Proceedings of the Standing Senate Committee on
Social Affairs,
Science and Technology
Issue 19 - Evidence, October 28, 1998
OTTAWA, Wednesday, October 28, 1998
The Standing Senate Committee on Social Affairs, Science and Technology met this day at 3:50 p.m. to consider the dimensions of social cohesion in Canada in the context of globalization and other economic and structural forces that influence trust and reciprocity among Canadians.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, this is our sixth meeting in our study of the dimensions of social cohesion in Canada. We have with us today two well-known and interesting witnesses, Professor Lars Osberg of Dalhousie University in Halifax, and Mr. Michael McCracken, one of the founders of Informetrica Limited, who has appeared from time to time before parliamentary committees.
Professor Osberg is one of those rare people who were born and raised in Ottawa, Ontario. However, he soon got over that and attended Queen's in Kingston, the London School of Economics, and Yale. He has a Ph.D. in economics. His peregrinations came to a happy conclusion in 1977 when he moved to Nova Scotia, where he is now McCulloch Professor of Economics at Dalhousie.
Professor Osberg -- this is important for our purposes -- is the author or co-author of numerous books, among which I simply mention Hard Money, Hard Times, published this year with Pierre Fortin; Vanishing Jobs: Canada's Changing Workplaces, published in 1995; Unnecessary Debts, published in 1996, again with Pierre Fortin; and The Unemployment Crisis: All for Naught, published in 1996 with B. MacLean. His major fields of research have been the determinants of poverty and economic inequality, with particular emphasis in recent years on the impact of unemployment and structural change on labour markets and social policy.
Mr. McCracken, as I said, is one of the founders of Informetrica. He has served as President of the Canadian Association for Business Economics and Chair of the U.S. Conference of Business Economists. He is Treasurer of the Canadian Employment Research Forum and a member of the National Accounts Advisory Committee at Statistics Canada. He was with the Economic Council of Canada from 1965 to 1967 and from 1970 to 1972. He also has experience with the United States government. He has been with Informetrica since 1972.
We have with us today two highly qualified witnesses to discuss the subject of our mandate. There will be brief opening statements, first from Professor Osberg and then from Mr. McCracken, following which I will open the floor for questions and discussion.
Professor Lars Osberg, Department of Economics, Dalhousie University: Honourable senators, I have prepared some overheads for this afternoon. Mr. McCracken and I talked about this beforehand, and we decided I would give an overview before he turned to more specific numbers on the impacts of social cohesion.
It is important to recognize that for a long time the economic policy debate has been dominated by a certain set of terms with which I am sure you are all familiar. However, we have had some new terms in the economic policy debate in recent years -- social capital, social exclusion, and social cohesion. There is value in asking why these terms are now being considered in the economic policy debate. What do they mean? Why might they be important and why should we pay attention to them?
As to the first the question "Why is there a new debate," if we were in the middle of a boom, we would not be having this conversation. One major reason is that we have had a period of rather unsatisfactory economic outcomes in the 1990s in all dimensions, such as lower average real consumption flows, smaller bequests to future generations, rising poverty and inequality, and greater economic insecurity. The statistical evidence on poor economic outcomes can be supplemented by polling evidence on subjective perceptions. People feel very insecure in today's labour market, and there is a real lack of hope for the future. Previous paradigms have not worked all that well to produce good economic outcomes.
A second major reason there is a new debate is because there has been a substantial re-evaluation of the relationship between inequality and growth. In the 1970s, these were seen as trade-offs. There is a famous book on the equity/efficiency trade-off, but in the last 20 years a variety of new, international evidence has become available. The international evidence can be briefly summarized as, countries with higher levels of equality end up growing faster in the longer term. There really does seem to be some economic payoff in something that we would call social cohesion or equality.
A third major reason is that there is a new concern with political and social stability, particularly in Europe. There is a concern that some of the trends we have seen in terms of marginalization and social exclusion create long-term social costs. If these trends are allowed to run for too long, then social stability itself may be at risk.
Many people have pointed out that the term "social cohesion" can be otherwise phrased as "social stability" or "social order." Once that is at risk, the costs are very high indeed.
The next overhead is actual actually taken from an article. Approximately 23 studies in professional economics literature look at the relationship between equality and growth -- or to put it the other way around, the relationship between inequality and growth. The circled negative signs indicate a statistically significant negative relationship between inequality and growth in the international data. One could phrase it more positively by referring to a positive relationship between equality and growth. My point is that quite a lot of work has appeared recently in all the best economics journals that re-evaluates the relationship between equality and growth, partly because of its impacts on investment, both in human capital and in physical capital. There seems to be clear evidence that more equal societies grow faster in the long term.
People have started to look for explanations of this in the social cohesion literature. One little caution I want to start with is about the meaning of terms we hear in this debate. We are talking about a research area that is relatively new and inherently interdisciplinary. Sociologists, political scientists, and economists are all involved in it. They have tended to use the same words with slightly different meanings. The initial caution is that the terminology is a little ambiguous in different studies and there is no general consensus.
I will use the terms in the following way. By "social capital," I refer to the value of the advantages which accrue to individuals from being a member in a series of social networks.
By "social exclusion," I refer to involuntary deprivation of membership in valued social networks.
I refer to the idea of social cohesion as something broader than just social capital. Social cohesion refers to something that is characteristic of a society as a whole -- a collectivity. It has been referred to in one definition as "shared social values" and "communities of interpretation," and in that sense it is important in that it is a public good. It is something that is characteristic of a collectivity. We can think of it as embodying norms such as civility in personal discourse or honesty in dealing with strangers. Those things are social norms which are characteristic of some societies but not of others, and which can have large social and economic implications.
Why might we be interested in something like social cohesion? One immediate point is that social cohesion is not just a means to an end. It is not just an intermediate input that we use to produce something that we value even more, such as income. Social cohesion is in itself something that people value. People value the idea of a sense of community. People value the ability to deal with each other in a mutually trusting way. The general level of civility that we experience with strangers in day-to-day life is a large part of what we can think of as the quality of life. Therefore, it is not just something that is a means to an end; it is an end in itself. In that sense, we can think of it as a valid policy objective.
Also, there is good evidence that it is economically productive. The big payoff is in the trend rate of economic growth. Over time, small differences in economic growth can compound into large differences in living standards.
One way to think about social cohesion is as a sense of mutual trust in dealings within society. Mutual trust is important because it reduces transaction costs in economic activity. It encourages better information and better allocation of resources. It reduces the risks of default.
We can contrast high-trust and low-trust societies in terms of the percentage of output they spend on such things as income tax collection, security services, the increased legalization of commercial transactions, and the like. All these things absorb resources that would otherwise be put to more desirable social ends.
A second major channel of influence is through the costs of the health care and crime suppression systems. There is evidence that more unequal societies have poorer health, both in the incidence of ailments and in their costs. The resources that we spend on otherwise unnecessary health care costs are not available for either reinvestment in the future or for personal consumption. Crime suppression is obviously another major influence of the impact of social cohesion.
Often, when I am talking to people for the first time and trying to explain the idea of social cohesion, I find it easier to explain what it is not. You can say, for example, that social cohesion is not the ghettos you see in major American cities. Those are extremely costly in terms of both social and economic impacts. When we have a situation such as in the state of California, where governments spend more on the prison system than they do on post-secondary education, we see a clear case of the diversion of resources from productive investment for long-term growth to essentially trying to keep the ship afloat today.
Another major reason why social cohesion is important is because you see in a large number of high-tech firms, the development of a new managerial paradigm. In firms facing a constantly changing technology and constantly changing markets, it is not enough to have a rigid, top-down control structure. If you want to solve the customer's peceived problem, you need a committed, skilled workforce. That commitment and skill does not just happen. It comes from the surrounding society.
Moreover, it is not enough, from a Canadian point of view, to have one or two of these high-tech firms scattered around the country in places where they can select the very best workers from the local pool. We need complexes of high-technology firms producing value-added as they feed each other in a productive process. High-productivity firms need a dependable infrastructure and a committed, skilled workforce. The more such firms you have, the more they themselves are able to depend on high-quality inputs from other feeder firms. In terms of moving to a new managerial paradigm, social cohesion and its impacts on the workforce are extremely important.
The third point is the certainty of return on investment that comes from a more stable political environment. All these things are either virtuous circles or vicious circles. They feed each other over time. In that sense, growth is endogenous because it feeds itself, and we see initial advantages accumulating into very large ones over time.
Another reason why social cohesion can be important is because it can encourage a less costly inflation control strategy. In Canada and every other country, we have the problem of inflation if we try to reduce unemployment through macro-economic stimulus. One possible way of dealing with the inflation-unemployment relationship is to achieve an overall societal contract on wage increases and wage restraint in compensation for a lower aggregate rate of unemployment. Australia tried this with great success in the 1980s, and it has been a long-standing policy in the Scandinavian countries. I am saying it may be possible to have less costly inflation control in a more cohesive society -- it is not necessarily the case. However, perpetual mass unemployment is certainly an extremely expensive "solution."
Another channel of influence is the better informational structure of labour markets. More cohesive societies, with greater concentrations of networks, allow individuals to spread their knowledge of each other. It has been known in labour markets for a long time that the best jobs are found through informal information networks because the most important information about individuals is typically that which does not appear on their resume. Accurate and trustworthy information in the labour market is an important component of its efficiency and therefore lower frictional unemployment.
Political scientists have explored the connection between social cohesion and economic growth partly through the hypothesis that a more rational political dialogue and a better policy design may be possible if immediate losers from specific government policies can expect those losses not to be accentuated over time, but in some sense be compensated later. If losers from a particular policy can share in the general benefits of change, and can trust that they will, they are less likely to fight tooth and nail for specific advantages within a specific program.
Finally, we have what the economists call by the technical term of "hysteresis." It is the idea that failures feed back on themselves. All these things tend to feed back on themselves. Higher unemployment creates lower social cohesion, which creates a poorly functioning labour market, and so on.
One of the problems in dealing with the whole issue of social cohesion and the impact of economic variables on social variables is the long time-scales in which we are engaged. When we talk about the impact of social policy on economic variables and on the labour market, in many cases we are talking about the nurture of the young. For good or ill, the nurture of the young today will have impacts not observed directly for another 20 years, but which will last for a further 50 years. Over that long-term period, any individual outcome can always be "explained" as due to the individual rather than to the broader social forces or stresses to which that individual was subject.
Since these processes unfold over a long period of time and are highly complex, there is a strong tendency to assert the simple, moralistic explanation that it is all their own fault. However, labour market change has major, indirect impacts on children. There is, for example, in Canada, a growth of insecure, on-call employment in two-earner households. This implies that young children must deal with continually changing caregivers as they are pulled into and out of different daycares as their parents must move between different jobs, or move in and out of employment.
If we ask for a highly mobile labour market, we are asking for families to move between neighbourhoods. Labour market mobility implies that children will lose their network of friends, their network of acquaintances within schools, and therefore in that sense, will lose what can be called their neighbourhood social capital. In the last couple of years, we have used income tax records of adult earnings in Canada to track the impacts of moves on children, and found those whose families moved tended to have lower adult earnings than those who did not.
The first studies of the National Longitudinal Survey of Children and Youth are available and we can start looking at the impacts of labour market mobility on kids in a whole variety of functions, including their (null)probability of repeating a grade. It turns out that labour market mobility has a cost, not just directly on earnings, but indirectly on education success probabilities and other aspects of child functioning.
There are significant impacts of economic variables and economic change in the long term but they take a long time to show up. When we talk about social cohesion and its relationship to inequality, we are really talking about polarization, which is the more appropriate concept to examine. We wish to emphasize the idea of polarization because to a large extent, shared life experiences form the basis for social dialogue and some set of consensual values, such as equality of opportunity.
If we think of polarization as being the issue for social cohesion, then there are two dimensions to the problem. One is dropping out from the top -- the temptation for the affluent to purchase private substitutes for the diminished output of the public sector, to move to gated communities, to use private schools, to push for a two-tier health care system so they can have easy access to clinics and so on. In that sense, the democratic dialogue is impoverished because you are pulling some of its most influential members out of the community.
That is one end of the cost structure. Another end of the cost structure is the marginalization of those in what can be basically called ghettos. Those ghettos are very expensive to the whole society in the long run, both in U.S. cities and on Canadian reserves, and there is no evidence that those problems are automatically self-correcting.
Prognosis? Social cohesion is a public good. It is costly to maintain and it is always vulnerable to the free-rider problem. That is the term economists use for the idea of, let someone else pay for it, I will just take the benefits and not reinvest it today. Currently, in terms of the assessment of the importance of social cohesion for economic outcomes, both at the individual and the society level, I would characterize the social science record as having some initially quite strong but still fragmentary evidence. The solid evidence on the impact of social cohesion in Canada will only really be possible after the event. In the meantime, myopia, moralizing, and immediate self-interest are extremely powerful forces.
Mr. Michael C. McCracken, Chief Executive Officer, Informetrica Limited: I will refer to the green handout that you should all have. I will skip over, or at least touch lightly on a few points, because Professor Osberg has covered a number of the salient background points that I felt we should think about in common.
In terms of definitions, I might indicate that the one thing that is becoming clear is that social cohesion is more than social capital. Professor Osberg's definition of social capital as that which the individual benefits from in the sense of relations with others is, perhaps, a useful way of narrowing the concept. It forces us to focus on the broader issue of the benefits of those networks to society at large, which is the social cohesion notion.
The term "social compact" has also been used. Robert Reich recently wrote about the breakdown of the social compact in the U.S., and indeed, most of the developed countries. It is a similar notion to social cohesion, but broadened to look at relationships between various groups in society; communities, business, labour, governments, et cetera. Indeed, there is a notion, in both of these, of a web. That raises the notion of networks, and it is using the logic of networks that I would like to begin. The first one that I will refer to is the family network.
It is a simple notion, in this case a family with two adults and one child, but even this small network produces substantial economies of scale in both production and consumption. These are captured usually within the family; preparation of meals, one TV set or maybe two for the family. We can certainly gain in a number of areas, including the social capital that flows between these people and the trust that builds up.
When we think about social cohesion at the family level, we talk about things like the externalities of having a family structure. Families are responsible for children's upbringing -- their education and comportment -- developing their culture, taking care of their own property, health care, health promotion. All these things have societal benefits as well as benefits to the individuals.
It does not end there. If you just take that one step further, typically, each member of the family in turn belongs to a network. If both adults are working, for example, you can think of a workplace as a network -- indeed, a very important one. Children can also be members of a number of networks at school -- a sports team, a gang, or others. Each family member can be thought of as being on a number of different networks.
When you start thinking about this notion of networks, just pull out your wallet or billfold and go through it, and you will realize how many networks each of you belongs to. You are members of an elite network called the Senate. You are carrying a Visa card and/or a MasterCard, which makes you a network of credit-card holders. You have your family relationships, professional organizations, religious groups, political parties. You may have an Internet account, be on a physical network, on telephones -- of course ubiquitous -- and on and on. The point is that each of us is defined to some extent, at least in terms of our role in society, as a result of the membership lists we have and how active we are in each of those networks.
In looking at use of time, I have taken here just two of many different cohort groups that Statistics Canada monitors. These are based on 24-hour, seven-days-a-week time-use studies. For males who are employed full time, married, no children, age 25 to 44, in the first column under "time" use, they spend about 12.2 hours on personal things, including sleep, eating meals, et cetera. They spend another 1.8 hours on housework and other work within the family. The remaining time, about 10 hours in total -- paid work being the dominant activity -- is spent in what we might think of as a networking activity. Socializing in an informal sense consumes 1.7 hours. I am speaking here of active leisure such as playing ball or bowling. Civic and volunteer associations account for only 0.2 hours per day, based on a seven-day week. Now that seems very low, but we should recognize that, within that, there are some who spend a lot more time in those activities, and some who spend no time at all. Education comes in at 0.2.
The point of this is simple -- networking is a significant part of people's time use. If we looked at this across a wide number of groups, we would be surprised by how similar they are, even though the mix may be different within each group.
Second, the dominant networking activity for those who have jobs is the workplace, greatly surpassing most other forums. Socializing tends to be the first or second most dominant networking activity for almost all groups. This includes doing things with neighbours, going out to dinner with friends, or going to wakes. All that would be viewed as socializing, at least for those who are alive at the wakes. Think of networking activity as a fairly broad category.
The one thing I wanted to underline with that particular item is the importance of work. This lead me to start thinking about related terms on the top of page 4, such as the notions of "social exclusion" and "social cohesion."
Focus first, if you will, on the solid black line. The horizontal axis represents the entire population from zero per cent to 100 per cent. The vertical axis relates to whether you get a benefit out of it -- across the horizontal line in the middle -- or society is in some sense imposing costs on you, in the lower part. Social exclusion would relate to those people who are outside, who have net costs from their participation in society. People on the right side would be net beneficiaries, those who are benefiting from social cohesion.
The dotted line represents what we sometimes think of as the simple task of income redistribution. We have a progressive income tax, taking from the rich and giving to the poor. Perhaps we can reduce the costs to those who are excluded by reducing the benefits to those who are inside of or part of the social cohesion. However, we have not really changed the horizontal axis in any significant way by this single move.
That takes us to the notion of how to make progress in this kind of picture. That would be in the next chart, labelled "Progress." I think we all would agree that progress would be an upward shift of the curve to the left, in which we have greater benefits for those inside our networks and less cost to those who are outside, and fewer people actually outside the networks -- in other words, shrinking the number of excluded.
In coming to this discussion and reviewing the literature, I find it interesting that the Europeans all seem to be focused on reducing social exclusion. That seems to be the major focus in the U.K., the Netherlands, France, and Germany at the moment. In North America, the focus seems to be much more on social cohesion.
How do we improve the benefits for those inside? This dichotomy, of course, may have much to do with the relative magnitude of those two groups. That is a sense of progress, or at least how we think about progress.
One of the key elements in social cohesion is the notion of trust. People are finding empirical evidence that they matter. Social polarization has a negative effect on trust, and hence on social cohesion. Income inequality is one example of polarization working in a more positive way. Another one would be the degree of ethnic homogeneity in a country. More homogenous countries tend to have somewhat more trust within their groups.
Countries with institutions to restrain the arbitrary behaviour of governments appear to have more positive trust. More voting by citizens, more active political participation, and a more open media also seem to be positive elements in building trust.
Trust appears to rise with literacy and education levels. On the religious variant, where we look at Protestants, Catholics, and Muslims, the larger the percentage of Protestants, the greater the apparent positive effects, and the greater the negative effects with Catholics and Muslims. Although this is for a subset of countries that has been tested -- it may vary with a different group of countries or vary with some adjustment for religious tolerance in each.
One finding that I am sure will fascinate this group is that the number of lawyers seems to be negatively related to trust. The more lawyers, the less trust. One can argue that perhaps we need more lawyers in a less trusting society, although I am always reminded of the old story of one lawyer in a town starving to death and two lawyers both getting rich. It may have something to do with that phenomenon as well.
We talked a little about the social compact. Let us move the social contract notion out one more step. The compact that existed in Canada between the major groups was one where companies shared benefits with workers, including stability of employment. The stakeholders benefited from the progress made in society. The social insurance system, such as UI, social security, social assistance and health care, were designed to protect people. Access to a good education and regional redistribution were all part of the social compact in Canada up to at least 1975.
Subsequent to that, we have seen a breaking of the trust in the form of downsizing, declining real wages, loss of benefits, a polarization of wages, government cutbacks on parts of the social insurance package, employment cutbacks by governments, rising tuition, an abandonment of regional development, federal downloading to the provinces, and a provincial downloading to the municipalities. All these factors have created an atmosphere in which the social compact has broken apart in some sense.
The social compact might influence the economy. Mr. Osberg talked about lower social costs on the health care and police side. There is some evidence that there are reduced transaction and other costs for the economy with better social cohesion and better social compacts. There is an improved investment climate, both for human capital investment as well as investment ratios, and better policy formation, when discussion of options and dispute resolution are possible.
In terms of trying to quantify what is happening, estimates were made in 1997 in an important study -- which needs to be replicated -- that indicated that an increase in trust of about 10 percentage points would permanently raise the growth rate of the economy by about 0.8 per cent per year.
Any time someone offers you that kind of a deal, you should take it, although probably you should also be a bit suspicious about it. Over time, that does accumulate quite substantial benefits for society.
Similarly, increases in trust can also raise the investment ratio significantly: 1 percentage point for a 7 per cent increase in trust. When looking at the differences in the measures of trust in different countries, it seems feasible to think about movements of 5 and 10 percentage points in those measures.
The payoffs could be, more rapid rate of growth and improvement in the investment ratio, which can improve productivity growth and lessen social tension.
Professor Osberg's point is that we also want improved social cohesion and an improved social compact for its own worth. It is not just an issue of GDP; it is also an issue of creating a more civil society.
What do you do if you want to make some progress on the trust front and on improving social cohesion? There are long lists. I could give you a few obvious things in terms of focusing on full employment and increasing progressiveness, but I should like to focus particularly on trying to build better consensus institutions. In your deliberations, this is a useful area to think about and to focus on.
It is much easier for governments to dissipate social capital or social cohesion than to rebuild it. One area where I think we could greatly benefit is in putting a set of institutions back in place, with some changes, that operated effectively in Canada until about 1975 -- and subsequently somewhat less effectively until 1991 -- the Economic Council of Canada and the Science Council of Canada. I suggest an economic and social council with broad participation by provinces, business, labour, NGOs -- unlike the Economic Council, which did not have provincial representation -- but also including the federal government. It was not at the Economic Council table in a formal way. Indeed, I get more specific here and suggest the Department of Finance and the Bank of Canada should be at that table. This is essentially the framework used by the Dutch in their economic and social council.
This group's task would be to build a consensus on social and economic goals, develop policy options, and would include not just economists but a strong cross-section of other disciplines as well.
Similarly, a science and environmental council with similar membership could be a useful group as well, but basically with the task of developing principles of science-based regulation and policy, as well as having a public education role on some of the topics for which we do not have widely shared information: Greenhouse gases, biotech safety, et cetera.
I will not read the full quote from Senator Forsey in 1991 that I include at the end, but it has certainly served as an inspiration to me. The senator's focus was very much to get on with: "Let us do something and have a Canada that can do something for the rest of the world."
The Chairman: You both mentioned an economic and social compact, or consensus, and I think you were referring to the possibility of an explicit rather than an implicit compact.
We have talked about that at various times for a long, long time. When Prime Minister Pearson established the Economic Council of Canada back in the 1960s, it did not have a mandate to develop a social compact between the various players in the Canadian economy. However, the representative nature of the council was such that its early reports provided a real consensus on certain economic goals on which they focused. You will recall Professor Deutsch, who was the chairman of the council at that time. I think it made a real contribution for a few years. I do not know what happened after that. It is probably not important for our purposes today. For one thing, there was a period of very high inflation and high unemployment in the country, and then stagflation and all the rest of it. Anyway, the council never again played the role that it seemed to promise in its early days. Our old friend Sylvia Ostry, when she was a senior public servant, took a great interest in this field and wrote and taught a great deal about it.
I am familiar with most of the arguments used to suggest the impossibility of what you are talking about: The federal nature of the country, the fact that we do not have the strong, centralized union structure here that they have in Europe, for example, and all the rest of it. I do not know if those arguments are conclusive. Obviously you think they are not, but would you comment.
In 1985, I believe, early in the the Mulroney government's first mandate, the Prime Minister decided to have an economic summit. All the players were invited, and Stanley Hartt, who was then practising law in Montreal, was invited to come and organize it. All the players were in one room, and it turned into something of a bun fight. I think that Mr. Mulroney and Mr. Hartt left the gathering strongly of the view that if all those players were never brought together in the same room again, it would be too soon.
Excuse me for speaking at some length. This is a largely unexplored area of public policy, and I am very interested in it. In all my years here, I have never detected the slightest interest in what you are suggesting on the part of the economic policy makers and the Government of Canada.
Do you know anything about that, either or both of you?
Mr. McCracken: I had the pleasure of working at the Economic Council with John Deutsch in the 1965-67 period, and again in 1970-72 under Arthur Smith and André Raynauld. Of course I continued to work with them here in Ottawa until their demise. I felt the council functioned very well over that period and including up to 1974-75. Two things killed it.
One, it did not include either the provincial governments or the federal government departments, particularly the Bank of Canada and the Department of Finance. Therefore, it could not play a part in resolving some of the issues coming out of the woodwork at that time, especially inflation and how to fight it, and higher oil prices, which had first emerged with the OPEC shock. It is clear from that failure that a broader set of groups is needed. In a federal society, provincial as well as federal government representatives are required. The leading federal government policy groups should be forced to be at the table rather than sitting in the weeds and shooting at the institution's findings.
The other failure occurred post-1975. A matter of days after the October 14 introduction of wage-price controls, all but one of the labour groups left the Economic Council, and in fact a large number of other consensus-building institutions within the federal government. They never came back.
At that time, it lost its capacity to form a consensus. It had to do it in a more indirect way, through trying to put out balanced reports and continue the good research they were doing. However, they were handicapped from that point forward. That experience shows that you have to have the full group.
The experience of the economic summit of 1985 and the one the Liberals tried in 1993 proves that one-off events attended by a group of people pulled in off the street do not work. Television does not help; posturing does not help. There is no trust amongst the individuals involved. I could not agree with you more that that is not an alternative to the council. Although the need to deliberate and to bring societal actors together is still there.
There are no groups undertaking that at the present time in Canada, with the exception of small and restricted areas. The Canadian Labour Market and Productivity Centre and the Canadian Labour Force Development Board are trying to do something in the area of training and in some aspects of the labour market, but those groups have had their resources dramatically cut in the last several years as well. They are not functioning as well as they could.
With regard to the attitude of the Government of Canada towards this issue, and given the nature of our beast, if you are in power and are sitting over at the Department of Finance, the last thing you want is someone else suggesting what should be done and what kinds of policies should be pursued. The bureaucracy will always tend to be against the formation of such groups.
The economic council originally came about in a very odd period, when Diefenbaker's government had proposed it.
The Chairman: They started something called a "national productivity centre."
Mr. McCracken: Yes, still with a minority government. The Pearson government wanted to put it together, and there was an all-party consensus. There was a unique coincidence whereby it was able to get off the ground. Once it was off the ground, however, it was clear that it had legs, at least up through the period of 1975.
The Chairman: The government was not there. The Bank of Canada and the Department of Finance were not there.
Mr. McCracken: No, nor were the provinces.
The Chairman: Still, you had the main actors in the economy on the private side.
Mr. McCracken: Business, labour, and agriculture.
The Chairman: They focused on a few goals and achieved consensus. That was the key to it. I wonder if you need the government and the Bank of Canada.
Mr. McCracken: You do if you are going to recommend policy. If you want to resolve issues in which government is an actor, they have to be at the table as well. That makes the difference.
It is worth getting other opinions on this. I was recently in the Netherlands and met with the economic and social council people. I was quite surprised at how successful it has been and how its role has been quite important in helping the consensus formation in that country. It has contributed, at least in some people's minds, to the so-called "Dutch miracle," although most people are quick to say we should not call it a miracle because it is just good management.
Mr. Osberg: It is certainly true that the obstacles of a federal constitutional system and the greater regionalization and diversity of Canada mean we cannot possibly have the same sort of model as Sweden or Norway. It would have to be different here. However, it is also worth remembering that those societies were not always so consensual. They did not always have these institutions. They have been around for a long time, but they originated after periods of substantial social conflict, when there was a realization that a continuation of that path would likely be disastrous.
These institutions come from somewhere. They come from conscious decisions that the current path is not working, and we had better think of an alternative.
We cannot expect current senior decision-makers at the Department of Finance or the Bank of Canada to buy into this because consultation is about sharing power. If one already has it, why would one want to share it?
Consultation is also about the unexamined option; it is about the unasked question. Those are uncomfortable things. One of the arguments for something like an economic and social council is checks and balances, a diversity of opinions and research, and an actual flow of information. If one already has all the power, why should there be a check and a balance?
Senator Butts: I have heard both of you speak several times about the social compact. Is that an echo of what we used to call the "social contract"? A few centuries ago, Hobbes, Locke, and Rousseau dealt with these issues. Bob Rae tried it, but I remember in his biography that he said no one understood what he was talking about. He got nowhere with it. Therefore, when we say it is the same as social cohesion, are we saying we will get nowhere with this?
Mr. McCracken: I certainly think it is linked to the earlier notion of the social contract of Rousseau, for example. If it is different now, it is that the institutions in society -- particularly when we talk about the social compact or the social contract -- are a key part of the overall activity. We are not just referring in a grassroots sense to people who are taking care of the broad economy. It is a more recent notion, developed as our societies have become more complex and as we try to do more things than were done 100 or 200 years ago.
It is useful to start with Rousseau on the social contract. People are not just separate individuals, and there is an advantage to being embedded in a society. You have to confront this notion of the so-called "free-ride" problem. In fact, we do not do that at all. We develop a norm that says, "I will behave in line with society's expectations because I receive a benefit from that"; and, of course, "Society will discipline me if I do not behave." The question is: How do we carry that over to a much larger group? How do we build up those institutions of government that people can trust, and which can deliver on their commitments and on the goods and services they undertake to supply?
I would use the terms "social compact" and "social contract" as synonymous in any country but Canada, or any province except Ontario. I think if Mr. Rae had been a little more patient, we might even be talking today about how well that worked. He turned out to be anxious to finish, and he left a lot of people in the lurch.
Mr. Osberg: We can think of these terms as overarching ones that describe a whole variety of institutions. In a sense, the social contract has to be reinvented each generation. Very dramatic technological and economic changes and very dramatic social changes occur each generation. There was a time when Canadians went off to war to fight for the empire.
That was a time when the monarchy was a very important unifying symbol and the meaning of that social institution has changed dramatically over the successive generations. With telecommunications, we now live in a world where people can experience each other's natural disasters instantaneously, and share a sense of community over something like the Red River flood, which was absolutely inconceivable 20 or 40 years ago. Suddenly the notion of community changes for technological as well as economic reasons, and for profound social reasons. In a sense, we must reinvent this social contract every generation. If you do not think about and invest in it, then it is not clear that it will survive. We have been trying to argue that it is something that is important for itself, and has very substantial indirect implications as well.
Senator Butts: It seems to me that the word "contract" has an added connotation of an obligation not found in the other words; the obligation of the citizen towards the country and the country towards the citizen. That is how I would deal with it when I taught that subject. All you need to do is talk about student loans and the obligation to repay them, and you have an example of a social contract.
Mr. McCracken: That is useful. That is helpful.
Senator Johnstone: I wish to join in welcoming you gentlemen here today. I also wish to express my concern, in view of the fact that we have so many lawyers in the Senate today, over your remark that, if we have three lawyers in town, two will flourish and one will starve.
Mr. McCracken: That was not the story. If only one is in town, he will starve, but two will both be successful. That was meant more in jest. The reason I raised the example of lawyers is that it is in the literature and is a good example of where often we may have an indicator that is a proxy for something else. Indeed, anyone who has used the services of a lawyer has possibly found him or her to be of great value in resolving conflicts and disputes that otherwise might have been quite damaging.
Senator Johnstone: While we contemplate this rather unusual circumstance, I will ask one question: What are the linkages between income distribution and social cohesion?
Mr. Osberg: They are certainly not exactly the same thing. It is important to look at not just the current distribution of income, but also the degree of mobility in that distribution, and the degree of what you could call instability or insecurity individuals face in the future, not just where they are today.
The countries that rate highest on the world values survey indicator of interpersonal trust, or on other aggregates which form a series of internationally comparable surveys of values, as well as a series of internationally comparable surveys of income distribution, indicate that there is a correlation between equality of income distribution and measures of social cohesion on a variety of dimensions. It is not perfect. It is a correlation. It is certainly not like a one-to-one fit. What is important is not just the absolute level, but also whether it has gone through a recent change. For example, in the U.K., there was a very significant increase in inequality in the 1980s, and although we do not know for sure if it is consequent, we do observe a decline in assessments of trust.
Senator Johnstone: You say there was an increase in inequality in the 1980s. Has there been a change in the 1990s?
Mr. Osberg: One of the problems is that the data always lags. When you conduct a survey, it must be processed and then analyzed. The most recent data from the U.K. goes up to 1993, and the big changes in inequality there happened in the late 1970s into, I believe 1987, 1988, and then was more or less stable. By international standards, there was a very large increase in inequality over that period, mostly in the early to mid-1980s.
Mr. McCracken: Let me add a footnote to that. There are notions such as "social exclusion" and "social inclusion," which also have a high correlation with income inequality. If you are not part of the workplace, or if you are operating in a contingent form of work or temporary work, it is likely that your income will be lower with that relationship than if you were part of a network of steady employers. People are careful to say it is not the same as being poor. You can be poor and still be part of supportive networks, both as a family and with friends, and in the community. You can be rich and be outside of those communities and not supported by them. However, by and large, in society as a whole, there tends to be a fairly high correlation between people who are poor, who lack income, who are deprived, and those who are socially excluded in the sense of not being part of as many networks that are productive of income or other returns.
We are looking at something that is very similar. The big question mark is whether it is sufficiently different that it warrants a separate committee report, or is it just, shovel money at the problem and it goes away. What we are trying to get across is that it is not just income, but that network of relationships between people, between people and organizations, between a variety of organizations and each other, that can be most helpful in bringing the whole society along and resolving conflict. It can help people pull each other up, if you will, in tough times. That is a separable force, a separable characteristic from simply transfers of income.
[Translation]
Senator Ferretti Barth: I heard your presentation and read your documents which are in English. Mr. Chairman, I would rather have the information in French. I did understand that the problems related to social cohesion and the tremendous responsibility it is for the citizens and for the government. Mr. Osberg, you know a lot about poverty and economic inequality. Were those factors already present in the 1930s, 1940s, 1950s? Was the social cohesion so different then from what it is today? How will the government and citizens be able to meet the challenge of creating a balanced social cohesion? Social cohesion is related to several social problems, including the family, children, young children, young adults, adults and seniors. What price will people have to pay to get an adequate social cohesion in order to meet the needs of the Canadian people?
Mr. Osberg: In order to explain this issue, I will answer in English. It would be inaccurate if I tried to speak French. We did not have any measure of social cohesion in the 1930s and 1940s.
[English]
When we think of measures of social cohesion, there is series of international studies of attitudes towards trust and towards the larger community that date from 1981 and 1991. The world values survey is from that period. There is also an international social science program dating from approximately the same period. So we have those actual measures of social cohesion, starting from the early 1980s. We can make only indirect inferences about the level of social cohesion in the 1930s or 1940s. Even our numbers on things like income inequality are a bit fuzzy for that period.
Senator Ferretti Barth: As you know, in that era communities began to get together and help each other, and since 1960, we have created many agencies to take care of the problems of the excluded population.
[Translation]
Those people who were excluded from these social networks were taken care of by the community who helped those marginalized people and enabled them to take part in the social life and gave them the necessary tools to take care of themselves. As early as the mid-sixties, we see organizations such as United Way. United Way goes into the community to help people who are in need. That is what we were saying earlier concerning consultation and sharing the power. So there was already a social cohesion at that time.
Is the situation so bad today that everybody delves into those problems? How come that poverty, social inequality and inequality of access to employment are so severe today that everybody is asking questions? That is what I would like to understand.
Mr. Osberg: When we talk about social exclusion, we generally mean relative poverty.
[English]
In terms of social exclusion and social cohesion, the issue is not whether you have a certain absolute standard of living, but what is your standard of living relative to that of others in society. If you live in a society where nobody has a telephone, then you are not excluded by the fact of not having one. If you go back far enough in Canadian history, that was the norm, so all social conventions, all social issues, adjusted to the fact that nobody had a telephone. However, when most people have a telephone and you do not, you are outside. So the issue, for social cohesion and social exclusion, is poverty relative to prevailing living standards at the time. Although absolute living standards were certainly lower in the 1930s and 1940s, the issue of relative poverty is what matters for determining social cohesion and social exclusion.
Mr. McCracken: I will just add a footnote. It strikes me that, in the 1960s, we had fairly low unemployment rates, though not as low as the economic council was suggesting as a target at that time. Certainly by today's standards or today's performance, they were much lower. I think as we moved into the 1970s, and particularly into the 1980s, we went through a recession in which the unemployment rate went up to double digits for the first time in the post-war or post-Depression period. We had a relatively good recovery, but then fell back into the pit again. In each of those times, we have found people taking the view that they did not have the time to take care of others. We also have had governments moving, for good or bad reasons, to cut back on government spending. One group that has been a target of those cutbacks is many of those non-profit associations that were out there helping in the communities. I saw a study of Toronto a couple of years ago that showed the number of agencies helping poor people had been cut in half. The following year, the researchers found that the remaining half also had had their budgets cut and were under great strain.
In some sense, we have taken away the institutions that were helping to provide some social cohesion. In that process, we have adopted the view that people are poor or unemployed through their own fault, and not the responsibility of the society. With that attitude, there is a strong tendency to isolate and exclude those people. I think that is what has gone wrong, and it is much easier to create that kind of situation than it is to fix it. In order to do that, you have to regain the trust and spend the money to build up the brick-at-a-time kinds of institutions that were destroyed. Preferably, you try to do that in a time of substantially lower unemployment, because when more people are working they are more willing to help others.
I think your history is accurate, that we have had better times in terms of social cohesion. We have certainly had better times in terms of income distribution. We have strong evidence that the income distribution has been worsening and some strong indicators at this stage that social cohesion has also been weakened.
Senator Grafstein: This information makes it a little more difficult for me to ask my question. I say that because the information is quite persuasive that we have not done a very good job with respect to the breakdowns in trust, the downsizing, polarization, cutbacks, unemployment cutbacks, rising tuition, abandonment of regional development, downloading, et cetera.
Mr. McCracken: I have a longer list than that.
Senator Grafstein: It is a fairly frightening list, but it tends to be a common value that at least the political classes at all levels seem to have adopted. I agree with what Mr. McCracken has said, that during this process, we seem to have lost our social cohesion. At the same time -- worst of all worlds -- we have intractable unemployment and a growing disparity in real income. Real incomes are not on the increase. We have done all this, but also we are not feeling very good about the usual components that are supposed to make us feel comfortable with our political decisions.
Let me throw a spanner at this and talk about Reich's book and the American experience. We do not like to talk about the American experience because we are different -- we are Canadians, we are more comfortable, we are better, and so on. But in the U.S., if one takes your model, they have done exactly what you said they should not have done. They have downsized more, the mobility is higher, the protection from unions is lower, social security is less.
Yet at the same time, while all of these determining factors that are the platforms of our social policy have been breached, their unemployment is the lowest it has ever been. It is below 5 per cent. It hovers below 4 per cent. Perhaps the comparison is unfair because I have not looked at the detailed data, but the general data I have seen in the last weeks indicates that real income in Canadian terms is turning down while in the United States it is moving up.
Have they handled their change in social cohesion better than we have? They seem to be getting better results, at least in the short run. I like your comment about 50 years from today, but in the long run I will not be here and neither will many of the other people in this room.
The Chairman: The Senate will be here.
Senator Grafstein: Yes, it will be here forever.
I raise this as a model: How do we manage change when it is all around us?
Mr. Osberg: It is undoubtedly true that the U.S. has a substantially better unemployment performance than we have in Canada, and I think there is a very clear reason for it. They have had a monetary policy that has not been nearly as fixated on zero inflation as that of the Bank of Canada. They did not go through the excruciating exercise that we went through in the early 1990s because they did not go nearly as far in fighting inflation. The Bank of Canada has put us at the low end of its target range in terms of inflation and has continuously put on the brakes at any whiff of possible danger from inflation. We have seen four months of continual declines in GDP so far this year, with exactly the expected lag from the increase in interest rates last year. I do not think it is a big secret that one very important determinant of unemployment is monetary policy.
As to real incomes, it depends on how you look at this issue. It is true that average incomes are higher in the U.S. than in Canada. It is also true that if you compute and compare the income from poorest to richest -- not including such things as health services but just the money income -- and if you adjust by purchasing power parities between Canada and the U.S., you find that the poorest 65 per cent of Canadians are absolutely better off than the poorest 65 per cent of Americans.
The difference in average income between Canada and the U.S. is entirely in the top third of the income distribution, because two-thirds of Canadians are absolutely better off than they would be if they had the same income position in the U.S. It is true that high-income Canadians are substantially worse off than comparable Americans. Because so much of the American distribution of income goes to that top end, the average is pulled up. To say that the American results are superior depends on whether you are looking at the bottom two-thirds of the distribution or the top one-third.
You can go further. Let me put in a plug for the Centre for the Study of Living Standards and the conference on living standards this weekend in Ottawa on Friday and Saturday. We will be presenting a series of papers on the measurement of living standards, including one that directly compares living standards in Canada and the U.S. Once you move beyond just the idea of income and look at four dimensions of well-being -- not just what you consume today but what you accumulate for the future, the degree of inequality, poverty in society, and the degree of insecurity in society -- Canada outperforms the U.S. on the level of inequality and poverty, and on the degree of security that we offer to our citizens, but we do not do as well in average consumption levels because so much of that is being consumed at the top end of the U.S. income distribution.
We do not want to just look at the U.S. for comparisons; we want to look around the world. If we look around the world, we see a whole variety of different experiences. It is just not true that inequality and poverty have gone up in all countries. Poverty intensity has gone up in about half the different countries and has gone down in the other half. Inequality has gone up in some countries and down in others. Countries have social choices to make.
I think we can say that in the 1980s, the welfare state in Canada did what it was always intended to do. It mitigated the increase in inequality of outcome that we would otherwise have experienced, and it maintained some degree of equality of opportunity with equal access to a quality system of post-secondary education. We started to pull back from that in the 1990s, and we have put in major financial barriers, in the form of higher tuition to equality of opportunity. We have cut back substantially on Unemployment Insurance and social assistance, with dramatic impacts in the last couple of years on inequality and poverty. We will see the impact of those kinds of policy changes over the next few decades.
During the 1980s, the welfare state in Canada did approximately what it was supposed to do. It mitigated what would otherwise have been a trend to increased inequality and poverty.
Mr. McCracken: This issue of how we perform vis-à-vis the U.S. depends on what you look at. One of the useful things I am sure many of you have quoted in speeches you have given is the UN Human Development Index, on which Canada is rated number one. You might obtain for your committee the 1998 report, which has, for the first time, put forward a human poverty index or HPI2, as they call it, for 17 developed countries. It looks at income distribution, long-term unemployment, literacy, and life expectancy, or what percentage of people have a life expectancy of less than 60. I think those are the four main categories. In that list, Canada is number 10 or tied. Eight, nine and 10 are essentially the same. We are no longer number one. The United States is 17 out of 17 -- at the bottom -- in terms of its capacity to deliver life expectancy, literacy, income distribution, and to take care of the long-term unemployed.
The low unemployment rate is reflecting in some sense the requirement for many people to be in the labour market in order to survive, with the absence of any Unemployment Insurance for many people or any social assistance. That one number is not necessarily a good indicator of the overall fiscal or macro-economic tightness of that economy. Indeed, we are seeing that with the unemployment rate dropping and very little pressure on the U.S. inflation rate.
Senator Grafstein: I hope we can pursue this. I do not have it at my fingertips, but I did look at the lower two-thirds. Quite frankly, I came to a different conclusion -- that there was more disposable income in real terms in the United States in the last three or four years than there was in Canada at the lower two-thirds. I understand the model you are talking about, but there has been more mobility at the bottom as well. Real disposable income is a great factor. In other words, real, after-inflation, disposable income in the lower third or quarter percentile --
The Chairman: It has made more headway.
Senator Grafstein: Yes. It might very well be that the base, in effect, was lower and therefore a percentage increase might be more dramatic, but those numbers are moving quite dramatically just because the American economy has been spinning like a top. The question for us is, what are the good things that we can draw from that experience, and what are the negative things in terms of social cohesion?
Mr. Osberg: We might be talking at cross-purposes, because I think you were referring to income mobility or income gain, the percentage increase.
Senator Grafstein: I was referring to increases in real income.
Mr. Osberg: Yes. I was referring to the level of real income.
Senator Grafstein: We may be in agreement then.
Mr. Osberg: In that sense, I think there is a point of fundamental agreement. If a central bank is willing to stimulate the economy, this will create lower unemployment. The benefits of that are disproportionately experienced by those people who would otherwise be subject to unemployment, who are typically the people on the bottom end of the distribution. That will have a compressing effect on the income distribution and will increase well-being at the bottom end.
I will stick with my previous statement because there are significant differences if you use purchasing-power parity, which I think is a more accurate way of measuring living standards than just using the current exchange rate. The benefits of strong aggregate demand are felt disproportionately by the poor and the near poor.
You were talking about the role of unemployment insurance in Canada and the States. We have similar unemployment insurance systems now. The differences in terms of a claimant rate and a benefit replacement rate have disappeared. We have harmonized.
The Chairman: Are there regional differences?
Mr. Osberg: I am talking about overall averages. Within the U.S., there are essentially 48 different systems. There are some quite generous systems in some states, such as Massachusetts, but the overall Canadian average, in terms of the percentage of the unemployed receiving benefits, is now equivalent to Alabama, for example.
The Chairman: Forty per cent.
Mr. Osberg: That is comparable with Alabama.
Senator Grafstein: I would have been more comfortable examining not so much social cohesion issues as those social issues that must be broken in order to have effective social change. In other words, there is an argument to be made that too much social cohesion stultifies society and prevents it from changing. Big business, big labour, and big education tend to be ingrained bureaucracies and impervious to change. The newer networks are trying to crack it.
What are the determining factors in providing change while at the same time not causing damage to social cohesion? We are changing much more rapidly in every respect than before. It is hard to pin down the factors of change as opposed to the factors of continuity. Continuity tends to be easier for us, and change is more complex.
Mr. Osberg: There is one strong argument to be made that cohesive societies, like effective teams, can cope much more effectively with the demands of change, especially because change is so rapid, occurs in so many dimensions, and requires so many different trade-offs, the full implications of which are difficult to compute in advance. However, in a very low-trust environment, the entrenched bureaucracies are likely to fight immediately for every little marginal advantage.
If we look at societies that measure high on these trust scales, they have been very dynamic, in a technological sense, from often relatively poor resource bases, and have generated quite high levels of income.
[Translation]
Senator Lavoie-Roux: It is too bad that Senator Ferretti Barth has gone. She mentioned the social cohesion of the 1930s and 1940s. There was social cohesion then but the values were different.
[English]
Families were large and they filled in where the government had not thought of filling in. If a mother died during childbirth, there was always an aunt or someone to adopt the child. Families were very supportive, and that was part of the social cohesion. Today's families are slowly growing smaller. However, that is not the purpose of my question.
We hear so much about globalization. It does not seem to be slowing; rather, it appears to be gaining momentum. I am sure it affects social cohesion. I am not a researcher, but the feeling I have is that it will increase the problem of social cohesion.
Can you suggest anything to the government to alleviate the damage?
Mr. McCracken: Let me respond to your comment about large and small families. That is a very interesting observation. It reinforces Mr. Osberg's comment that as the world changes we need to update our institutions and our ways of responding to shocks. A large, extended family, as exists even today in some countries, functions differently from small families, because parents often live in different towns from their children, maybe even in different countries. It becomes a much different world.
I am struck by the debate on globalization that has been going on in Canada and Europe and the difference between the views. Here we seem to see it as a big wave coming to hit us. We are very worried about drowning alone. In Europe, the debate seems to be somewhat different. They are saying, yes, this wave is coming, but their institutions, by providing an underlying security to the worker, to the pensioner and to others in society, will help them roll with those waves. It will help them survive those waves.
During the negotiations of the free trade agreement, there was a big debate in Canada as to whether our social systems were adequate to the adjustment process. The de Granpré commission concluded that we should be looking at building new institutions, but governments concluded that no, our unemployment insurance system was quite adequate at that time to cope with the problem.
Today, that unemployment insurance system is not what it used to be. We now face that same kind of wave, perhaps even a stronger wave than the one faced by other countries. We ought to revisit the issue of whether our social safety nets are adequate to cope with the pressure being exerted. If we can make it work, it can be a very positive thing, because those waves bring with them productivity improvements, new products and new ideas. It can help raise the level of society and help raise people's incomes and their enjoyment of life. However, the question is whether we maintain the underlying structure.
We put too little emphasis on the social structure that will help us cope with that. That is part of this discussion on the social compact or the social contract or the social cohesion dimension. We should be looking forward to these waves and to being surfers rather than worrying about being drowned by them.
Senator Lavoie-Roux: Do you feel that the increasing bureaucracy at every level of government -- whether municipal, provincial or federal -- is a big factor in the breakdown of the social cohesion? Furthermore, do you agree that governments should be careful not to try solving a problem by creating a new body and thus increasing that bureaucracy, simply so that, finally, ordinary citizens will say, "Someone will take care of our problem"? I would just like to have your view.
Mr. Osberg: I wish to return to the first point you raised on the role of the family. You can think of it as the basic social institution, with combined functions of socialization such as risk pooling, security in old age, and security in a whole bunch of eventualities. You pointed out how it has changed over time. Although we see it changing so dramatically, there are still enduring social needs. People still need some sense of security for the future. They still need some way of linking into others in the community. The question is: What sort of new social institutions do we come up with as old social institutions prove unable to perform their previous functions? It is inevitable, as the number of children in a family diminishes, that people have fewer siblings, and therefore fewer people who can help them out in bad times.
Senator Lavoie-Roux: When they get older, they will be all by themselves.
Mr. Osberg: That is correct. We must think of new institutions to fill enduring social needs.
You talk about the impact of globalization. One thing that is clearly on the agenda today is that this tendency to globalization has created dramatic new risks in the world economy.
I was in Kuala Lumpur in June and you could clearly see there how that economy has crashed totally, after a very rapid rate of growth. While they were growing, they were not worried about things such as social cohesion or a social safety net. When average incomes are increasing by 8 per cent year after year, you do not think you need those things. However, when the music stops and the crash comes, that is when you really start to worry about social stability.
I do not think we should forget that the origins of the welfare state were related not so much to redistribution as to the maintenance of social stability in a system that is subject to risks and fluctuations over time and that imposes those risks on individuals through the periodic booms and busts of the business cycle.
The Chairman: We may be losing sight of that very fact in some of our policy-making contributions.
Senator Lavoie-Roux: I did not get the answer to my question.
Mr. McCracken: I will pick up where Professor Osberg left off. Providing those services is precisely why we have a growing bureaucracy. The Children's Aid Society, home care, nursing homes -- these are bureaucracies that, in some sense, are a substitute for the family.
We should not forget that we are trying an unnatural experiment at the moment. At the federal level, the size of the bureaucracy is absolutely declining. In the last economic statement, they tell us with pride that it is back to the 1950s level as a share of GDP. We will find out whether governments are a hindrance or a problem. I tend to the view that, on balance, governments are helpful and that bureaucracies are helpful to societies. However, I am in the minority amongst some philosophers at this point.
Obviously, you would like a bureaucracy that cares and is competent and honest. That means that you must do a whole bunch of things. You must pay them well.
Senator Lavoie-Roux: They must do their work also.
Mr. McCracken: Yes.
Senator Poy: Both Professor Osberg and Mr. McCracken mentioned that one of the most important elements of social cohesion is trust. If I understand it correctly, we cannot depend on the government in power to produce that trust. How do you propose to increase trust in our society -- that is to say, trust among people, trust between people and government, and trust between friends?
Over the last few weeks, I have been attending these hearings. You spoke about income inequality. I have never figured that out. How do you produce income equality when people are not born equal? We were not born with the same brains. How do you create equality? It is very difficult to do that.
Another thing I have been hearing is that countries such as Holland and Sweden are the best models for social cohesion. What are they doing right that Canada is not doing? How can we copy what they are doing? Those are my questions for you.
Mr. Osberg: On income equality, we should be clear that we are not talking about absolute equality. There is no country in the world that does not have some inequality in its distribution of income. We are only talking about changes in the degree of inequality. There is a substantial difference in the size of the gap between rich and poor, for example, in comparing Japan and the United States, or Canada and the United States.
If we talk about trust, one way of looking at it is as a process of institution building -- that is, something that is bigger than a single electoral cycle. There must be an element of consensus between the major political actors and something in those countries that have established such institutions. The example of an economic and social council was already given. It must last through successive regimes and its function must be to provide a continuing venue for dialogue. We know that policy will change and the problems will change, but we must have a way in which we can talk to each other. We must establish a common-fact base, a common understanding of events, realizing where our differences in values are, but narrowing the realm of disagreement.
Senator Poy: You talk about trust between people, between the population and the government.
Mr. Osberg: Basically, it is a long-term exercise. It is not something that happens overnight in any country. In that sense, it is like tearing a cloth as opposed to weaving it. It is much faster and easier to destroy trust than to create it in the first place.
Mr. McCracken: Let me add to that. The notion of focusing on full employment or lowering the unemployment rate has a positive effect. It brings people into the major networks of the workplace and gives them a sense of self-esteem as well as income.It can do a lot towards building their trust in co-workers or in the system, so that they know that it is working and not leaving them out and exposed at all times.
We know that those who have more education and training tend to have more trust. That is another area that one can focus on. People who are more involved in political organizations, in terms of both their voting and other activities, tend to be also more trusting in their relationships with others. Those are some of the areas. We then talked about these consensus-forming institutions as a positive way to focus on it.
I have a report that someone put out on income distribution and other facts about the Canadian economy. It states that in 1973, the top 10 per cent of families earned an average income 21 times higher than the bottom 10 per cent. In 1996, that top 10 per cent earned 314 times as much as the families in the bottom 10 per cent. I agree with you that differences in genetics give us a different distribution, as do differences in upbringing. What is it in our society that has led us from an income 21 times higher for the top 10 per cent 25 years ago to an income 314 times higher today?
What you are seeing are the mal-distributions of earned income associated with high interest rates -- that is, those who have it getting more; people having great difficulty getting into the job market; families who have only one person or one person part-time in the job market becoming very poor; and people who are highly successful at the other end.
We are not trying to drag them down; that is not the issue. The issue is: How do you improve the overall income of Canadians while putting particular emphasis on those who are without? That is the challenge, and that is where it is not an automatic process. Governments will have to take off their gloves and get in there and get their hands dirty and do something, rather than taking an approach where they say, "We do not want to touch anything, because we might be seen to be influencing what happens." That is crazy.
The Chairman: On that note, I will conclude the discussion. We have gone well over our time limit, but that is because we have had such stimulating and informative witnesses.
You have helped advance the discussion in this committee considerably. I thank you both most warmly for coming here and for your contribution today.
The committee continued in camera.