Proceedings of the Standing Senate Committee on Social Affairs,
Science and Technology
Issue 22 - Evidence, December 9, 1998
OTTAWA, Wednesday, December 9, 1998
The Standing Senate Committee on Social Affairs, Science and Technology met this
day at 3:45 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.
The Chairman: Our witness today is Professor John F. Helliwell of the Department
of Economics at the University of British Columbia. I will say a biographical
word about Professor Helliwell before we begin. He studied at U.B.C. and
Oxford, where he was a Rhodes Scholar, and taught at Oxford before returning to
U.B.C., which has been his base since 1967. His recent research has emphasized
comparative macroeconomics and growth, including especially the influence of
openness and institutions. From 1991 to 1994, he was Mackenzie King Visiting
Professor of Canadian Studies at Harvard. In 1995-96, he was back at Harvard as
a Fulbright Fellow. He is a Research Associate of the National Bureau of
Economic Research and an Officer of the Order of Canada. His most recent
publication is a book called How Much Do National Borders Matter? published in
August of this year.
Professor Helliwell has filed a pretty thorough and interesting brief to the
committee. He will speak briefly to it, and then we will open the floor for
questions and discussion.
Professor Helliwell, please proceed.
Mr. John F. Helliwell, O.C., Professor, Department of Economics, University of
British Columbia: Mr. Chairman, it is a pleasure to be here with you.
It's a pleasure to be here with you to present the data from our research.
The brief is more a survey of research in the field, a very selective survey of
things that I have been involved in that seemed important to me or that others
have done relating to your issues. The first point I make relates to the
research on social capital and the linkage between social capital and economic
growth. I trace the roots of that particular version of social capital that is
referred to in the literature I am involved with as a description of a set of
norms that permit societies, when they have them, to function better. It is
typically measured by the extent to which people say they trust other people in
general and also how much they participate in a whole range of horizontal
institutions, typically, though not always, in the voluntary sector.
Some of the early work in this area brought Robert Putnam into this field. It
was his 20-year study of Italy. I got dragged into the field on his heels
because I heard the book in a seminar form before it was produced.
He pointed out the fact that the regions of Italy with higher levels of social
capital according to those measures in fact had higher levels of satisfaction
with the government. According to surveys, they perceived better government by
having phones answered faster and questions answered better, and they also had
much higher standards of economic life. I had known at the time that there was
some evidence of the southern regions of Italy converging in levels of income
to the north, so I wondered then whether it was true that social capital was
good for growth. To find that out, it was necessary to combine the forces for
convergence which we have seen around the world, the poor countries catching up
to the rich, with the fact that we know social capital measures were much higher
in the north of Italy than in the south.
We found that if we put all the bits together in a complicated way, it was
possible to winkle out some evidence that, other things equal, those regions
with higher levels of social capital did grow faster in Italy. Then when new
powers were devolved to the regional governments in Italy in 1980, those with
higher levels of social capital according to those measures used those new
powers to better effect and grew faster. Of course, since those were already
the richer regions, the gap between rich and poor widened as the regions with
higher levels of social capital found themselves with powers that they could
use better than did the regions with lower social capital. The convergence is
presumed to start again once those new powers have been digested.
Attempts to do similar work among Canadian provinces, among U.S. states and
among the industrial countries have been less productive of tight linkages
between those measures of social capital and economic growth, although it
remains true that regions with higher levels of income tend to have higher
measures of social capital. In the brief I talk quite a lot about the linkages
between democracy in an institution and social capital and growth. In the
interest of a brief introductory statement, I will pass over that part.
The next section deals with education, where we have discovered through a whole
range of empirical work dealing with data from Canada and the United States
explicitly, gathered at the individual level, that the strongest determinant of
both trust and participation in various voluntary activities is the
individual's own level of education. As I note in the brief, there has been a
challenge to this idea that more education is good for everything by some
influential U.S. political scientists who have argued that education is perhaps
more a sorting device, with those who are relatively better educated getting
the positions of leadership and using them, which would mean that as average
levels of education went up, there would not be a corresponding pay-off to
additional social capital.
I am happy to report that the research that I have been able to do with Putnam
on this question -- we are using very large samples of U.S. data -- has managed
to support the notion that when relative education is properly defined, most
measures of participation grow with one's own level of education and also with
the levels of education of one's peers. As general levels of education rise, it
remains true that both trust and participation tend to rise.
An increasing amount of literature focuses on another of the issues facing you:
the linkages between inequality and insecurity and both economic performance
measures of social capital and physical health. A relationship has been
discovered between inequality and the distribution of income and the level of
economic growth, looking across countries. There is much less evidence so far
across states and provinces, although it may be there. There is evidence that
average quality of health outcomes are worse where inequality of incomes is
higher. There is also some evidence that the level of social capital is again
measured by the trust and participation and is lower where levels of inequality
I turn then to consider various government institutions that are important.
Naturally, those that secure a good and well-distributed access to education
and health care are important. There is also a positive link between health
status and measures of trust and participation to augment the other indirect
Some of this work relates to what has to be done to secure a transition from a
non-democratic, poorer society to the kind of society that we have. I note that
at the time of transition in Eastern Europe, how crucial the central
institutions of a civic society were to the achievement of that transition was
not understood. Many believed that taking down the wall, getting rid of the
Communist Party and providing free markets would somehow be enough to permit a
healthy transition. As you know, the levels of income per capita on average in
the countries that are supposed to be having a transition have fallen roughly
in half, and there have been very big differences among those countries as well.
It has been a very difficult time.
Even though education levels were really quite high among all of those
countries, quite a fast transition on conventional criteria was predicted. It
did not happen because social capital of the sort that you and we have been
considering simply was not there.
What key bits of social capital were not there? First was trust. The measured
levels of trust were very weak. There was no rule of law, which is often a
substitute for trust and a supplement for it at its rough edges. The whole
set-up for the administration of justice was not there.
In the absence of those legalistic institutions, if the level of trust were high
enough, the institutional vacuum would draw in common efforts that were not
always at the expense of one's neighbour during that intervening period while
the institutions were being developed in a collaborative way. Without that
trust, without that sense of common purpose, without sufficient shared values,
the vacuum was filled by what one might call bottom-feeding fish. The fastest
growing industry in Russia turned out to be the Mafia, rather than anything
that we thought they had a comparative advantage in. The post-transition
experience in the former Iron Curtain countries has emphasized, to those who
knew in principle that institutions were important, that the institutions and
softer measures of the effectiveness of a civil society are far more important
than any of us had thought. That has been an expensive lesson to learn, and it
should not now be ignored.
Finally, I will say a word on globalization and whether it constrains national
policies that attempt to achieve higher degrees of social capital, cohesion,
redistribution, equality, and a variety of the mechanisms I have spoken about
before, or to be very practical, health care systems and social safety nets
that both support and are supported by a sense of social cohesion.
International competition and the global economy have generally been used to say
that competitiveness demands that our systems be as cheap, in the sense of our
tax rates being as low, as those in any of the countries with whom we have
serious trading links. The burden of the research that we have been doing on
the effects of national borders is exactly to the contrary. It says that the
structure of national economies is 10 or more times tighter internally than
across borders. That means that there is roughly 10 times more ability to have
independent national policies than most individuals, political leaders or
anybody else thought a mere two or three years ago.
That does not mean that there is scope for governments to do things that are not
in the best interests of their voters or not done efficiently, but it means
they have much more ability to design things that their voters want and to do
them without feeling that they have to match what is done in other
I quote some data on the social safety nets, for example, in Canada and the
United States, that finds that they are extraordinarily different from one
another. A mid-1980 study showed that if they had been applied to the U.S., the
Canadian rules would have cut their poverty by more than half. By the same
token, the Canadian rules would have dramatically increased the cost of the
social safety nets in the United States. The conventional social safety nets,
including welfare, cost roughly 1.7 per cent of GDP in the U.S. in the
mid-1980s. I think the number for Canada was 4.7 per cent.
However, while the Canadian health care system is believed, at least by
Canadians, and I think correctly, to be better than the U.S. system and while
the Canadian system covers all of the population rather than 85 per cent of it,
the U.S. system costs roughly 3 per cent to 4 per cent of GDP more than the
Canadian system. If you combine the social safety nets and the health care
system, which I regard also as a social safety net policy, the combined cost of
the two is the same share of GDP in Canada and the United States, even though
both aspects of the Canadian system are broader and provide better coverage and
much more reduction of poverty than in the United States.
As I have described that system, perhaps nobody would want to vote against it
since its cost of the share of GDP is no higher than the U.S. system, but no
doubt there are other policies in Canada that cost more than those in the
United States. My point is that as long as the voters and taxpayers are willing
to support them and they are getting what they think of as collectively good
value for money, you do not have to look over your shoulder at what is being
done by your neighbours.
To amplify that, I conclude by noting that a discussion of the linkage between
taxation and the brain drain, which is a way of emphasizing the point that in
Canada it is difficult to do things differently than in the United States, is
more rhetoric than fact. I report that the number of Canadian-born living in
the United States has been on a steady downward trend over the last 15 years,
and it continues to drop year by year, so that the new people going off to live
in the United States are not keeping pace with those who were previously born
in Canada and are dying in the United States.
Senator Robichaud: I would have liked to have a bit more time to examine your
presentation. I am only replacing a regular member of this committee, but I
must say that your presentation contains an enormous amount of information that
would take a lot of time to digest. You talk about globalization.
You talk about globalization. You say that it provides governments with more
ability to act. Would you elaborate a bit on that, please?
Mr. Helliwell: «Mondialisation» is the French term, but I have an
Globalization is more "globaloney" than fact. It is not globalization
that makes policy easier. It is the fact that globalization does not exist that
makes policy easier. National economies have an integrity and a structure that
is many times tighter than the global links between countries.
Most people think that that is not true. For example, according to surveys, most
people think that trade linkages between Canadian provinces and U.S. states
are, if anything, tighter than those between Canadian provinces. The data show
the reverse; even after the big trade increases post-FTA, Canadian provinces
trade 12 times more intensely with each other than they trade with U.S. states
of similar size and distance.
Other countries have similar national structure tightness. Therefore, it is the
lack of globalization that gives countries more power to choose their own
policies and to act more independently than people think they will, because
people think these international linkages are tighter than in fact they are.
Senator Robichaud: Is globalization not the cause of the alarming situation we
now have in agriculture, because of the Asian crisis? It does not make the
government's role easier in that kind of situation. You seem to say that
globalization does not exist. I am sort of lost.
Mr. Helliwell: There is certainly a very strong increase in international and
world bonds. Even if the present State is a state where nations remain rather
distinct, there are bonds.
There is also a dispute in the literature about the extent to which growing
inequality among individuals is due to increased international trade. Another
theory suggests that it is due to technical progress that favours the
well-educated over the poorly-educated. The resolution of that debate is not
here yet. Most people think that there may be some international trade sources
of that inequality, but they will not be a very large share of the total.
Yes, there may be some sense in which increasing trade and international
linkages have exacerbated the income disparities in the rich countries.
However, a problem with that is that the widening of the income distributions
has taken place even in poorer countries, so it is not easy to say it is just
because the middle income and lower income jobs have been pulled out and sent
to the other countries since, in some sense, they have not arrived there.
I should give you one word about the Asian and current global crisis, which was
very much the discussion at the UN meeting I was at yesterday. How is it that
this research that I have been telling you about, which shows that national
economies are very separate, is consistent with what seems to have been a
situation of almost domino-like contagion? I suppose I would say that the degree
of contagion and the extent to which the banking problems of Thailand became
the banking problems of Korea and Malaysia and Russia, and hence Brazil, are
simply not given by economic linkages. The real economic linkages of trade and
capital mobility between those in some of those regions are essentially zero.
However, a combination of financial fragility and some institutional gaps in a
couple of countries led to a severe banking crisis which, in turn, led some of
those who had been touched, or not touched, to ask whether similar problems
could exist elsewhere.
There had been a narrowing of spreads between the risks of high-quality
countries and the risks of other countries, until they had got very small. All
it needed was one case of a country having a serious problem and then everybody
lending to developing countries immediately started raising their risk premium,
which led to a withdrawing of funds from a number of countries, a calling of a
number of loans. If long-term assets are financed by short-term debts and they
get called, then you are in trouble. There was some contagion but it was not
caused by the real economic linkages. In part, the ideas moved and the
perceptions of the riskiness of lending to developing countries changed, and
there was a snowballing effect from that.
Senator Johnstone: Dr. Helliwell, I should like to join in welcoming you here
today. I have read your paper, "Combining Social Cohesion and Sustainable
Growth", with considerable interest and have done some highlighting.
One thing that stood out for me is that you feel there is a correlation between
advanced education and business success. I want to come back to that theme
again, but with the thought that there might be some exceptions. I am thinking
of Ross Perot in the United States, whose teachers thought he was so stupid he
would never amount to anything. He probably will not be president but he
certainly has excelled himself in the business world. William Gladstone was so
stupid in arithmetic that his teacher wrote him off and yet he became a prime
minister of Great Britain that we remember to this day.
I note that you were a Research Fellow with Nuffield College. I have something
in common with you there. I was a Fellow in 1955. Lord Nuffield was alive at
that time. I was fortunate to have dinner with him one night, so I had two and
a half hours of discussion with him. He introduced himself as "just a farm
boy at heart", although at that time he had given away the equivalent of
$80 million Canadian. He lived for a few years after that to give away some
more money, along with Lady Elizabeth.
His father was a farm worker. The only reason Lord Nuffield got into business
was that he asked his boss for a wage of five shillings a week and was refused.
By the time he was 14 years old, he had gone into business for himself, as you
know, repairing bicycles into motorcycles, the MG. By the time I sat down with
him, he was the owner and president of the third largest motor corporation in
the world at the time, the British Motor Corporation.
I just wanted to ask you if you do not think that there might be some exceptions
to the rule and if we should entirely overlook those people who have special
abilities but appear to be so stupid.
Mr. Helliwell: I did not know Lord Nuffield, although I was an usher at his
It would be a great mistake ever to confuse education with formal education. The
most important education that any of us learn is from living our life, from the
contacts we have with others and from the books we read. Indeed, the
discussions of social capital and issues of that sort that you have been having
emphasize precisely that it is the values learned in the family and in the
community and the knowledge acquired in the workplace that are the really
important forms of education.
If formal schooling works, it makes people better learners. It does not teach
them enough to make them run a proper life or run a proper business or
anything. It just gets them along the road a little further. A good school is
not as good as a good family for inculcating an education and the ability to
Those who are best off have good families, good communities and good schools,
and a little more of any of those would be good for any of us. People who have
enough basic skills and good luck in any one of those three kinds of education
will do pretty well. Even though as measurements we talk about years of
schooling and so on, because that is all we can measure, it would be a mistake
to say that they represent that which is most important, let alone everything
that is important.
Senator Johnstone: I thank you for that. I should like to stay on and question
you more but I am sure the other senators will do that. I have to move on to
another committee. I can assure you it will not be half as interesting as the
one that we have here today.
Senator Butts: I have a couple of questions that I should like to get
straightened out. I am very surprised by the statistics showing a decline in
the out-migration to the United States, because we hear so much about what is
happening to all our educated people. I was wondering if you have a breakdown
of those people who go to the United States. Are they professional people,
highly educated people? Has there been an increase in the group including
scientists and medical doctors? Have you broken down those statistics?
Mr. Helliwell: I can offer you a bit of information on that. Statistics Canada
released some information that showed that the major occupational groupings for
whom there has recently been an out-migration increase are doctors and nurses.
As you can imagine, people in those professions have their own special reasons,
related to policy. Of course, no one would suggest Canada is short of doctors.
The lines to get into the medical schools are longer than they ever have been
and the line-ups to get a residency spot are longer than they ever have been,
Most of the recent migration of nurses was essentially driven by major cutbacks
in two provinces that left a lot of nurses unemployed. Thank goodness for the
nurses and for the patients of the world they were able to find jobs in the
United States. In a better world, maybe neither of those migrations would have
happened, but you can understand why they both did happen.
There has been a complicated educational exchange on medical grounds between the
two countries for a long time, and so a lot of medical people end up with
careers to some extent in both countries. Typically, people who prefer a
different kind of practice pattern may prefer one country over the other. In
the long run, that is not likely to cause a continuing problem with the supply,
although getting some of those nurses back and retraining them when the budget
situation changes may well be a problem in the shorter term. However, better
they were properly and gainfully employed in the United States than sitting
unemployed in Canada.
As for other categories, there was some talk of computer scientists. The
Statistics Canada numbers show that the inflows of the scientifically-trained
and managerial categories are much bigger than the outflows, although as in a
lot of occupational structures, there is a bigger flow from offshore to Canada,
net, coming from other countries to Canada than from Canada to the United
States. That has been true for a century or more, and I do not think there is
anything unusual about that pattern at the moment. Even at the higher skill
categories, the Statistics Canada numbers would suggest that Canada is a net
To the United States, the migration is more of the higher educated than average.
Of course, we know that people in general are more likely to migrate to higher
their levels of education. That is true interprovincially as well as from
Canada to the United States, so that is not a surprise.
We are doing a survey of all the graduates of U.B.C. and where they are living
now by field and degree. When it is complete, it may be possible to be more
precise about that for at least one university's graduates.
Senator Butts: I have read that the out-migration of medical specialists was a
result of the United States concentrating for a long time on GPs while we were
going the opposite way. Now that the thing is balancing, they will turn out
enough of their own specialists and they will not be taking ours.
Mr. Helliwell: I think it is the other way around. I think that they did not
produce enough GPs and now there is a bigger demand for GPs there. I think
Canadian GPs moving, but I may be wrong about that.
Senator Butts: Of course, they have much more money for medical research there
because they are funded by corporations, not by government. Since most of the
corporations do not have their headquarters here, we cannot get the same money.
Mr. Helliwell: We certainly see that in the medical people associated with
universities. There is no question. It is true right across the universities
that research funds, both government funds and industry funds, but especially
the latter, are more widely available there. Endowment funds are more available
there. For researchers, that has been an extra twist.
Senator Butts: I was also very interested in your conclusion. You say that your
main message is not just the scope, but the need for national policies. I am
wondering what you would include in national policies in the national
institutions that you also talk about. For example, we talk about the meetings
of the provinces and what they like to call the social union. I do not know how
many national policies would ever come out of a plan like that because the
provinces will be able to opt out. If somebody opted out of it, would it still
be national policy?
Mr. Helliwell: I am among those who think that there is a difference between a
national policy and a federal government policy. I think, in one sense, what
matters for the citizens is the linkage among the systems in place. We often
say with respect to health care that it is a reasonable sense of full
portability, full access and reasonably comparable standards that determine the
national system, leaving much that might differ by province. One might make the
same case about other systems.
Health care is especially important because all the surveys indicate that
Canadian citizens regard it as the most important feature of their nation.
Perhaps that is because they focus too much on defining Canada in terms of how
it differs from the United States. The Canadian health care system is quite
like that of many other industrial countries, but it has become sort of a
Canadian symbol. To threaten that is to threaten some people's idea of their
Senator Butts: Of course, another factor is that the really have-not provinces
cannot afford it on their own. They had better get it from Ottawa or they will
not have it.
Mr. Helliwell: I celebrate that a little bit in this paper and I have much more
in other papers about the Canadian system of interprovincial redistribution.
Canada's equalization payments are unparalleled in any other country for their
efficiency, expanse and efficacy. That should be celebrated as an important
national institution that Canada has. In my view, it then makes possible the
withdrawing of regional considerations for all other expenditure programs. They
can be done according to other determinants if you have a properly set up
fundamental system for intergovernmental redistribution.
Senator Ferretti Barth: Professor, you mentioned Italy. In the north of Italy,
with the "Social Capital Economy" we did manage to get better
government. I come from Italy and I can tell you that the Italian government is
very fragile. It has to do with the Mediterranean temperament. The Italians live
well. They enjoy an exceptional standard of living. I have not had the
opportunity to see that there was any social cohesion in Italy. You say the
north and the south are totally divided. Even if, in the north, we have seen
economic and commercial progress, the south is still poor despite the efforts
made to help people get educated and up to the same standard of living as the
people in the north. It is very difficult. It is also a matter of culture.
As for Canada, some witnesses we have heard were always comparing Canada to
other countries. For the time being, it is our own problem. You say there is a
lack of social cohesion today because of many major factors. I am talking about
Canada with all its provinces and the diversity of peoples we have. In your
opinion, what are the major causes preventing social cohesion in Canada?
Mr. Helliwell: It is hard to identify exactly what are the greatest risks. There
are risks in the future.
Senator Ferretti Barth: You may express yourself in English. I understand
English well, but I don't express myself very well in that language.
In both health and education, the risks rest perhaps more in the future than in
the past. Researchers have studied the sense that people have of being part of
the same community with their fellow citizens and the extent to which they
trust one another and trust governments. There have been large drops in the
extent to which citizens trust their governments, although much smaller drops in
Canada than in other countries.
There is a worry about what will happen in the future, although there is not, in
Canada, such evidence of big declines in the measures of social capital as has
been found in the United States. In comparison to Italy, where there has been
some convergence of the standards of living between north and south, the
convergence in Canada has been of longer standing and more continuity. Canada is
not a failure wanting to be re-started. It is a country where, according to
those measures, there is some fragility, to use your term, but there is not
People worry about the increase of family breakdowns. Why? Because a number of
the measures of social capital suggest that divorce is terrible for the
individuals involved and terrible for their children, both the first generation
and the second. That is one of the tendencies that is up rather than down. If
something bad is tending upward, then you worry about it.
There is some indication of growing inequality, which masks two things. One very
favourable change is that poverty among the elderly has fallen by a factor of
four in the last 30 years. It was a problem that was big and is now very small.
However, poverty among young people and single-parent families has grown. While
their group is not growing, poverty among young people is important. The number
of single-parent families is growing and poverty and low levels of social
capital among them are important.
Senator Ferretti Barth: You know that there is a lot of disparity in our
community and our society. The government is making efforts to eliminate these
disparities. You have seen pay equity. There is also reform of legislation like
the Divorce Act and child visiting rights. There are a lot of things the
government is doing to get our society onto an equal footing. I am concerned.
Will it be possible for us all to live on the same horizontal line? Nobody will
lack an education any more as everyone will have an education. I am a bit
afraid of that. This social cohesion concerns me somewhat. I prefer a bit of
diversity to see movement, excitement, motivation to do something. Even
volunteer groups have done remarkable things. In future, will we still be
seeing remarkable things?
Mr. Helliwell: Diversity is not about to disappear. Equality is not about to
arrive. When my students complain too much about their lot or the lot of the
poor in Canada, I show them something from other countries.
The challenge of getting anything like quality at a global level, even up to
standards of basic life and existence in an environmentally and socially
sustainable way, is beyond us. We must accept that as a big challenge. The
worry that if all those challenges were met, life might be dull is a worry I can
wait to face until the risk gets bigger.
Senator Poy: Professor Helliwell, you mentioned that social capital is a
combination of measures of trust among people and between people and the
government and of participation of the voluntary sector. It is easy to measure
the participation of the voluntary sector. It is also not difficult to measure
trust between the population and the government. How do you measure trust among
Mr. Helliwell: As is often the case, you stand on the shoulders of your
predecessors in order to get comparability, among other things. There is a
classic question that has been asked of citizens all over the world for 50
years in various surveys. That question is: "In general, do you think
people can be trusted or that you cannot be too careful?" It turns out
that that double question is answered positively more often by males than by
females. However, if you take away the riding question and just ask: "In
general, do you think people can be trusted," women answer more positively
than men which, of course, means that women are more careful than men, and
So, the moral of my story is this: It matters what question you ask and it
matters to whom you ask it, but the answers are pretty comparable across
countries and over time. People ask different sorts of questions to see what
they are getting at and to see why there appear to be differences between males
and females as well as other kinds of differences.
There are large regional and international differences in the measures of trust.
Trust levels were low in the Soviet Union. They are high in China and in the
Nordic countries. They are pretty high in Canada.
Senator Poy: Why do you think trust levels are very high in China?
Mr. Helliwell: I do not know.
Senator Poy: Which people were surveyed?
Mr. Helliwell: I should know more than I do. I do not know the details of that
Senator Poy: If there is a low level of trust, how can government increase that
trust? What can the Canadian government do to increase trust?
Mr. Helliwell: Government, as an institution, wants to focus primarily on how
trustworthy it is regarded as being. There has been a drop in trust in
government, and that drop has exceeded the drop in people's trust in general.
Therefore, from the perspective of government, the first thing to do is to
ensure, as much as possible, that promises are kept. There is a whole range of
issues relating to honesty and straightforwardness, issues that link directly
to how much people trust their governments.
Government that works by creating cleavages -- and sometimes electoral politics
works by creating cleavages when it is perceived to be effective to set up an "us"
and a "them"-- probably diminishes levels of trust between groups of
people in the general population. It is often feasible to construct a devil.
Xenophobia operates at national boundaries, but it can operate internally along
linguistic, cultural, educational, and income levels. A government sometimes
falls into the trap of exploitation, in order to look after one interest group,
to receive a critical mass in the polls. That is probably corrosive at the
level of general social trust, even though it may look usable in the short run.
Senator Poy: Are you saying that government could create a lack of trust among
people, not just between people and the government? It is the atmosphere that
Mr. Helliwell: I think so.
Senator Poy: You talked about growing inequality due not to an increase in
international trade but to lack of it. Could you expand on that?
The Chairman: Lack of globalization, you said.
Mr. Helliwell: What I hoped to have said was that the lack of globalization, or
the low level of globalization, was responsible for national economies having
more independence than they thought they had. That in itself did not create
inequalities; inequalities are not created by the lack of globalization. There
was only a limited amount of evidence that globalization created inequalities.
The debate continues about how much of that influence was there.
Senator Poy: In other words, at this point, globalization has very little to do
with social capital or social cohesion. Is that what you are saying?
Mr. Helliwell: Let me qualify that. There is some evidence of a link between
trade and inequality of incomes, but the amount is not yet fully established.
The Chairman: Is that within a country?
Mr. Helliwell: Yes. There is clear evidence that inequality is bad for growth.
There is some evidence, however, that some measures of social capital, both
trust and participation, are lower among those who have had access to
television during their growing-up years. Why? In part, it is because
television takes time away from them. You cannot spend time with people while
you are watching television. However, it may also be what is watched and the
kind of message.
A lot of the message that comes so easily and quickly now comes from far away,
and probably either is destructive of people's sense of well-being and trust or
provides evidence of other cultures. Often the best aspects of people are not
depicted. Rather, people are depicted shooting one another. That has the effect
of diminishing one's knowledge of society and thus one's ability to sympathize
with members of his or her community. In that sense, then, the global outreach
of information may have some negative aspects.
I am sure there are some positive aspects, especially in terms of building a
global community, but in terms of local community cohesiveness, there may be
some fracturing forces in it. There is some evidence to suggest that those who
were brought up before television came along have higher levels of trust and
participation than those who were not so fortunate.
Senator Robichaud: Social capital is that whole network of organizations that
people belong to and where they get together. Where do you put the family in
all that? If we talk about the family, where do you put the church as a
structure that unites us and, in some areas of the country now, plays a perhaps
a smaller role than what I knew in my time? Has this vacuum been filled, if
there is indeed a vacuum?
Mr. Helliwell: I have reported that the breakdown of families was bad for
individuals, not only economically but also with respect to their feelings of
trust and their own participation. That suggests that the family, when it
works, is an important creator and sustainer of such activities and attitudes.
The evidence about whether involvement in the church positively or negatively
affects trust is a bit uncertain. It is true that involvement in religious
organizations does not move exactly in line with involvement in other kinds of
organizations. My personal view, which certainly is not based on research, is
that it probably matters what church and what kind of involvement is at stake.
Many churches have played important roles in communities; sometimes they are
the centre of the community. Others have sometimes played divisive roles within
communities, and still others have been more formal organizations.
Church attendance generally has dropped significantly. There is a big difference
between Canada and the United States in terms of affiliation to churches.
Church participation is much higher in the United States than in Canada.
Participation in unions is much higher in Canada than the United States.
You might ask, what is the effect of the higher participation in churches in the
United States than in Canada? I am not sure, and I am not sure how we can
determine that. However, as these institutions change, it is important to try
to understand better what is taking their place where they have done important
Senator Robichaud: What kind of role has the media played in this general sense
of trust that individuals have towards one another and also towards our
institutions, like governments? Do you have any opinion on that?
Mr. Helliwell: I have no research results that count, but I have a fear which is
by way of an opinion. One thing I have felt to be a fault of the media, as I
have watched them change over the last 20 or 30 years, has been the shortening
of the attention span of the report or the story as well as the increased
emphasis on generating conflict even where it did not exist.
I have many times been interviewed by producers who wanted me desperately to
take an opposing view, in other words, to fight with someone else on the show.
They did not want to hear that in general there was a strong consensus in
favour of X or Y, or that it was a complicated issue requiring those particular
nuances to be felt.
There was recently a story about the MAI in our Vancouver media. It featured two
opposing views of the MAI, one from the Fraser Institute who was in favour, and
the other from the Council of Canadians who was opposed to the MAI. In that
story, no information was provided about the MAI or about the issues. The
educational content of that program was zero. The story's focus was on opposing
views and divisive policies.
The media can present a story in such a way as to provide an under-the-story
message, thus increasing the sense of social dissidence beyond what the reality
really is. Often, life imitates art in these things, and if people perceive
conflict to be normal, they are more inclined to adopt conflictual behaviour.
There is enough psychological support for that. I fear that my worry is not
Senator Robichaud: Would this have a direct effect on trust?
Mr. Helliwell: It would have a direct effect on social trust, on individual
The Chairman: This has been an interesting afternoon for all of us. I wish there
were time for you to expand on your statement that globalization is "globaloney".
What some of us understand by globalization is the ability of some corporations
to move their production facilities, at will, to various parts of the world, to
lower-cost regions of the world. Consequently, there is less need for companies
to maintain permanent or integrated workforces. Hence, an increasing number of
people in this country have part-time temporary jobs, with little security, few
benefits and, indeed, low pay. That is contrasted with another group in the
workforce who have reasonably secure, reasonable well-paid jobs with decent
benefits. The phenomenon of a growing proportion of the workforce in temporary,
part-time, low-paid work is attributed by many to the forces of globalization
The second aspect of globalization that keeps coming up is the question of
capital flows, the instantaneous movement of capital around the world and the
ability of the hedge funds, backed by the banks and other speculators, to turn
entire national economies on their ear. That is what has happened in Asia in
I would not say that the governments of those countries have very much freedom
of action. They have the freedom to do what the IMF is telling them to do. I am
under the impression that a great deal of the problem was not really of their
own making. You, as a professional economist, may want to correct me on that. I
would like some comment on it.
In your brief, you quote Professor Tobin. I assume that it is the same Professor
Tobin who has become famous for the proposed "Tobin tax". So far,
that has been a non-starter for some reason, perhaps because the United States
was not interested in it.
The questions that arise are the Tobin tax on those capital flows and the idea
of a social component in trade treaties. Perhaps we have unfairly attributed
elements of an approach to the economic and social fallout to the forces of
technology and globalization. If that is unfair you can certainly tell us.
Every trade treaty that any country enters into involves a surrender of some
sovereignty. With a trade treaty, you voluntarily accept some constraints on
your freedom of action as a nation. In the past 10 years, we have signed the
free trade agreement with the United States, NAFTA, and the WTO, the successor
to the GATT.
We have had before us, not in the legislative sense but in front of the
government and public opinion, the proposed Multilateral Agreement on
Investment. Do you believe that the constraints that we have accepted through
those treaties, and even through a proposed MAI, are entirely appropriate? Have
they been good for our economy, or is it not important, not significant in terms
of constraining our governmental freedom of action?
Finally, there is the whole question of a productivity gap, which is the higher
cost of doing business in this country. Of course, "the higher cost of
doing business" is just a polite way of talking about higher taxes.
Next is the whole question of social capital. If it is like any other kind of
capital, is there a danger that it can be hoarded by people, that people who
have it want to exclude others from enjoying it?
In this country, if it is really a community of communities, are we talking
about social cohesion within a multiplicity of communities? Does that add up to
a social cohesion in the country as a whole?
Mr. Helliwell: Let me start with the questions about social capital and
cohesion. It is quite right, as your question suggests, to think of it existing
in communities at all dimensions. Putnam emphasizes the importance of
face-to-face contact in these communities.
From the perspective of the nation, one of the reasons that national trade
densities and capital movement densities are so much tighter than the
international ones is that there is a pool of shared information, trust and
institutions that makes it less costly and risky to do business with those you
know and trust as opposed to those abroad.
Foreign capital came in too fast to those countries that had trouble. It gave
them over-valued exchange rates and much more capital than they knew what to do
with, and then something went wrong and they all tried to pull out. One reason
for that was that they were coming in last and they did not know what they were
investing in. Therefore, they were in trouble. Capital from far away tends to
be last in and first out, which sometimes causes more problems than it solves.
The discussions yesterday at the UN were precisely on the issue of capital
mobility and the architecture of international financial institutions, so I can
tell you a little bit about the experience of affected countries and what the
perceived opinion is. First, on the tax side, proper income tax treatment of
international capital flows would be much more effective than a Tobin tax and
hard to achieve. However, one of the reasons that this capital sloshes about is
that the profits on it are often booked through a tax haven, which then doubles
the profits from what they should have been or what they would have been
relative to other kinds of activity. That would be an important new kind of
international treaty, that is, harmonization of taxes on capital income. It
would stop countries from being pulled by the capital mobility forces you are
talking about, just having much lower tax rates on capital and labour income
because labour is less mobile than capital. So you have low rates on capital to
stop it moving. The world would be a better place if all countries had a more
equal level of tax on capital and income.
There was some feeling that part of the problem for the Asian countries was not
related to high capital and mobility but that both the banks lending to the
southeast Asian countries and the banks borrowing did not apply proper
prudential standards of foreign exposure risk. It was, in part, internal
standards as well as bad judgment on the part of the bankers. They lived with a
situation of fairly stable exchange rates and did not understand the risks
inherent in an unmatched foreign exchange portfolio.
So, everyone would agree that international mobility would probably be less if
banks kept balanced foreign exchange books, just as our banks do. There is now
a view that proper regulation and exposure of the banks' foreign exchange risks
could have prevented that problem, just as the 1929 stock crash could probably
have been avoided had there not been the same ability to purchase on margins at
that time. Hence, the next generation's institutions are developed in order to
solve the problems of the last. There are institutional changes under way in
I was at a conference last week in Malaysia that dealt with those issues. It was
apparent that they were looking at matters of corporate governance, of the
structure, regulation and survey of banking sectors, and that they will not
want to be caught out again.
Malaysia has also put in a lot of restrictions on foreign capital mobility in an
effort to ensure that, whatever type of system they have, they will not be
taken hostage in the future. For most countries, it will make sense to do as
Chile has done, that is, to put some tax on incoming short-term flows. The
effect of that will be to prevent the countries that do everything right from
becoming the darlings of financial markets and, therefore, from drawing in all
the capital, which has the effect of raising the currency and twisting the
trade balance, thus creating unemployment followed by a current account
imbalance, which then causes the currency to drop, and the cycle to begin again.
Therefore, to stop that cycle altogether, short-term money should be taxed as
it comes in, for a start. It does not have much salience for a country like
Canada; however, it has some potential for being adopted in more countries. It
is too early to tell, but that is my reading of the discussions.
Turning to the MAI, it has been a controversial item. I referred to the lack of
public information about it. The media conducted an information-free contest on
their time rather than talking about the issues. Before the MAI was dead, had I
been asked, I would have said, "The MAI is dead, but let us talk about the
issues that might lead somebody to want to have an MAI and what you might want
to put in it."
The MAI, as it was written, was really a charter of rights for corporate
investors. Most of those who design charters of rights properly make them
charters of rights and responsibilities. There should be some mix of rights and
You spoke of labour standards being important. Environmental standards are
important, social standards are important. It would be very easy. I used to
argue in environmental circles that the right way to achieve international
environmental standards would be to put them in a code of conduct for direct
investors. That code of conduct would include the regulation that no country
will undertake a direct investment project in a foreign country that could be
constituted as environmental dumping because they will agree not to use
environmental standards that are worse than some agreed international standard.
That agreed-to standard may not be quite as high as that in their own country,
and they could choose to exceed that standard, but at least they will not fall
below some international standard. The same applies to social and labour
If you had an MAI that set out the ground rules for investors so that investors
would not be tempted into environmental dumping because none of their
competitors would be allowed to do it, many people would be prepared to take
socially responsible action. The trick is to have a set of rules that everybody
agrees would make the world a better place, and then provide some guarantees
that everyone will live by. Everybody has to live by the same set of rules.
That is the social order that your committee is considering in its international
guise. A properly designed MAI could be an important part of that. It would be
different from the MAI that was under discussion. It would have different
implications and consequences, but it might characterize a better world order
than the one we are backing into.
I have dealt with all of your questions except the one on the productivity gap.
I have spent a great deal of time studying that issue; however, I cannot talk
about it this afternoon.
The Chairman: As to the FTA, NAFTA and the WTO, do you take it that the
constraints we accepted are entirely appropriate, good for the economy, and/or
unimportant in terms of our freedom of action as a country?
Mr. Helliwell: The WTO is, by and large, all good and not bad, seen from a
global perspective. The overall gains in Canada's share of them are almost
certainly more than the cost. The FTA is a more clouded issue. The FTA has
created more trade between Canada and the United States than anyone guessed.
However, the productivity gains that are said to be coming out from it have not
One view as to why that is says that at the pre-existing levels of trade
intensity between the two countries -- even though they were a fraction of the
inter-provincial ones -- we had probably managed to wrest the main comparison
advantages and scale from trade so that the extra trade we have generated since
then has not had a very big productivity dividend. It is too early to be sure
If that is true, then it means that the FTA did not produce a whole lot . If it
did not produce many gains, it was then a special two-country arrangement that
did not contribute easily to the world, so you would have to say it was in the
class of things that did not make much difference.
The Chairman: The same applies to NAFTA.
Mr. Helliwell: NAFTA is more important, not for Canada, but for Mexico, because
NAFTA was a very big move for Mexico, potentially a move that will transmit
itself further down into Latin America.
The Chairman: Mr. Helliwell, we thank you very much for a stimulating and
This is our last meeting before the holidays. Let me take the occasion to wish
each and all of you and your families a most happy Christmas and a Happy New
Year. Let me extend the same wishes to our clerk and to all the staff here who
do so much to make our life pleasant and agreeable.