debt relief is only the first step - fraser institute...debt relief is only the first step by andrew...

Debt Relief is Only the First Step

by Andrew Maloney

�s long as significant portions ofthe world remain in abject poverty,the world will never be secure, nomatter how much money is spent onnational security or the war on ter-rorism. As his Holiness Pope JohnPaul II once said, “If you wantpeace, work for justice.” Yet despitesolid economic growth throughoutthe developed world over the pasttwo decades, it is clear that not ev-eryone is benefiting, especially inmany low-income countries whereper capita income remains below$875 (US) (Gautam, 2003). Accord-

ing to the International MonetaryFund (IMF), total external debt inthe developing world reached $2 tril-lion in 2000; in the 42 most heavilyindebted poor countries (HIPC)alone, external debt rose from $60billion in 1985 to $200 billion in2000, accounting for over 103 per-cent of GDP (IMF, 2000). Withmany of these countries paying only40 percent of their debt service bythe late 1990s, the situation reacheda crisis point.

As the IMF and World Bank be-gan to realize the extent of the prob-

lem, they focused their attention awayfrom “debt rescheduling” towards“debt sustainability.” The product ofthis new thinking is the HIPC Initia-tive, which seeks to achieve debtsustainability by reducing the ratio ofdebt-to-GDP in these nations below 50percent, and debt-to-exports below

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Inside...

Debt Relief is Only theFirst Step (continued) . . . . . . . 3

Cup o’ Injustice: Fair TradeCoffee Not as Fair asYou Think . . . . . . . . . . . . . . . . 4

La gauche et l’éducation :une parfaite symbiose! . . . . . . 5

Why Defend BourgeoisValues? . . . . . . . . . . . . . . . . . . . 8

Things Folks Knowthat Just Ain’t So … . . . . . . . . . 9

What Is Not Seen . . . . . . . . . . . 11

Welcome!

Welcome to the summer issue of Canadian Student Review. Is there a debateon your campus regarding fair trade vs. free trade coffee? Read what stu-dent author Chris Schafer has to say about that topic. Also in this issue: thefacts about job security in Canada, and student opinions on debt relief forthird world nations, what is not seen, and education and organized labour.

We would like to thank the Lotte & John Hecht Memorial Foundation,whose generous support enables The Fraser Institute to publish CSR anddistribute it to students on campuses across the country.

—Vanessa Schneider, Editor

Vol. 13, No. 2Summer 2004

2 Canadian StudentReview Summer 2004

Canadian Student Review is publishedby The Fraser Institute. The views con-tained within are strictly those of theauthors.

Editor . . . . . . Vanessa Schneider

Contributing EditorsJason Clemens; Mark Mullins; Fred

McMahon; Patrick Leblanc, MontrealEconomic Institute

Production . . . . Kristin McCahon

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Copyright © 2004; The Fraser Institute.Date of Issue: Summer 2004.Printed in Canada.ISSN 1192–490X (print edition)ISSN 1707-116X (online edition)

The Fraser Institute is an independentCanadian economic and social researchand educational organization. It has as itsobjective the redirection of public atten-tion to the role of competitive markets inproviding for the well-being of Canadi-ans. Where markets work, the Institute’sinterest lies in trying to discover pros-pects for improvement. Where marketsdo not work, its interest lies in finding thereasons. Where competitive marketshave been replaced by government con-trol, the interest of the Institute lies indocumenting objectively the nature ofthe improvement or deterioration result-ing from government intervention. TheFraser Institute is a national, federallychartered non-profit organization fi-nanced by the sale of its publications andthe contributions of its members, founda-tions, and other supporters.

About the authors

Paul Beaudry is a law student at the University of Montreal andis presently a summer intern with the Leader of the Opposition’soffice in the House of Commons.Paul Beaudry est un étudiant en droit à l’Université de Montréalet est présentement un stagiaire d’été au Cabinet du chef del’opposition à la Chambre des Communes.

Marc-André Brisson is a Mathematics & Economics student at the Universitéde Montréal. He attended the Fraser Institute’s student seminar in Montréal inFebruary, 2004. This summer, Marc-André is working in Rustico, PEI,co-ordinating the Acadian Festival.

Keith Godin completed his BA in Economics at Simon FraserUniversity in Burnaby, BC, in Spring 2003. He plans to pursue aMaster’s degree in Economics. In November, Keith joined TheFraser Institute as an intern in the Fiscal Studies Department,working on a survey of Labour Market regulation.

Andrew Maloney is a third-year business student from Torontoattending Saint Francis University in Pennsylvania. He is cur-rently the editor-in-chief of the university newspaper, the Trouba-dour, and interns at the Small Business Development Center inLoretto, PA. This spring he published a baseball fiction novelthrough Trafford entitled End of a Dynasty. Andrew also competesin track and field at the Division I level, earning All-NEC,All-East, and Academic All-American honors in 2003.

Fazil Mihlar has been a member of the Vancouver Sun’s edito-rial board since October 1999. He is now the deputy editorialpages editor and columnist at the paper. He holds a BA in Eco-nomics from Simon Fraser University, an M.A. in Public Admin-istration from Carleton University, and a Marketing Diplomafrom the Chartered Institute of Marketing in London, England.

Chris Schafer will obtain a law degree from Osgoode Hall LawSchool in Toronto, Ontario, in 2005. He holds a BA in PoliticalScience from Wilfrid Laurier University, and an MA in PoliticalScience from the University of Western Ontario. Chris was a Fra-ser Institute student intern for three consecutive summers(2000-2002). This summer, he is working with Gowling LafleurHenderson LLP in their Advocacy Department in Ottawa.

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150 percent (Gautam, 2003). As oflast fall, $31 billion in debt relief hadalready been committed to countriescompleting the HIPC Initiative pro-gram, on average lowering theirdebt-to-GDP ratios to 50 percent anddebt-to-export from 274 to 214 per-cent (Geithner and Nankani, 2003).Clearly there has been significantprogress made, with more debt reliefstill to come.

Yet is it enough? Many at the IMFand World Bank ascribe to the “debtoverhang” hypothesis that high debtservice impedes economic growth bycrowding out vital public expendi-tures and precluding social reforms(Gautam, 2003). In this respect, theHIPC Initiative has succeeded in re-moving these obstacles. In themid-1990s, debt service in thesecountries accounted for a greatershare of public spending than healthand education combined; today,these two sectors are four timesgreater than debt service payments(Geithner and Nankani, 2003).

The experiences of three HIPCnations, however, contradict the effi-cacy of these “savings.” In Honduras,spending by the Secretariat of Educa-tion has risen 36 percent since re-ceiving interim debt relief without anappreciable change in quality of edu-cation, since the majority of the cashinflows were swallowed up by raisesfor teachers (Gautam, 2003). In Guy-ana and Senegal, each country hasencountered severe difficulties imple-menting the privatization reformsmandated by the World Bank. EvenUganda, the first country to completethe HIPC program in May 2000, hasseen its economy deteriorate in thefour years since it has received aidand the World Bank no longer con-

siders it “debt sustainable” (JubileeResearch, 2003). Clearly, debt reliefis not a panacea for the problems ofthe Third World.

While some may quibble aboutwhether too much or too little reliefhas been committed to date, the factremains that even with completedebt relief, several fundamentalproblems remain unaddressed.These problems include a relianceon volatile commodity markets, lim-ited foreign and domestic invest-ment, and an infrastructure debt thathas not been taken into the overalldebt calculation. Although HIPC na-tions were required to reinvest thesavings from reduced debt serviceinto social programs and economicreforms, the experiences in Hondu-ras, Guyana, Senegal, and Ugandademonstrate that efficacy is not al-ways guaranteed. There is little stop-ping these countries and many othersfrom slipping back into unsustain-able debt.

The lesson from this is that debtrelief is not the only step to easingpoverty. Any program aimed atachieving poverty reduction “needsto focus on trade and aid, not justdebt relief” (Birdsall and Williamson,2002). This is especially true sincethe IMF and World Bank optimisti-cally projected export growth in theHIPC nations to reach 9.3 percentfrom 2000 to 2002, when in fact itwas only 5.1 percent (Jubilee Re-search, 2003). Since the debtsustainability targets set by the IMFand World Bank require significanteconomic growth to accompany debtrelief, creating institutional capacitiesin these countries to facilitate thisgrowth is vital. Yet, according toMadhur Gautam of the World Bank,

the lack of institutional capacity inmany of these countries that helpedcreate the crisis in the first place hasnot been addressed and “remain[s] adesign shortcoming” (Gautam,2003).

Many social activists have calledfor complete forgiveness of ThirdWorld debt and less multilateral in-terference. Quite apart from theenormous financial outlay thatwould be required for “complete”forgiveness (not to mention the dan-gerous precedent of a multilateralbank allowing countries to default onloans), many of the fundamentalproblems facing these economieswould still remain unaddressed.Clearly, debt relief is a necessarycomponent of a thorough poverty re-duction strategy, but without ad-dressing the structural challengesfacing each of these countries, debtrelief alone solves nothing. In this re-gard, the progress made by theHIPC Initiative is only the first step.

ReferencesBirdsall, Nancy and John Williamson

(2002). Delivering on Debt Relief. Wash-ington: Institute for InternationalEconomics.

Gautam, Madhur (2003). Debt Relief for thePoorest. Washington: World BankOperations Evaluation Department.

Geithner, Timothy and Gobind Nankani(2003). HIPC Initiative: Status of Imple-mentation. World Bank (Sept). Avail-able digitally at www.worldbank.org.hipc.

International Monetary Fund (2000). Logicof Debt Relief to Poorest Countries (Sep-tember). Available digitally atwww.imf.org/external/np/exr/ib/2000/092300.htm.

Jubilee Research (2004). What is the HIPCInitiative? (April 7). Available digi-tally at www.jubileeplus.org/hipc/what_is_hipc.htm. �

Canadian StudentReview Summer 2004 3

Cup o’ Injustice: Fair Trade CoffeeNot as Fair as You Think

by Chris Schafer

� trial concerning fair trade cof-fee is currently percolating in thecafeteria at Osgoode Hall LawSchool.1 According to Susan Berry,a member of the Osgoode Legal Ac-tivists Association, if the results ofthe fair trade coffee trial continue tobe favourable, the cafeteria willmake a full switch to such coffee. Assomeone who prefers his coffee sup-plied on a free trade basis ratherthan on a supposedly “fair trade”basis, I urge you to avoid consum-ing the Mountainview Estates Cof-fee Company product. Let meexplain why.Advocates of fair tradecoffee often argue that globalizationand free trade are responsible formany of the world’s ills, includingpoverty, environmental degrada-tion, and low wages, to name just afew. Although such advocates areidealistic and motivated by good in-tentions, they are also uninformedand misguided. To the extent thatsuch advocates are able to restraintrade through their activism, theywill indirectly harm the hope of mil-lions of people, which rests on theextension of economic freedom.

Free trade enables people to pro-duce more as a result of specializa-tion and division of labour. Tradealso promotes the transfer of techno-logical improvements in productionthat drive productivity gains and eco-nomic progress. All this enables citi-zens of each country to focus theirefforts in areas where they have acomparative advantage, and as a re-

sult, produce and consume at higherlevels. Moreover, the indirect benefitof free trade is the “Golden Straight-jacket” it places on governments.This constraint reduces their abilityto maintain costly regulations, cor-rupt government practices, andcounterproductive economic poli-cies, since capital flows towardscountries that offer more attractiveinstitutional environments for wealthcreation.

If that is not reason enough tochampion free trade and consumefree trade coffees, then the strongrelationship between trade open-ness and different indicators of eco-nomic well-being should be. Whena country pursues a more openeconomy, including freer trade,higher incomes and standards ofliving result. But don’t take myword for it, check out the Eco-nomic Freedom of the World infor-mation at www.freetheworld.com.

The Legal Activists Associationat Osgoode will undoubtedly con-tinue to complain about the plightof the poor, even though livingstandards for all income groups arerising in trading nations and fallingin nations that restrict trade. Freetrade is not the cause of economicproblems. It is an absolutely essen-tial part of the opportunity to endproblems around the world. So,please do your part and continue todrink free trade coffees at Osgoodeand elsewhere.

Note1This article was originally published inThe Obiter, Osgoode Hall Law School,January 19, 2004. �


Free Trade

versus

Fair Trade

“Free traders believe the best

way to alleviate poverty in

the long run is to permit

freer trade while fair traders

think that opening trade

even further would entrench

trends of rich nations becom-

ing richer and poor nations

becoming poorer. Fair trad-

ers think global prosperity

cannot forget to include the

immediate needs of those

in the least well off group,

while free traders regard

such targeting as potentially

dangerous.”

—Jeffrey Eisenberg, from“Free Trade Versus Fair Trade” athttp://www.aworldconnected.org/article.php/560.html.

La gauche et l’éducation : une parfaite symbiose!

par Paul Beaudry

�ver the past few months in Quebecthere have been many protests againstJean Charest’s “right-wing” Liberal gov-ernment. Because the Charest governmenthas wanted to institute modest reformsthat would slightly diminish the power ofQuebec’s labour unions, the unions havereacted loudly by organizing major pro-tests across the province. To hear a unionleader speak about politics is to be leftwith the impression that Quebec’s work-ers are starving and living in miserableconditions because of laissez-faire capital-ism and a lack of regulation in the labourmarket. CSR readers will probably reactby saying: “How could he say that? Que-bec is paralyzed by labour unions; it is themost taxed jurisdiction in North Americaand the province where governmentwastes hundreds of millions of dollars peryear in corporate welfare!” And youwould be right! Unfortunately, the labourunion intelligentsia seems to be completelydisconnected from reality, lacking anyknowledge of basic economics.

Why do so many people in Quebec be-lieve all the nonsense that labour unionspromote? Responsibility lies with Que-bec’s education system. Regrettably, thevast majority of intellectuals in Quebeccolleges and universities are promotingnot social change, but the status quo,which is defined by heavy state interven-tion in the economy and by omnipotentlabour unions. It is tougher to find apro-market professor in a Quebec univer-sity than to find WMDs in Iraq! Nowa-days, every political science or sociologystudent has read Noam Chomsky or KarlMarx, but do not have a clue who Lud-wig von Mises and Hayek (Friedrich, notSalma) are.

The only way to foster economic andpolitical progress in Quebec is to get gov-ernment out of education. Governmenthas an incentive to promote the status quoand what better way to do it than to con-trol education! If Quebec really wants tobecome a free society, i.e., a society wherefree enterprise flourishes, where unionleaders are not cuddling up to politicians,and where workers can lift a finger with-out being taxed, it will have to reform itseducation system.

�e premier dimanche de mars, jeme dirigeais vers l’hôtel Delta aucentre-ville de Montréal pour assisterau débat entre les candidats au lead-ership du Parti conservateur. Étantlégèrement en retard, je fus fortincommodé par l’apparition d’unelumière rouge au coin du boulevardRené Lévesque. Je n’étais pas aubout de mes peines… voilà qu’unehorde de femmes brandissant desaffiches de la CSN, du Partiquébécois, de la FTQ et d’autresgroupes d’intérêt envahirent la voieen traversant la rue, limitant dumême coup le droit desautomobilistes de profiter du feuvert. Le soir, en revenant à la mai-son, j’appris que ces femmes étaient

présentes pour participer à une man-ifestation féministe/syndicalistecontre la pauvreté, la violence faiteaux femmes, la hausse des frais degarderie, le manque d’équitésalariale, Jean Charest, le patronat etprobablement George W. Bush…Comme d’habitude, les médias ontpris d’assaut l’événement et nous ontfait croire que « les femmes du Qué-bec » étaient en colère et que legouvernement du Québec ignoraitles besoins des mèresmonoparentales, des enseignantes,des infirmières, …

C’est toujours la mêmeritournelle… quand un grouped’énervés (ou d’énervées) syndiquésdécide de bloquer une artère du cen-tre-ville de Montréal pour faire unefête champêtre avec de bellesaffiches et des costumes dénotant unmanque de goût certain, les médiasquébécois n’hésitent pas à affirmerque les énergumènes rassemblésexpriment la volonté populaire. À encroire les chefs syndicaux, il sembleque le Québec soit une terre oùrègne le capitalisme sauvage, oùl’intervention de l’État est quasimentinexistante et où les ouvriersmeurent de faim. « Pardon? », medirez vous, « le Québec est la prov-ince la plus paralysée par les


Letters to the EditorSend your feedback on this issue of Canadian Student Review to the Editor at:

4th Floor, 1770 Burrard Street, Vancouver, BC, Canada V6J 3G7We will print the best letters in future editions of CSR.

syndicats, la province la plus taxéeen Amérique du Nord, la provinceoù le gouvernement investitrégulièrement des centaines de mil-lions de dollars dans des compagniesen faillite afin d’avoir l’appui dessyndicats aux prochaines élections ».Et vous serez dans le vrai!Malheureusement, votre voix ne serapas entendue du gouvernementparce que vous n’avez pas lesmoyens de bloquer une ruemontréalaise et de gaspiller unejournée de votre vie à faire lebouffon en scandant « So-So-So,Solidarité! » à tue-tête.

Malheureusement, l’emprise dessyndicats sur une grande partie de lapopulation québécoise est encoreforte : l’ « establishment »universitaire québécois (ou l’onforme déjà la relève syndicale)s’assure de créer un renouvellementde la caste syndicale québécoise. Lesprofesseurs de science politique, derelations industrielles, de manage-ment et de sociologie semblentapprendre à leurs étudiants que lessyndicats constituent les seulsorganismes capables de sauvegarderla justice sociale au Québec. Àpreuve, j’ai assisté, il y a quelquesmois, à une « conférence » donnéepar l’ancien président de la CSN, letrès articulé Marc Laviolette. Avantd’entamer sa conférence, M.Laviolette demande s’il y a desétudiants en économie dans

l’amphithéâtre : silence dans la salle.« Bon, c’est mieux comme ça », dit-il.Son discours m’a révélé la raisond’être de sa question : une profondeincompréhension de notionséconomiques des plus élémentairess’en dégageait. Ses dénonciations dulibre-échange, de l’économie demarché, du patronat et ducapitalisme trahissaient une profondeméconnaissance du fonctionnementde l’économie. Aucun étudiant enéconomie n’aurait pu écouter sondiscours sans être porté au fou rirepar une ignorance si grotesque. À magrande surprise, Laviolette futlonguement ovationné après sondiscours. J’ai cru un moment que jeme trouvais à une réuniond’ATTAC-Québec… mais non,c’était bel et bien une conférenceorganisée par le département de rela-tions industrielles.

Il est regrettable que la plupart desuniversités d’Amérique du Nord, etplus particulièrement leursdépartements de sciences sociales,soient dominés par des gauchistes.La mainmise des sociaux-démocrateset des étatistes de toutes sortes sur lesétablissements d’éducation québécoisexplique le peu de changement dansla vie politique québécoise. Dans laplupart de nos institutionsd’éducation, l’on apprend quel’intervention étatique est nécessairepour remédier aux « lacunes dumarché », aux « inégalités sociales »,

à la domination des riches dans lasociété, ainsi qu’à une multituded’autres maux sociaux. Aussiétonnant que cela puisse paraître,l’université la plus favorable au libremarché et au capitalisme enAmérique n’est pas située au Can-ada, ni aux États-Unis : elle est situéeau Guatemala. L’Université Fran-cisco Marroquin fut fondée en 1971par des hommes d’affairesguatémaltèques qui voulaient offrirune alternative au monopoleidéologique des socialistes desuniversités publiques. FranciscoMarroquin est une université privéeà but non-lucratif : elle ne reçoitaucun argent gouvernemental. Elleest donc mieux protégée despressions politiques et idéologiquesprovenant des politiciens et desintellectuels étatistes. Tous lesétudiants, peu importe leur disciplinedoivent obligatoirement prendredeux cours introductifs dès leurentrée à l’université, « Philosophiede Hayek » et « Philosophie deMises », qui les introduisent auxprincipes économiques etphilosophiques du libéralismeclassique. En guise de parenthèse,Hayek et Mises sont deux des plusbrillants économistes et philosophespolitiques du 20e siècle.Malheureusement, ils sont assezméconnus dans les départements desciences sociales du Québec, lesprofesseurs leur préférant Chomskyet Marx…

Si l’on veut contrer la propagationde l’étatisme dans les universitésquébécoises, il ne faut pas se fier ausystème d’éducation public qui, depar sa nature, a tout intérêt à ce quel’État demeure interventionniste etcontinue à s’immiscer dans la vie descitoyens. Les leaders québécoisdésirant soustraire leur société à


Correction

In our last issue, the article “Thanks to C-24, Do We Have a CanadianPolitical Cartel?” incorrectly stated that state subsidies of political parties re-quire that they receive 10 percent of the national vote. In fact, according tos.435.01 (1) a of the updated Canada Elections Act, the requirement is only2 percent.

l’état d’immobilisme politique qui yrègne se doivent de créer desétablissements d’éducation privésfavorables au libre-marché, aucapitalisme et à un État minimal. Lesréformes du système d’éducationpublique québécois ne changeront

nullement le climat politique de laprovince. Seule la privatisation semontrera à la hauteur de cette tâche.La multiplication d’universitésprivées, telles Francisco Marroquin,s’avère la seule voix de revalorisationde la liberté individuelle au Québec

et dans le monde. La seule chose quenous pouvons attendre du systèmed’éducation actuel est la perpé-tuation du statu quo social-démocrate qui paralyse le Québecdepuis la Révolution tranquille. �


Fraser Institute ExecutiveDirector Michael Walkervisits with student FrédérickRousseau from Laval Uni-versity at the recent StudentLeaders Colloquium inVancouver.

Student programs alumni and Calgary West MPRob Anders (right) with University of Albertastudent Kevin Kurtz, at the Calgary student semi-nar held in January.

Why Defend Bourgeois Values?

by Fazil Mihlar

�ith all the high-profile corpo-rate scandals today, bourgeois orcapitalist values have largely been re-duced to a single slogan—greed. Butthere is much more to bourgeois val-ues than just greed.

Professor Deirdre McCloskey ofthe University of Illinois in an articletitled “Bourgeois Virtue,” argues thatthose in the middle class who believein capitalist values shouldn’t allowthemselves to be defined as amoralbrutes. I cannot but agree.

She points out that Adam Smith,the father of modern capitalism, knewfull well that capitalist societies “couldnot flourish without the virtues oftrustworthiness or bourgeois pride.”

While Smith’s The Wealth of Nationsis the book read widely by econo-mists, McCloskey points out correctlythat his other book, The Theory ofMoral Sentiments, is more important ifanyone really wants to understandthe underpinnings of capitalism. Init, Smith talks about “love, not greed;esteem, not venality.”

Yet, in The Wealth of Nations, Smithtalked about how capitalists are bynature greedy and selfish. An unin-tended side-effect of this pursuit ofmaterial wealth, he argued, providesfood, clothing and shelter to mostpeople.

In the 20th century, the most artic-ulate and popular defender of thisview of capitalism was Ayn Rand,the philosopher. In her book, TheVirtues of Selfishness: A Concept of Egoism,Rand argued that selfishness is avirtue because selfish people inno-

vate and create things, allowing us tolive good lives.

So naturally, many people seecapitalism and, by extension, capital-ists, as greedy and selfish creatures,intent on exploiting everybody theycan, including their mothers. Andnow they simply point to the big cor-porate scandals to make their case.

But as as Dinesh D’Souza, a fellowat the Hoover Institution at StanfordUniversity correctly points out,“Capitalism civilizes greed, just asmarriage civilizes lust.” Precisely be-cause of that, I would argue that avast majority of corporate executivesbehave ethically.

They do so because they take manyof the bourgeois values to heart. Sowhat are they? They include: enter-prise, integrity, honesty, trustworthi-ness, respect, responsibility, prudence,thrift, charity, affection and humourto mention a few. And the growth ofthe market—where buyers and sellersmeet to exchange wares for a price—promotes virtuous, not venal behav-iour, argues McCloskey.

She illustrates this point by way ofan example. In 1055, Abun benZedaka of Jerusalem was accused ofembezzling money from a Mghribitrader. When the news reached otherMghribi merchants, businessmen infar-flung places such as Sicily didn’ttrade with Abun ben Zedaka anymore. How’s that for keeping busi-nessmen honest?

Likewise, most tradesmen whodo a lousy job in Vancouver can’tget away with it and thrive. So aplumber or roofer has to internalize

the bourgeois values of integrity andhonesty. They have to because bour-geois society indulges in a lot of talk,and “talk defines business reputation.”

And even if a capitalist is greedy,he cannot use violence to get some-thing; there has to be mutual agree-ment between a buyer and seller.Professor McCloskey offers the ex-ample of Donald Trump. She con-cedes that Trump is an offensive man,which is clear to anyone who haswatched his program The Apprentice.

But the fact remains that Trumpdidn’t use force or steal his millionsby raiding his neighbours with a gunin his hands. What he did was buythe Commodore Hotel in New YorkCity at a relatively low price and sellit at a much higher price to a volun-tary buyer. Then he built condosand hotels that people wanted to livein and made handsome profits. SoTrump did well by doing good deeds.

And Trump and countless othercapitalists have been very charitable.And charity, too, is a bourgeois value.

Bourgeois virtues—charity, enter-prise, responsibility, respect, honestyand integrity among others—are whatmake communities in North Amer-ica work.

However much critics would loveto point to greed as the only bour-geois value, it’s up to capitalists toexplain that there is a lot more tocapitalism. The fate of capitalismrests on a robust defence. �


This article is copyright the PacificNewspaper Group and is reprinted here withpermission. It originally appeared in theVancouver Sun on March 29, 2004.

Things Folks Know that Just Ain’t So…

by Keith M. Godin

What they know…Job security has decreased in Canadaover the last two decades, particu-larly in large and often profitablefirms.

Why it ain’t so…Empirical evidence from StatisticsCanada tells a much different story.Despite some high-profile media re-ports of corporate downsizing, per-manent lay-off rates1 in Canada didnot increase from 1983 to 1999. Infact, since the latter half of the 1990s,permanent lay-off rates have contin-ued to decline. What is more, largerfirms have lower lay-off rates thansmall- or medium-sized firms.

Whether or not permanent lay-offrates increase over time has impor-tant implications for Canadians. Ingeneral, higher lay-off rates contrib-ute to a family’s financial uncer-tainty, which may generateinstability and disrupt the pattern ofconsumption and savings. Higherlay-off rates may also increase theneed for retraining—a cost that maybe borne by the individual and/orgovernment. Finally, higher lay-offrates may affect family retirement in-come, as some companies have de-fined-benefit registered pensionplans whose benefits cannot be trans-ferred to other plans elsewhere in theeconomy (Morissette, 2004).

Figure 1 shows the permanent lay-off rate in Canada from 1983 to1999. In spite of a slight increasefrom 1990 to 1992, the overall trend

has been decreasing over time. Thepermanent lay-off rate was 7.7 per-cent in 1983, 5.9 percent in 1989,and 5.7 percent in 1999.

Permanent lay-off rates also de-crease with firm size. Figure 2 shows

that despite the slight increase inlay-off rates during the economicdownturn between 1990 and 1992,there still exists a consistent 2- to3-percentage-point differential be-tween each category of firm size. For


5

6

7

8

9

1983 1985 1987 1989 1991 1993 1995 1997 1999

Perm

anen

tLay

-off

Rat

e(p

erce

nt)

Source: Morissette, 2004.

Figure 1: Permanent Lay-off Rates in Canada, 1983-1999

0

2

4

6

8

10

12

14

16

1983 1985 1987 1989 1991 1993 1995 1997 1999

Perm

anen

tLay

-off

Rat

e(p

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nt) 500+ Employees 100-499 Employees

20-99 Employees 1-19 Employees

Figure 2: Permanent Lay-off Rates in Canada,by Firm Size, 1983-1999


the last five years of the study (1995to 1999), the average permanent lay-off rate in a small firm (1-19 employ-ees) was 10.6 percent versus 2.8 per-cent in a large firm (500+employees). The same pattern holdsfor small to medium firms (20-99 em-ployees) and medium to large firms(100-499 employees). Their averagepermanent lay-off rates for the pe-riod 1995 to 1999 were 8.1 percentand 5.9 percent, respectively.

Another question that the StatisticsCanada report addressed was relatedto specific population demographics.Did any group find that their perma-nent lay-offs increased? Morissette(2004) noted that only men aged 55to 64 and women aged 35 to 44 ex-perienced increases of half a percentor more between 1989 and 1999. Noother group showed a sizeable in-crease. Men aged 15 to 24 actuallyexperienced a decrease in the risk ofjob loss by about 1 percent.

Another important finding fromthe Morissette study is the differencein permanent lay-off rates acrossprovinces. Newfoundland, PrinceEdward Island, and New Brunswickhave significantly higher rates thanthe rest of Canada. Average perma-nent lay-off rates for those threeprovinces from 1989 to 1999 were16.2 percent, 13.2 percent, and 11.7percent, respectively. In contrast,Ontario, with an average permanent

lay-off rate of 4.7 percent from 1989to 1999, had significantly lowerlay-off rates than the rest of Canada(see table 1).

ConclusionThe good news in the midst of all

the negative press regarding corpo-rate downsizing and decreasing jobsecurity is that the empirical evi-dence shows otherwise. Permanentlay-off rates have continued to de-cline and job security in large firms isas safe as ever.

Notes1Permanent lay-offs are those where theseparated worker does not return to thesame employer in the same or followingyear. The permanent lay-off rate is calcu-lated by dividing permanent lay-offs bytotal person-jobs in the year.

ReferencesMorissette, René (2004). Have Permanent

Layoff Rates Increased in Canada? Cat.No.: 11F0019MIE. No. 218. Ottawa:Statistics Canada. �


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Table 1: Permanent Lay-off Rates By Province,1983-1999

1983 1985 1987 1989 1991 1993 1995 1997 1999

NF 16.1 17.2 16.9 15.8 17.0 17.2 14.0 14.8 18.0

PE 12.2 12.4 11.8 12.2 12.7 12.0 12.3 14.9 14.3

NS 8.7 9.1 8.4 8.2 8.7 8.7 8.9 8.4 8.7

NB 12.0 11.8 11.7 11.4 11.9 12.4 11.8 11.8 11.2

QC 8.5 8.3 7.6 7.3 8.3 7.7 7.5 8.0 6.5

ON 5.6 4.8 4.1 3.9 5.5 4.9 4.6 4.7 3.9

MB 5.4 5.1 5.0 4.4 5.2 5.3 4.7 4.5 4.4

SK 6.6 6.1 6.6 5.7 6.5 6.3 5.8 5.5 5.5

AB 9.9 7.5 7.2 6.1 7.1 7.3 6.9 5.6 5.9

BC 9.4 9.1 8.2 7.2 8.3 7.8 7.7 7.4 6.7


What Is Not Seen

by Marc-André Brisson

�uring every election, all partiesmake many promises, many ofwhich involve government spendingon a variety of programs. Once agovernment is elected, some prom-ises are kept and others are not.While the purpose of making prom-ises is to win elections, we, as voters,should never forget that promisescost money and sometimes sacrificeshave to be made to fulfil them. Thatis, sometimes the scope of promisedprograms has to be reduced forthem to be affordable, andsometimes taxes have to beraised or other programs cut topay for new programs.

For example, in Quebec’sprovincial election campaign,Jean Charest’s Liberal partypromised to reduce taxes andincrease the budgets for educa-tion and health without goinginto deficit. In order to fulfilthis promise, other budgetswere frozen and some were cut.

During election campaigns,however, no politicians admitto the negative side of theirpromises. So it is our duty, asvoters, to remember a phrase coinedby French economist FrédéricBastiat: “what is not seen.” Weshould never forget that money does-n’t grow on trees; everything has acost, even if we don’t see it.

One way to describe taxation andpublic policy is to paraphrase Frenchchemist Lavoisier: “nothing is cre-ated, nothing is lost, everything isjust transferred.” When we tax work-ers and transfer the money to other

people who are in need, we are notcreating wealth, we are just transfer-ring the benefit of the work to otherswho choose not to work, or don’thave the chance to do so. Lavoisier’stheory does not correlate perfectlywith economics, however, because ifthe transfers are high enough, theoutcome is not limited just to a trans-fer of wealth. High transfers can ac-tually limit economic growth in twoways.

First, high transfers discourageworkers from earning more money,because they will be punished forthose higher earnings by beingobliged to pay more tax. When USPresident Reagan and British PrimeMinister Thatcher were heads oftheir respective countries, they re-duced the tax rate for higher salariedearners. As a result, the economicgrowth rate in each country in-creased. Even though the state was

collecting a smaller percentage of thehighest incomes, it actually collectedmore money due to a growing taxbase.

Second, high transfers don’t en-courage people in undesirable situa-tions to modify their behaviour. Forexample, in 2002, a couple with twochildren living in Quebec would ob-tain more money and benefits fromgovernment transfers than theywould earn if one of them wereworking at a job with an annual sal-ary below $16,000 (Kelly-Gagnon,2004). This means that many coupleswith children are better off stayingon social welfare than working atlow-income jobs because working isnot as lucrative for them as notworking. Of course someone work-ing—even at minimum wages—ismore advantageous to society as awhole than if they are living on wel-fare because taxpayers are stuck fi-nancing the entire social welfareprogram, and receive no productivereturn for the money spent.

As voters, therefore, it is impor-tant to never forget that the choiceswe make have consequences andthere is always scarcity. Any party inpower must battle with the classic di-lemma of economics: how can we al-locate limited resources to satisfy ourunlimited needs?

ReferenceKelly-Gagnon, Michel (2004). Le Piège de

la Pauvreté. Les Affaires. (May 8): 14.Available digitally at http://www.iedm.org/chronique/gagnon81_fr.html. �


While the purpose ofmaking promises is to win

elections, we, as voters,should never forget thatpromises cost money and

sometimes sacrifices have tobe made to fulfil them...everything has a cost,even if we don’t see it.

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MARIJUANA GROWTH IN BRITISH COLUMBIA

By Stephen T. Easton.. Public Policy Sources, no. 74; © 2004; $5.00

This paper raises several issues that have the cumulative effect of suggesting that in the long term,the prohibition on marijuana cannot be sustained with the present technology of production andenforcement. To anyone with even a passing acquaintance with modern history, it is apparentthat we are reliving the experience of alcohol prohibition of the early years of the last century.

HOW GOOD IS CANADIAN HEALTH CARE? 2004 REPORTBy Nadeem Esmail and Michael Walker with Sabrina Yeudall. Critical Issues Bulletin; © 2004; $12.95This study compares Canada to other OECD countries that guarantee access to health care regard-less of ability to pay. Twelve indicators of access to health care and outcomes from the health careprocess are examined including access to physicians, access to high-tech medical equipment, andkey health outcomes. Many of the countries examined produce superior outcomes in health careand at a lower cost than Canada. Among industrialized countries, only Canada outlaws a privateparallel health care system for its citizens.

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