Where do we go from here? We have a choice -- down or up. It would be easier to go down because that's the way we are heading, but at this point we still have the choice.
And we must make it soon because if we go much further, we will not be able to turn back. We are dangerously close to the brink of Hobson's spiral and, if we actually go over the edge, it will be very hard to get out.
If we do go into the spiral we will wind up as part of the third-world, with some people literally starving in the streets. Instead of 20,000 people living in Toronto's parks and ravines we will have hundreds of thousands living in the huge shack-town slums that are typical of third-world cities.
As in other third-world countries, some people will do very well. Even now, a Statistics Canada study released in March of 2001 shows that while poor Canadians made no gains in the 15 years from 1984 to 1999. the wealthiest 20% of Canadians gained about 40% in net worth. The media net worth of all 12.2 million Canadian families is about $81,000, but the poorest 10% of families have a median net worth of minus $2,100.
In years to come wealthy Canadians and the managers of foreign-owned corporations may live in fenced communities with armed guards to protect them from the homeless and the beggars. As the world Trade Organization gains political power the managers of major corporations may be immune to Canadian laws, as diplomats now have "diplomatic immunity," and they may not be required to pay Canadian taxes.
And as the value of the Canadian dollar falls the dollar count of the Gross Domestic Product will grow. Politicians will tell us with pride how well we are doing and economists will count the earnings of foreign-owned corporations, but ignore the fact that those earnings belong to investors who live in other countries. Most Canadians will have no jobs but "unemployment" will decline as more and more people lose their benefits. When the government adopts a new policy that counts only tax-paying citizens who live at fixed addresses, the official numbers for our average income will increase.
That's a grim scenario, but it is unfortunately realistic. If you find it hard to credit remember that most Canadians of the 1950's and 1960's would find it hard to believe the world we live in today. When I was young we knew that the future would be full to technical toys, but we did not expect the social breakdown and the misery.
And as I said before, we still have time to change the future. Federal and provincial governments will resist change because they do well with the present trend, but governments can be made to serve the will of the people.
We get the government we deserve and we got into the fix we're in now partly by not asking questions. If enough people ask the right questions, politicians will hear them. If those politicians want to be re-elected, they will respond.
The easy way to ask a question is to write a letter, and it's free because you don't need to stamp a letter to a member of parliament. Whether the MP actually reads the letter or not someone will, and if enough letters come in on the same subject the MP will hear about it.
If a politician talks about unemployment ask him how many Canadians actually have jobs, and ask him to explain the 35% or so who don't have jobs but are not unemployed. Ask him if he knows or cares how many Canadians are really unemployed.
If a politician speaks of an increase in the GDP write and ask him why, if the GDP is increasing, we have more poverty in the country. If he prates about "world economic conditions" ask him why, in a world where the standard of living in most industrialized countries is rising, our is falling.
When the banks announce their profits for the year write the Minister of Finance and the president of the bank. Ask them how much imagined money the bank created to buy existing Canadian assets, and how much this deflated the Canadian dollar.
Bug the media, too. Write letters or phone the editor of your newspaper and the news director of your local radio and TV stations. Some TV news shows have a phone-in comment line. Use it.
The editors won't answer your letters and they won't provide the figures, but if they get enough letters the reporters will get the message and they will pass it on to the civil servants and politicians they deal with.
If enough people write enough letters, governments will have to take notice, and there are some things governments can do.
The first step might be to develop a system of national accounts that actually shows us what is happening. The GDP, as we have seen, is worse than useless because it provides no useful information about the state of the country. It counts disasters as benefits and even now, after 20 years of falling average incomes, it still shows that Canadians are getting richer every year.
I won't try to work out the details of a new system myself but it would make a great hobby for an accountant. It would probably not pay off in cash but anyone who works out a system that is adopted for the national accounts can expect fame and, maybe, fortune.
Does that sound idealistic? Maybe, but at least one group of Americans is working hard to develop a new national accounting system for the United States. The organization called "Redefining Progress," based in Oakland California, proposes to replace the GDP with a measure which they call the "Genuine Progress Indicator", or GPI, which would include more than 20 aspects of the economy that the GDP ignores including the household and volunteer economy, crime, other defensive expenditures including the cost of air and water filters, repairs after accidents and so forth, distribution of income, resource depletion and degradation of the habitat, loss of leisure, and other factors.
The proposal is a good one but it ignores the distinction I make between economic activity that creates wealth and economic activity that merely circulates wealth. I think this is important to Canada, because we have fallen for the myth of the "post industrial economy".
Whatever the new system it will have to recognize and allow for the difference between positive and negative economic activity, between cost and benefit goods, between root, derived and imagined money, and between the multiplier and the cascade.
This would obviously be much more complex than the system we have now but it would also be much more useful. A national accounting system should also keep track of our capital assets. In earlier years most people assumed that the world was endless, and that we would never run out of resources, but now we know better.
It would be difficult to count all our national resources but we should try. No commercial organization would try to operate without an estimate of capital reserves and if Canadians knew the truth about our national reserves, we might see the need to take better care of them. We can't get an exact count of the oil and other minerals we have left but we can get a rough estimate and we can count our remaining farmland, forests and other vital resources. A capital accounting might also report on the state of roads, railways, waterways and manufacturing capacity.
Better accounting would not solve our problems but it would show us where they are, and that would help. Human beings are social animals, and the one reward that we all desire is social approval. If money is the standard and predation is approved, we must expect that many people will choose to be wealthy predators. If cost and benefit goods are identified as such we can expect more respect for people who produce (benefit goods. If predatory occupations are recognized as predatory -- and therefore anti-social -- we can hope that more people will choose productive careers.
The next step is to give Canadian producers of benefit goods a fighting chance in the marketplace and that's not as hard as it sounds. The World Trade Organization will not allow us to shelter Canadian industry with import quotas and protective tariffs but there is another way. WTO rules demand equal treatment for domestic products and imports, but any taxes charged on domestic products can also be charged on imports. That's our loophole.
Canadian manufacturers are at a disadvantage because they have high "labor costs," but many of those costs are not for 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."[1]
We all agree that labor should get benefits but maybe we should re-think the way we pay for them. Because we include them in the costs of Canadian manufacturers we make it difficult for them to compete in the world market, and even within Canada. In order to survive they must minimize or eliminate these costs.
In the short term Canadian manufacturers can minimize costs by making people work overtime rather than hire extra 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 accept reality 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 manufacturers now have to provide their employees were paid by the government out of revenue from a tax collected on all retail sales. The benefits would be essentially the same as now but instead of the cost being built into the production cost of Canadian-made goods, it would be financed by a tax on the retail sales of all goods.
This one change would nearly "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 eliminate the advantage now enjoyed foreign by producers who pay their employees no benefits.
This is not just a short-term patch. It's the rational way to manage a social welfare system. It's easy for governments to prescribe benefits and demand that private employers handle the paperwork but that system is obviously inefficient. The benefits are prescribed by the government and in some cases actually paid by the government, so why not let the government handle them? The rational way is to let the government handle social welfare, and let private industry tend to its own business.
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 employees often finds 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 benefits they would find it more practical to hire the people they need than to overwork the people they have.
Such a tax would present a few problems, but none that could not be handled. 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 pay them separately. We resent sales tax and GST partly because we know that the price the store advertises is not the price that we have to pay, and because the add-ons continually remind us of taxes.
If the benefit tax and the GST and the sales tax are all included in the sticker price of the goods they will be less nuisance.
Some retail prices would change. If companies that sell low-wage third-world goods want to maintain their profit margins their prices would have to rise, and prices of Canadian-made goods would be reduced.
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.
A retail benefits tax in Canada would also give low-wage countries a chance to develop their own economies.
They can not develop in today's world because most third world countries are locked into a neo-colonial system which discourages real development.
The third world needs help but we can't help it by using its people as cheap labor to produce luxuries for the first world. What the third world needs is to produce goods for its own use, and to pay its workers enough to buy them.
Remember that Henry Ford transformed the United States by doubling the minimum wage in his factories. The only way third world industries can sell to the first world is with cheap labor, but as long as they rely on cheap labor they will never be able to raise wages and they will never benefit from the Ford effect.
CONTROL THE BANKS
Aroused citizens could also demand that government change our banking system, and perhaps bring it under public control. The banks won't like that, of course, but when they create money they perform a function of government. If they perform a function of government, should they not be controlled by government?
Certainly, the public debt should be funded by a public bank. It's ridiculous that private banks have been allowed to create public money and then hold the country to ransom for interest on that money.
But whatever we do with national banks, we need local banks too. If the people of Elk's Elbow want their own bank they should have it, and it could be private or run by their local government as they choose. The local bank would be allowed to operate only in and around Elk's Elbow.
And whether banks are public or private, we can't allow the unrestricted creation of imagined money. Banks have to be able to create money to finance new ventures, but they must not be allowed to create imagined money to buy existing capital goods. As we have seen, that devalues all money.
Some businessmen want to buy and others want to sell existing businesses, and that's no problem if they do it with existing money. They could if we had savings banks, which would hold the savings of Canadians and pay interest on them. Such a bank would not be allowed to create imaginary money but it could cater to the needs of wheeler-dealer businessmen, and it would provide other Canadians a safe place to make a reasonable return on savings.
This would not benefit the booming mutual fund business but, since the funds appear to do more harm than good to the national economy, I do not see that as a problem.
As we have seen the stock market offers a venue for predatory economics but it could serve a useful function in society. If people understand that many gains on the stock market represent losses to the economy as a whole, stock traders may be encouraged to work for the long-term welfare of the economy rather than for short-term gains.
In a rational economy the primary function of a stock market would be to finance new, productive business. We might even consider formation of a new stock market, to deal only in the stocks of new companies that produce benefit goods. Because investment in such stocks would be potentially risky and because it would be beneficial to society, a rational government might forgive some taxes on profits from such stocks.
A rational government might also consider a punitive tax on predatory speculation. Such a tax would be vigorously opposed by speculators, of course, but there is no question that it is justified.
The law discriminates against theft, robbery and fraud because those activities harm the victims, and society itself. Speculation also harms the victims who have to pay inflated prices and it harms society itself because it debases our national currency.
We can't outlaw speculation because an honest investor may make speculative gains by accident, and because some futures traders have honest motives. If a company promises to deliver a product at an agreed price it must be able to guarantee the cost of raw materials, so futures trading is a legitimate part of some businesses.
If a company actually uses the goods it buys futures in, and if it buys futures only in quantities of goods it can use, there will be no speculative profit and no extra tax.
But predatory speculation is easy to recognize, and it can and should be taxed at a punitive level.
FUNCTIONAL SCHOOLING
A rational government would improve elementary schooling and might reduce funding for advanced schooling. Most business and professional education would include apprenticeships, which would combine school and practical experience in the real world.
One advantage of this system is that it would provide an automatic match of supply and demand. If there were no apprenticeships available for buggy-whip braiders, no school could offer a publicly-funded course in buggy-whip braiding.
The educational establishment insists that schooling is the key to prosperity, and that's true, in a way. The problem is that we are getting the wrong kind of education, and that for the most part our schools are a cost rather than a benefit to the economy.
We do need more education but we need technical education, and training, and we need education and training that are matched to the needs of the economy, not to the preferences of the schools and to dreams that most students will never realize.
REAL ENVIRONMENTAL PROTECTION
A rational government would also take real steps to protect the environment. Our governments now pretend to protect the environment with grants to groups that talk about environmental issues, but the time for talk is past. Now we need action, and we can get it with taxes.
We know that excess packaging, for example, is good for vendors but bad for society. Vendors like packaging because they can print advertising on it, but packaging uses materials that will some-day be in short supply and, when we throw it away, it increases the cash and environmental costs of garbage collection and disposal. A rational government would tax packaging, for the protection of the environment and because excess packaging increases the cost of public service.
Some packaging is necessary, but it could be returnable. Some American states mandate a deposit and return on soft drink bottles and cans, and such a system could be adopted in Canada and extended to other packaging. If delicate electronic goods require elaborate packaging, the packaging should be returnable to the vendor.
A rational government would also place a heavy tax on gasoline and diesel fuel. This would encourage people to conserve fuel, and the technological changes it would encourage would help our industry.
North America lags behind most of the developed world in fuel efficiency technology for housing and transportation, and we know the United States will be slow to change. We also know that change has to come and, if Canada changes before the United States, it could give our industry an immediate home market and an edge in the North American market of the future. If we don't change before the Americans, we risk being left out of the future.
For the same reasons our governments should increase stumpage charges on trees cut on public land, and royalties on oil and other minerals.
A NEW FEDERATION
Confederation is a touchy issue and reconfederation would be even touchier, but we need to talk about it. We need to consider it because the present boundaries of the provinces were drawn arbitrarily, by men who didn't know much about the country they were subdividing and who had no chance to know anything about the problems and opportunities of the 21st century. If we are going to tinker with the organization of the country -- and we should -- then we must also be willing to tinker with the size and even the number of provinces.
If northwestern Ontario wants to join Manitoba or to form a separate province, that's the right of the residents. If eastern BC has closer ties to Edmonton than to Victoria, it could become part of Alberta. If Montreal or the south shore of the St. Lawrence wants to join another province, or become a province in its own right, that's also fair.
If aboriginal people want lands of their own, distinct from the existing provinces or even from Canada, what right have we to deny them? Like most Canadians I like to think of the northern territories as "part of Canada" but most Canadians have never even seen the north. If we do not allow the people who live there to decide for themselves then we must consider ourselves to be conquerors, holding a subject people against their will.
And as new boundaries are drawn it must be understood that the goal is to create a confederation of provinces that can co-operate as they choose, but that can also make their own way. Left to manage its own affairs every area of Canada has proved that it can make its own way without help, and the goal of re-confederation would be to create a group of independently wealthy, co-operative provinces.
But they can be independently wealthy only if they are independent, and that means each level of government must collect its own taxes. The present system, in which the federal government collects far more taxes than it needs, guarantees a level of stupid waste that boggles the imagination.
Canada's federal government collected taxes from the people of North York, then offered to return some of the money to the city on condition that it not be used for any useful purpose. It was okay to build bocce courts because nobody needed them, but the federal money could not be used for anything useful. In a country with such a desperate need for useful investment, that's obscene.
A small federal government, maintained as a service bureau and meeting ground for the provinces, could perform a useful service. A large federal government is an exercise in stupidity, greed and waste.
The ultimate questions we have to answer are "what function do we want our economy to serve," and "what kind of country do we want to live in?"
Is the economy to serve our whole population over the long term, or a few people over a short term? Is it acceptable that we have beggars and $350,000 cars on the same streets, and that some people in our society have multi-million dollar yachts and private jet planes while tens of thousands of families have to beg food from food banks?
Alfred Marshall did not think so. "There is," he wrote, "no moral justification for extreme poverty side by side with great wealth."
It's ironic that his ideas have been twisted to justify the situation that he said could not be justified.
We're way off track now but there is another way, and we can take it if we choose. We pretend to be rational, and if we really were we could all live a lot better.
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