In every country in the world, public policy is rooted in the values of those who hold the power to shape it.
In authoritarian regimes, public policy is about social control. Its purpose is to maintain the political and economic power of a select few at the expense of the vast majority. The result is widespread inequality. Both poverty and wealth reach extreme levels, and many groups are systematically excluded from influencing the decisions that affect them.
Democracy arose as a direct challenge to authoritarianism. At its core, democracy is a belief in the equality of all people, regardless of their personal characteristics or station in life. This core value of democracy is symbolized by the equal right of citizens to participate in decisions that affect them, not just at the ballot box but in other important forums as well.
The second core value of democracy is the right of self-determination or, more simply, freedom. The democratic vision of equality means we want all citizens to achieve their potential, and it means we believe people need to have the capacity to decide for themselves how to do so. This freedom may be expressed in various ways, for example, as freedom of speech, freedom of assembly, or the freedom to buy and sell in the marketplace.
The relationship of democracy to the marketplace is important. Modern democratic ideas and institutions have evolved in relation to free-market capitalism for more than two centuries. And while neoclassical economic theory views the free market as a place where equal individuals engage in exchange that is always to their mutual benefit, history tells a more complex story.
Without question, capitalism is a stunningly effective means of generating wealth. But it is much less effective at distributing that wealth fairly. Indeed, unbridled capitalism shows a strong tendency to concentrate economic power in the hands of fewer and fewer people, i.e., employers and the owners of capital. This economic power easily translates into political power, through various means. Wealth buys influence.
The result is that government can become a tool of the powerful, not a means to empower all citizens. Left unchecked, an advanced capitalist society can thus come to share some of the characteristics of authoritarian regimes. This outcome runs counter to the democratic ideal of equality. It turns freedom into something that is available only to those who can afford to pay.
Democratic governments have long been aware of the problems associated with the concentration of wealth, and in certain eras have used laws and regulations to mitigate these problems. But since the late nineteenth century, the most important tool for governments to express democratic values has been public services.
Public services are services paid for by government and delivered by government or its agents. Public services may be universal, and provided equally to all citizens, or they may be targeted at groups or individuals. Either way, the overwhelming impact of public services is to reduce social and economic inequality and enhance the ability of all citizens to develop personally and participate fully in the life of society.
Whether through public education (“the great equalizer”), universal health care, or income supports for low-income people, public services guarantee at least a minimum standard of living, well-being, and opportunity for all citizens. This includes the opportunity to participate in the economy:
The transportation, water, and electricity systems governments have built with public funding are necessary to economic life – not many new businesses would start up if they were required to build their own roads to reach customers.
The public education which allows individuals to realize personal goals also benefits businesses directly by providing the skilled workers a modern economy needs; similarly, public health care is not only valuable to people and families, but also a significant subsidy to employers who would otherwise expect health care costs to be a very large addition to labour costs.
All life in society, including business, occurs inside a complex legal framework. Through the criminal and civil justice systems, public services ensure respect for human rights, the rule of law and equal treatment under the law, and the enforcement of property rights and contractual obligations. Our laws and courts are key pillars of both our democracy and our economy.
Of course, public services must be paid for, and the way we pay for them also affects economic inequality.
User fees for public services, such as post-secondary tuition fees, have a general tendency to increase economic inequality, for the simple reason that they are less affordable for those with less money. Taxes, which are by far the greatest source of funding for public services, can be either progressive (tending to reduce inequality) or regressive (tending to increase inequality) depending on how they are structured.
A society that pays for widely available, quality public services with a progressive tax system linked to ability to pay is one that is more equal, more inclusive, and more democratic than one with weak public services and a regressive tax system. It is no coincidence that every country in the world that has a strong democracy also has a strong public sector.
Ontario Families and Communities in a World Transformed
The global movement that began with “Occupy Wall Street” in September 2011 has drawn attention to the problem of inequality as never before. But “Occupy” has done much more than point out that the majority are growing ever poorer as the rich and the super-rich grow richer and richer. It has also highlighted the way governments increasingly serve the needs of global corporations while ignoring the needs of their own people, and it has deplored the anti-democratic way in which citizens are excluded from the conversations that transform their lives – usually for the worse. Perhaps most important of all, the movement has emphasized that this state of affairs is morally wrong.
Here in Canada, the effects of decades of expanding corporate rule are clear for all to see. In Ontario alone:
- 600,000 people who want paid work cannot find any;
- 1.7 million people live in poverty, including 400,000 children; and
- 152,000 individuals and families are on waiting lists for affordable housing.
It would be wrong, however, to suggest that the problem with Ontario today is simply that poverty is on the rise. Millions of people and families who consider themselves middle-class are struggling in a way they never thought they would have to.
In the three decades following World War Two, the productivity of Canadian workers grew steadily. The rewards for that increased productivity are well known. For 30 years, wages rose steadily, and during that same period governments created the public programs that provided greater security and opportunity for all citizens. Unemployment Insurance provided a safety net in times of precarious employment. Medicare relieved the fear that catastrophic illness could only end in poverty. Widespread and affordable colleges and universities ensured that the sons and daughters of working people could achieve their potential and find a prosperous niche in a growing economy.
But then, in the late 1970s, things began to change. Productivity continued to grow, but it no longer translated into broadly-based wage gains. Under increased pressure from international competition, the vast majority of workers saw their wages stagnate. In the 1990s, tax changes reduced the revenues available for public services. In Ontario, this led to widespread cuts to public services and skyrocketing user fees for those that remained. One result? Today, average undergraduate tuition at an Ontario university is more than $6,000 a year – the highest in Canada.
For most families, access to post-secondary education is not optional. To go without it is to close the door on a better life, and few families are willing to do that. Hence, the response of Canadians to the wage stagnation of the last 30+ years has been two-fold.
First, families are working more hours than ever. Where once it was possible – easy, even – to raise a family on one salary, most families today are finding that it takes two. Families without two wage-earners find themselves settling, regrettably, into low-income status. Reductions to public services like child-care, public transit, and long-term care only make it harder for families to get by.
The second way families are adapting to wage stagnation is by taking on more debt. Household debt is now running at 147% of household income in Canada. With these debt levels, many who see themselves as “middle class” are really just one job loss or interest-rate hike away from serious financial difficulty.
It is not by chance that people in the “Occupy” movement said they were speaking on behalf of “the 99 per cent.” Wage stagnation, cuts to public services, and higher user fees are not just affecting the very poor. These sweeping changes to the way society is organized are being felt not only by families, but by entire communities across Canada and around the world.
The Issue of Tax Fairness
But while the crisis continues in the homes and on the streets of cities and towns across the country, Canada’s corporate elite has never been richer. In 2009, after the great recession, the average income of Canada’s Top 100 CEOs was more than $6 million a year, 155 times that of the average worker. By mid-year 2011, Canada’s corporate sector was sitting on some $520 billion in cash which it was refusing to invest in productive activities to employ Canadian workers – or any workers anywhere, for that matter.
This evident crisis should have signalled a turning point, but the response of both business and government has been to make the crisis worse. In the depths of the 2008-09 recession, the Ontario Chamber of Commerce demanded – and promptly received – a 28 per cent cut in the provincial corporate income tax rate. (The $2.4 billion a year the government will spend on this tax cut is equal to $500 a month for every child growing up in poverty in Ontario.)
Meanwhile, CEOs and other high-income Canadians have ways of avoiding or reducing taxes on income that are not available to the 99 per cent. For example, much of the income of high-income earners comes in the form of capital gains. This income is still money – there is no other word for it – but capital gains are taxed at a much lower rate than regular income. The impact on inequality of this policy is significant: The last time the federal government reduced the tax rate on capital gains, one economist called it the most regressive tax change in Canadian history!
Similarly, the use of offshore tax havens by large corporations and high-income Canadians is only starting to be understood. Billions of dollars in earnings that should be taxed in this country are not being taxed here.
Of course, the most unequal tax changes in recent decades may simply have been the reduction in the number of personal income tax brackets in Canada and the reduction in the rate paid in each bracket. Broad-based income tax cuts, which have dominated public policy at the federal and provincial levels for close to two decades now, always tilt the balance in favour of high-income earners, for the straightforward reason that they make more money than their lower-income fellow citizens. The same percentage tax reduction provides more money, in absolute terms, to high-income earners than to lower-income earners.
Tax cuts come at a cost to government. They create intense pressure to cut public services and thus weaken our attempts to create a more egalitarian society. If reducing inequality expresses the democratic values we hold dear, then the time for a broad re-examination of our taxation system is long overdue.
The Drummond Commission
In 2011, the Government of Ontario announced that it had appointed a Commission to review the province’s public services and propose cost-cutting measures. The Commission, headed by former TD Bank Chief Economist Don Drummond, has done its work quietly, not actively seeking input from those who will be affected by its decisions.
Despite the evident wealth in the province and in the country, the Drummond Commission has not been asked to recommend revenue-raising opportunities in the form of higher taxes on high-income individuals or profitable corporations – even though such measures would have the double impact of paying off the province’s budget deficit and reducing inequality at the same time. For example, Mr. Drummond’s mandate forbids him to recommend the implementation of a Financial Transactions Tax (sometimes known as a “Robin Hood Tax”). This tiny tax on trades in stocks, bonds, derivatives, and currency would curb speculative trades while at the same time raising billions to meet public priorities. Not coincidentally, it would also reduce income inequality, as those who do most of the trading of this nature are either corporations themselves or else high-income individuals. Unfortunately, Mr. Drummond cannot consider it.
By all accounts, he is most likely to consider: 1) the wholesale elimination of some public services; 2) incremental budget cuts for other public services, over a period of several years; and 3) increased private sector involvement in the provision of public services.
Business leaders and many politicians in Canada have argued vociferously for privatization, contracting out, “public-private partnerships,” and “alternative service delivery” of public services for more than last 30 years. Regardless of the model used, the basic argument is as follows: Because the private sector is governed by competitive pressures, which in turn drive productivity improvements, private companies can provide the same quality service as governments or their non-profit agents, but at a lower cost.
If private delivery of public services worked the same way in practice as it does in theory, it is likely that the public sector in Canada would be much smaller than it is today. This is not the case, for several reasons:
Part of the competitive advantage of government-run public services is that government is large and can achieve economies of scale that few companies can. For example, the administrative cost of Canadian public health care, with a single payer per province, is tiny compared to the administrative cost of U.S. health care, where thousands of companies each run their own administrative systems as they compete for customers.
Because of their size, governments can borrow money for large projects at significantly lower rates of interest than even the largest corporations. For example, the Ontario auditor general’s examination of costs for the private-public partnership that built the William Osler Health Centre in Brampton showed the private company paid much higher rates of interest than the Ontario government would have paid had the hospital been constructed using more traditional public-sector practices.
The nature of competitive bidding means companies are under pressure to submit the lowest price possible to deliver a given service or project. This pressure often results in cost over-runs which government ends up paying.
There is no mark-up on public services. In the private sector, earning a profit is the raison d’etre of every business. The definition of an acceptable profit level for running a public service can easily reach the 10 to 20 per cent range. The need to turn a profit frequently means private companies strictly limit the service they provide for the payment received from government.
Private companies are less likely to take a systemic approach to the service they provide, preferring instead to meet the terms of their contracts but no more. The Walkerton water disaster of May 2000 provides one example of how this can go wrong. When water testing labs were privatized, private labs were no longer required to report test results to municipalities. Under the public system, this was done as a matter of course, as the paramount purpose of the testing was to protect public health, not to earn a profit.
The absence of market pressures does not mean governments are not under pressure to control costs. Public demands for value for money, combined with politicians’ need to win elections, provide just as much impetus for cost containment as market forces. In addition, the scrutiny is greater in the public sector. Unlike in the private sector, where most day-to-day decisions are shielded from public view, government delivery of public services is under continuous observation by elected parliamentarians, professional press galleries, and a wide variety of independent public officials serving as auditors general, parliamentary budget officers, commissioners, and ombudspersons.
Given these realities, citizens often find themselves dissatisfied with the results of privatization, as drivers in southern Ontario witnessed with the privatization of Highway 407. That highway, constructed with public dollars, was handed over to a private consortium with a 99-year lease and highly favourable terms. The predictable result has been rising tolls for drivers ever since.
Of course, this type of wholesale privatization also has an impact on equality. In cases where government simply ceases to provide a service and the private sector steps in, it is the individual who pays. This effectively eliminates the service for those who cannot afford to pay.
The record shows: By putting private profit before service to the public, private sector delivery of public services often fails to deliver what it promises. Government can compete effectively with private service providers, and in a way that ensures democratic control and hence greater accountability for service level and cost.
Valid arguments in opposition to private sector delivery do not stop it from happening, of course. Governments looking for a magic cure to budget deficits are often swayed in the other direction – often by companies seeking investment opportunities in the public sector.
Recognizing this fact, the Public Services Foundation of Canada calls on all governments considering private delivery of public services to recognize that democracy demands accountability. When privatization or contracting out of a public service is contemplated, it should not be done without consultation with all interested parties, and it should not be done without demonstrable evidence that it will lead to improved service.
Further, the decision to privatize or contract out a service should not be made without a full and public review by an independent and mutually agreed upon review agency or individual who will ensure a full cost-benefit analysis, including a broad assessment of the social and economic impacts of the privatization or contracting-out.
As part of its analysis, the review agency or individual should assess the likely impact of the privatization or contracting out on social and economic inequality.
The Fairness Test
The Public Service Foundation of Canada believes that, after so many decades of rising inequality, it is time to shift the focus of policy-making in this country towards reducing inequality. This means subjecting every measure proposed by government at every level to a simple question: Does this measure – whether it is a change to public services, public service delivery methods, user fees, or taxes – increase inequality or decrease it? If it does, it is worthy of consideration; if not, it must be rejected. It is our belief that this simple “fairness test” can be a guiding light on the path to a more equal – and hence more democratic – Canada.
But a fairness test on its own is not enough to bring about the society we want. To do that, we need to begin a transformation. We need to move away from the kind of representative democracy that offers citizens a chance to influence the future only once every four years – through an electoral system in which the winner doesn’t even represent the majority – towards a more participatory system in which the design of public services and the system that pays for them is in the hands of citizens and influenced by them on an ongoing basis.
Building the Conversation in Our Homes and Communities
As part of our contribution to that future, the Public Services Foundation of Canada will host a series of public hearings and town hall meetings in communities across the province throughout the month of January 2012. Following the meetings, we will produce a report for distribution to citizens across the province and for presentation to our elected representatives at Queen’s Park.
We believe it is time for an adult conversation about public services and taxes in this province. But unlike the narrow focus of the Drummond Commission, our Commission on Quality Public Services and Tax Fairness has a broad mandate. We want to hear what Ontarians have to say on a wide range of issues:
- What needs are going unmet in this province that the provincial government has a moral obligation to tackle now, deficit or no deficit?
- Are existing public services receiving the investment they need?
- How do public services work to reduce inequality?
- What public service delivery methods are likely to enhance social and economic equality? What delivery methods are likely to reduce equality?
- What existing user fees are making inequality worse?
- What changes to the tax system would be the most effective at reducing income inequality?
- What options, other than taxes or user fees, could enhance government’s ability to raise money for public services, e.g., are there ways to enhance income from government enterprises, either existing or new?
- What approach to paying off the provincial deficit would do the most to protect families and communities from the loss of vital services and the resulting increase in inequality?
- What is the role of public investment in economic development in Ontario? Should this role be expanded, and if so, how?
- What changes to the way democracy works in Ontario would give citizens a greater say in the decisions government makes?
The Commission on Quality Public Services and Tax Fairness will only succeed with the enthusiastic participation of citizens from communities across this province. We look forward to hearing your views.
About the Foundation
The Public Services Foundation of Canada (PSFC) is a national research and advocacy organization dedicated to defending and promoting the value of high‐quality public services.
The PSFC seeks to foster an understanding of the role of public services in supporting families and communities. Key activities of the foundation include:
conducting rigorous research and analysis of public policy issues;
providing access to commentaries and popular education tools;
speaking with a strong and credible voice in the mainstream media and social networks; and
coordinating advocacy campaigns to convince citizens and governments of the value of strengthening and expanding quality public services.
Our Board of Directors
The PSFC Board of Directors consists of five eminent Canadians with rich experience and diverse perspectives on government, the public sector, and public services in Canada.
Judy Wasylycia‐Leis, former Manitoba Cabinet Minister and Member of Parliament;
Alex Himelfarb, former Clerk of the Privy Council of Canada and current Director of the Glendon School of Public and International Affairs at York University;
Neil Brooks, tax law expert and professor at Osgoode Hall Law School at York University;
Duncan Cameron, adjunct professor of political science at Simon Fraser University, a director of the Karl Polanyi Institute of Political Economy at Concordia University, and a research fellow of the Centre for Global Political Economy at Simon Fraser University;
James Clancy, National President, National Union of Public and General Employees.
For more information
To learn more about the Public Services Foundation of Canada, please visit our website at www.publicservicesfoundation.ca or join the conversation on quality public services on Facebook at http://www.facebook.com/PublicServicesFoundation. To contact us:
Send an e-mail to: info@publicservicesfoundation.ca
Telephone us at: 1‐866‐836‐9570
Mail or visit at: 15 Auriga Dr., Ottawa, Ontario, K2E 1B7