the full involvement of the Premier.

Bob Rae was, from the outset, under attack from many in the business community. After taking office, he faced vigorous opposition from organized labour, principally for his efforts to curtail what he perceived to be excessive wage demands and his commitment to share the necessary cuts in government spending fairly. In my experience in the labour relations field, if you displease both labour and management, you are likely on the right path.

There were other noteworthy achievements during this time. The Rae government successfully promoted the Jobs Ontario program, with increased investment in child care and training; incentives to employers to hire people on welfare and those whose employment insurance had run out; the elimination of payroll taxes on any new employee hired -- policies that, combined, created in excess of 50,000 jobs.

Ontario's welfare system was renewed, focusing on the needs of children living in poverty; the child-care budget was expanded; hundreds of thousands of poor families were removed from income tax rolls; and the new Trillium Drug Plan gave affordable access to all in need of therapeutic drugs.

The Rae government placed a renewed emphasis on aboriginal affairs, leading to the first Statement of Political Relationship between a provincial government and aboriginal leadership, acknowledging the need for government-to-government relations and providing new funding to address native poverty, with emphasis on housing, child care and improved sewer and water facilities.

Finally, as premier, Bob Rae held a deep commitment to the success of our federal system, and in particular, one that would accommodate Quebec's goals and aspirations, without jeopardizing Canadian national unity. He played a leadership role with the First Ministers that produced an affirmative vote in Ontario on the national referendum on the Charlottetown Accord.

Many other reforms were set in motion, many of which have been continued by successive governments. As to the Liberal leadership race, may the best candidate win. But in the process, the trumped-up myth that Bob Rae presided over an ineffective government needs to be put to rest.


Tim Armstrong was Ontario's Deputy Minister of Labour and Deputy Minister of Industry, Trade and Technology and was the province's Agent General for the Asia- Pacific region, 1986-1990.

Source: The Hamilton Spectator
Monday, August 14, 2006
by Tim Armstrong
Page A15

Sunday, November 16, 2008

What Should an Auto Company Bailout Look Like?

In exchange for government aid, the Big Three's creditors, shareholders, and executives should be required to accept losses as large as they'd endure under Bankruptcy protection, and the CAW should agree to some across-the-board wage and benefit cuts. The resulting savings, combined with the bailout, should be enough to allow the Big Three to shift production to more fuel efficient cars while keeping almost all its current workforce employed. Ideally, major parts suppliers would adhere to the same conditions. What must be avoided is a re-run of the U.S. Chrysler bail-out of the 1980s--when that company took a big chunk of public money and then turned around and laid off 1/3 of its workforce.

In exchange for job security, trade unions should agree to wages-plus-benefits that are closer to what North American workers for Toyota, Honda, and Nissan make--e.g. @$50 per hour instead of the $67 per hour that Big Three workers currently make.

That's tough medicine, but reasonable from this taxpayer's point of view.

Friday, November 14, 2008

What Price Budget-Balancing? Note the P3 Dimension

{The federal government is on record as saying 'the time for study is over, this is the time for action' when it comes to Public-Private Partnerships (P3s). Yet a great deal of the research that has been done is ambivalent about the value of P3s, which often trade off public sector accountability and long-term economic benefits for the sake of short-term improvements to government financial accounts. Now that the federal government is under pressure to take steps to avoid a budget deficit, that ideological and political commitment to P3s is about to become as strong federally under Harper as it has provincially under Campbell. Keep your eyes peeled for dodgy deals designed to conceal true long-term costs from Canadian citizens. Here are some apposite remarks from Professor John Loxley, from his 2008 CAUT Distinguished Academic Award Acceptance Address:---MC}

"As the Council of CAUT is aware, the decision by the administration at my university to award a five year contract to Navitas, through the International College of Manitoba, to recruit and teach overseas university students at pre-university and university 1 course level has been controversial for a number of reasons. The contract did not go through either the Board of Governors or the Senate. There appears to be no provision for academic oversight of courses, teachers or standards by the Senate, and the details of this forprofit agreement are confidential. Clearly, this would not make the ICM a model for accommodating pre-entry needs of Aboriginal students. But the Navitas/University of Manitoba agreement is interesting to me for other reasons. It is an example of a public-private partnership (PPP) and for the past decade or so I have been studying the theory and applicability of PPPs in Canada and around the world.

Declaring that ‘The time for study is over; this is the time for action’, the federal government recently made it a prerequisite of it signing infrastructure
co-financing agreements with provinces that they consider PPP arrangements for all large infrastructure projects. Yet serious academic studies of PPP experience suggest that they uniformly cost more than public sector alternatives, rarely provide value for money, do not necessarily shift risk to the private sector as they are supposed to do, and do not reduce effective government debt as they often promise. In the light of this, the Navitas agreement raises many unanswered uestions. For instance, was a public sector alternative to Navitas ever considered or costed out by the University of Manitoba? Is this a way of undermining the collective agreements which protect those who teach first year courses? How much is Navitas paying the University for using its premises? What safeguards are in the agreement to maintain academic standards and appropriate academic behaviour? Without public access to the legal agreement, it is not possible to answer these questions. But that is not unusual in PPP agreements as access to information is frequently barred by reference to the need for commercial secrecy. This secrecy is rarely justified when public money is being spent and, in a University setting is deeply disturbing. I commend CAUT for its efforts to address our concerns over Navitas and I raise the matter here because, regardless of what the federal government might claim, the academic debate about the wisdom of PPPs is far from over.

What drives administrators to enter into questionable arrangements with the private sector are real or perceived budgetary problems. I have always seen budgets not as mere financial statements, but as profoundly ideological and political statements. To paraphrase Julius Nyerere who was speaking about planning, ‘to budget is to choose’. A critical examination of budgets involves, therefore, a critical examination of political choices made and put to numbers. My involvement in helping develop alternative budgets in Canada in the 1990s arose out of widespread dissatisfaction with budgetary choices being made at the federal and provincial levels, in particular. Those choices had a profound impact on people and institutions on the ground, and universities were not exempt from this. While there is a perfectly legitimate justification for simply critiquing budget choices, developing an alternative budget helps put those critiques into a more disciplined, constructive framework, thus helping to head off the counter claim that the demands being made are unrealistic, unmanageable or fiscally irresponsible. This is, of course, highly political and contentious work since it involves challenging the political power behind the budgets, be it the federal government, the provincial government or the university administration. It helps, enormously, to have the protection of tenure, academic freedom and a strong collective agreement. Working from an academic base also makes it easier to work, collegially, with civil society
organizations; women’s groups, environmental groups, trade unions and anti-poverty groups, as one is perceived, rightly or wrongly, to have a high degree of independence and impartiality.

Linking my work on PPPs and on budgets, leads me to caution against universities building closer links to the private sector for budgetary reasons. The budgetary impact of PPPs is often quite negative as governments replace direct borrowing by paying for leases on assets purchased by the private sector at higher interest costs."
---John Loxley, FRSC

Monday, October 20, 2008

Is proportional representation for losers?

{Last spring and early summer, while Barack Obama and Hillary Clinton appeared to be tearing themselves apart over the Democratic nomination, a conservative commentator mused on the superiority of the Republicans' "winner take all" approach to state caucuses and primaries. The implication clearly was that Republicans were motivated by a different spirit, one that was more likely to produce bold, indomitable leaders, and also more likely to win the White House. You can judge for yourselves how that has panned out. In this case, the winner has turned out to be the one with the greatest ability to be inclusive--and that is how it should be.

One occasionally hears similar arguments in Canada on behalf of the "winner take all" approach, and, as in the U.S., they tend to come disproportionately from the right side of the political spectrum. One such commentator is the Edmonton Journal's columnist Lorne Gunter, who after last week's federal election result pooh-poohed the predictable complaints from the left about our electoral system, stressing the importance of the link between local constituents and their representatives in our current system and asking, reasonably enough, why Greens never could muster enough support in any one location to actually win a seat. After all, if the right could get its act together and form one party strong enough to win under our system, why shouldn't the left be expected to meet the same challenge? Here is my response, which appeared in the Edmonton Journal on October 21, 2008:}


Lorne Gunter’s dismissal of proportional representation (“Proportional representation not ‘fairer’”—Journal Oct.17, p. A16) is overdrawn in both its premise (that people complain about our system more because Conservatives are winning) and its conclusion (“the concept of local representation would disappear, or at least be greatly diminished”).

Even though our electoral system has been shown to exacerbate regional cleavages and harm national unity by exaggerating the strength of separatist and regional protest parties (the Bloc Quebecois and Reform) at the expense of parties of national integration (the Progessive Conservatives and the NDP), I actually agree with Mr. Gunter’s argument that there are sound philosophical reasons for attaching greater weight to political preferences that are more geographically concentrated. The real issue is whether the social context of elections has changed enough to significantly affect the weight of that argument. There are at least five great social trends which suggest that indeed it has:

First, declining voter turnout. (From 75% to 59% federally in 20 years) Turnout is generally significantly higher where there is a PR element in the electoral system.

Second, increased voter volatility. Voters are increasingly restless and searching for alternatives.

Third, increased diversity and concomitant demands for representation: PR systems tend to be much more gender balanced and ethnically and ideologically diverse than First Past-the-Post (FPTP).

Fourth, voters are more educated, more mobile, and more desirous of greater choice, and of choices beyond old left-right industrial age ideologies.

Fifth, there is an expanded rights consciousness, which in Canada is associated with the Charter of Rights--and which has led to an interesting Charter challenge on the grounds that our votes don't count sufficiently equally and our section 3 and section 15 rights have been unreasonably infringed by FPTP.

This is why the electoral reform debate won't go away: it speaks directly to many of the most profound social changes taking place right under our feet.

It is is also why we should pay close attention to the next two experiments in electoral reform—the May 2009 referendum in British Columbia and the prime minister’s own quest for an elected Senate—and seize the opportunities they afford to add elements of proportionality without greatly weakening local representation. The Single-Transferable Vote system being considered for B.C. (BC-STV) maintains local multi-member constituencies along with a preferential ballot. And if we opt for an elected Senate, we could have regional open PR lists for Senate elections while still reserving the House Commons for the winners of those 308 local elections as the seat of government and the repository of ¾ of federal MPs. Without PR, there is no reason to believe that an elected Senate would be any more gender-balanced or ethnically representative than the House of Commons currently is. (Ironically, in view of its stodgy reputation, our current Senate is more gender balanced and ethnically representative than the current House of Commons! ) Either of these two innovations would empower more voters and help to create the more representative legislatures that we need in the 21st century.

Sunday, September 28, 2008

A Pragmatic Pluralist Response to Daniels & Trebilcock, Rethinking the Welfare State: The Prospects for Government by Voucher.

Abstract


This paper seeks to develop several observations and arguments made in my review of Daniels’ and Trebilcock’s book, which was published in Canadian Public Policy in 2007. The factors adduced that could limit the use of tied demand-side subsidies in reforming the welfare state include: the degree of ‘voucherness” already in existence; the degree of individualism characteristic of a given social policy sub-field; nature and strength of external preferences; market structure of potential suppliers; potential exposure to international trade rules, the likelihood of design challenges and design failures in voucher experiments, and, at the highest level of generality, the relationship between the means and ends of social policy (e.g. the analytical separability, logical connection, and dynamic interactions which exist between means or instruments and goals of social policy).

Just as the strength of any critique based upon any analysis of these factors can be expected to vary between various social policy areas, so too can the strength of the voucher argument be said to vary between policy sub-fields. The resultant analysis eschews rationalist neo-liberalism in the sense of either strong value neutrality or uniform individualism, which are both prevalent in Daniels and Trebilcock’s work, as well as the work of the Fraser Institute. It does however embrace the liberal value of pragmatic pluralism, and therefore likely implies the endorsement of voucher experiments in at least a couple of areas.


Introduction

The creation of public markets (i.e. inviting providers to compete for public monies to supply a public good) has been described as “the most significant change in the face of the state since the creation of merit-based bureaucracies to manage the delivery of public goods a hundred years ago (Stein, 116).” It has developed in association with the broader trend known as New Public Management, according to which “the central failure of government today is one of means, not ends” (Osbourne & Gaebler, xxi), and governments are deemed to be better at “steering” rather than “rowing”. In Rethinking the Welfare State: Prospects for Reform By Voucher, Ron Daniels and Michael Trebilcock ask what the state would look like if it relied on vouchers to deliver public goods and services across the broad spectrum of activities that comprise the modern welfare state.They argue that in 8 different social policy fields (food stamps, housing, legal aid, health care, early childhood education, K-12 education, post-secondary education and labour market training) “providing that sponsoring governments are steadfastly attentive to demonstrating fidelity to public goals and values through their design, implementation and monitoring of voucher programs, ... [v]ouchers can, we believe, achieve a more satisfactory optimization of efficiency and equity goals than many competing instruments” (Daniels & Trebilcock, 221). In a slightly more exuberant formulation, that authors approvingly quote Julian Le Grand in saying that “vouchers convert citizen beneficiaries of the welfare state from pawns, the least powerful piece on the chess board, to queens, the most powerful. Thus, vouchers demonstrate considerable promise in terms of their ability to realize public goals. Indeed, given this potential, the adoption of voucher programs may be able to mute, or even obviate, the great efficiency-equity trade-off of which Arthur Okun wrote so eloquently in his celebrated essay by that title” (Daniels & Trebilcock , 2).

This paper argues that the considerable merit of Daniels’ and Trebilcock’s premises must be accepted if we are to make any headway in making an incisive and fair critique. They are right to remind us what vouchers are, the considerable extent to which voucherness is already a characteristic of the welfare state, and that there are considerable gains to be made in terms of both efficiency and choice from expanding and carefully designing voucher programs. What we need to ask is (1) whether the ends of public policy in these various fields are suffciently clear and discrete so as to permit the “optimization of efficiency and equity goals”; (2) to what extent it is realistic or feasible to consistently achieve consumer sovereignty and tame the power of suppliers through intelligent design; and (3) beyond the question of the poverty of ends and the pragmatic difficulties of turning pawns into queens, we also need to raise the discussion to the level of political theory: does the ‘obviation of the great efficiency-equity trade-off’ represent a defensible ideal for perfection of the welfare state?

In this regard, there is a noteworthy ambiguity surrounding the relationship of the voucher ideal to the liberal ideal of pluralism. On the one hand, as Joseph Heath has put it, “[e]fficiency has replaced religion as the primary source of value in our culture. This is because striving for efficiency is one of the few ways we have to achieve social order in the context of a pluralistic society” (Heath, 9). On the other hand, there is another tradition within liberalism, in the thought of Isaiah Berlin and Bernard Williams, and currently exemplified by Joseph Raz and John Gray, which is skeptical both of utilitarian and Rawlsian tendencies to develop a common metric for ‘solving’ political problems (Gray 1995: 8-16). These authors argue for a deeper pluralism, and a richer concept of politics, which I argue is antagonistic to such rationalist reconstructions of the welfare state as represented in Rethinking the Welfare State. Neverthless, a truly context-sensitive, deeply pluralistic perspective must allow for the possibility that vouchers do represent the best policy instrument in certain areas, and I argue that for the most part these are the same areas indicated by the practical considerations of avoiding design failure.


I. The Structure of the Argument


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 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).

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). Nevertheless ,

“as against alternative instruments, the case for the voucher is relatively straightforward: once governments have decided to intervene in a given policy area...by conferring explicit, targetted subsidies on individual citizens, decisions regarding the consumption and production of public goods and services will be made more efficiently. This results from the fact that vouchers place resources directly into the hands of citizens, where they, rather than a governmental agent, will determine the precise goods and services that will be consumed from among a number of competing suppliers, thereby increasing the likelihood that citizen preferences in the consumption of publicly supported goods and services will be more effectively vindicated. Specifically, the voucher concept introduces the prospect of market exit and hence failure on the supply side (e.g. bankruptcy) for institutions that are unable to attract and retain sufficient voucher-assisted consumers to ensure their survival and thus face a discipline that is markedly absent from many current government programs that depend exclusively or primarily on political voice to ensure accountability (p.2).
....................
“From a Public choice perspective, one of the significant political attractions of government supply is that it allows governments to obscure differential entitlements that are predicated on politically contentious cross-subsidies. In contrast, because vouchers place government subsidies in the hands of citizens, there is a need for government to be more explicit in defining the precise nature of the benefit conferred. ...[T]he conferral of vouchers provides citizens with greater information respecting the distribution of government benefits, and, in particular, it facilitates critical evaluation of whether the distribution of benefits accords with legitimate normative principles or is simply the outcome of unprincipled political rent-seeking” (pp.39-40).

Thus, in order to counter what they see as largely irrational emotional resistance to the concept, the authors stress that vouchers are essentially value-neutral policy instruments consistent with a wide range of policy objectives, and that they serve to reduce waste and principal-agent problems inherent in public bureaucracy, both by empowering and informing citizens and by disciplining providers. They also point out that most of the policy areas being considered display degrees of “voucherness” already.

The remainder of this paper (1) looks at how each of these principal variables—the degree of voucherness already extent in particular policy fields, the degree of individualism in preference and choice on the part of citizen/consumers, the value and character of market accountability as opposed to political accountability, and the character and magnitude of design challenges—vary markedly between social policy sub-fields; and (2) questions the value of minimizing the equity/efficiency trade-off as a single over-arching value in the choice of policy instruments. The upshot of both analyses is to recommend the use of vouchers in a few limited contexts—in particular, postsecondary student aid and labour market training.

II. Voucherness

Rethinking the Welfare State makes the interesting point that many of our existing policies already display degrees of “voucherness”. Student aid programs give conditional grants and awards that are in effect “tied demand-side subsidies”. They also secure private loans to students by backing loan applications up to a certain amount, and by guaranteeing to banks that students will not be able escape debt, (e.g. by declaring bankruptcy). Food stamp programs in the United States are a clear example of tied demand-side subsidy. Even 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.

One purpose of identifying existing degrees of voucherness is to reduce the prejudice towards the concept that one finds in public sector unions and the ideological left. But there are a couple of other considerations that also relate to the cost and feasibility of vouchers. First, the pre-existence of voucher-like arrangements make it far easier to design and sell what is essentially an extension or refinement of the concept. Second, there is the possibility that voucher-like arrangements have sprung up spontaneously in those contexts where they are most suitable—as, for example, where the need for political/ administrative agency is low, there are low costs to market entry for potential suppliers, and the self-interest of citizen/consumers does not carry serious externalities for other citizens. There is some possibility of a divergence between Hayekian arguments (for grown or spontaneous market ordering) as opposed to the more rationalist/economistic designs in the Milton Friedman vein.

III. Individualism on the Demand Side and Market Accountability on the Supply Side

Worries about the civic consequences of privatization, such as those expressed by Martha Minow (“testing accountability requirements in the light of public values is not a task to be contracted out to private enterprise”—Minow:2003 p.1270) are met by the point that “agency problems that afflict public provision also afflict public accountability mechanisms” (p.20). Furthermore...because of the public sector’s reliance on certain processs values, “agencies are often free to pursue a substantive agenda that may or may not advance the public interest” (p.20). Daniels and Trebilcock look at the debate over the relative merits of public and private accountability from the perspective of principal-agency dilemmas, and are impressed by the potential of vouchers to ‘reconcile the interests of principals and agents’. Citizens as consumers have limited influence or oversight of services to them, and there is little incentive for public agencies to be highly responsive to them: the interests of providers and government agents are not strongly aligned with those of consumers as principals (p.23).

One can challenge the characterization of accountability as essentially a principal –agent problem in this way. I suggest that it has greater applicability in those circumstances where demands are not strongly influenced by negative preferences and the public goods and services are consumed individually rather than collectively. So, for K-12 education there may be strong external preferences by parents for schools that exclude or harm the interests of children other than their own; K-12 may also be a ‘social’ public good in the sense that is intended to be consumed collectively and interdependently. Post-secondary education, which involves adult students choosing from a menu of courses, exhibits a more essential individualism. Essential individualism is in turn more likely to be suited to market mechanisms of accountability, where a public interest (i.e. one that is not merely the sum of individual private interests) is less likely to be in conflict with the object of straightforward consumer satisfaction.



IV. Market Structure and the Characteristics of Suppliers

Daniels and Trebilcock mention that among the central design issues are “determining the qualifications of suppliers who can compete for voucher-assisted customers; ...... permissibility of extra-billing; permissibility of cream-skimming; information failures; [and] concerns about the inadequacy of supply-side market responses to vouchering , and the possibility that vouchers, under certain conditions,will simply entrench existing monopolies, or create new ones.” Theirs is an honest accounting of these design challenges, but one must ask: how often do the conditions for a truly competitive supply market truly exist? Even where markets are large and lucrative, how easily can corporations with deep pockets for lobbying, advertising, and litigating be subordinated to sovereign consumers? The authors admit that “the success of any given mode of delivery depends not only on the characteristics of the instrument itself, but also on the market conditions in which it will be operative” (p.36). It is relevant to ask just how successful the state has been in taming corporations in other regulatory contexts; or why, if the state is so prone to inefficient and rent-seeking, we have any reason to expect that the regulation required to make a voucher system work will work any better. Suffice to say that the challenges posed by regulatory capture and market structure can be expected to vary between social policy sub-sectors. One area where large transnational corporations and pharmaceutical companies can be expected to influence their regulatory conditions and not simply compete for vouchers is the health care sector.



V. Likelihood of Exposure to International Trade Rules


Daniels and Trebilcock 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 reinforce 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.



VI. The Poverty of Ends: The Case for Pragmatic Pluralism in the Delivery of Welfare State Programs

Simple, discrete policy objectives are more amenable to schemes for efficient modes of delivery, such as those afforded by well-designed voucher schemes. More complex policy objectives are better-suited to mechanisms of political accountability. Student postsecondary aid may be an example of the former, notwithstanding its many different functions and stakeholder interests: how to fund and empower student consumers, while achieving a balance between demand-side and supply-side funding. Healthcare is again an apposite example of the latter.

With respect to post-secondary funding, there are numerous efficiency and quality arguments against having exclusive reliance upon supply-side funding. Public universities have difficulty competing with elite private institutions for the best faculty and the highest levels of research funding; lower tuition fees are linked with higher drop-out rates, perhaps explaining why Quebec has not realized great improvements in access despite having very low tuition fees. Equity concerns are raised by the degree of taxpayer subsidization of students from affluent families when postsecondary tuition is free or very low. And, as no less an authority than Adam Smith once observed, "Beyond some point the higher level of endowment to any university, the lower its efficiency" (p.186).

But wait a minute--if supply-side funding out of general consolidated revenue is both inequitable and inefficient, doesn't that imply greater reliance on demand-side funding? And doesn't that mean--gulp--higher tuition fees? Yup. But that need not be a barrier to access, provided there is a generous income-contingent grant -and -loan program, or tied demand-side subsidy that is targetted to tuition fees. I suggest that at the federal level there be a $2 billion national tuition voucher scheme (or $1.65 billion, in view of the recent boost to the Canada Student Aid program), giving a tuition voucher up to $5,000 annually to the 400,000 neediest students , as based on family income and/or existing debt load, that would both significantly reduce average student loan debt and simultaneously increase university revenues. It would differ from both existing policy and the NDP platform in that it would allow universities greater latitude to compete for students on the basis of quality (paid for by higher fees, up to a voucher-related limit) as well as on the basis of price.

Daniels and Trebilcock state that “a universal voucher regime in health care provision, if properly designed, can provide effective, if bounded, choices to consumers, effective competititon by health care and health plan providers for consumer patronage, and effectively address concerns over equitable access to health care services” (p.127). Healthcare is not nearly so amenable to voucher solutions, because it has no such clearly defined objective, and probably cannot have. Bob Evans has noted that we do not want to buy health care, we want to buy health, but do not know what economists call the "production function" connecting them (Evans 1984). “But healthcare adds in another wrinkle – need”. (Deber 2008). Achieving a better efficiency-equity trade-off in this context might not be nearly as meaningful an achievement as in a simpler context where the goals are more clearly defined.


VII Conclusions

It is desirable, ceteris paribus, to achieve goals in a way that are both equitable and efficient. But it is easy to imagine scenarios where equitable and efficient modes of delivery frustrate political and/or technical processes of adjustment and negotiation. Where market actors are competing to supply consumer wants, ends that are complex, changing and/or ill-defined –that relate to larger political interests and which need to arbitrate deep philosophical divides—are unlikely to be well-served, regardless of either efficiency or equity. If there is a weakness in the argument of Daniels and Trebilcock, it may be that in such contexts, the efficient achievement of equity (or the equitable achievement of efficiency) may still be open to the riposte, “So what?” Added to this is the more mundane consideration, culled from the public administration literature, that governments which have trouble managing internal principal-agent problems will probably have difficulty managing external contracts as well; and the notable paradox that while vouchers elevate and arguably embody the principle of demand-side autonomy and choice, they are also susceptible to a high degree of paternalism---the conditions for demand-subsidies can be tied as tightly as the government wishes, as the case of food stamps indicates.

It would appear from this analysis that the appropriate place for voucher schemes are post-secondary student aid and labour market training, while vouchers for food aid and perhaps legal aid merit some consideration. Defenders of the existing welfare state will see it as the top of a slippery slope, which will inevitably weaken the public sphere and eventually infect the sacred citadels of health and K-12 education. Advocates of rationalist neoliberal reform will simply see the objections raised to vouchers in this paper as indicative of design challenges which can be met. Certainly, much more research will have to be done in each of these sub-fields as well as a deeper meditation on the relationship between ideas and interests in public policy, before making more than provisional pronouncements about the future of the welfare state in Canada. Nevertheless, I suggest that my analysis represents a vision for the improvement and perfection of the welfare state that is both pragmatic and pluralist, attentive to the need for efficiency without impoverishing the discussion of ends or vitiating the possibilities for richly political civic engagement, and which is hopefully deserving of the label “postliberal”.

Friday, August 15, 2008

Between Romanow and Kirby--and Beyond Chicken Little

A few years back, Canadian governments commissioned a number of studies on the state of the health care system and the options for reform: the Romanow Royal Commission (or "Romanow Commission"), the Senate Committee (the "Kirby Report"), the Mazankowski Report in Alberta, and a few others. The Romanow Commission did a thorough job of identifying the principal cost escalators, as well as the advantages of the current system in terms of equity, efficiency, social justice and popularity. Romanow recommended expansion of the coverage of Medicare to include two new essential services, diagnostic services and 'priority home care', and concludes: "the Canadian health care system is as sustainable as we want it to be." While this was initially reassuring, it perhaps failed to fully confront the issues of cost and sustainability in the long run. As his former Finance Minister in Saskatchewan, Janice MacKinnon, has commented, the simple arithmetic of health care spending implies the danger of underfunding other priorities and returning to deficit: there is no point having first class single tier health care if it means having second class or two-tier everything else.

The Kirby Report was more rigorous and incisive in its argument that resources are scarce and need to be allocated more efficiently. Kirby recognized that both the equity and the effciency of Canadian health care were due to its single payer system, and that the threat to sustainability came from ill-defined comprehensiveness coupled with public delivery. His neat solution: have single payer universal health care combined with competitive private delivery. This also struck me as being a little too pat: it ignored the evidence, subsequently documented by the McMaster Deveraux study, that in America private for profit clinics and hospitals are often higher cost and often worse in terms of health outcomes. It also ignored the fact that private for-profit delivery increased the likelihood of triggering international trade treaty obligations, such as Chapter 11 of NAFTA, which could make it more costly and more difficult to change public policy in the future. It did not demonstrate that the right conditions for competitive delivery existed in all regions of Canada and in all hospital and health services, and although it mentioned a couple of promising examples of potential gains to be had from moving certain procedures out of hospitals and into private clinics, it did not convincingly demonstrate that these gains could be had in all services or in all areas.

As a result, I have been meaning for several years to write a piece that would map out the middle ground between Romanow and Kirby, striking the right balance at least terms of a framework that would delineate criteria and various options for reform. Fortunately, Raisa Deber, one of the leading researchers for the Romanow Commission and a professor of Health Policy at the University of Toronto, has come very close to doing that for me in her recent article in volume 4 no. 1 of Healthcare Policy, entitled "Access without Appropriateness: Chicken Little in Charge?". She uses the metaphor of Chicken Little to describe our tendency of running back and forth between worrying about the opposing ideals of ensuring access and fretting about controlling costs. Reconciling these opposing ideals, rather than alternating between them, requires adding the concept of appropriateness, and recognizing that rapid access to unneeded care may do more harm than good. Several examples are given of resources wasted (and side effects endured) through inappropriate use, and she gives a few modest suggestions for improvement. (Since her article is only about six pages long, I'll take the liberty of reproducing it here in full, as well, as providing a link to her article, which is published in both official languages and contains a comprehensive and useful bibliography.)

I believe that Deber's analysis ( i.e. that we need greater emphasis on health outcomes and appropriateness, risk/benefit analysis as opposed to cost/benefit, preventative medicine, negotiation of prices for drugs and therapies) not only implies support for expanding our single-payer system, but is also highly consistent with some sort of capitation system of physician compensation on the supply side of medical services to replace the incentives for inappropriate treatment that currently exist under fee-for-service. What Deber terms "appropriateness" would, like capitation, encourage greater use of incentives for long-term patient care including prevention and primary care. It may be true that the focus on capitation vs. fee for service is itself of exaggerated importance, and like many discussions of healthcare, overly physician-centric (more nurse practitioners and community health clinics may be a more sensible goal than attaining the family physician for everyone.) Nevertheless, her arguments do probably stand on their own, regardless of who exactly our healthcare providers are or how exactly they are compensated.


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Access without Appropriateness: Chicken Little in Charge?

by
Raisa B. Deber, PhD Department of Health Policy, Management and Evaluation, University of Toronto Toronto, ON


How bad is Canada's healthcare system? If one were to judge from press coverage, it is in deep trouble - unsustainable, and forcing sick Canadians to wait for life-or-death care unless they are lucky enough to be able to travel south of the border. If one were to judge from comparative statistics, however, a different picture emerges: health outcomes are better than the average for OECD countries; costs are more or less under control, although with some worrying trends; and people receiving care seem relatively satisfied. F. Scott Fitzgerald wrote: "The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function." Health policy analysts stress three key goals - cost, access and quality - and suggest that trade-offs among them are inevitable. It goes without saying that there is always room for improvement, and indeed, several thorough reviews of the system have reached remarkably similar conclusions about the changes that need to be made: Expand the definition of insured services beyond the historically based emphasis on hospital and physician care to include, at minimum, targeted home care services, prescription drug coverage and better mental healthcare. Reform primary healthcare. Emphasize disease prevention and health promotion. Get better data. Reorganize care to improve efficiency and patient flow.

Ignoring, for a moment, the fact that there is no such thing as a Canadian healthcare system - it being neither national nor a system - health policy makers are confronted by Fitzgerald's intelligence test. We appear, indeed, to have responded by holding two opposed ideas, cost and access, but only one at a time, swinging alternately between them. For the past few years, one idea has dominated - access - which translates as, "There are not enough…" (doctors, nurses, fill in the blank). People have to wait too long for care. Expensive drugs are not provided at public expense. Chicken Little cries triumphantly throughout the land: The sky is falling! We need more! Governments responded in 2004 with wait time targets for five services: cancer care, cardiac care, hip/knee replacements, cataract surgery and CT/MRI scans.

Then, the second idea intrudes: Publicly funded healthcare is unaffordable. The system is not sustainable. We need cost control. A brave few point out that our current bottlenecks result from the success of earlier cost control efforts: per capita inflation-adjusted Canadian health expenditures actually dropped in the mid-1990s. Funders capped hospital budgets, providing, in turn, an incentive for cost shifting. Hospitals laid off nurses; the resulting exodus from the profession soon created a nursing shortage. Physicians had to battle for operating room time; those with less internal power (often the providers of elective surgery) found themselves on the losing side, leading to wait lists for their services. The backlash, in turn, led to the current focus on restoring resources. A cynical observer might suggest that there will soon be a similar backlash against the costs of the access agenda, particularly if the economy slides into recession.
Is our intelligence first-rate enough to reconcile these opposing ideas, rather than just alternate between them? A modest proposal suggests yes, if we allow in a third idea that too rarely enters the dialogue - appropriateness. It involves recognizing that more is not always better. Care can do harm as well as good. Rapid access to care that is not needed is not always wise.

Many years ago, Bob Evans (1984) noted that we do not want to buy healthcare, we want to buy health, but do not know what economists call the "production function" connecting them. Healthcare is not a normal consumer good. In general, markets do very well at distributing many kinds of goods, using price signals to balance supply and demand. If demand is high, price rises until enough consumers are priced out of the market to balance supply and the new, lower level of demand. If price is low, demand rises.

But healthcare adds in another wrinkle - need. And, taken seriously, this addition erodes the basic premises of markets. First, it adds another decision-maker - the expert. I decide what I want, but the healthcare professional decides what I need. Next, it destroys the mechanism of price signals. If I need care, should I get it, regardless of my ability to pay? If the answer is yes, then there is no limit to the cost that can be charged - "your money or your life" has a long history of successfully parting individuals from their cash. Conversely, if I do not need care, should I get it as long as I am willing to pay? Evans's insight is important - why on earth would I want to? Most healthcare is not pleasant to consume; there are risks and side effects. Our focus on balancing costs and benefits leads to an understandably negative reaction from people who disagree with the conclusion that they are not "worth" the cost of treating them. Don't we know that human life is priceless? A focus on balancing risks and benefits, in contrast, would make explicit what health professionals already know: Sometimes less is more. Treatment may do more harm than good. It is important to target interventions towards those for whom the benefits are likely to outweigh the harms.

This is usually easier said than done. Knowing whether benefits outweigh harms requires evidence. Who gathers it? One problem is that people get paid considerably more for providing a good or service than for advising that it is not necessary. Unsurprisingly, those with fiscal interests seem inclined to show that their services are beneficial (Lexchin et al. 2003). Gathering evidence takes time. Should sick people be expected to wait? If not, what should be done before the evidence is in? Evidence often shows that there is a sliding scale of benefit. How much benefit is worth buying? At what cost? People may disagree in their interpretation of the evidence. How much autonomy is appropriate, and who should decide?

In consequence, we have tended to ignore appropriateness altogether for some procedures. True, among the recommendations of the Romanow Commission (2002) was the obviously unlucky Recommendation 13: "The Health Council of Canada should take action to streamline technology assessment in Canada, increase the effectiveness, efficiency and scope of technology assessment, and enhance the use of this assessment in guiding decisions." Clinicians are making a valiant effort to assess evidence, and have used it well in developing the wait time standards for cancer and cardiac treatment (Health Council of Canada 2007). (Not coincidentally, wait times for those conditions appear to be largely under control.) However, those for cataract surgery, hip and knee replacement, and diagnostic imaging (CT, MRI) have proven more difficult, and that appears to be where much of the Chicken Little dialogue is focused.

Why does the appropriateness dialogue have such little traction?
It is remarkably difficult to convince patients or physicians willingly to forgo therapy that they believe would be helpful "merely to save money." In the current dialogue, efforts to target are equated with denial of needed care. Patient groups - either grassroots or provider-funded Astroturf groups, backed by the media - are quick to demand that third-party payers pay any price for the newest drug. These groups are found in most countries, making remarkably similar arguments, and few governments can resist such pressure. Decisions by Canada's Common Drug Review (Tierney and Manns 2008) that drugs do not offer sufficient benefit to warrant listing are quickly, and vociferously, denounced by both pharmaceutical companies and patient groups. Ontario's attempt to introduce PET scanning within the context of evaluating its effectiveness, rather than being hailed as a way of determining when this procedure is beneficial, has been denounced as limiting access.

Hang risks and benefits; the public assumption appears to be that no one should ever wait, and that more is always better. Consider the priority categories for joint replacement agreed to by the Wait Time Alliance (2005: 19), and its benchmarks:
Priority 1: A situation that has the potential to deteriorate quickly and result in an emergency admission should be operated on within 30 days.
Priority 2: A situation that involves some pain and disability but is unlikely to deteriorate quickly to the point of becoming an emergency admission should be operated on within 90 days.
Priority 3: A situation that involves minimal pain, dysfunction or disability and is unlikely to deteriorate quickly to the point of requiring emergency admission should be operated on within 6 months.

Some might suggest that situations involving minimal pain, dysfunction or disability might not warrant surgery at all, let alone within six months, and one suspects that most surgeons would agree. That, however, was not the reaction of the focus groups: "Six months is too long to wait if you think about anyone supporting a family. How can they wait that long?" (Wait Time Alliance 2005: 20).

Shortening waiting periods for unneeded therapy that causes harm seems counter-productive. But the horror stories are almost exclusively of people denied expensive innovations that might benefit them. Somehow, the horror stories of people getting expensive innovations that proved inappropriate and even harmful do not carry the same weight. The lessons of Vioxx have not sunk in. One recent example is Bayer's Trasylol, a drug used to prevent blood loss during artery bypass graft surgery (Deber 2007). According to newspaper coverage, it cost roughly $1,300 per patient, compared with $11 and $44 for its alternatives (Pringle 2006). It accordingly had to be better, and an estimated 246,000 US patients received it in 2006 - most for off-label uses. What did this extra money buy? Two recent non-randomized studies told us: higher death rates, and higher risks of such serious side effects as kidney problems, heart attacks and strokes (Mangano 2007). The total cost for these worst outcomes was estimated at between $250 million and $1 billion. (One excellent source for keeping up with the published data is websites set up by lawyers sensing a new revenue opportunity).

Things have gotten sufficiently out of hand that in 2008 the New York Times started running a series entitled "The Evidence Gap: High-Priced Promise," with the tag-line, "Articles in this series will explore medical treatments used despite scant proof they work and will consider steps toward medicine based on evidence." The first example the newspaper selected fits within one of Canada's five wait time targets - specifically, CT scanners to produce detailed images of the heart (Berenson and Abelson 2008). The article described a US clinic asking to buy a machine that would cost them $1 million. But the doctors can pay for the equipment by doing enough CT angiograms (at $500 to $1,500 per test), and over 150,000 such scans were done in the United States in a single year, for a cost of more than $100 million. Such tests are not without risk; the dose of radiation is large enough to increase the lifetime risk of cancer. And the evidence that they benefit most patients is not there. But lobbying from patient and physician groups has ensured that US Medicare continues to pay for them.

In Ontario, nearly $100 million has been spent to increase the supply of CTs and MRIs. More machines have been bought, and more scans have been paid for. The government pulled in providers to determine how best to proceed (Trypuc et al. 2006a,b,c). In response to greater capacity, utilization has soared. What is worrying is that the clinical benefit is often problematic. For example, a recent ICES analysis by You et al. (2008) reviewed hospital charts; the authors found that the most frequent reason for ordering a CT scan of the brain was headache, and less than 2% of those scans showed an abnormality. These tests also led to other tests in 25% of cases. How low a yield is appropriate? Scans involve radiation - regardless of the questions of wise use of resources, at what point does the clinical harm (e.g., increased cancer risk) outweigh the potential benefit?

The second story in the New York Times series looked at the cancer drug Avastin (Kolata and Pollack 2008). This drug has long been a poster child for the horror stories of people denied care. It costs up to $100,000 per year per patient; its sales are over $3.5 billion per year ($2.3 billion in the United States). And studies show that it prolongs life by only a few months, if that. Is it worth it?

Another Canadian example, following enormous pressure, newspaper stories about dying patients, lawsuits and involvement by the Ontario Ombudsman, the Ontario Ministry of Health and Long-Term Care agreed to send patients with colorectal cancer to the United States for another expensive drug, Erbitux. According to a story in the Globe and Mail, Ontario paid $32 million for 418 patients to have the infusions, alone or in combination with another drug, over a three-year period starting in 2005 (Priest 2008). Further research, reported at a 2008 meeting, suggested that it was useless for 40% of patients. The Globe story, however, conveyed this as yet another example of nasty government refusing to pay for something - in this case, not immediately making available (and paying for) a newly developed $500 test to see whether the drug would work. Little mention was made of the money wasted, and side effects endured, by premature adoption of a therapy with insufficient evaluation.

So, what might be done? One might hope that Chicken Little will gain some perspective and celebrate what works well. Other suggestions also come to mind. The first is to focus on appropriateness. This does not mean that the call for evidence should be used to block innovation; we should innovate, but also evaluate. Ideally, new therapies would be applied within the context of trials and registries, so that evidence could be collected and subsequent use targeted towards those for whom such treatments would do more good than harm. Another suggestion is to negotiate the price to be paid for these therapies, particularly for drugs, rather than agree to pay whatever companies wish to charge. Another is to shift the dialogue from cost-benefit to risk-benefit. Finally, it might be nice to focus on outcomes, with the recognition that we may end up paying less attention to diagnostic imaging and elective hip/knee surgery and more to prevention, home care and the other reforms that keep being suggested, but have so far not been implemented.

With luck, the title of this column might become yesterday's news, with Chicken Little settled happily in her barn. It is high time that health policy stopped being guided by fictional poultry.

Sunday, August 10, 2008

How to Think about the Recent Row Over Bureaucratic Pay Raises

It is no coincidence that every time I take a summer vacation the BC government announces a major pay raise for top officials and the Opposition deplores it. It is August and the Olympics are on, so the Games begin, in more ways than one.

Just over a year ago British Columbia had a debate about politicians' pay. On the one hand, the government was able to implement the majority report of its hand-picked Independent Commission to Review MLA Compensation, the composition and terms of reference for which were heavily influenced by executive compensation trends in the private sector, as well as other factors such as long hours and the inherent insecurity of the job. Hence we have seen a 29% increase in the basic pay of MLAs (to $98,000), a 50% increase in cabinet ministers' pay, and a 90% raise for the premier, plus a significantly better pension scheme. On the other hand, pundits such as David Schreck and Rafe Mair argued that since MLAs had little or no power, they didn't deserve a large pay raise or a new pension at all. Carole James and the NDP managed to suck and blow at the same time by calling the increases "obscene," temporarily giving their pay raises to charity and yet acquiescing in a pension scheme estimated to be twice as rich as what typical public servants at the same pay scale and years of service would receive. (Ironically, this compromise forged in the cacaphony of BC NDP caucus led them right back to where the federal LIberals were in the 1970s when, fearing voter reaction over high salaries, started paying themselves through the back door.)

I argued in a local newspaper op-ed and here on my blog that a coherent compromise would accept a one-time increase of 30% in base -level MLA pay, but would not change the additional increment earned by Cabinet ministers and would only give a more modest additional increment to the premier. MLA pay thereafter would be linked to a range of indices, the most important of which would be the rise (or not) in average provincial incomes. (A commentator on my blog, Budd Campbell, usefully suggested a permanent pay panel that would make recommendations on all provincial salaries not set by collective bargaining.) The pension scheme would be neither the old group RRSP scheme nor the newfangled 37% tax-funded portion of MLAs salary with generous retrocative buy-back provisions, but as much as possible a standard government pension plan based on the Members' salary and years of service. (I drew some moral support for this position from the fact that one of the three members of the Independent Commission, Sandra Robinson, dissented from the majority on the subject of pensions.)

In other words, I did not object to the Independent Commission being sensitive to executive trends, I merely thought that it was highly inappropriate to allow that consideration to swamp all others. Nowhere did the Commission or the government discuss the wider societal debate over the social justice of recent executive pay trends, which reflect the power of managers and weakness of either shareholders or taxpayers who all too often subsidize them. Nor did the Commission discuss the theory of parliamentary democracy, according to which the premier is supposed to be merely the "first among equals" and dependent upon the Legislature for his authority to govern. The Commission was clearly thinking of the premier as the equivalent of a corporate CEO; but the very idea of un-hitching politicians' incomes from those of society and their representatives, and hitching them to those in the corporate sector, is deeply disturbing in the long run. If Bay Street lawyers and CEOs continue to pull away from the rest of society in terms of their incomes, they should not be pulling MLAs and MPs with them. Our elected representatives should be well compensated, but their fates should be linked to ours.

I believe that the same balanced perspective should inform the current discussion about bureaucratic salaries, although the implications are somewhat different. When the Commission on MLA pay stated that "over the past six years, the salary gaps between legislators and other senior managers have widened", it grated on my democratic ears, because legislators should not be thought of principally as senior managers. Deputy ministers and ADMs should be and are. They have greater mobility than either legislators or lawyers and their skills are readily transferrable to other jurisdictions, and, to a considerable extent to the private sector as well.

As a former public servant myself, I know that these people should be motivated at least in part by the inherent fascination of the job and by the privilege of public service in the Best Place on Earth. The median salary for Canadian DMs and ADMs ought to be sufficient. By that criterion, ADMS (ranked 10th in the country) were deserving of a healthy increase. And since they provide the basic talent pool from which to replace retiring DMs, and should be within a reasonable distance of their counterparts in Alberta and Ontario, a 20% increase seems reasonable. But deputy ministers and the premier's deputy, who were already in the middle of the pack (6th according to the most recent survey) neither needed nor deserved an increase of greater than 10-15%. They actually received hikes of 35% and 43% respectively. With government's budget increasing in the low single digits, and healthcare eating up increasingly large portions of it, such increases can only come at the expense of compensation and/or employment at middle and lower levels of the BC public service (or at the expense of public services). The question has to be: Is That Necessary or even Wise? One could probably hire several quality policy analysts or policy directors with the savings from unnecessary salary and pension expenditures.

This points up another flaw in the corporate analogy: the elitist assumption that while top earners need proportionately higher incomes to motivate them, poorer people need lower incomes to motivate them. This is reflected in the fact that B.C. has the lowest minimum wage in the country and health care workers had their contracts torn up by the government because they were higher than elsewhere in the country. Are we well-served by being a magnet for people willing to work for lower wages? Why not abolish the minimum wage altogether, if it results in high employment in lower-wage jobs? I suspect that this might be the premier's ideological preference, not indulged for political reasons. But there may be a good policy reason for it as well. The logic that higher wages attract better workers does not just apply to politicians and senior managers. In a national and increasingly international labour market, making BC a mecca for low-wage labour could cause service standards, product quality, work safety and labour standards to all suffer. Creating a large American-style class of working poor in BC would bring with it all manner of social ills. And, with our natural advantages, levels of productivity and education, and current levels of employment, such a debasement would seem to be entirely unnecessary. And very unwise.

Friday, August 08, 2008

NDP Affirmative Action A Poor Substitute for BC-STV --but it's Better than Nothing

The NDP's new policy of restricting the first nomination of a retiring incumbent's constituency to female candidates is unlikely to improve the party's prospects of recruiting 'star' candidates that will help it win the next general election in B.C. But it will at least improve the representativeness of the party, and potentially, of the Legislature. It addresses one of the serious problems of Canadian democracy, the 'glass ceiling' of approximately 1/4 female elected candidates.

Such affirmative action would be unnecessary in a system characterized by greater proportionality and multi-member electoral districts. Comparative studies demonstrate conclusively that PR-list systems have much greater gender balance as well as higher voter turnout, and while STV mutes gender equality a bit (since it lacks the de facto quota system associated with party lists), in our pluralistic society, BC political parties will almost certainly tend to field gender-balanced and ethnically-mixed slates in most ridings under BC-STV. They would fail to do so only at their own risk.

In addition to improving chances for female representation without quotas or restrictions on nominations, BC-STV would also address another problem that limits female representation and hinders the 'circulation of elites' generally: the problem of 'safe seats'. About 20-25 of Liberal MLAs occupy seats that have such a high core of Liberal support that the incumbent is unlikely to be unseated in anything but extraordinary circumstances. Roughly a dozen NDP seats have the same quality, irrespective of the records of the MLAs occupying them.

Take a couple of examples of safe seats, one from NDP ranks, one from the Liberals.
Adrian Dix was one of the two or three people most responsible for the worst excesses of the Clark Government. He embodied what was wrong with the Clark government even better than Clark himself did: "process is for cheese", shoot first, ask questions never, damn the torpedoes, "testosterone politics". A proven ruthless prevaricator and fraud artist (remember the backdated memo?) he left the premier's office in disgrace. Yet he had no trouble drawing on the organization he and Glen Clark had built up since the early 1980s in Vancouver Kingsway to waltz into the nomination in 2005 without so much as a serious challenger. Barring another self-inflicted holocaust, he now occupies a safe fortress from which to mount his coming leadership campaign. (Ever wonder why you can't see a NDP announcement on television about energy policy without somebody waving Adrian Dix signs in the background?)

Linda Reid was a newly minted school teacher in Richmond , who did dog shows in her spare time. She had little trouble getting the Liberal nomination in 1991 when the Liberals were a distant third in the polls. Then came the blowback on the VanderZalm Socreds and the 1991 TV leaders' debate, which Gordon Wilson won by default. Her Richmond riding is now a safe one for the Liberals, and it is safe for her as long as she keeps her head down and doesn't follow Gordon Wilson, David Mitchell and Alan Warnke into political oblivion by questioning Gordon Campbell's leadership.

Both Adrian Dix and Linda Reid have some good qualities and have some accomplishments to their credit. But it would be ridiculous to suggest that they deserve to be insulated from the precarious lives that most of their colleagues have to live in our democracy. Ironically, this is supposedly one of the knocks against PR-list systems: "it creates two classes of MPS". But we have two classes of MLA right now--those who occupy non-marginal constituencies and those who occupy marginal , contestable ones.

These examples highlight one of the singular virtues of STV: even though it is a form of proportional representation, it levels the playing field by largely eliminating safe seats. More precisely, even if a particular multi-member district is relatively 'safe' for a political party, it will not insulate individual candidates as much. Linda Reid will have to compete for votes in the larger Richmond riding. Adrian Dix will have to compete in a larger Vancouver riding. They both will have to compete for second and third preferences as well as first ones. They may even have to compete against members of their own parties.

Among the predictable results of BC-STV: a more representative legislature, a more level playing field for incumbent MLAs, and a modestly greater circulation of elites. Too bad it probably won't happen.

Friday, August 01, 2008

The Future of Social Democracy

Any reflection on the future of social democracy must squarely face the fact that both of the most touted recent attempts to remake the democratic left--the Third Way and the Bolivarian Revolution-- are turning into dead ends. Although the Third Way was promoted by one of its chief architects, Anthony Giddens, as an approach that lies beyond both old-syle state welfarism and neoliberalism, in its principal real-world incarnation, the "New Labour" of Tony Blair and Gordon Brown, neoliberal priorities have clearly predominated over espoused social democratic values. The most important upshot of New Labour's legacy is that it is post-Thatcherite in character, confirming Margaret Thatcher as the most important and influential British prime-minister of the past half-century, and only seriously departing from Thatcher in its foreign policy. Tony Blair's "Third Way" is really neoliberalism with a more human face; it has effectively turned a labour party into a liberal party.

Yesterday's surprise announcement by Venezuelan president Hugo Chavez of the nationalization of a large Spanish-owned bank, which extends to the financial sector a policy of public ownership which Mr. Chávez initiated last year in the oil, telecommunications, electricity and steel-making industries, has been described by Chavez as "twenty-first century socialism". (Other examples of these 'new' ideas include import substitution, price controls and subsidies.) That is a misnomer. Although it is refreshing and uplifting to see an effort to mount a counter-hegemonic movement in Latin America, in terms of economic and political theory this "Bolivarian revolution" is definitely old wine in new bottles. The only reason it has "worked" is because oil revenues have given Venezuela the luxury of pursuing wasteful, inefficient and counter-productive policies that have often been tried in the past and are deservedly discredited.

If the liberal technorati of New Labour and the populist demogogues of Latin America's democratic left are equally misguided, what future is there for social democracy in a globalizing world, and more specifically what is the way forward for the NDP?

I agree with Herbert Kitschelt's analysis in The Transformation of European Social Democracy (1994) that the future of social democracy lies in replacing the privileging of organized labour with a broader alliance between social movements and organizations dedicated to human emancipation. In this new counter-hegemonic coalition labour would continue to be important, but only as one component along with feminist, environmental, anti-corporate globalization and human rights activists. In my view, such a reconfiguration is necessary, not only because of the steep and steady decline of traditional industrial union membership and the global decline of the industrial proletariat as the spearhead of social change, but because of the need to respond to the three great contradictions of our time.

First, the intersection between the global and the domestic: to what extent has globalization changed the frame of reference for democratic citizenship and constrained the capacity for democratic choices at the national and local level?

Second, the tension between an activated, post-materialist and increasingly plural citizenry and the growing constraints of neoliberal rules, policies and institutions: how can we give effect to our greater capacity and desire for active democratic citizenship at an individual level within existing economic, political and legal conditions?

Third, the contradiction between the triumph of liberal capitalism and its attendant externalities, market failures and collective action problems. In the context of Canada, this has meant focusing for example how best to respond to pollution, climate change, how best to reform or perfect the welfare state, how to improve our regulatory and taxation policies and how to bring the power of corporations under democratic control.


The NDP's structural reliance upon trade union organization and money will have to replaced with a looser voluntary association of groups that have a likeminded interest in resolving these contradictions in a manner that improves the condition of the structurally disadvantaged in our society and which responds to democratic values. If this cannot happen within a single restructured political party, perhaps it can be accomplished in part through electoral reform (PR), which would permit separate labour, environmental and other progressive groupings to both retain their separate identities and build effective coalitions.

In 1960 Stanley Knowles wrote in his book The New Party that he honoured the coalition of farmers, social gospel ministers, labour activists and socialists who formed the CCF in 1933, but that a new party which better included industrial unions and urban interests was needed in order for the movement for social progress to grow. In that same spirit, a revamping of the NDP is needed today in the context of declining industrial unionism and rising New Social Movements. It will be difficult to do this as long as the NDP is as dependent upon trade union money and organization as it currently is. Breaking out of this dependency may require a ban on corporate and trade union donations to political parties, as well as a measure of PR.

Ideally, this new Social Democratic Party or Democratic Citizens Party would come out of a merger with the Green Party, as well as having representation from all corners of civil society. I know, it ain't gonna happen, anytime soon. But that just means that you have good grounds for feeling pessimistic.

Thursday, July 17, 2008

One More Memorial to Angus McInnes, Lest We Forget--Again

Tom Berger recalls a formative event from his childhood in the early 1940s in his memoir, One Man's Justice. His father remarked to him that Angus McInnes, who stood almost alone in British Columbia against the internment of the Japanese Canadians, was "a very brave man". I know that McInnes has a special collection in the UBC Library named after him, and that in 1994 a park was named for him and his wife Grace McInnes somewhere in East Vancouver. Nevertheless, given the importance of multiculturalism and human rights in British columbia, I suggest that a statue of McInnes be erected in a more central location, either on the grounds of the Legislative Assembly or in Stanley Park. A memorial placed in one of these settings would educate more members of the public, and would be more difficult for the opinion leaders of our community to ignore. The thought occurred to me last January when I visited the Japanese Canadian War Memorial in Stanley Park, right beside the Aquarium. A video of the occasion is included here:
video