Proceedings of the Standing Senate Committee on
Social Affairs,
Science and Technology
Issue 33 - Evidence
OTTAWA, Wednesday, May 12, 1999
The Standing Senate Committee on Social Affairs, Science and Technology met this day at 4:18 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: Colleagues, today we return to the question of social cohesion. I believe this is our twenty-eighth meeting on this subject.
We are pleased to have as our witness Professor Keith Banting, Director of the School of Policy Studies at Queen's University and holder of the Stauffer-Dunning Chair in Policy Studies. You have a biography of Professor Banting before you. I will not read it to you. He is a graduate of Queen's with a doctorate from Oxford. He has taught at UBC and at Queen's and has been a visiting fellow at the London School of Economics, Harvard, and the Brookings Institution. He has written widely on public policy matters and served as research coordinator for the Royal Commission on the Economic Union and Humanities Research Council. He was a member of the SHIRC and vice-president of that council. He served for a while as Associate Dean of Graduate Studies in Research at Queen's.
I want to tell you about a book entitled, Degrees of Freedom: Canada and the United States in a Changing World, edited by our friend Professor Banting together with George Hoberg and Professor Richard Simeon.
This book deals with some of the problems with which we are grappling in this committee. It discusses how international economic restructuring and increasing social fragmentation have produced a daunting policy agenda to which Canadian and American political leaders must respond. It asks whether the modern state is still capable of developing creative responses to new problems or whether it is now so confined by international and domestic constraints that it is no longer an instrument of change and progress.
The book is well worth reading; notably certain chapters that I have marked on changing economies and changing societies by Professor Banting and Professor Simeon; another chapter on the social policy divide, the welfare state in Canada and the U.S. by Professor Banting; and finally the conclusions on globalization, fragmentation and the social contract.
You can send to the library for the book or, better still, buy it.
Professor Banting, are you a relative, even distant, of the co-discoverer of insulin?
Mr. Keith Banting, Director, School of Policy Studies, Queen's University: Yes, I am, with emphasis on "distant." Of course, he had died in a plane crash before I was born, so I never met him, but our family claims all the reflected glory we can.
The Chairman: Senators, despite his relative youth, Professor Banting is in the midst of a very distinguished career. I am delighted that he was able to appear here today. I invite him to deliver an opening statement, after which we will open the floor for questions and discussion.
Professor Banting, please proceed.
Mr. Banting: Thank you very much, Mr. Chairman. Thank you also for what you said about my book. If I ever need marketing support, I may call you for endorsements.
This committee has the very large mandate of tackling the issues of social cohesion in the contemporary period. I thought that in my opening observations I would comment on two of the issues that are before you, and then we can range more widely in my subsequent comments.
I have prepared a text. I also brought three or four charts to which I would like to refer as I go along. The first issue on which I will focus, which I think is fairly central to your mandate, is the changing role of Canadian social policy, the changing role of the Canadian welfare state, and the implications of those changes for our conceptions of security, our approach to redistribution, and the level of social cohesion in our society.
The second question to which I want to refer is one which the chairman mentioned a moment ago; to what extent are we constrained by international economic forces and, in particular, by our relationship with the United States, in developing our social contract and grappling with issues of social cohesion. Will we be able to maintain a distinctive social contract, a distinctive set of social programs, on the northern half of the North American continent?
Those are the two questions on which I want to focus. I will be focusing on social programs primarily, but will be relating my comments back to the ideas of social cohesion.
With regard to changes in the nature of the Canadian welfare state and the implications for social cohesion, the Canadian welfare state is under strong pressures, pressures which are common throughout the OECD nations, pressures rooted in economic change, economic restructuring, technological change, globalization and changing political conceptions of the roles that government should adopt. Thus, we clearly have a system under stress. To understand the nature of the implications of our current context, it is useful to establish a benchmark. The benchmark to which I would like to refer is the way in which we thought about social policy in the post-war period. I will then compare that with the kind of social contract or welfare state that seems to be emerging today.
I would argue that the post-war welfare state had a very distinctive balance built into it; a balance between security on one hand, redistribution from rich to poor on the other, and social cohesion on the third side. There was a very clear balance between these three goals and that balance is being changed quite sharply today.
In the years after the Second World War, when Canada laid down the basic structure of the welfare state in this country, the primary goal was security. The touchstone of the welfare state in that period was the Depression experience of the 1930s, and the basic aim was to build a system of social protection against the risks inherent in modern life: risks of unemployment, disability, illness, poverty and old age.
The important point for the post-war generation was that these risks were thought to be confronting all Canadians, not only a small group called "the poor." Therefore, the aim was to build a system that would protect and enhance the security of the population as a whole. In that period, as a result, social programs came to be associated with the ideas of universality, social insurance and social rights.
I would characterize the post-war welfare state as a security welfare state. The primary goal among those three was security. In contrast, the post-war welfare state was actually a move away from redistribution from rich to poor. Redistribution, the flow of funds, was primarily horizontal; that is to say that the flow of funds was from the employed to the unemployed, from the healthy to the sick, from the middle aged to the elderly. It was primarily a flow across levels of income rather than vertically from rich to poor.
Universal programs with a relatively progressive tax system did have a mildly redistributive impact between rich and poor, but the basic aim was security for the population as a whole, and any redistributive impact from rich to poor was in some sense a secondary consequence.
If the primary goal was security and the lesser goal vertical redistribution from rich to poor, the post-war welfare state was also about social cohesion in a significant sense. Ever since the introduction of social insurance by Bismarck in the 19th century, the welfare state in general has been thought of as an instrument of building bridges across divisions in society. It has been seen as an instrument for enhancing social cohesion, for reinforcing the idea that we are a common community within which people generally share benefits and carry the same set of obligations.
This concept was best captured by a British sociologist, T.H. Marshall, who wrote in the late 1940s about social citizenship. He argued that the idea of citizenship, of being a citizen of a country, had originally been largely about civil and political rights. In the 17th, 18th and 19th centuries, that is what the idea of citizenship was; you had common civil and political rights. However, in the mid-20th century, he argued, we have added a set of social rights, or a social dimension, at least, to citizenship, reinforcing the idea that we are a single community, that citizens have benefits by virtue not of what group they are a member of, not of where they live, but because they share a common citizenship in a country, and that that would build bridges and reinforce a sense of common community in societies that were otherwise divided.
In many countries, this sense of social integration and this sense of a common community being reinforced by social policy is seen largely in class terms -- that is, divisions between rich and poor. That was also true in Canada, but in Canada, we have also tended to think of a common set of social programs as being an instrument of social cohesion in regional and cultural terms as well. In this country, more than in many countries, we have tended to say that social programs and our commitment to inter-regional transfers so that we have comparable social benefits in rich and poor regions alike are part of a social glue, not just between rich and poor, but also between rich and poor regions.
That was my characterization of the post-war social compact and the post-war social citizenship model. There is an emphasis on security, a less explicit focus on redistribution between rich and poor, and an emphasis on social cohesion. That is my benchmark.
That model is under a lot of pressure today for all of the reasons you have been discussing, and I think a new balance is emerging among the three goals of security, redistribution and social cohesion. The shifting nature of this balance is central to the issues before this committee.
At the heart of the change is the fading of our commitment to the concept of security. I would argue that we are essentially backing away from the idea that our social framework and social programs should provide security for citizens. We are shifting in other directions.
This is perhaps less evident in the health care sector, but you can see it, in part at least, in the pension sector, and you can see it significantly in the area of labour market programs -- unemployment insurance, social assistance and employment programming generally.
I think governments are convinced that they can no longer protect Canadians from the dislocations inherent in a changing economic order. The emphasis today is on flexibility and adjustment and on education and training as the best means of preparing citizens for the global economy. Indeed, the conventional wisdom is that we cannot protect or buffer people from change. The best we can do is help them to change. In other words, the best and only form of security in the contemporary world is human capital -- investment in skills and training.
This transition, if it were to be done properly, might not be thought of as backing away from the idea of security. It might be thought of simply as changing our idea of security, changing the concept of security, and changing the instruments through which we achieve it.
It might be argued that Canadian governments are as committed to security for their citizens today as in the past, and all that is really happening is that we are shifting from income transfer programs, as the way we secure security, to educational instruments.
I wish I believed that. It would be reassuring if I did, but I do not. Governments have acted strongly on the first side of this change. We have seen reductions in the traditional instruments of security on the income security side. Unemployment insurance and social assistance, for instance, have taken significant cuts. However, despite the rhetoric, governments are not investing heavily in the new instruments of security. Canada has traditionally had a highly educated, flexible workforce by international standards, and we spend more per student than many other countries. Only the U.S. spends more. Nevertheless, I think there are serious signs that this commitment is weakening rather than being reinforced. Education expenditures have been cut in many provinces, university tuition fees have risen significantly, and many students are graduating with heavy debt loads, raising serious issues about the equality of access for young people from poorer backgrounds to the new instruments of security.
We have also seen significant weaknesses in the area of training. I would refer you to the 1998 survey by the OECD of Canada, where the weaknesses of our training system are set out in considerable detail.
This suggests to me that Canada has not come to grips fully with the implications of a knowledge-based economy for our underlying concept of security. The post-war generation was committed to a universal concept of security. Their contracts sought to establish a right to protection from the risks of the world as they understood those risks. Our generation has not developed a similarly universal commitment to security as we are coming to understand it. We have not ensured universal access to advanced education and training, and I think our policies are moving in the opposite direction.
If security, then, is fading as a goal, and we are not as committed to security as we were at one time, what is the new balance? It strikes me that the new balance puts more emphasis on vertical redistribution, which has become more prominent. I would call the emerging paradigm the redistributive welfare state, not the security welfare state.
Increasingly, the operating assumption is that the primary purpose of social policy should be to target scarce resources on the poor. Universal programs like Old Age Security and family allowances have been turned into income-tested programs and child benefits. One of those new programs has been enriched repeatedly. Income testing has crept into our unemployment insurance system and our social insurance system. There is income testing of those benefits through the tax system. We rely increasingly on social assistance as the primary or the final instrument of income stabilization in this country. If I am right about this transition, what does it mean for social cohesion? I will give a mixed, two-part answer to this question.
On one side, this shift has helped Canada sustain a level of social stability and a level of social cohesion in the gap between rich and poor. Despite all of the rhetoric about rising inequality in this country, the reality is that the tax transfer system, especially as it has been strengthened on the redistributive side, has offset that growing inequality Canadians are gaining in the workplace. For that, I would refer members of the committee to the first of the charts that I circulated, which is entitled, "Gini Coefficients, families, by market, total and after-tax income, 1971-1996."
The Gini coefficient is simply a measure of the level of inequality in a country. The higher the number, the more unequal the distribution of income; the lower the number, the more equal is a society.
The top line is the market income Canadians derive from working in the economy. That is what they earn. As you can see, over time it has become more unequal. If you look only at the incomes Canadians are deriving from the economy, it is true what many people say -- we are becoming more unequal. The gap between rich and poor is growing as long as you only look at market earnings.
If you shift to look at income that Canadians have after the effects of social transfers and after the effects of taxes, a different story emerges. The middle line, the one with the dots, is the level of inequality if you take into account the money Canadians earn when they work in the economy and government transfers, such as unemployment insurance and pensions. The bottom line also takes into account the role of taxes, particularly income taxes.
This chart indicates that it is true there is greater inequality when you look only at earnings and what Canadians are getting out of the workforce. The gap between rich and poor and between the educated and poorly skilled is growing. However, if you look at the final income people have in their pockets after taxes and after transfers, we are as equal as we were in 1971.
Government in this country has continued to succeed in its historic purpose of offsetting major growth in inequality in the market. That strikes me as a major benefit. Stability may not be the greatest thing in life, but stability in tough times and turbulent times is not to be ignored.
On one hand, I would give the system an "A" in terms of preserving social cohesion, or at least mitigating the gap between rich and poor. I would warn this committee to be careful about automatically accepting all the arguments that we are becoming a society of rich and poor and that governments have abandoned their historic purpose of offsetting that. For the evidence suggests that, despite everything, the pattern is one of relative stability in the income Canadians have after government has had its effect.
That is the plus side of the assessment for social cohesion. However, there is another side and it is on the vertical redistribution side. It does not come to grips with the security question. I would argue that in Canada there has not so much been a redistribution of income as there has been a redistribution of insecurity. Essentially, as governments have moved away from the general protections they provided in the past, citizens are more exposed. Those protections, even for middle income people, are not there in the same way as they were before. Looking only at the distribution of final income misses the fact that we have had what might be called a downloading of risk, and citizens feel it in their lives. They know that they may be all right today but that the protections, if things get tough, are not as well built in as they used to be.
The downloading of risk is hard to measure but it is in the psychology of citizens. It is why we have this disconnection in our society between the empirical evidence, which says that in the final analysis inequality is not greater than it used to be, and the psychology of our society, where anxiety, uncertainty and insecurity about the future is real.
Governments have protected themselves by adopting programs that leave them less exposed if there is a downturn in the economy. The federal government has transferred some of the risks to the provincial governments, and provincial governments have passed some of the risks to citizens. By backing away from security as a goal, the distribution of income may not be changing, but the distribution of a sense of security is clearly changing. That is fundamental to our sense that we are a cohesive society and that we protect each other in that context.
It is difficult for a welfare state focused on vertical transfers to be an instrument of social cohesion. By its very nature, it treats Canadians differently. You do not have the same pattern, except in health care, of all Canadians sharing in a common set of services and benefits. By moving away from a social citizenship model, in that sense, the welfare state is probably not as strong an instrument of social cohesion at some deeper level. It is certainly not as strong, I would argue, in terms of the interregional pattern as well, but I know that is not central to your mandate.
The second point I would like to make turns on the question of whether we are capable of preserving a distinctive social policy regime on the northern half of the North American continent. In the post-war period, Canadians did build a social policy system that is quite distinctive from the one that emerged south of the border. This was clearest, obviously, in health care, but it is also true in our income security system and our tax transfer system, which is more powerfully redistributive than the American one.
What has happened to that distinctiveness compared to the United States as we have moved into an era of globalization and deeper economic integration with the United States, especially since the advent of free trade and NAFTA in the late 1980s and the 1990s? Many will argue that we have been converging, that our society policy regime is increasingly approximating that of the U.S., that we are being driven by the dynamics of economic integration to tailor ourselves increasingly to the American model. My short answer to that is that I do not believe it. I still think that, on balance, the Canadian welfare state is as different from the American welfare state as it was in the 1970s, which was the high point of social policy activism.
There are areas of convergence, areas where our two program structures have become more similar. The second graph in the package indicates one dimension of how we have, if anything, become more different from the United States since 1980, and that simply shows the proportion of public expenditures on social protection, that is, on social programs broadly defined as a percentage of GDP. In short, it simply shows what proportion of all of our resources in this country we are devoting to social programming. It shows that we have diverged steadily from the United States since the 1980 period. In the period of growing economic integration, the gap between the two countries has grown larger, not smaller.
One specific area of convergence is captured in the next graph, that being the area of unemployment insurance. This asks what proportion of the unemployed are receiving unemployment benefits in the two countries. As you can see, the Canadian number was historically always much higher. A larger proportion of people who were unemployed were on benefits. Our benefits were not particularly higher than those in the United States, but it was a more comprehensive program covering a larger percentage of the unemployed, whereas the United States had a lower number and a fairly steady number. You can see that in the 1990s we have moved our system toward the American one and the two are now quite similar in terms of the proportion of Canadians who are on benefits.
There are areas of convergence, but I would argue that there are areas of very significant divergence where, if anything, we have become more dissimilar. I would argue that our health care systems in Canada and the United States are considerably more different today than they were in the 1970s. If anything, we have moved away from the American model, not toward it, although I have heard arguments to the contrary. I would also argue that with regard to what we are doing in child benefits, our approach to the issue of ending welfare as we know it, to use President Clinton's phrase, is very different and much more humane than the approach adopted in the United States with term limits.
The final test for me is actually the last chart. This is the issue of income inequality in the two countries. This, once again, simply reports Gini coefficients, which measure the level of income inequality in a society. This measures the change in the level of inequality between the United States and Canada from 1971 until 1996. As you can see, the American numbers, which are flat through the 1970s, rise steadily in the 1980s and the 1990s, whereas the Canadian numbers, although they have bounced around a bit, have been relatively flat, moving up a bit in the last years but still not radically above where they were in 1971.
There are lots of conclusions one can draw from that chart. I will end by saying that I conclude from that chart that it is possible for different countries to make different social choices. It is still possible for a country to allocate differently the burdens of change and the costs of economic restructuring, and that Canadians, through their governments, have done so. They have made different choices. They have cut social programs, but they have cut in ways that have maintained a distinctive orientation and have reflected a different set of social values than have been dominant south of the border.
In conclusion, in answer to my second question, to my mind, nation states still have important degrees of freedom in a global era. National politics -- politics within countries -- still matters to the kinds of social choices that are taken and the kinds of opportunities that individual citizens enjoy.
Senator Poy: Professor Banting, referring to your second chart, how do you measure or calculate social protection? I ask that because I can see that the European average is much higher. How is that done?
Mr. Banting: The words "social protection" are misleading. These data are drawn from data gathered by the OECD, an organization of Western democracies. That is the language they use. They are really talking about social spending. They are not measuring the quality of protection in individual citizen's lives. They are really only measuring how much they are spending.
This chart tells you that with regard to social spending as a percentage of all the resources a country has in its GDP there is an average for the EU countries, which is set out in the top line, followed by Canada and then the United States. It only measures spending, not the impact of that spending on people's sense of security.
Senator Poy: For each country the cost is different. Thus, when you say, for example, social spending per person in the population, the costs in Europe, Canada or the U.S. are quite different. Do you take that into account?
Mr. Banting: Do you mean the cost of living?
Senator Poy: Yes.
Mr. Banting: The cost of living is taken into account in the sense that this is only measuring a relationship inside each country. It is saying, for example, that this country is spending 20 per cent of its resources on social spending, while this country is spending 25 per cent of its resources on special spending. You do not have to worry about the differences in the cost of living in that context.
These numbers are problematic if the need is different in different countries. For example, if a country has a larger proportion of its citizens who are over 65 and in the expensive phase of life where health care costs and pension costs are higher, then that would explain some of the reasons why one country might be higher and another country might be lower. These numbers are not "corrected," which is what statisticians would say, for demographic differences.
You have put your finger on an important issue, which is that it is hard to compare. However, the issue is not the cost of living in these numbers, the problem is the relative level of need in different countries.
You have to be careful how you interpret the numbers.
Senator Butts: You talk about there being more insecurity and risk in the present day and, I presume, therefore less cohesion. Your chart shows that the difference is because of government intervention or taxes. I am wondering if the problem is that most people are insecure because they know that governments change and that governments change their policies, and therefore I can be in today but gone in the next budget.
Mr. Banting: That is part of it. There is greater insecurity because the things that Canadians thought they could take for granted have been changed, which means that you are insecure about whether those protections will be there if you need them. I think there is a lot of that in the response.
There are two anomalies that illustrate this problem in the Canadian context. One is the fact that, as I have suggested, if you look at the distribution of income when the government has finished there has been stability in that, but everybody is convinced the gap is growing between the rich and the poor. The anomaly, which is that the difference between what the data tell us and what Canadians clearly believe passionately, is rooted in this sense not that necessarily the income is different but that they are not sure that they will be able to protect themselves and their family. That is to say, the protection systems that used to be there are not working as well as they used to. I think that is part of it.
The other anomaly is one that people are insecure about their jobs. However, if you actually measure the probability of getting laid off; if you take the number of people who are laid off as a proportion of the total labour force, you will see that it has not actually changed that much over the last 30 years. There have been little blips during recessions. However, the long-term pattern is that the probability of getting laid off is not that much greater now than it was in the past. However, there is no question that people are less secure. I think Canadians are right to feel less secure, even if the economy has always been changing and people have always been laid off.
The transition from an agricultural society, which we were predominantly in the 1930s to the 1950s, meant that many people were displaced. That transition displaced more Canadians than globalization will. We have always been a society in which there has been economic insecurity in terms of job prospects. People have moved, et cetera. That has always been there. However, people feel less secure today, even if the proportionate number of layoffs have not changed, because they do not have confidence in the systems that were designed to see them through the tough times. That is because governments have changed part of the social contract.
I would argue that it would be all right if governments said, "We will not provide security that way, but by God we will provide it this way." I do not see the investment in the new instruments of security around education, training, research and development and in building the instruments of security for a knowledge-based economy. We talk a good line, but I am not sure we are delivering, and I think Canadians know that.
The Chairman: Why do you suppose that is, Professor Banting? The quick explanation is that there is a reluctance for fiscal reasons. The question that occurs to me is whether there is a failure of imagination and policy. Are the ideas there that the policy makers, including officials and politicians, can have some confidence in, as apparently they had some confidence after the Marsh report in 1945-46?
Mr. Banting: I tend to be simple minded about these things. Therefore, I think the fiscal constraint is probably the biggest one.
If we had the dollars readily available, and if we had the ideas and the proven approaches, I think the answer to that question is, yes, we certainly have not exhausted what we know. I think we know how to provide better protection for students than we are doing at the moment. Certainly, many other countries have built stronger training systems than we have at the moment. I do not have any sense that we do not know how to do it. There are models out there. The fiscal constraint is the biggest one.
The underlying question is this: As a society, do we believe in security as much as we did in the past? It is possible that when governments react the way they do that we are seeing people saying, "We cannot provide security, even in the new form, even through new instruments, and it is a little bit more everyone on their own." I am a great believer in revealed preference: you look at what is happening and that tells you a lot about what people must be thinking.
It is possible that we are also backing off a little from the idea that governments can provide a secure context for citizens.
The Chairman: Your point was that there has been a fading of the commitment to the concept of security that we some of us grew up with: pensions, UI, et cetera. There is a new rhetorical emphasis on flexibility and adjustment, education and training, et cetera, but it is not being matched by investment. Is it not true that of the OECD countries, a higher proportion of our people have post-secondary degrees? Certainly, a higher proportion of our young people are taking post-secondary education. Why is this not working?
Mr. Banting: It is true; we have had a very strong record in post-secondary education compared with other countries.
If you are asking if people feel secure about their future, the growing costs of access to post-secondary education must put a large question mark around that for many people. The debt loads students are carrying and the implications for long-term family financial planning implicit in those debt loads for many people put a question mark around whether they will be able to keep their kids in school. There is a lot of anxiety around that question.
Does that mean that we, as a society, will back off that? All I can say is that we do not have the sense of security we had before. We have not invested enough to give people a commitment and a guarantee that if you have the talent, we will ensure that you do not face access problems by virtue of income. We have not given those guarantees. We are letting people carry the load individually, by and large. In many cases, there are high debt loads on graduation, and that triggers anxiety.
We said in the 1930s, 1940s and 1950s that we would guarantee this concept of security. We are not saying now that we guarantee this concept of security. We may actually be doing quite well delivering it, but we are not guaranteeing it.
The Chairman: The folks in finance and the people concerned about macro-economic policy look at this and ask where the payout is? If we are doing so much in post-secondary education, why do we have a productivity problem? I do not know whether that is the mandate of this committee, but that is their preoccupation.
Mr. Banting: This raises two questions. Are our measures of productivity good? That is an important question to start with, and there are major studies of that question and whether we understand the problem. Second, what are the sources of our productivity problems?
Whatever the sources of our productivity problems and the rate of growth in the economy, I do not think I would put them primarily at the feet of the education or training system. I think that our training system, more than our post-secondary education system, is an area of weakness compared to many European countries. If I were thinking about a productivity problem, I would be looking there more than to the post-secondary side. Productivity issues lie elsewhere in our economy.
The feedback into what we are discussing today would be on the tax side. Are our taxes, which are justified by the desire to maintain the redistributive impact of the social programs I talked about, the source of productivity problems? On that question, I am something of a skeptic, but I am also not sufficiently expert in the field to be definitive. I would not be the source of a judgment on that question.
Senator Butts: I find that your studies are accenting government as an institution for social cohesion. Have you given any great consideration to other institutions within our society that will either defer cohesion or build cohesion?
Mr. Banting: That is a very good question, senator. It is important to distinguish between social cohesion, on the one side, and what in the United States they call social capital.
I assume that the committee has heard from a number of people on these issues, but in the United States, people who talk about social capital are putting a lot of weight on non-government institutions, local institutions, voluntary institutions and community organizations. They argue that the real danger in our society is that those institutions are weakening for a variety of reasons, and this may be why people trust each other less. That is why they will cooperate less with each other; that is why they trust governments less; that is why they trust their neighbours less; and that is why they do not get together to do things jointly.
I think that the social capital debate is real. My sense is that if you are interested in social capital and trust, there is probably something to that debate. However, I think that it is very different from social cohesion as it is being discussed in this committee. Social cohesion is much more, to my mind, about building bridges across big divisions in a society or building bridges across what are potentially big fractures in a society between rich and poor, between regions in our country, between language groups, or between new Canadians and Canadians who have been here a long time. I am not convinced that local community action or voluntary organizations will be able to bridge those big potential cracks in our society.
Local action can do a lot in terms of building civic orientation and a sense of trust in others, but I would not count on those organizations to bridge the big divides that potentially fragment a society.
I always think quite differently when people talk to me about social cohesion versus social capital.
Senator Butts: That is a worthwhile distinction for us.
Are you familiar with the latest Fraser Institute study? It maintains and provides a lot of evidence to the effect that poverty is not increasing in Canada, but that inequality is increasing. They make the distinction that many people on welfare or on a low income are not really in poverty, but that the distance or the gap between those and the rich is widening.
Mr. Banting: I am not sure if I know the particular study to which you refer.
Senator Butts: It was released in the last few days.
Mr. Banting: I have been following the debate about the poverty line, and it is a long-standing debate. There is no question that the issue is how we define "poverty." If we change the definition, the numbers and the regional incidence shift significantly. Poverty drops more in some parts of the country than others when we adopt new poverty lines.
My sense is that the arguments of the Fraser Institute are rooted much more in definitions of what is poor than in changing the number of people in real economic situations.
I think we need a better poverty line than we have had in the past because it is almost impossible to explain it to anyone. If we cannot explain a low-income cut-off in one sentence and in a way that makes it compelling in a class or to a citizen on the street, it is not a helpful concept.
The Chairman: As we say, we should be able to put it on a bumper sticker.
Senator Butts: The problem is that we could never have one definition for all of Canada.
Mr. Banting: That is why some of the new definitions are regionally sensitive. The one being developed by Statistics Canada and HRDC is more of a basket of goods approach and reflects or takes into account rent differences, which is a big issue. Rents in Montreal, Toronto, Calgary and Vancouver are so different that when you build rent into the definition, which is what the new definitions do, we get a different pattern. The number of people defined as poor in Montreal is less than under the old line partly because the concept is built around the regional differences in rents.
Someone above the poverty line should at least be able to acquire this basket of goods. That is a much better concept because I can actually communicate that to someone. If you can communicate an idea simply -- and basket of goods may not quite fit on a bumper sticker -- it is probably a better concept.
The issue then becomes, what is in the basket of goods? That is where the Fraser Institute takes a very different line than some other people.
The Canadian Council on Social Development also thinks that the basket of goods approach is the right one, but they have more in the basket. Inevitably, it is a value choice; it is a public policy political choice about what you think that minimum should be in a society that considers itself to be humane. I have my views, but they are no better than anyone else's on that.
Senator LeBreton: You talked about post war and the goal of security. You went on to say that Canadians see social programs as instruments in regional and cultural terms as well. Do you think that in Canada we must move from universal social programs to a more targeted approach? If so, how do we do that?
Mr. Banting: That is a big question, but I will try to be concise. I think it is true that the framework of the social programs we developed in the post-war period was an instrument for social cohesion across the country, not only between rich and poor but between regions of the country and across our linguistic and cultural differences. There were a set of things that Canadians held in common by virtue of being citizens of this country. Irrespective of where they lived, the language they spoke, or their cultural heritage, they held these things in common.
It struck me as an important symbolic statement that we have multiple identities, that we live in many communities, but that the community that matters is the community of Canadian citizens.
The difficulty with "social citizenship," which is the phrase I use to communicate that, is that it faces a particular challenge in a federal state because a federal state inevitably must balance the community of all citizens and the regional communities, or the different communities that make up the country. If you take the idea of social citizenship literally to the extreme, it is a very unitary concept. It basically says that a child born in Chicoutimi should have exactly the same opportunity set, exactly the same basket of public goods, as a child born on Vancouver Island. If you go down that road too far, you are pushing yourself into a unitary, lock-step model of social citizenship, and that will not work in this country. It never has and it will not.
We need a framework of some common core programs. The Canadian and Quebec pension programs operate as a system, although they are not identical. I am a strong believer in federal income transfer programs. The federal government can transfer income and write cheques quite well, but it is not the same on the service side.
I have always believed that we need a framework where we can have comparable social benefits across the country so that, although Canadian citizens in different regions may have a slightly different mix of social benefits, there is not a radical disjunction.
With regard to how we get there, I am a fan of the recent social union agreement for two reasons. First, it allows the federal government to continue to make direct transfers to citizens without requiring provincial consent. I am thinking of the child benefit. The federal government has not always used that power wisely in recent years, but it is important to preserve it because it allows certain programs to provide a common base across the country. The community of citizens reflects it.
I also like the social union agreement in the area of federal-provincial programs because at its heart it says that we believe that the provision of social programs will inevitably be interdependent between governments, that we will not try to break the federal government and the provincial governments into watertight compartments and try to operate on a classical federal model with each government operating separately. At its heart it says that in the area of social services we believe that, although it will be messy, there must be a degree of joint decision making and joint management of federal and provincial programs, and that we need some rules of the road to govern that process, to make it less conflictual than it has been, to make it more transparent, to make governments act more civilly with each other.
I like the agreement because it says that on the federal-provincial side, and yet the rules it has put in place are not so demanding or so enacting that no federal government would ever be interested in entering into it.
The Chairman: There is much meat yet to be put on the bones in order to make this thing a reality in terms of transparency and even the joint management. The principles are all there, however.
Mr. Banting: Yes. I participated in a discussion of these issues for the IRPP journal Policy Options. Claude Ryan was one of the participants in our round table. He was a critic who said basically that you cannot tell what this is; that it is a set of principles, a set of norms, a set of rules, but that one does not know how it will come out. I think that he was absolutely right. The way governments use it, how they breathe life into those principles, will be important. There is nothing to preclude governments from interpreting the agreement in a minimalist way. If they interpret it in that way, it will not help much. If, on the other hand, they interpret it in a maximalist way, if they take the spirit as much as the letter of the agreement, and if they take it seriously and actually constrain their instincts to act to some extent, it could harden over time into something much more important.
The Chairman: Even as written, do you not think it changes the dynamic of a negotiation about a shared cost program? The provinces will have far more clout than they had.
Mr. Banting: I think that is right. It probably codifies some historic practice, but there have been enough exceptions that it nails it down. Provinces will have much more clout in the design of new shared-cost programs. As a consequence, I think the National Child Strategy is more likely to be the typical example of where you get more of what I will call comparable benefits rather than identical benefits. The negotiations of the future are likely to produce packages or menus of options rather than identical outcomes.
Senator Butts: I think, Professor Banting, that you are right in that. I belong to the children's agenda committee and we have had meetings on this with the Minister of Human Resources Development. I believe that he is making progress and he gives credit for that to the social union.
As you know, when people on welfare get the child tax benefit, they lose part of their welfare. They are no worse off, but they are no better off. The Minister of Human Resources has been working with the ministers of the provinces. When they have exchanged ideas, it has been very helpful. They are working out a way of exchanging ideas for how the welfare saved can be used for children. The minister was very optimistic about this.
I believe that you are right in saying that they could work it out. It may be that some departments will work it out and some will not, but the ministers of that department in the provinces are meeting.
The Chairman: That being said, it is a real problem in many ways that Quebec is not in it. We could go into that, but we will not. The question is what it does to Quebec's status.
Mr. Banting: Very briefly, I think you are right. One of the issues of social cohesion is trust. There is no question that our federal-provincial history in recent years has corroded trust between levels of government. I think that the social union agreement was helpful. It gives a break to the growth of anger and lack of trust among governments for the nine provinces, the territories and the federal government. There is an opportunity to check what was becoming increasingly deeply rancorous.
On the trust side, it has not done anything with Quebec. If anything, it is one more example, as many Quebecers would see it, of a case of the rest of the country making an agreement without Quebec.
For me, that means the way it is used will have to be very important. When one moves forward on any new agendas, one must ensure that it is a leader, especially in the early years and in areas where Quebec has a well-established presence. Under the social union rules, if a province already has a presence in an area, it gets the money, but it can divert the money to other initiatives in the same area.
If the next few things that are done under the social union agreement are in areas in which Quebec is a leader and not a follower, there will be fewer reasons for conflict with Quebec over the agreement.
The Chairman: We are tailoring our national programs to the Quebec model. I do not object to that.
Mr. Banting: The ultimate irony would be that if this logic prevails, then Quebec would become the leader in the system as a whole.
The Chairman: You mean from sitting outside the union, as it were.
Senator Wilson: The women I work with do not hail the social union agreement as a great progressive development, particularly for gender equality in Canada. That is partly because women will be at the mercy of the provinces. I happen to live in Ontario, as you do. We are not very sanguine about what will happen. In terms of gender equality, would you comment on the issues that women hope for, such as daycare and things like that?
Mr. Banting: I understand why women who are worried about gender equality issues in any particular province, for example in Ontario, would not find much solace in the social union agreement. I can see why they would take that position. All I would say is that it does not weaken the potential protection. I would argue that it modestly strengthens it in the sense that there is an implicit norm that governments should come more often to a collective table and that one should discuss these issues among government peers. You are right, there is nothing in here that requires any government to do something that it does not want to do.
The only thing I would say in defence of the social union agreement is that it does not make the situation worse than what it was before the agreement.
Senator Wilson: Not yet, at any rate. Our province is not noted for consultation.
Mr. Banting: There was nothing to force Mr. Harris into consultation before the social union agreement. The real issue is not the social union agreement but the CHST. That is because one or two requirements in the old Canada Assistance Plan were abolished when it was rolled into the CHST. If one has a complaint, that is where the complaint is, not with the social union, which was in a sense a sort of flow-through from that earlier decision.
Senator Wilson: There are many complaints about the CHST, yes.
[Translation]
Senator Ferretti Barth: Do you believe in social cohesion?
[English]
Mr. Banting: I believe in social cohesion as a value, something that we should strive to enhance or protect, yes.
[Translation]
Senator Ferretti Barth: In your opinion, how long will it be before Canadian citizens accept social cohesion? Will there be a comprehensive social cohesion or will each community have its own social cohesion in order to better run services? You referred to some uncertainties, some weaknesses of social capital. Those are very important things. How can you reach a general consensus among the whole population in the different segments of our society so that we organize the best possible social cohesion for everybody?
[English]
Mr. Banting: You ask a very challenging question. The short answer is that in any country, but certainly in Canada, we will not have a single global answer to the challenge of social cohesion. We will have many answers. Those answers will vary from region to region and community to community.
My conception of social cohesion in a country like Canada is that it has layers. There will be a common layer, albeit incomplete, for the whole country.
Senator LeBreton: For the community of citizens.
Mr. Banting: Yes. Some programs will be operated by the federal government or through federal-provincial agreements, which provide a bit of a framework, such as the Canada Health Act, where there is sort of one layer of social cohesion. Then there will be layers of social cohesion or policies that are relevant to social cohesion which will be regional or provincial. Then there will be elements of social cohesion which will be very much community based. That is where the issue that the other senator raised about non-governmental organizations becomes very important. The richness of community organizations will be particularly important in the local community. That is where the supplementary forms of support when you are in trouble will be important and will vary enormously. Some parts of the country will have richer communities than others, not in an economic sense but in the sense of vibrant engagement. I sometimes worry that some of our communities may not be as dense in their community networks. It is harder in some communities to organize people locally.
Every country will have a layered approach to this. Canada, more than most countries, will have different layers of initiatives that are relevant to cohesion. I think we need the common layer. We have to have a common layer because we must ensure that we maintain a sense that there is a community of all citizens, if only to ensure that we continue to transfer resources so that the second layer can be not identical but comparable in rich and poor regions alike.
Senator Ferretti Barth: How long will it take to do all this?
[Translation]
In our diverse society, it is normal to be concerned with so many issues that are becoming more and more complicated. In view of all these problems that take place, for instance, with new refugees, given the complexity of the Immigration and Citizenship Act -- that legislation is being reviewed and amended -- I think I will be dead by the time this study comes to an end.
[English]
Mr. Banting: I would say two things, senator.
This will sound trite, and I apologize, but the task of building social cohesion is constant. Every generation must build or strengthen social cohesion in order to face problems, but the task will never be done and it will never be complete. It will always be changing. Every generation must decide how to approach the issue. It is a constant of just living together as people. It will always be an issue. We call it social cohesion today and we called it something else before, but it is the same set of questions. It is a constant in our lives, and there will never be a date when we can say we are done.
I would say one other thing. I do not want to be misunderstood because I am not saying that there are no problems.
As Canadians, we should not panic about this. Many instruments are still there, but they are shifting. They are not as strong as they were and there are things we can do to strengthen this, but we are not starting at zero. Parts of these layers are already there. We are talking about preserving them, adapting them to changing conditions and strengthening them, but we are not at ground zero, which is about as hopeful as one can get these days.
The Chairman: With regard to your second chart depicting public expenditures on social protection, is the difference between the higher percentage of GDP we have been devoting to social protection relative to the United States accounted for by our public expenditures on health care, or is there more to it than that?
Mr. Banting: There is more to it than that. Health care is part of it, but we must always remember that U.S. governments spend a lot of money on health care. We tend to think of the American system as predominantly private.
The health budget in the U.S. is very large compared to most countries. The public portion of the health budget is about the same percentage of GDP as in Britain. In other words, the British and American governments spend the same portion of GDP on public health. That is something to bear in mind.
As well, we find differences in our income transfer programs.
The Chairman: The same chart shows that countries in the European Union are ahead of the United States and Canada by a considerable distance in terms of the percentage of GDP they devote to social protection.
When Ed Broadbent testified before this committee, he said that he would rather be an unemployed person in Western Europe than a low-wage earner in the United States. I think we all know what that means. It is an interesting question, but I am not sure I agree.
Would you agree that the Europeans have stuck with what you would consider the traditional commitment to a concept of security?
Mr. Banting: Yes.
The Chairman: What has it cost them?
Mr. Banting: You can look at it in pure expenditure terms, but that is not the real debate.
The Chairman: That is not my question.
Mr. Banting: The European model says that a government will provide high levels of security and that people who have jobs will have high wages and secure positions. However, their model seems not to be able to generate adequate jobs, particularly jobs for lower skill levels. The cost in European terms tends to be an insider-outsider model. If you are part of the 85 per cent who are in a good position, over time you are well protected. If you are outside -- if you are lower skilled, displaced in employment for whatever reason, or if you are a young person trying to break into the market, particularly a young person with perhaps medium or lower skills -- you face a much more difficult task.
Europe has an inequality, if you will, which is not the inequality in the United States. The Gini coefficients for European countries are much lower. They are lower than in Canada, in some cases, but there is an inequality in lifestyle, opportunities and satisfaction between those who are inside the system and the 15 per cent who are outside the system. That is what it has cost them.
The Chairman: That is a trade-off we would have to contemplate if we had stayed with the traditional concepts of security you mentioned at the beginning of your presentation.
Mr. Banting: The fundamental question is whether there is a third way between the American and European models.
To go back to Ed Broadbent's observation, I would rather be unemployed in Europe than a low-income worker in the United States, but neither is an attractive choice. We should not be satisfied with those two choices.
Is there a third way that we could have flexibility in labour markets -- perhaps not as flexible as the U.S. -- together with support systems, which would mean that we would not have the big growth in inequality? I would argue that we have done better than we sometimes give ourselves credit. We have not had the big growth in inequality, at least by the numbers I am relying on here.
The Chairman: After taxes and transfers.
Mr. Banting: That is right.
Our unemployment rate is higher than in the United States, but it has been trending downward. I do not think we have the entrenched insider-outsider model of the U.S. I would be more comfortable with the Canadian model if we were more enthusiastic about committing ourselves to the instruments of new forms of security.
The Chairman: We should put some money where our rhetoric is.
Mr. Banting: Yes.
The Chairman: You have referred to a major growth in inequality in market incomes. Do you have a ready explanation for this?
Mr. Banting: I can summarize the understanding of the people who are experts in this field. We do not have a complete answer as to why we have seen this.
In the United States, and to a lesser extent in Great Britain, it is being driven by a growing premium on skills. A technological economy provides more rewards to high-skilled, high-education groups. On the other hand, the wages for low-skilled, unskilled or medium-skilled labour is falling in real terms. In the U.S., skills and a higher premium on education are driving this. The gap between the individual who is university educated and the person who has less than a high school education has been growing steadily in the United States for about 15 years.
That is the U.S. story. Canadian analysts have been looking for the same thing in Canada and have not been finding it as strongly. They say that perhaps it is just a lag and that it may happen. However, we are not seeing it as strongly in Canada.
The growth in inequality in marketing has been more age-related in this country until now; that is to say, there is a growing gap between the incomes of established middle-aged workers and young workers. The issue is that at all skill levels entry level wages have been falling over time, which suggests that we have had insufficient demand at all skill levels. There has been a big flood of skilled labour into the market and we have not absorbed it all.
That as an explanation may have been adequate until recently, but we are now seeing the emergence of skill shortages in some fields. I expect that in time we will see the American pattern assert itself here, but we have not yet seen it in the data.
I am not a labour economist. Those are the people who worry about what the regression analysis tells them in this area. I cannot be definitive, but the logic is that it will increasingly be a skills-based differential. The skilled will earn higher incomes. The traditional, routine assembly line jobs from which people earned good incomes in organized plants are disappearing and that is the reason for it, although we have not yet seen the evidence fully in Canadian studies.
The Chairman: Your prescription is to follow through on our rhetoric about adjustment, education, training and that kind of thing. What do you say about the increasing phenomenon of part-time, casual, low-paid, no-benefits work in this country?
Mr. Banting: I am not personally opposed to the emergence of more diverse forms of employment. They are not always exploitative or unfair. The growth of contract labour and part-time work is not all involuntary. I would argue that we should ensure that we have very good rules to protect people in those forms of non-standard employment and we should ensure that our social programs are such that they do not discriminate against them. I would not try to lock us into traditional employment formats because that is precisely the kind of flexibility that I think is good in our labour market, and the Europeans do not have that.
The Chairman: Finally, if the difference between the great inequality in market incomes and final inequality in incomes is the tax transfer system, can the tax transfer system continue to carry the freight, especially given that all the pressures are for tax reductions?
Mr. Banting: That strikes me as one of the really big questions about the future in Canada: Will we as a public, not just as governments, remain committed to holding the line on the growth of inequality? I do not have an answer to that, but I am a taxpayer and I understand the pressures taxpayers are feeling these days. Although I would never claim to be personally under threat economically, I can understand the plight of families in the big middle, families who have seen virtually no growth in the real value of their wages. The average family income in this country after inflation has been stuck for two decades. If you take taxes into account, it has declined. It is not surprising that the average family is feeling pressure, and taxes are part of the problem.
I would only say that reducing taxes is probably inevitable, but the issue is how to do it. You can cut taxes in ways which are sensitive to the issues we are talking about here, or you can do them in ways which are insensitive to these issues. You can cut taxes to protect the people at the bottom more than those at the top, and you can get some leverage on these issues by the way you cut taxes.
The debate in the United States between the Democrats and the Republicans is partly about the extent of tax cuts, but it is also about who will benefit from them. As you move into a tax-cut era, the issue of who benefits does not go away; it just takes a different form.
The Chairman: I think that this was one of the best afternoons we have spent in a long time, colleagues.
The committee adjourned.