We know the future is coming and that we need to prepare for it, but some of the preparations will be expensive. We need to build a strong economy, and that will be a big job because we are now in sad shape.
In a "Survey of Canada" The Economist reported that living standards in Canada declined by 5% in a decade while living standards in the United States rose by 12%.[1] In 1998 the Canadian Labour Congress reported that Canada was the only major industrialized country in which living standards actually fell in the 1990s. Between 1989 and 1996, the CLC says, the average family income of Canadians (adjusted for inflation) fell by 3.9% while average real income per person in the United States grew by 6.2%. Real income in western Europe increased by a range of 6% to 13% over the same period.[2]
A report by the Organization for Economic Co-operation and Development considers three possible futures for the Canadian economy, and all of them are bleak.
In 1998 our GDP per-capita was 110% of the average of the 29 countries that make up the membership of the OECD. The report says that in 20 years our GDP per-capita will probably be about 85% of the average but it might be as high as 95%, or as low as 75%.[3]
That's not compared with G7 countries. It's compared with the average of 28 countries, some of which we think of as poor. GDP per-capita in the United States is now about 140% of the OECD average.
In fact Canada's position is even worse than it looks because GDP is not an accurate measure of production. It's just the total price of goods and services that we exchange, and many exchanges that have a negative impact on our general welfare have a positive impact on the GDP.[4]
The GDP increases when politicians give themselves a raise or increase their pensions. It goes up every time someone has a car accident or starts a forest fire or commits a crime.
The GDP increases when marriages break up and it may be reduced when couples marry. It increases every time a teen-ager takes up smoking and it would be reduced by any real effort at conservation.
The hundreds of millions of dollars that Chretien's government gave to its friends in the AdScam scandal increased the GDP, and so did the $100 million spent in a failed attempt to convict the men accused of the Air India bombing.
If we believe in the GDP Paul Bernardo should be a national hero. He raped at least 14 women in the Toronto suburb of Scarborough and kidnapped, raped, tortured and killed at least two teen-age girls in St. Catherines, but he increased our GDP because the police investigation of the rapes and kidnaps cost tens of millions of dollars. Medical and psychiatric treatment for other victims who survived his attention cost millions more and his trial and the media frenzy that accompanied it cost more millions. Bernardo is still contributing to our GDP because it costs us at least $50,000 a year to maintain a prisoner and, as a "special" case who needs protection from other prisoners, he costs even more. If the GDP is a valid measure, Paul Bernardo was and still is a very productive member of society.
On the other hand let's imagine that some mechanical genius were to invent a gizmo that would sell for $1.98 and make your car go twice as far on a gallon of gas. We would all save money and because we would burn less gas the air would be cleaner but, because the GDP would decrease, we would have to consider that genius to be a public enemy.
Obviously, the GDP is not a valid measure of our national welfare. The problem is that it counts only money but we consume physical goods -- food and clothing and housing and so-forth. For a true picture of the economy we need to separate two essentially distinct types of goods and services, which I distinguish as 'benefit' and 'cost' goods. I make no distinction between 'goods' and 'services,' and from now on when I use the term 'goods' it covers both.
Benefit goods are an absolute benefit, and the more we have of them the better. We may need cost goods, but we don't want too many of them.
Farm crops are an example of benefit goods. If we have just enough we get along but if we get a bumper crop and increase the supply, our cost of living will decrease. The services of lawyers and the operation of prisons are a examples of cost goods -- we may need them, but the more we get the more our cost of living will increase.
Production of cost goods can create wealth for an individual but it takes the production of benefit goods to create wealth for the nation, so to get a true picture of our national economy we have to count cost and benefit goods separately.[5]
Such an accounting would surprise a lot of people because while we consume a lot of physical goods, we don't produce many of them. Instead we import them from low-wage countries.
That's a problem because benefit goods are an economic benefit only to the producers. If we import them they are a cost, and the more we import the more our cost of living increases. Individuals can save money if the goods we import are cheaper than goods we make ourselves but when we import goods that we could make ourselves, the country as a whole loses.
We still have some branch-plant and component factories but even the goods we describe as exports may not actually be exports. Studies show that a considerable portion of Canada's manufactured "exports" are actually internal transfers of components from a branch plant in Canada to a factory in the United States. These exports are sold at cost by the branch plant and many of them are then re-imported to Canada, at much higher cost, as components of goods manufactured in the United States.
Statistics Canada reported this in an article in the Canadian Economic Observer in November of 1999.[6]
Exports make up about 40% of Canada's gross domestic product, the article says, but the import content of exports increased from 25.5% in 1987 to 32.3% in 1995.
Some goods contain more imports than others. Machinery and equipment including electronic goods and computers accounted for 9.8% of all Canadian "exports" in 1998, but nearly 50% of the content of these goods are actually re-exports which were manufactured somewhere else and imported into Canada, then integrated into 'Canadian' goods which we exported.
Apologists for the global market tell us that this is the way of the world and that everybody depends on the global market, but that's not so. The Economist magazine says exports and imports make up 82% of Canada's gross domestic product but only 21% of Japan's and 24% of the United States'. Most of the trade in developed countries is internal.[7]
Boosters of globalization say it "optimizes" production and allows global corporations to take full advantage of the "economies of scale" possible with giant factories, but that's bafflegab. In fact "economies of scale" for most industries are optimized in relatively small factories and many big companies have to spread their production over several factories to avoid the inefficiencies of large operations. The "economies of scale" that very big companies enjoy are related to marketing, not production, and a small company that can produce goods better and cheaper than a big one may not be able to sell them because the big company can blanket the market with advertising.
In the modern world a big company may not produce anything at all, because it can buy goods in one country and sell them in another. That's very profitable if you buy in poor countries, where wages are low, and sell in wealthy countries where prices are high.
But the global market is a threat to humanity for several reasons. One is that along with trade goods it spreads ecological damage, pests and disease around the world.
Ships in international waters are not subject to pollution controls and most of them burn the cheapest oil available. Cheap oil burns dirty and, according to one Reuters news story, ships in European waters produce 1.9 million tonnes of sulfur dioxide a year -- roughly equal to the production of 390 50-megawatt power stations.[8]
Ships spill oil too. Newspapers and television tell us about the rare occasions when a tanker goes aground but any powered ship that moves on the sea spills some oil, and ships that travel on their normal business spill more oil than tankers that go aground or break up. The United States Coast guard reports that in 1999 tanker ships spilled about 8,414 gallons of oil, tanker barges spilled 158,977 gallons and other ships spilled 409,084 gallons in US waters.[9] Writer Edward Tenner calculates that tanker accidents cause 12.5% of oil spills, about the same as marine seeps and sediment erosion, and that "normal" tanker operations cause about 25% of spills.[10]
Even if they did not spill oil, most ships poison the sea. In order to prevent the growth of barnacles and algae the 'anti-fouling' paint used on ships contains a poison called tributylin which is now found in fish, shellfish, marine birds and marine mammals around the world. We have to assume it must also be found in people who eat fish and shellfish.[11]
Poisoned seas may be a factor in the collapse of the world's fish stocks. In April of 2005 the international Governance of the High Seas Conference in St. John's Nfld. was told that 78% of the world's fish are in jeopardy, and may be unable to reproduce themselves.[12]
Ships that cross between continents also carry pests, and the more ships that cross the more chance that pests will cross. Many of them travel in the ballast.
Ships sail best when they are fully loaded and when a ship carries a light load, such as television sets or other consumer goods, it also loads tens of thousands of gallons of water to bring it up to its ideal weight. When it unloads the light goods and takes on a load of heavier freight, such as coal or wheat or anvils, it dumps the water so it won't be overloaded.
That's a special problem with tankers, which fill their tanks with water for the return trip and dump the water -- and hundreds of gallons of oil and all the life forms that have survived the trip -- when they refill.
There has always been a danger that ships would dump pests from another continent with their ballast water but that risk was multiplied as world trade increased, and multiplied again as ships sailed faster and the pests did not have to survive so long in ballast tanks. That's a problem because imported pests have no local predators and they may spread out of control.
When the St. Lawrence seaway was completed in the 1950s sea lampreys followed ships into the Great Lakes, where they wiped out the lake trout and other valuable species. The loss of the lake trout was not world-shaking but other alien fish followed the lampreys and the whole of the Great Lakes, once one of the world's great fisheries, is now threatened. Zebra mussels, native to the rivers that flow into the Black and the Aral Seas, threaten some local life forms and cost tens of millions of dollars a year to clear from water intakes and other underwater installations.
In the early 1980s a small European fish called the ruffe showed up near Duluth on Lake Superior. Within a couple of years it became the most abundant fish in the harbor. It has now spread to some Ontario river systems and it looks as though it will displace some native fish. Another European fish called the Round Goby showed up in Lake St. Clair in the early 1980s and had spread to Lake Ontario by 1999. It's small but very aggressive, it eats the eggs of other fish and it is expected to do serious harm to Great Lakes and inland fisheries.[13]
The global market is also a factor in the revival of slavery. Around the world tens of millions of third world children, some of them slaves, make clothes and toys for the children of the first world. We pretend we don't know about this and we believe that in the Nazi era most Germans did not know about the death camps. In fact people everywhere can shut their eyes to things they don't want to see.
Whether we admit it or not, the slave trade flourishes in the modern world.
A survey released in October of 1996 by the government of Pakistan and the International Labor Organization estimated that about 3.6 million children from five to 14 years old were working full-time in Pakistan alone.
According to a story in the Toronto Star, a skilled teen-age craftsman in Pakistan was paid one dollar to hand-sew a soccer ball that sold in Europe for $80. One European company planned to sell two million made-in-Pakistan soccer balls in 1997-98.[14]
In Bangladesh an estimated 80,000 children under 14 years old, most of them girls, work at least 60 hours a week in garment factories. In India an estimated 55 million children work, many of them as bonded laborers, under atrocious conditions. Former Indian chief justice P. M. Bhagwati has testified that he saw young boys working 14 to 20 hours a day. If they do not please their masters they are "beaten up, branded, with red hot iron rods and even hung from trees upside down."[15]
A UN survey estimates that there are 150 million child laborers in Asia, 80 million in Africa and 17.5 million in South America, Some of the children have been sold outright, others are "rented," for wages paid in advance to their parents or to labor contractors.[16]
An article in National Geographic magazine says that in the heyday of black slavery in the United States an adult male slave cost the equivalent of $40,000 in modern money, but child slaves now sell for an average of $35 each in India. The writer estimated that there were about 27 million slaves in the world in 2003. Many of them produce the products that we buy in Canadian stores.
And some slaves have other uses. The National Geographic article says a teen-aged East European girl, suitable for use as a sex slave or prostitute, costs about $1,000 in some Western European countries. It estimates that there are now about 27 million slaves in the world including 100,000 to 150,000 in the United States.[17]
That's just the count of illegal slaves and in some countries, including the United States, tens or hundreds of thousands of people are legally enslaved.
Prisoners in many areas have to work for their keep, and the modern trend is to turn prisons and reform schools over to private enterprise. According to a report in the Washington DC-based Counterpunch newsletter (Jan 1-15, 1997),there were more than 100 private prisons in the United States at the time of publication.
Inmates in these prisons were paid as little as 17 cents an hour to produce car parts, clothing, furniture and computer circuit boards for major US companies. The newsletter says one US company shut down a plant in Mexico to use the cheaper labor of San Quentin prison.
When private citizens control the freedom of other citizens and can make them work for little or no pay, it's slavery no matter what they call it.
Most of this slavery is supposed to have a term -- as the debt slavery of earlier years had a term -- but prisoners with life sentences will be slaves for life. Others may be too, because prisons can charge prisoners for offenses committed in prison and sentences can be extended. Is there any question that a private corporation that makes a profit from slaves may be tempted to keep them at work rather than release them?
Even when there is no direct economic benefit the legal system has been known to convict innocent men and send them to jail. When prisoners have a positive economic value we can expect to see more people imprisoned. Already, the Counterpunch newsletter says, some private prisons have been accused of refusing to offer time off for good behavior and even of losing the paperwork for prisoners who are supposed to be released on parole.[18]
The profit margin of slave labor may be one of the reasons that, with 4.6% of the world's population, the USA boasts more than 22% of the world's prisoners.[19] Author Jeremy Rifkin calculates that 2% of the potential male US work force is in jail. He says that countries in the European Union average 87 prisoners per 100,000 population, but the United States has 685 per 100,000.[20]
Business aims to make a profit, and the cheaper the workers the higher the profit. The quality of slave workmanship may be questionable but if goods are cheap enough, and backed with lots of advertising, they don't have to be well made or even well designed.
Many big stores would rather stock heavily-advertised goods than high-quality goods because heavily advertised goods are easier to sell and low-quality goods have to be replaced more often than high-quality goods.
Most of our stores are full of goods imported from third-world countries, and apologists for the global market tell us that when we buy goods from a third-world country we drive wages in that country up. That's bafflegab.
The myth suggests that third-world economies can duplicate the boom that swept the United States after 1914, when Henry Ford raised minimum wages in his factories from $2.07 to $5 a day. Many people thought he was crazy but Ford knew that if his workers had more money some would use it to buy cars. Others would buy houses, and provide work for house builders who could then afford to buy cars, and so-forth.
Ford's "$5 day" kicked off the American industrial boom that lasted until 1929. Modern pundits tell us that third-world economies will take off if we buy their goods, but that's wishful thinking.
Ford sold his cars in a domestic market, and the more money Americans made the more cars he could sell.
But the people who make down-filled jackets, snow boots and high-priced toys in southeast Asia will never buy those goods for themselves, and their employers know it. More, employers and governments know that buyers from the first world are always looking for a cheaper source and if wages in one country are allowed to increase, buyers will take their business elsewhere.
If they were selling goods in their own economies employers in the third-world would have good reason to pay their workers higher wages but, because they produce only for export, they have good reason to keep wages and benefits low.
The global market also gives us tragic levels of unemployment within Canada. The numbers are buried in a fog of misinformation but they can't be hidden completely. The official unemployment rate for men[[21] in December of 2000 was 7.8% but the official numbers count only people who "participate" in the labor market. People who give up and no longer look for work are not part of the "labor market" and therefore they are not unemployed. Students who can't find jobs after they finish school have never been employed, therefore they can never be unemployed. People who run out of unemployment benefits are dropped from the rolls, as though they had become employed. A study by the Canadian Labor Congress found that, on average, only 36% of unemployed Canadians receive benefits.[22]
Let's look at some other numbers and, at this point, we will look only at men. The numbers for women are also distressing but some women stay home to raise children and they may have good reason to be counted out of the wage-earning work force. Some men care for children too but most men who stay home are either wealthy, retired or unemployed.
Statistics Canada tells us that in December of 2000 only 66.8% of Canadian men had jobs. That means more than 33% did not have jobs. Some of those are retired but in December of 2000 only about 10.8% of Canadian men were over 65 years old. Some were wealthy and retired early but a study by Statistics Canada found that 27% of men who retire early live in poverty. They call it retirement, but in fact it's just hopeless unemployment.[23]
At least 15% of men who need jobs don't have them, and many of the people who are counted among the "employed" have only part-time jobs. In 1969 about 9.5% of working Canadians worked part time, but by 1996 the percentage had risen to 29.3%.[24]
If 15 or 20 percent of Canadians who want to work have no jobs at all and nearly 30% of those who are working have only part-time jobs, what is the real unemployment rate?
Let's take another look at 'official' unemployment and compare it with the CLC study. If the government lists 7.8% of men as 'unemployed' but only 36% of those who have no jobs get unemployment benefits, it follows that the real unemployment rate is 21.6%. That's not a hard figure, of course, but it's a lot closer to reality than 7.8%, and it seems to fit with the official numbers that only 66.8% have jobs and only 10.8% were over 65.
In the "great depression" of the 1930s unemployment hit 17.6% in 1932, peaked at 19.3% in 1933 and dropped to 9.1% in 1937.[25] Unemployment of adult men seldom hit the levels we now consider normal and, for all but two years of the depression, there was less overall unemployment than we have now.
Total employment now is higher than it was in the depression but that's partly because real wages now are so low that most members of most families have to work. Back in the 1930s most Canadians owned their own homes and even those who rented had gardens and could raise some of their own food. Most women did not have to work outside the home and students did not have to work their way through school. In the wonder-world of the modern economy some women and some teen-agers have exciting and well paid jobs, but the vast majority are glad to find low-paid drudgery.
Globalization has been good for some Canadians but it has been a disaster for most of us and for most of the rest of the world. Pundits tell us that the loss of Canadian industry is not important because we have passed through the industrial revolution and now have a 'post industrial' economy in which we can all work in 'knowledge industries' and leave the production of physical goods to the people of 'less developed' countries.' That's bafflegab. We consume physical goods -- food and clothing and cars and television sets -- and if we don't produce them ourselves we have to buy them from people who do.
All talk about a 'knowledge economy' is bafflegab because every industry since the beginning of time has been based on knowledge. Prehistoric hunters and gatherers needed knowledge to hunt and gather the food they ate, to avoid dangerous animals and to find shelter. In the Neolithic period men who made stone axes had to know where to find the best stone and how to work it, and traders had to know where the best axes were made and where they could be sold.
In ancient times knowledge really was worth something, because it could be kept secret. The Romans who paid fortunes for Chinese silk could not make their own because they thought silk grew on trees. Japanese and other Asians knew about silkworms but they did not know the secret of unwinding a cocoon without breaking the strand of silk. For hundreds of years Europeans thought steel was a rare and exotic metal from secret Asian mines, and they paid fortunes for swords and tools made of Damascus and other Arabic and Asian steel.
One of the most valuable bits of "knowledge" in human history was Abraham Darby's discovery, in 1709, that he could smelt iron with coke. Up to that time iron was smelted with charcoal and, because of that, was very expensive. Iron smelted with coke was so cheap that Darby was able to make iron pots to compete with brass. His discovery was one of the key developments that led to the industrial revolution.
Darby's "knowledge" was literally world shaking but it was valuable because Darby was able to use it to produce material goods.
Many of the old secrets were worth a king's ransom in their time and they were the foundations of monopolies. By contrast most of the "knowledge" that modern "knowledge industries" are based on is common to the world, and a "knowledge industry" in one country has no special advantage over an "industry" selling the same "knowledge" in another.
TAX HAVENS
For some Canadians, globalization is also a wonderful way to avoid taxes. If you make goods in Canada your profits may be taxable but if you buy or make them overseas you can hide the profits in a tax haven. Around the world more than 60 countries offer accommodation to big corporations that have nothing to do with the country but use it as a mailing address and a place to pay token taxes rather than the real taxes they owe to the countries where they actually operate.
When Paul Martin was Chretien's Minister of Finance a Commons committee urged the government to rethink its generous treatment of tax havens. In 1994, Martin took action.
"Certain Canadian corporations," he said in his budget speech, "are not paying an appropriate level of tax. Accordingly, we are taking measures to prevent companies from using foreign affiliates to avoid paying Canadian taxes which are otherwise due."
But Martin didn't shut down all the tax havens. He kept Barbados open and his own business, Canada Steamship Lines, -- which used to own five companies in the African nation of Liberia -- set up nine shell companies in Barbados, eight of them with "headquarters" at the same lawyer's office.[26]
According to a CBC News "Disclosure" program, Canadian companies have set up about 1,700 affiliates in Barbados. In the year 2000, these companies brought $1.5 billion tax-free dollars back home.
Martin is not the only Canadian to hide his money from Canadian tax collectors. A Statistics Canada report released in March of 2005 says that by 2003 Canadians had hidden about $88 billion in off-shore tax-havens, an increase of five fold since 1990.[27] An article in The Guardian,[28] cites an estimate by the US general accounting office that 61% of all US corporations paid no federal income tax in the late 90s. The article says tax havens contain only 1.2% of the world's population and 3% of the world's GDP but 26% of the assets and 31% of the profits of US multinationals are held there.
Mr. Martin shut down the tax havens he did not need for his own use but he left one open for himself and his friends. People who make their fortunes in Canada should pay taxes in Canada, and there is no acceptable alternative. Further, we might argue that people who move their capital out of Canada to avoid Canadian taxes should also move their citizenship to the country where they keep their money. They should not hold office in a Canadian government.
THE TOURIST INDUSTRY
As part of the 'post industrial economy' our governments spend millions to promote tourism, but that too is a loss for Canada.
It has been good for some parts of the world. One example is the east coast of the Yucatan peninsula, which is promoted as the 'Mayan Riviera.' Cancun, in particular, has gone from a village to a city of about a million people.
But the tourist trade on the Mayan Riviera has some notable advantages over Toronto or anywhere else in Canada. One is that the Yucatan has a winter climate that millions of people will spend thousands of dollars to enjoy, whereas Canada has a winter climate that many of us spend thousands of dollars to get away from.
Another difference is that hundreds of millions of people in North America and Europe earn three to five times as much as the average Mexican and when we go to Mexico accommodations and services are cheap, by our standards. If we persist in promotion of the Canadian tourist industry we may eventually get our wages down to a third or less of the American and European average, but I don't look forward to that.
Yet another difference is that most visitors to Mexico stay in Mexican hotels but most of the major hotels in Canada are owned or franchised by American chains and at least some of their profits are exported to the United States. Visitors to Mexico eat Mexican food, grown by Mexican farmers, but even native Canadians import much of their food from the United States and Mexico. Visitors to Mexico buy Mexican-made clothing and souvenirs but visitors to Canada buy Cuban cigars, Swiss watches, and other imports.
Conventional wisdom tells us that tourists bring money into the country but if they spend it on imported food and wine and other imported goods they do not support local production. On the other hand, the tourist industry sucks up capital that could be put to much better use.
It costs at least a million dollars to build a 25 room motel that provides minimum-wage jobs for four hotel clerks and three or four maids. That's over $100,000 per seasonal, minimum-wage job.
The same investment per job will open a small factory. Low-tech machine shops, which can pay top wages to skilled workers, can be opened for less than $50,000 per job. Machine shops have to find work, of course, but a high-tech shop can compete in the world market and even a low tech shop can pay high wages, and will find work as long as Canadian people use material goods.
But the most serious problem of the tourist business is that it is not dependable -- or perhaps we should say that it is too dependable. We know exactly when it will fail.
People travel for pleasure when they have money to spare, but travel is a luxury that is easy to give up. If we depend on the tourist industry we know that we will be among the first to lose and the last to recover from economic downturns in other countries. If the United States has problems, we will be hurt before Americans are.
Along with poverty the tourist industry brings other problems. International travel brought us the SARS scare of a few years ago and from time to time it has brought us malaria, yellow fever, cholera and other diseases. In little more than 100 years after Christopher Columbus reached the Americas, about 90% of the native population died of smallpox and other imported diseases.
It's too late to close our borders now and I don't suggest that. I do argue that we should be aware of the danger of imported disease and that it does not make sense to subsidize it. For political reasons we can't shut the tourist industry down, but we can stop the subsidies and demand that it pay its own way.
THE BENEFITS TAX
It takes production to build wealth, and home-based production to build real wealth. To develop that, we need to adjust some taxes.
First, we need to get rid of the GST. Civil servants like it because it creates mountains of paperwork but it's a disaster for the country because the paperwork is expensive and it gives foreign manufacturers and big operations an advantage over small Canadian manufacturers.
Offshore manufacturers gain an advantage because they don't have paperwork. Canadian manufacturers have to keep records of every tool and component they buy and calculate the GST on every transaction while the goods are in production. This is an expense for all Canadian companies but, because they deal in bigger numbers, the cost of the paperwork is relatively lower for big companies. Imports are taxed in Canada, but most offshore manufacturers don't have to worry about paperwork until the goods are sold.
The GST replaced the federal sales tax and it was supposed to be an improvement but in fact it was a disaster. We would be much better off with a single tax, payable when goods are sold at retail, and that tax should cover more than either the old federal sales tax or the GST.
They tell us we can't compete with more productive countries because our labor costs are too high but a considerable percentage of that "high labor cost" is not the cost of labor at all. Employee benefits make up about 23% of a Canadian manufacturer's total "labor cost" and paid time off for holidays, maternity leave and so-forth makes up another 15%. Together they add up to 38% of the total cost of labor.[29]
Manufacturers in some countries offer no benefits at all and, because their labor costs are much lower, Canadian manufacturers can't compete with them in the world market or even within Canada.
In the short term Canadian manufacturers can minimize their costs by making people work overtime rather than hire more staff. In the long term they can replace human workers with machines or they can move production to a country where workers do not receive benefits.
Any manufacturer can avoid the cost of benefits but we, as consumers, can not. If we don't pay them by buying Canadian goods we will pay them in unemployment benefits and welfare and, ultimately, in the cost of crime and police protection. One way or another, the piper will be paid.
So why not face the facts and pay the benefits when we buy the goods? I don't like point-of-sale taxes any more than anyone else does, but I don't like a bankrupt country either.
Suppose all the benefits that Canadian manufacturers now have to provide their employees were paid by government, out of revenue from a sales tax. The benefits would be essentially the same as now but instead of the cost being built into the production cost of Canadian-made goods, they would be spread over all the goods we buy.
This one change would do a lot to "level the playing field" between Canadian and third-world manufacturers. Because the benefits tax would not be collected on goods exported from Canada, it would make Canadian goods more competitive in world markets. Because it would be collected on imported goods sold in Canada, it would reduce the advantage now enjoyed by foreign producers who pay their employees no benefits. Because it would treat foreign and domestic goods the same, it could not be challenged by the World Trade Organization.
A benefits tax would also make it easier for Canadian companies to hire employees. Under the present system a company that needs a few extra hands may find it cheaper to pay overtime to existing staff than to hire extra employees, because of the cost of benefits and the problems associated with layoffs. If companies did not have to pay for employee benefits they would find it more practical to hire the people they need than to overwork the people they have.
Setting up a benefits tax system would present a few problems, but none that could not be overcome. The most serious one is that Canadians already resent sales taxes and the GST, and it would be very difficult for any government to impose another point-of-sale tax.
But that's just a matter of management. It's not the taxes we resent so much as the nuisance of having to calculate them and to pay them separately. We resent provincial sales taxes and the GST partly because we know that the price a store advertises is not the price that we have to pay, and because the add-ons continually remind us of taxes.
If the benefits tax is included in the sticker price of the goods it will be less nuisance. Then the government could take over all UI and health benefits, and holiday pay could be replaced by credits on individual income taxes.
Prices of Canadian-made goods would be reduced and prices of low-wage third-world goods would probably be increased but, unless the government uses the new system as an excuse to raise taxes, the overall cost of living should remain stable. We are not buying new services, after all, we're just paying for them in a more equitable way.
A competent government would find a way to administer point-of-sale taxes without creating a nightmare of paperwork for the public and a dream world of sinecures for civil servants. That sounds like a vain hope, but an aroused public could demand it.
This is the rational way to manage a social welfare system. It's easy for governments to prescribe benefits and to demand that private employers handle the paperwork but that is obviously inefficient. The benefits are prescribed by the government and in some cases they are actually paid by the government, so why not let the government handle social welfare and let private industry tend to its own business?
Somehow we've got to get the country working again, and we have to produce at least as much food and manufactured goods as we consume. I think the benefits tax would be a good start on this but it's a suggestion, not a doctrine, and there may be other options.
HOW BIG COMPANIES GET STARTED
If we're going to develop a strong economy we have to build it from the bottom up, not from the top down. Unfortunately our government, our banks and much of the population are under the illusion that big businesses are started by big businessmen, but that's not so.
Most of the big businesses that count in this world are started by tradesmen, and businessmen don't get involved until after the business is big. A businessman doesn't stand much chance of actually starting a business because he doesn't have the skills, or the attitude.
Let's consider the problems of Chauncey deSilverspoon, heir to the deSilverspoon billions and holder of an MBA degree. He wants to start a business and market research shows a real need for a new and improved squump.
Chauncey doesn't know much about squumps but he hires an engineer to design the best squump in the world. Because he wants to do it right he hires two engineers. One of them is the former chief engineer for the world's leading manufacturer of squumps, the other has never designed a squump before.
The experienced man designs a new squump that is essentially the same as the one his former employer makes. Because Chauncey wants a new one, and he wants it to be the best in the world, the designer adds some bells and whistles. The new man, who has no experience with squumps, checks into the literature and uses all the latest techniques to design a squump that is essentially the same as all the squumps already on the market.[30]
Chauncey has spent a small fortune on two designs but, since he doesn't know much about squumps, he can't judge between them. Since they're about the same anyway, he flips a coin to choose one to go to prototype.
Now he has to hire a machinist, a welder, a sheet metal worker and an electrician to build the prototype. Because they need precise plans to work from he has to pay the engineer to prepare them and, because it has to be right the first time, everybody does everything by the book.
Chauncey has spent a pile of money and he has a prototype squump that is essentially the same as every other squump in the world -- with the exception that his has so many bells and whistles that it's heavier, costs more and is more likely to break down than the others. Now to go into business he will have to build and equip a factory, hire machinists and all that stuff. It's going to cost millions, and poor Chauncey has very little chance of success.
Joe Blow, on the other hand, might be able to start something new. He started as an apprentice squump-wiggler ten years ago and is now an old pro. Because he's wiggled a lot of squumps he knows exactly how they break down, and he knows exactly which jobs they don't do as well as they might, and he's got some ideas about how they might be changed.
His break comes when the company he's working for decides to dump an old lathe, and Joe buys it. The lathe has to go because it's old and not as accurate as it could be, and modern industry demands tools that work fast and get it right the first time. Joe knows that if you take your time and work carefully the old lathe will still do as good a job as a new one, and he offers the company $1 more than the scrap dealer would pay for it.
Now Joe has a lathe and the remains of a Nadir brand squump that was not worth repairing. In the evening he makes some new parts for the old squump but, rather than follow the original pattern, he puts some of his own ideas into it.
Then he adds some more of his ideas and changes this and that. Because he's just fooling around and it doesn't cost much, he makes several different types of parts and he changes some parts that were not broken and he winds up with a new squump that is much better than the original.
When he shows it to his friends they like it and one, who needs a squump, buys it. Because people ask for them Joe makes another, and another and so-forth. By the time he's up to number ten his squumps are very much better than anything on the market and, with some friends to back him, he gets some more old machines and starts production, in his garage.
Eventually he might do as well as Soichiro Honda, the son of a blacksmith who left home at 15 to work in an auto repair shop. In 1946 he adapted some war-surplus small engines to power bicycles, in 1949 he made a motorcycle and in 1963 he made a car. Now the company he founded makes nearly three million cars and trucks a year plus an assortment of motorcycles, ATV's, outboard motors, lawn mowers, trimmers, generators, pumps, snow blowers and the motors that power dozens of other products.
Canadians might argue that Honda had an advantage because the Japanese government supports and helps to develop Japanese industry. That's true -- and wouldn't it be wonderful if, rather than try to attract foreigners to build branch plants, the Canadian government supported and helped to develop Canadian industry?
But even if he had government support Chauncey deSilverspoon could not do as well as Honda because he never learned to make things. He might buy the Nadir Squump Works and modernize the plant -- replacing most of the people with automatic machines -- or close it down and hire someone to make squumps in some other country, but he can't make a squump from scratch.
Chauncey can't even back Joe Blow because Chauncey doesn't know enough about squumps to be sure that Joe's is better. Instead he will hire an 'expert' who will compare Joe's squump with the Nadir, which is the industry standard. If Joe's is not exactly like the Nadir, there must be something wrong with it.
The expert may like Joe's better but, because he is an expert rather than just somebody who uses squumps, he can't afford to say so. If he calls it wrong Chauncey may sue, but if the expert's judgment is in line with conventional wisdom the suit will not go far.
Businessmen can run established companies but, in most cases, it takes someone with hands-on experience to develop anything new. In the mid 1970s Stephen Wozniak was a very junior engineer at Hewlett Packard and also a member of the Homebrew Computer Club in Cupertino, California. As a hobby he designed a new kind of computer with fewer chips than conventional models and, as a loyal employee, he offered it to Hewlett Packard. Because the company was not interested in the ideas of a junior engineer Wozniak teamed up with Stephen Jobs, another member of the club, to make the computer they called the Apple.
Clessie Cummins worked as a chauffeur before he founded the Cummins Engine Company, which makes diesel engines. After he retired he invented the "retarder" -- which is a such an improvement that virtually every big truck in North American has one.
The retarder fits onto a diesel engine but the businessmen who ran the Cummins Engine Company after Cummins retired thought they knew better than their founder. They refused to buy the idea, and Cummins finally had to sell it elsewhere.
The Jacobs Retarder, invented by Clessie Cummins but made by Jacobs Vehicle Systems Inc. and known to truckers as the 'Jake Brake,' is used by big trucks around the world. Jake Brakes are built into most Cummins truck engines, but the Cummins company has to buy them from Jacobs.
Most of the businesses that really count in this world were established by hands-on tradesmen rather than businessmen. Henry Ford built the first Ford car himself. If he had been a businessman, rather than a mechanic and tinkerer, we might never have heard of him. The Dodge Brothers were machinists who got into the car business by subcontracting parts for Ford and for the first Oldsmobiles and Walter Chrysler was a machinist who got into the car business when he left the American Locomotive Company to work for Buick. None of them had MBA degrees, and none were wealthy when they founded their companies.
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