Social Affairs, Science and Technology

The Standing Senate Committee on Social Affairs, Science and Technology

Final Report On Social Cohesion

Chapter 1

Why the Discussion on Social Cohesion Now?
Social Cohesion: Various Definitions
The Paradox of Economic Growth and Social Exclusion
Social Disintegration as the Price of Global Economic Integration?
The Importance of Values and Re-Distributional Issues
New International Thinking on the Social Dimensions of Economic Growth
Two Notions of Competitiveness

Why the Discussion on Social Cohesion Now?

Economic concerns dominated the public policy agenda of most advanced industrialized nations in the 1980s. In Canada and elsewhere in the OECD world, governments were plagued by chronic deficits, high rates of inflation and stalled growth. They therefore began to curb public expenditures, liberalize trade, re-organize the welfare state and deregulate the economy in order to create more competitive markets and clean up the public finances.

These measures are generally considered to have improved overall economic performance. Inflation has fallen, we no longer have a budget deficit, and unemployment is decreasing. At the same time, however, there is a growing impression that economic policies have placed too little emphasis on social considerations.

A number of countries, including Canada, are witnessing signs of public dissatisfaction and of eroding faith in governing institutions(2), as more and more citizens, especially youth, experience the costs of this restructuring without much hope of sharing the benefits. This is why a growing number of governments, international research organizations, and policy institutes are now talking about issues related to "social cohesion".

Different countries use different definitions of social cohesion, reflecting their own tradition, history, culture and institutions. In all these definitions, we see that the term "social cohesion" implies the capacity to live together in some harmony and a sense of mutual commitment among citizens of different social or economic circumstances.

Social cohesion is not part of the vocabulary of those who consider that things are going well. It is increasingly the case that social cohesion is only invoked by what it is not. We are rarely presented with views of what a high degree of social cohesion would look like. But we are bombarded with descriptions of the lack of social cohesion in contemporary society, especially indications of social corrosion and fragmentation.

Social Cohesion: Various Definitions

Public opinion polls show that for a growing number of people, there is a strong sense of insecurity and of worsening social circumstances. Polls conducted throughout the 1990s by Ekos Research indicate that most Canadians (more than 70 per cent) think that we are becoming a more divided and polarized society. Table 1 in Appendix C also reveals that about half of Canadians say they really worry that new technologies take away more jobs than they create.

What are the sources of this growing sense of insecurity? Here are some facts:

• Income polarization is increasing in the labour market between a core group of older and more highly-skilled workers with good benefits, and a group of younger workers with low skill and precarious jobs;
  
• In the last 15 years, the real annual earnings (before tax/transfers) among young people aged 18 to 24 declined by 30%;(3)
  
• The average income of Canadians has declined in the 1990s. The average net income of households in Canada was $37,000 in 1996, about $2,400 or 6% less than in 1989;(4)
  
• The 1990s saw the "casualization" of the labour market(5). This trend has been driven to some extent by the growth of services and by the growing use of contracting out by large companies and governments. Between 1991 and 1995, contract, temporary, and seasonal work increased from 5% to 12% of the labour market. Most of these workers do not have any form of social protection, benefits and economic security;(6)
  
• The rate of involuntary part-time employment – i.e., part-time workers who would rather be in full time jobs – increased substantially from 12 per cent of all part-time workers in 1976 to 36 per cent in 1995;(7)
  
• Status Indians have a per capita income that is less than half of the average non-Aboriginal Canadians;(8)
  
• Homelessness has grown to the point where mayors of Canada’s largest cities have declared the problem a "national disaster";
  
• New international research on adult literacy levels for a large number of OECD countries show that almost one fifth of the adult Canadian population is functionally illiterate, unable to extract and use information from simple documents. (Dr. John Myles, Visiting Research Fellow, Statistics Canada, p.6 of brief)
  
• For the first time in a recovery, the poverty rate has not gone down in Canada. The incidence of poverty has risen in the 1990s and those who are poor are getting poorer. Poverty is increasingly concentrated amongst four groups: female-headed single parent families; families headed by a disabled person; recent immigrants and Aboriginals.(9)

The Paradox of Economic Growth and Social Exclusion

Does that look like the "best country in the world"? How can Canada be ranked the first in the world in human development, while at the same time being condemned by the United Nations Committee on Economic, Social and Cultural Rights for the way some of our most vulnerable citizens are treated? Why is Canada allowing more people to fall into poverty during a time of strong economic growth and increasing affluence?

Many Canadians are asking these questions and governments are now under increasing pressure to start thinking more about the longer-term societal implications of economic policies. In part this is because of a growing sense of dissatisfaction arising from the changes brought about by economic globalization and technological development. The Committee believes that as this malaise spreads through society it threatens to undermine both the drive towards greater economic flexibility and the policies that encourage strong competition, globalization and technological innovations. The political consensus in favour of policies designed to enhance economic efficiency and growth could easily evaporate if the sacrifices and social costs are seen to fall primarily on the poorest and weakest segments of society, and the benefits are enjoyed by others.

Those who bear a disproportionate share of the burdens and risks of growth but enjoy few if any of the benefits will not passively accept their fates. Unless they feel some stake in economic growth, they are likely to withdraw their tacit support for free trade, capital mobility, relatively open immigration, deregulation and other similar features of open economies. While those policies do generate growth, they do so at a cost. Now, when the economy is doing well and our fiscal house is in order, is the time to acknowledge and address those costs, and thereby help re-knit the social fabric.

Social Disintegration as the Price of Global Economic Integration?

A particular concern is the broad cross section of Canadians who fear that they and their children will not be able to benefit from global economic integration. For many Canadians, globalization is exposing social fissures between those with the education, skills, and mobility to flourish in an unfettered world market – the apparent ‘winners’ – and those without. Many Canadians are increasingly anxious about their standards of living and their precarious place in an integrated world economy. Whatever concepts we use to describe this phenomenon – social exclusion, poverty, the marginalized, the underclass, the ‘have nots’ – there is a shared concern that the benefits of the macroeconomic and social policies that we are pursuing are failing to reach some groups; that some people are ‘falling through the cracks’ and they, as a result, are losing the capacity for full social and economic participation. This is contrary to the Canadian tradition of social justice and equity, and, if this trend persists and worsens, it could threaten social cohesion and undermine the other gains from economic growth.

The challenge of social cohesion in the new global era is to find more effective ways of creating opportunity for the greatest number of citizens. There is a danger that the continuing dynamic of social, technological and economic change will polarize the population between those who benefit from globalization and those who fear that this process will limit their abilities to participate in the economic and civic life of the nation. Government policies need to respond to this danger by an increased and renewed solidarity.

Our goal is to ensure that the benefits of globalization are achieved, while providing scope for those who have more difficulty competing in the new global economy to participate effectively in work and in their communities.

The Importance of Values and Re-Distributional Issues

As many witnesses have argued, and as studies are showing, social cohesion is about shared values. In modern, pluralist societies, people share some values and differ on others. Conflict over values does not pose a threat to social cohesion as long as mediating institutions exist to effectively manage these differences. In Exploring Canadian Values, Suzanne Peters of Canadian Policy Research Networks found that there is a set of core values that all Canadians - regardless of language, region, or class - cherish and that have remained fairly constant in recent history. Similarly, Michael Adams, President of Environics Research Group, said before the Committee that research conducted by Environics shows that there is a greater consensus on social values in Canada than in the United States. (Michael Adams, President, Environics Research Group, October 6, 1998)

Shared values are indeed crucial; no country, no community, no institutions could function successfully without them. But inherent in the shared values is the concept of a fair distribution of opportunity and income as the foundation of social cohesion. Building social cohesion in the era of globalization will require that we find ways to give more Canadians a chance to access the benefits generated by global economic integration. People who feel shut out will either lose hope and become dependent on handouts, or they will find ways to resist. The end result could be depressed economic growth and a greater burden of dependency.

To avoid this possibility, the Committee strongly endorses the recommendation made by the Social Cohesion Network in its last report on Rekindling Hope and Investing in the Future which encourages the federal government to begin "to focus as much attention on societal health as it has recently and successfully on the fiscal health of the nation."(10)

The most serious challenge for policy-makers in the years ahead lies in making globalization compatible with social cohesion. The challenge is to ensure that international economic integration does not contribute to domestic social disintegration.

For too long, it has been assumed that, once economic fundamentals are corrected, social issues will resolve themselves of their own accord: dynamic, well-functioning markets would not just create wealth, they would also resolve problems of human welfare.

But now, some are beginning to question this assumption. As the Minister of Finance said during his last budget speech: "A rising economic tide does not lift all boats". Some boats are more seaworthy than others. The yachts and ocean liners are indeed rising in response to new opportunities, but the rafts and rowboats are taking on water – and some are sinking fast. Social disintegration is not inherent in globalization. However, since liberalization exposes domestic producers to volatile global markets and to capital flows that are large relative to the economy, it increases risks – but it also increases potential rewards. For social cohesion the challenge is to identify policies that enable those left behind to participate in markets on more equitable terms, nationally and globally.

During the hearing process the Committee has seen some emerging signs that the traditional view of separating economic issues from social issues and of treating the latter as secondary to the former, is losing ground. Whether in terms of unemployment, poverty or homelessness, we risk paying a heavy price if we continue to put social issues in abeyance. For too long, decision-makers in business and government have assumed that short-term social costs could be offset against long-term economic gains. What they forgot to take into account was that social damage could itself frustrate economic objectives.

New International Thinking on the Social Dimensions of Economic Growth

Until recently, most experts and policy-makers in government believed that there was a tradeoff between social and economic issues; between social justice and economic performance or in other words, between market and society. In the 1970s, most economists believed that societies could either have social equity or economic efficiency, but not both. Now, recent evidence from international research shows that more equal societies are likely to be more prosperous in the long term and to have higher levels of well-being(11). Equality has a positive impact on investment, both in human capital and physical capital.(12)

Why are more equal and socially cohesive nations economically better-off?

• Social cohesion implies a sense of mutual trust, and research shows that mutual trust is important because it reduces transaction costs in economic activity. It enables better information and better allocation of resources. Economic activities that require some agents to rely on the future actions of others are accomplished at lower cost in higher-trust environment. Trust-sensitive transactions include those in which goods and services are provided in exchange for future payment, employment contracts in which managers rely on employees to accomplish tasks that are difficult to monitor, and investments and savings decisions that rely on assurances by governments or banks that they will not expropriate these assets;
  
• Social cohesion affects economic growth through its impact on the costs of health care. There is evidence that more unequal societies have poorer health, both in the incidence of ailments and in the cost of those ailments.(13) Any excess resources spent on health care are resources that are not available for either reinvestment in the future or for personal consumption;
  
• A society where most people are well-educated tends to grow faster because more workers have the skills to do "knowledge" work. A well-educated society is self-reinforcing in the sense that well-educated parents are known to invest more in ensuring their own children are well-educated.

At first look, the case of the United States seems to challenge the argument that more equal societies are economically better-off. This is a country well-known for its ghettos, for its deep cleavages and inequalities which, nevertheless, has had in the 1990s great success in improving growth and creating jobs. But at the same time, research shows that the United States is becoming, in the words of Harvard economist Richard B. Freeman, an "apartheid economy" – one in which the wealthy and powerful prosper while the less well-off struggle. From the former United States Secretary of Labor Robert Reich on the left to politicians like Pat Buchanan on the right, there is a consensus that something is wrong with the American economy. That something is the distribution of the fruits of economic progress. Low wages have contributed to the growth of the "working poor" and many worry about the ability of the American economy to take care of working citizens. In the United States the absence of a significant safety net means that the principal way through which poverty is reduced is through higher wages in the job market. But as real wages for the less skilled workers have stagnated in the 1980s and 1990s, poverty and inequality have increased. There is a concern that these trends will create long-run social costs.

One such cost is high rate of crime, which has generated a growing prison population and huge expenses for the criminal justice system. In the United States, research shows that incarcerating a criminal costs about as much per year as sending someone to Harvard. In 1995, the state of California budgeted more for prisons than for higher education.(14)

Two Notions of Competitiveness

The difference between the ‘old’ and the ‘new’ thinking on the relations between social and economic policy issues has to do with whether one focuses on the short term or the long term. In the words of Judith Maxwell, the difference is between a notion of competitiveness driven by cost-minimization and which focuses on very short term considerations of survival in the marketplace; and a newer notion of competitiveness which focuses more on long-run dynamic growth.

In Canada the first notion of competitiveness has been dominant in business and government circles in the past 15 years, while the second and more recent notion is slowly becoming accepted in certain parts of our economy, but has not yet become the conventional wisdom.

But business, like government, can no longer afford to ignore the serious threat that the erosion of the social fabric poses to future economic growth. One of the problems is the widening disparities between rich and poor. If income disparities are not reduced, they will badly fray the social fabric and undermine the basis for future economic growth.

In the end, strong economic growth can be sustained only if the benefits of a robust economy – more and better jobs, higher incomes, and an elevated standard of living – are available to all members of society.